There are members of the boards of trustees of nonprofit organizations who would like to lessen, even eliminate, the fundraising responsibility that comes with their position. Doing so is not wise, but that has not stopped some boards from establishing other bodies that are then charged with all or some of the fundraising responsibilities that would normally fall to them. In general, this is bad practice, bad policy, and a failure of responsibility. However, there are exceptions.
The responsibility for fundraising for a nonprofit organization lies primarily, if not wholly, with its board of trustees. The smaller the organization, the more the board needs to be actively involved with all aspects of fundraising, and large size alone doesn’t let a board off the hook when it comes to its fundraising responsibilities. Even if an organization has a substantial and highly professional development staff, the board at a minimum has to accept and carry out fundraising responsibilities in five areas:
- Oversee all fundraising policies, practices, and activities to assure that they meet legal requirements and follow accepted accounting principles.
- Oversee all fundraising policies, practices, and activities to assure that they are in alignment with the organization’s vision, values, and mission.
- Make gifts in keeping with their ability to give.
- Request gifts from peer-group prospective donors.
- Recruit additional volunteer leadership for fundraising campaigns.
Not all members of a board are equally capable of delivering in an impactful way in all those areas, and no one realistically expects that to be the case. A board made up solely of rich and eager givers may seem like a dream come true to many harried development professionals, but it would not be in the best interest of their organizations. Most nonprofit boards are comprised of persons able to provide expertise and commitment that differ based on the individuality of its members, and that’s a good thing. We call it diversity.
Legitimate Reasons Why a Board Can’t Fundraise
A problem arises, when for reasons beyond the control of a board, it is unable to carry out the responsibilities delineated in points 3, 4 and 5. How can that be, you ask. Isn’t fundraising a primary responsibility of board members? In most instances yes, but I can think of two scenarios when a board, due to requirements of composition and selection, would be prevented from or severely constricted in its ability to fundraise:
- Trustees are required by law or an organization’s charter to be appointed by other legal bodies or are elected by the populace.
- Trustees are required by an organization’s charter to be persons in leadership positions of other nonprofit organizations.
In both these instances we are assuming there is no option available for additional trustees who are selected in a different manner. In the first instance trustees would in all likelihood have been assured that they will not be expected to take an active part in fundraising. In the second board members would understandably find it awkward to actively fundraise for the organization because of the fundraising responsibilities inherent in their leadership of another nonprofit organization. Conflicts of interest could arise or appear to be present.
At the moment, I can’t think of another justifiable reason for a board of trustees avoiding its responsibility to be the principal group within an organization concerned with fundraising. Sure there is the development department, if it exists, and the CEO of the organization, but fundraising must fall under the oversight and governance of the board. And the board, barring the circumstances described above must take active responsibility for procuring gifts and assuring ongoing contributed income needed to offset operating losses.
When the Board Legitimately Can’t Fundraise
Even if the board of an organization is constricted in its ability to actively fundraise as described in the two scenarios above, it still must provide oversight of how the organization reaches out to donors. Part of that oversight involves determining who will fill the active fundraising role traditionally occupied by the board of trustees. Some organizations are tempted to imbue a development committee with a higher order of power and responsibility and then attempt to recruit to it people of a caliber who would normally be asked to sit on the board itself. At first glance this seems like a workable alternative. But human nature gets in the way.
There is truth in the old adage that nobody is as powerful an advocate for an organization’s fundraising efforts as a board member. It’s true at least in part because persons who accept a position on the board, feel a greater responsibility to an organization than if they serve on a committee. They’ve put more of their own reputation on the line.
An organization wants to get the highest caliber volunteer leadership possible when it comes to fundraising. The best people expect to be offered the strongest positions. After all, part of their willingness to perform as volunteers has to do with the contacts they make and the opportunities they encounter to support their own personal and business growth. And there is of course status. It looks better on your resume to have been on the board of XYZ organization than to have served on its development committee.
A development committee trying to function as a board would in fundraising is sometimes given a fancy name that includes the word board, such as Fundraising Board of the XYZ Institution. No one is fooled. No matter what you call the group it is still a development committee. Service on it does not carry the prestige and clout of board membership.
A better solution is the establishment of a supporting organization with 509(a)(3) status. Before we get into this any deeper a disclaimer: I am not a lawyer, nor have I played one on TV. What follows is a lay description of aspects of the 509(a)(3) rule as best I understand them. It should be assumed to contain misunderstanding on my part and is not intended as advice. Before suggesting this as a possible course of action for a nonprofit organization, go to an attorney who specializes in this area for an explanation upon which you can legally rely.
All 501(c)(3) organizations at the time they are established receive a ruling as to their 509 status. Basically this ruling determines whether they are public charities or private foundations. It impacts the level of tax exemption for donations made to them. There is more, but this is not the place to go into it, and as I said, I am not a lawyer. Suffice it to say that most 501(c)(3) organizations are awarded either 509(a)(1) or 509(a)(2) status.
