Foundation Friday: People unclear on the concept

The Nonprofiteer rarely agrees with Jack Siegel of Charity Governance; but this is the exception.   Noting the Dodge Foundation’s recent decision to cancel its poetry festival because of a decline in its endowment, he describes in one well-turned paragraph what’s wrong with that picture:

At the most elemental level, an endowment is a rainy day fund. As President Obama pointed out yesterday, the rainy day has come. Yet, many institutions are not using the endowment as it is intended to be used: As a source to stabilize the ebbs and flows in operating revenue so that vital programs can go on despite temporary economic downturns. That suggests that endowments—and we can’t speak specifically to the Dodge Foundation’s practices—during the last decade endowments were mismanaged by directors and trustees. Our hypothesis: Directors and trustees focused on maximizing investment return, forgetting to link return to the purpose served by endowments—smoothing out the ups and downs in the economy to provide stability to charitable programs.

Siegel describes his own post as “speculative,” based not on any inside knowledge of foundation investing practices but simply on inferences reasonably to be drawn from the results.  The Nonprofiteer would argue that his discussion is instead theoretical, in the highest and best use of that term.  And instead of merely railing (as she does) against the failure of foundation executives and Boards to respond with open-handedness to conditions requiring that response, Siegel analyzes what brought them to these straitened circumstances, and proposes how to prevent its happening again.

And she salutes him.


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One Response to “Foundation Friday: People unclear on the concept”

  1. Jean Says:

    I certainly agree with the idea that an endowment is a “rainy day fund”, but much like individuals, in tough times non-profits need to monitor their cash flow. Vital programs should be maintained – those that are, in a sense, the bread and butter of the organization. But if they were to not cut back some programming, they would eventually not have the support they need to stay in for the long run. For instance, say a family takes a pay cut. They have a decent savings built up. If they continue to live at the same standard of living the family is used to they will eventually use up their savings. Since the economy isn’t rapidly recovering, I would offset some of the use of savings by cutting back to vital expenses only first. This would allow the amount of the savings to survive for the longest length of time, increasing the survival of an orgainization in the long run.

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