Episode 186: Dealing with Difficult Donors - From Appropriate Involvement to Saying Goodbye
In the latest episode of Around with Randall, we delve into the issue of when it's necessary for nonprofits to part ways with certain donors. The delicate balance between financial necessity and maintaining organizational integrity. Hallett provides actionable insights on identifying problematic donor relationships and implementing strategies to uphold the nonprofit's mission and values, ensuring that leadership prioritizes ethical stewardship and staff well-being.
Welcome to another edition of Around with Randall, your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett.
I feel so privileged to have you taking some time in your busy day to join me, Randall, for this edition of Around with Randall. We venture into conversation, thought process, discussion that most of us, hopefully, will never have to work through, never have to deal with, but sometimes things happen. And that's when we need to say goodbye to a donor, to a situation in which it's best for the nonprofit to not be affiliated with someone who may not align with what we're trying to accomplish.
There was a fascinating story in the Chronicle of Philanthropy about a nonprofit leader who, after some interactions with a donor, and particularly with the staff, decided that they were going to give the money back — that the relationship, that the organization, and in particular, the individuals had with that individual weren't worth the dollars the donor was giving. It caused me to think about leadership and integrity and honor and honesty and staff development and alignment and all kinds of different things that allowed me to write down a few notes about this particular podcast subject.
It's easy to do the thought process in the air in the clouds without actual implications or outcomes that would be negative if you chose to do that. It's a lot harder to do it when it's your money or your organization's money and it has consequences.
So, today we're going to talk about how we kind of got here, why this is maybe something we're going to have to watch a little bit more carefully. There's a reason. Number two is what are the things we should be looking for in maybe some, maybe not as healthy relationships as we want. And then number three, what are you doing tactically if you have to do something?
So, let's start with why this may be worth a little bit more attention. I probably am a broken record, but I think it's incredibly pertinent here. And I say this often, when I began my career, 27, 8 years ago, as I like to say, when I had a lot less gray hair, we operated under as an industry, philanthropy under the pre-do principle, generically. 80% of our dollars came from 20% of our people.
And what we're finding is that as philanthropy evolved, the 80/20 rule doesn't exist anymore. We are truly living in a 95/5 world. We're seeing that as we get another year of the great work that comes out a little bit school and give you USA, and certainly the giving institute for which I'm a proud member. In a position where we're watching philanthropy remain somewhat consistent at the total dollar level, even with inflation a little bit down, but we're seeing less people give. And it's the mega gifts that are keeping us kind of afloat, similar, but consistent.
If that's true, and data says that it is and has been for since 2002, since we began a study to decline in the number of households making gifts, then the chasing of these large donors becomes more of a gain, more important. If you have a $50 million campaign or your organization that's a million dollar organization from a revenue expense perspective, your donors 5% are going to make up an enormous percent of that $50 million campaign or that $1 million budget. It doesn't make much of a difference. And so our pursuit of these people who are not a ton of them becomes much more important and more engaged, and it's engaging our C-suite, which I would say I wrote about in my book Fiber and Vulnerability, that we need the CEO, the executive director, whomever the top leader is to be more engaged in philanthropy.
And if there are fewer people who are making these gifts, then the relationships we're trying to build with them become more critical. And the question becomes would we ever allow those relationships to not be what's in the best interest of the mission of the organization or the people within the organization? Because we need the money too badly. And if the money at the top levels, I mean, it's easy to think about it, well, I'm going to give a $10 donation back because, well, it's not going to hurt anybody. But when this dollar figure or this donor is a certain percentage of your annual income or a campaign, that becomes a much greater challenge.
So all of this is to say is that as the number of people who have greater influence on our philanthropy numbers, on driving mission, no money, no mission, the more likely there is that there's a potential for this conflict. And so the question becomes what kind of influence or negativity or problematic challenge however you want to put it, a fact or in that relationship might occur.
There are five, as I think about it. Number one is they truly want to influence the mission. This gets very interesting. If not influencing the mission or say they want to influence how the mission is actually applied, we've had a number of stories. I'm not going to get into the politics, but with the current state of the Middle East, where donors have said to certain organizations, I'm either out or I want you to make a change or I'm going to go out. And these aren't small donors.
You can put this into context if you're in healthcare because you may be in organizations that's much like university, much larger. But a small organization, this is just as applicable. If a donor is in a million dollar food bank for a black of a better example, I don't have any facts or stories just as an example, they're given two or three hundred thousand dollars a year, but they want to limit where food is given. That gets to be a problem. They're influencing mission. They're influencing application of the mission.
So influence on that mission is critically important. Number two is they want to be involved in the decision making. And this is where kind of parallels what I talk about in terms of board, governance structure and board engagement at the best practice level is operations is a leadership staff, you know, CEO, whenever you want to look at it, problem. Boards worry about strategy and donors should be involved with helping to think about craft and illuminate that strategy.
