If the wealthy really believe in the good works of specific charities, they need to step up their investment of time and money to prevent charities from having to play the alphabet soup game.
‘Tis the season for charities to push for collections through cookie sales, luncheons and galas to meet the fund raising goals set in the “Affluent Times” of a year ago. This could be described as executing Plan “A.” Judging by last minute invitations to fill a table at prestigious events and low returns from auctions silent and live, Plan “A” is coming up discouraging short.
Depending on which non-essential, pricey consumer item one focuses on, sales fell off a cliff in August, September, and October. Confirming this trend is the decline in discretionary spending for ball gowns and high-end vacation homes. Unfortunately, gifts to charities are also way below budget - in many cases below levels of sustainability.
This is the budget season for charities, be it your Alma Mater, hospital, social services organization, or cultural institution. In each of the board meetings of the organizations that my wife and I sit on, expenses are being scaled back almost to the point of endangering the mission. Existing fund raising efforts are being pushed to be more effective. Thus, we are in Plan “B,” which is to continue the existing mission(s) using diminished, available resources. This is the plan which most military leaders are eventually graded, however some of us conservative investors fear that Plan “B” won’t work.
So far there is little talk about Plan “C” where “C” stands for cutbacks. Due to funding short falls, organizations may be forced to cease funding major commitments which could amount to 10-25% of Plan “A” expenditures.
A difficult by-product of Plan “C” is the compensation review of hard-working, effective senior level staff who are generally paid only a percentage of what similar work would command in business. In a Plan “A” World, this works well, however when commercial wages are being cut back, (which can happen soon), the ratio of high paid non-profit staff rises to perhaps an unsustainable level in the eyes of major contributors. As most non-profits are thinly staffed in senior positions by very hard working people, a reduction of their pay can lead to them being forced to leave. This would affect many donors at all levels who identify with staff leadership almost as much as with the charity’s mission. Staff departures at this level make necessary the consideration of Plan “D.”
Plan “D” is based on the belief there will not be a quick, cyclical recovery, placing into question the sustainability of a charitable unit. Plan “D” would merge the unit into a larger, perhaps umbrella organization. As an investor, a buyer and a seller of companies, I have a high level of skepticism that mergers work. Most that fail presume that revenues (in the case of charities, grants) will grow by just expanding the product line without significantly expanding the number of sales people. The flawed strategy also holds that a larger group might generate more favorable purchase discounts on products and services that can be essential e.g. advertising, cars, etc. For Plan “D” to work, a crisp execution is necessary.
The wealthy, that is anyone that has funds in excess of current needs, should be changing their priorities, moving grants/gifts to charities from a discretionary expense to an obligation level. This is the time when both present and future programmed dollars can mean the survival for many purveyors of good works. What is also extremely important is to make available one’s skills in sales, administration as well as the mergers & acquisitions of good people and organizations.
An important part of my approach to building a personal augmented balance sheet is the segregation of different demands on one’s wealth. Ideally, each charitable obligation should have its own portfolio of assets to meet the charity’s immediate and long term needs. The squeeze on today’s gift dollars should motivate people to create specific asset bases to support specific charities. There is no better time than now to start this process.