Nonprofit organizations that meet the 501(c)(3) criteria, but exist to support other nonprofits are awarded 509(a)(3) status, and are called Supporting Organizations. (The 501 and 509 references are underlined to help avoid confusion.)
Wikipedia describes a Supporting Organization in the United States as “…a public charity created by the U.S. Internal Revenue Code in 26 USCA 509(a)(3). A supporting organization either makes grants to, or performs the operations of, a public charity similar to a private foundation. However, unlike donations to a private foundation, donations to a supporting organization garner the same higher deduction rate as donations to public charities.” Follow the Wikipedia link above for more detail and links to the relevant IRS code.
A Supporting Organization as defined under 509(a)(3) that exists solely for the support of a single 501(c)(3) organization can have a number of different relationships to the organization it supports. Most usually it is controlled by the organization being supported.
Since a Supporting Organization will have its own board, the benefit of establishing a controlled Supporting Organization when the board of a nonprofit is constricted in its ability to fundraise should be obvious. Members of the board of the Supporting Organization are free to execute the three aspects of active fundraising responsibility that the board of the original organization may find itself legally or operationally unable to carry out:
- Make gifts in keeping with their ability to give.
- Request gifts from peer-group prospective donors.
- Recruit additional volunteer leadership for fundraising campaigns.
Remember, we’re talking here about a board of trustees that is legally required to be appointed by a third party, or to be elected by the populace, or that by charter is required to be made up of individuals occupying leadership positions in other nonprofits.
As trustees of the Supporting Organization, they are able to operate with all the status and clout of a board member, because that’s what they are–board members. And that means they will have been recruited with the status of being a board member as part of the deal. Sure sounds like a winning situation all the way around, and it can be. However problems can arise.
Supporting Organization Problems Can Arise
There is danger inherent in the creation of a Supporting Organization because the goals of the now two organizations can fall out of alignment. Even if every trustee of the supported organization is also a member of the Supporting Organization’s board, to be an effective fundraising board the external trustees of the Supporting Organization would in all likelihood outnumber them. After all what is the sense in replicating the same problem with the Supporting Organization’s board that existed on the original board.
What’s so bad about that you ask. Well, let’s think about mission. The mission of the Supporting Organization is likely to be totally about fundraising. It’s board as a whole is not involved in the governance, policy, and management issues that are likely to impact the thinking and actions of the original board. The Supporting Organization’s sole mission is to acquire contributed income. Its board members measure their success individually and as a group by how successfully they carry out that mission.
In all likelihood, the board or a Supporting Organization will hire professionals to develop and manage its fundraising campaigns. These professionals will measure their success and career development on how successful they are in acquiring contributed income.
Every nonprofit organization with which I have been involved has experienced a tug of war between operations and fundraising. When fundraising is made the responsibility of a separate body, it is possible that the sometimes conflicting goals of fundraising and operations will fail to be resolved. That may result in frustration on the part of the Supporting Organization board and the professionals it has hired to execute its fundraising plans. Or, it may result in the Supporting Organization acting in a way that is out of step with the nonprofit it exists to support.
Another danger can arise when the Supporting Organization takes on only part of the fundraising responsibility. Let’s say that the annual fund and small gifts is left in the hands of the original nonprofit and that these operations are executed by a professional staff with no board involvement other than a fairly hands-off oversight and the approving of goals. Seems like a workable scenario. The Supporting Organization is left to work on major campaigns and givers.
I have never seen an annual fund campaign that didn’t expect to get gifts from its proven donor base, and that donor base is sure to include its major donors. In addition new potential major donors often enter into relationship with an organization with a smaller gift made to the annual fund. The potential for turf battles over who “owns” a donor relationship and how and when to make a solicitation rears its ugly head here. I have seen this happen and progress to the point where genuine animosity developed between the professional development staff of the Supporting Organization and their counterparts in the organization it existed to support.
There are other instances of conflict over mission and execution of responsibilities that I have seen. But I think the above is sufficient to illustrate the fact that there are real issues of control, cooperation, and communication that need to be successfully addressed when it comes to establishing a Supporting Organization and then seeing that it function well and fully within context of the organization it supports.
Ceding primary fundraising responsibility to a body other than a nonprofit organization’s board of trustees is tricky business. It should only be done when there are compelling reasons. There are very few legitimately compelling reasons. A board not wanting to fulfill its natural responsibility to fundraise is not one of them.
When there is a compelling reason, the best action to take is to create a Supporting Organization. If a Supporting Organization is created, the original organization must exercise real control over it, but do so without frustrating the Supporting Organization and draining energy from the its board and staff.
Open and multiple lines of communication need to exist between the staff of the original organization and the Supporting Organization. This is particularly true for any development staff that remains part of the original organization. The boards of the two organizations:
- Must demand that those channels of communication are used.
- Actively encourage the development of collegial relationships between the staff of the two organizations.