The challenge comes when you have a large donor who wants to put their fingerprints into the operations. And much like a board, it never works. It just doesn't because then there's all kinds of challenges that come with it. This also applies if they're trying to put undue influence on a key staff member, maybe it's a little bit large organization or something that they want individually. So this idea of involvement with decision making inside the organization operationally can be a challenge.
The third is they want a permanency on the board by their gift. If not them, a family member. This one actually I have experience with a negotiation with a client several years ago where the gift was going to be, you know, major eight, maybe even to the nine-figure range. But one of the conditions was I want my family to have a permanent seat on the board. And that became a real problem so much so that the gift never came to fruition for some other reasons, unfortunately.
But it was an interesting conversation. Tickly since this board wasn't that big, this wasn't a 40-person board. It was a 12 person, so literally almost 10% of any vote they would take would include the donor or someday possibly a donor's in this case child. That has consequences. And so sometimes they want a permanence even in the governance structure.
Number four is they want really detailed insight and involvement in how their actual gift is used. This gets interesting when we talk about when I think of scholarships. Many years ago when I was a practitioner working for an organization, we had a donor who wanted to make an enormous gift for endowing scholarships, but wanted a heavy hand in selecting who those people were. And what we worked tirelessly or at least tried to explain is we have a process that we have to go through because there are lots of people applying for different scholarships and that having outsiders influence the very methodical process in this decision making that eliminated a lot of the what I would call legal and legal entanglements of gender and well, it's all male, but of color of religion. Those things removed it was about the application of what they were trying to receive based on scholarship based on their essay, things that had appropriate involvement in that decision making process.
The donor wanted input, the gift fell apart because we never could convey that. So sometimes donors want a lot of say on this if you're doing a building, they, well, I would like to look at the plans and make some suggestions on where the walls go. It could be a problem.
The last is just a sense of entitlement. And in that, I mean how they treat others. Maybe they're a board member, how they treat the other board members, do they feel like they're because they've made the gift elevated and above the rest of the board. They should have more influence than they actually do. Maybe it's the way they treat the staff and maybe not the CEO, maybe the relationship with the CEOs really good, but the relationship with the foundation development advancement team isn't that great. So they're mistreated in healthcare. We think about this from an entitlement perspective and it's a legitimate concern for physicians. I work with a lot of them in the kind of the educational piece of grateful patient work is well, if they make a gift, they get special treatment. And I always say, well, there's not a special closet of medicine that we hold off for only the donors. Everybody receives the same outstanding level of care. The physician nurses medical team will make the determinations on what they need to do based on the medical condition. But that's sometimes hard to tell a donor. Like, you know, there's, I don't have, I don't practice medicine. And I was in these positions where I would have to say, what they're doing is world class. These are the best people in the world to do what they're doing. You gotta let them do their job. I can't interfere nor should I nor will I.
So this idea of entitlement is a part. So the kind of the five is just a quick review. They want to influence the mission. They want to influence kind of the decisions that go on in the organization. They want to permanent in terms of governance or structure position on the board. They want to have endo influence on how the gifts actually used. Well, they may just have a sense of entitlement.
All of this is to get to an understanding of concern. I mentioned at the top that whether it's a $50 million capital campaign or a million dollar organization, that's their budget. It's all about proportionality. And I'll give you the exam. I'll give you the numbers. If you have someone who gives you $250,000 in terms of their annual contribution to that million dollar of your charity, nonprofit, that is a size of a lump. It's a small amount percentage wise, 0.5%. If you have someone who wants to give you $12.5 million on that $50 million campaign, it's the same issue. It's just added zeros. So proportionality is understanding how this affects and the larger the proportionality, the more likely there's going to be huge issues, challenges, questions, thoughts on how much influence and or involvement should a donor have.
As there is the premise of no money, no mission, but when somebody else is running the organization for giving you money, is the mission actually being accomplished? The other thing that I think I would impart on this conversation is it's usually a creeping scenario or situation. It's not, well, they gave the gift the next day. They are wanting immense influence. Yes, that can happen. It's usually creeping, meaning they get one little thing and they get another little thing. At the beginning, it's benign, but if you don't create some type of structure to say, here's what we do, here's what we don't do, that creeping nature gets into more complicated issues. So proportionality and creeping are a part of this process.
So what are the things we should think about in terms of avoiding or dealing with this situation or tactical, so to speak, that we try to talk about each week here on a round with Randall? The first is that it's critical for leadership to do what's right when it has to. The story in the Chronicle of the Philanthropy was about a smaller nonprofit in New York and it was about a $30,000 gift. In being a very much smaller nonprofit couple staff members, Max, this was an enormous financial decision for which the founder, who happens to also be the executive director, said was really easy. It's easy to do what's right. We'll figure out on the back end how we deal with it. And so it's hard sometimes. There are consequences to these decisions.
The second thing I would mention besides doing things right is to set a series of process and procedures for you to ever get there. There is AFP produces the donor bill of rights. I'm all for that. I think it's a great document which should all be more familiar with it. But inside a gift agreement or an organizational structure, what are the donors rights when they make a gift? And more importantly, what aren't they entitled to? I find myself contemplating putting that kind of conversation, that thought process into writing now more than ever. So there's a very clear understanding that your gift is critical. We need it. We want it. We're going to make good use of it. But you're not going to do these things. And then having the internal strength and most importantly communication that if someone's doing something they shouldn't, there is an immediate, I'll call it CEO, but leader involved to say no, we're not doing that. So you stop the creep. So the first is this idea of doing what's right. Second is this having process and procedures in place.
Number three is realizing your responsibility and stewardship. If you steward really well and what I would call appropriately, proportionally, sometimes these things can be alleviated because if they're looking for information, but they can't get it from you, that nervousness may grow.
Stewardship has many different rationale and reasons. Obviously, to make the donor feel most importantly incredibly good in understanding about what they're doing to make a difference in our organization and the cause that we believe in. But the other side of it is tactical is giving them an understanding of what, where their dollars are going. What it means, what the outcomes are. And it's proportional. So if somebody gives you five dollars, you always want to make sure they are knowledgeable about what the organization is doing to make the world a better place. But stewardship is going to look a lot different from five dollar donor to a $250,000 dollar donor, probably more reporting, more engagement, more discussions.
It's about creating that proportion that allows people at the highest end to feel, understand and know the value of their gift without influencing the organization or doing something that might not be a positive. So some of this falls on us, not only in the process and procedures, but creating the right kind of stewardship. So people are knowledgeable about what's going on.
There are huge outcomes of this. If you have staff that are being abused and/or contemplating, you know, being mistreated, then that has issues on staff morale, organizational morale, retention. Getting a handle on this directly impacts the people if you're a leader that you're responsible. The safety and protection of your employees should be like what I think of as my role as a father. My first role as a father is happiness and safety. And happiness isn't defined by like they get to do whatever they want is that they're generally joyous people. Part of that is creating an accountability system. Sound like employees? And they're safe. For a kid, think about your employees like the way you treat your kids. You protect them because you want them to be everything they can be for an organization. You collectively are trying to push forward.
It's also about reputation. If your organization doesn't have the relationships and doesn't take care of its mission, eventually that reputation will get out and will make it harder for you to attract other board members, new donors, keep your current donors. And in that same vein, if you allow one donor or a very small group of donors to influence the mission, the organization decisions, hiring, whatever, other donors may say, well, the heck with that? I'm not putting my money in something that somebody else is running that I may not agree with in how they're doing this.
I know it sounds like these things generally don't happen, but I'm finding they're happening a little bit more often. They're not catastrophic in terms of they want to change the mission of the organization. I mean, we kind of started with that. But it's about unbewilder influencing to smaller things, how money is used, who makes the decisions, who gets hired, recommendations that are awakened and not really maybe not as much of a recommendation, because I made that gift. There seems to be a little more of this.
So the council is to get ahead of it. To have the processes and procedures in place to protect the organization. Here's what's allowed. I'm not to have great stewardship so donors know what the money is doing, but understand there's a limitation as to how they can influence that, but they feel good about what they're doing and to make sure your team knows that, hey, especially if you're the ultimate leader, you have a problem coming to me. I'll take care of it. I will step between the two of you. If you feel like the donor is not being a fair, if you're not being treated appropriately, we can take care of that.
All of these things are important to contemplate when we want to say goodbye, potentially, to that donor. And if more importantly, how do we make sure that they know their limitations and that we keep them within the bounds that are appropriate?
Don't forget, check out the blogs at Halifelanthee.com. Two a week, 90-second reads, different subjects that I see in terms of stories or experiences. And if you'd like to reach out to me, let me know what you're thinking. Let me know any thoughts on this podcast or any. And by the way, leave a comment on wherever you get these YouTube or anywhere else. So others can watch and listen and learn. But you need to hold me a podcast to Halifelanthee.com.
What we do today is really important. Philanthropy is going to be needed more and more to fill these holes and gaps where free enterprise and government can't, but philanthropy and nonprofits are built to help those who are looking for assistance and help for the things that are most important in our community. My favorite saying, some people make things happen, some people watch things happen, then there are those who wondered what happened. We're people, you're someone who makes something happen. You partner with others, philanthropists who also want to make something happen for those people and those parts of our community that are wondering what happened.
That's a great way to wake up every morning and go to bed every night feeling like you've accomplished something and doing so by the way, that's how philanthropists feel and they do it right, partnering with them in a joint venture as an organization or an individual. However, you do that to make the world a little bit better place. A worthwhile profession. I look forward to seeing you next time right back here on the next edition of Around with Rental. And don't forget, make a great day.