- Make communication and collegiality on the part of staff members of the two organizations part of the measurement of their individual performance.
It is never a good idea to try to resolve issues growing out of a board’s unwillingness or constricted ability to fundraise by creating a development committee that is artificially puffed up in its importance.
Boards that can but do not constitute themselves to effectively fundraise are failing individually and as a body to fulfill their responsibilities to the nonprofit organization they serve and its mission.
Why I Think the Way I Do
This article is based on my experience and the experiences of people I have known. My experience includes having been executive director of two nonprofit organizations, having been a member of the senior management team and charged with producing contributed income for three more, and having sat on the boards of three. Those experiences include situations in which:
- Boards were reluctant to fulfill their fundraising responsibilities.
- Boards were legitimately constricted in their ability to fundraise.
- Organizations had separate entities or supporting organizations charged with fundraising responsibility.
You may have had experiences with boards that for one reason or another do not actively fundraise that differ from mine. Those experiences may have led you to different conclusions about the creating of either a Supporting Organization or empowering a development committee in a way that places the usual board responsibility for active fundraising on that committee. If you have had experiences similar or dissimilar to mine please share them here. In fact if you have any thoughts on or corrections of the content of this article, please share them. We learn by opening ourselves to the knowledge and experiences of others.
I’m looking for information regarding best practices for supporting organizations. There is a ton of information out there about affiliated foundations (for universities) and related foundations, but not many examples of other supporting organizations (except for community foundations that give to multiple organizations). Do you have any examples of other supporting organizations (that were created to support one organization)? I’ve just been hired as the Chief Philanthropy Officer of a fledgling supporting organization, and am charged with growing it. Thanks!
I pretty much said everything I had to say and know about captive supporting organizations in the article. The one exception being your situation as what I take to be the person charged with fundraising management for a supporting organization. (An aside here: Your title seems unclear to me. I don’t know whether you are giving or getting money. I’m going to assume you are getting it. Are you the CEO of it?)
While I have never worked for or run a captive supporting organization, I have been charged with fundraising for an organization that had a captive supporting organization. My relationship with the person heading the captive was not a pleasant experience. That person and her staff were insensitive to the need to work together with the parent organization’s fundraisers. As a result conflict over who “owned” a relationship with a donor often arose. The captive and parent fundraising staffs grew to see each other as a problem and competitors. Arrogance became the order of the day on both sides. And the relationship descended into a passive aggressive mess.
The fundraising roles were defined for both organizations, but the supreme point of conflict—donor contact—was left unclear, because it had to be. Donor contact was situational. It couldn’t be decided by a hard and fast policy. What was needed were mechanisms for dealing with individual situations. By the time I got there it was too late to create a smoothly functioning relationship of sharing. What should have been a collaborative relationship became one of acrimony and accusation. A little coordination, goodwill, and realization of responsibility to cause would have gone a long way. There should have been weekly meetings between senior staff to discuss and resolve issues. There should have been social interaction between captive and parent organization staff. There weren’t these mechanisms, because goodwill did not exist.
I urge you to work with the parent organization development staff to create an environment of cooperation rather than the one I found between captive and parent organization.
I am on a non=profit board in Flint, MI-The Whaley Children’s Center-we have a member of the board who has been a member for a few years and has now taken a position with one of the local hospitals as a member of the hospital’s Development Department. The Whaley Board member wants to continue her position on the board and ask donors of Whaley for funds and also ask some of those same donors for money as her new position as a fundraiser for the local hospital. I am taking the position that that is not ethically correct. What is your opinion? Am I wrong in saying it is not ethical? Thank you
The issue of a person being a board member for one nonprofit and soliciting for another is a common one. Many people are members of more than one nonprofit board and expected to give or solicit money for all their organizations. What is troubling about your situation is your board member taking a development position with a different nonprofit and wanting to solicit donors that he/she has developed relationships with as a result of being a member of your board–if that is the case. The relationships may predate membership on your board or be independent of it.
But none of that would matter for me because I see the issue as one of professionalism. if I were the person taking the development job with the hospital, I would immediately recuse myself from active fundraising for your organization. In addition, I would go to your chairperson, explain the situation and let that chairperson and/or the board make the decision about whether I should stay on the board. Furthermore, I would go to my new boss at the hospital and ask if he/she would like me to disassociate myself from any involvement with nonprofit organizations for which I might be asked to provide fundraising support of any kind.
I would rather decide this question on the basis of best professional standards than on ethics. To question your board member’s ethics would be more likely to create conflict that considered deliberation. One question you might want to ask your board member is whether his/her new boss, the CEO of the hospital, and its board are okay with him/her fundraising for another organization or even sitting on the board of another organization.
Can a supporting organization 509(a)(3) amend itself to a regular 501(c)(3) and take all its funds with it?
I don’t have an answer to your question. I suggest that you go to the government website and read the laws. Better yet, contact a lawyer for your answer.