Episode 226: Ethical Considerations in Donor Influence and Recognition
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'm so excited that you would take a few minutes of your day to join me, Randall, on this edition of around with Randall. Today we talk about and try to tackle one of the most sensitive, if done incorrectly, critical issues. That's probably under discussed and really getting into the ethics of something that I think we take for granted but probably don't spend enough time discussing.
And that's the issues of donor recognition. And I'm not talking about your annual report. I'm not talking about, you know, names on a wall, per se, talking about higher levels and the challenges that come when donors expect certain things. And or we're not smart about how we offer the recognition, the stewardship that comes about. Why is this important?
Well, we know that today's donors are far more sophisticated than they were 20 years ago. They are looking at what they give as an investment. What's the ROI? What's the impact of the gift that we're looking to give or to, to, to make a part of our if you're the donor, they're like they particularly at higher levels come with specific expectations at times.
Also because of the lessening number of donors we've talked about, this seems like almost every podcast where below 46% of households making a gift more people or more dollars coming for fewer people, there's an immense increase in competition for those high level donors, which if an organization is not careful, they let that competition overwrite, overwhelm, what the processes should be to make those determinations.
The other thing is, is that this is incredibly nuanced. It's not as straightforward. And we'll talk a little bit more about this in a moment of having gift acceptance policy that just ironclad puts a dollar figure on how we name something and endowed chair or a, a part of a building or building itself or a room. As philanthropy has become more competitive organizations and even into, I'll call it, governmental entities have come up with creative ways of creating recognition.
I'll use one example, and that's why it's nuanced. Several states over the past ten years have incentivized chairs by saying, if you give a certain amount, the state will match the other half, or do they get the full recognition for that? It's not as clear cut as we might think. And all of this gets down to how do we do this in the right way?
So let's start, as we always do with our theory, with our philosophical big picture. We have a lot of competing interests in our in our nonprofit particular and leadership that are deeply engaged should be shouldn't be with this particular subject. You think about a board who has hopefully a long term vision of this, an executive team who's trying not only to have a long term vision to take the CEO, but also tactically that year.
And then in addition to that, with gift officers and foundation advancing staff to open offices, foundations, whatever you are as a fundraising entity or or department that wants certain things because they're trying to make numbers. The second thing is, is that when we talk about these influences, certain organizations can offer certain things that others can't. A couple of examples.
College athletics, which I seem to think is less and less philanthropic. Non profit oriented. Another story for another day may offer tickets or access to tickets. Health care may offer some type of a stewardship program around access. Education may give honorary degrees. All of this is to say that other nonprofits policies, recognition standards affect the donors perspective of the norm of what they expect when maybe they intersect with you.
And so the ability for you to have this defined is critically important. The first part of the true ethical is that is that or the excuse me, the theoretical is the true ethics that are involved in here. The first thing that I think is important to mention is as a donor, sometimes, even if the gift is incredible, can and do cause what I think of as mission drift all of a sudden something that we may not want to do because someone's largesse, maybe they're an important name in the community.
We get to tie their name to us, and it's not quite what our strategy or strategic plan is. They make the gift, and all of a sudden we start doing something that we hadn't intended, that we didn't need, may not be aligned with exactly what we should be doing. What this does is it causes this drift in institutional strategy.
Now, there's a real conundrum here with this. You've heard me talk about, and I advocate and teach that we need to spend more time talking about passion and not our passion as a nonprofit or the org or the employees of the nonprofit, but of the donor. How do we find out what their passion is? But the key is the next sentence that I usually utter.
We don't spend enough time talking about this, and it applies directly to this idea of mission drift. They have a passion for X. How do we tie that into what we want to do? I'll give you a practical example. I have a client that we're working with. We're trying to figure out how to build the right case. And they're testing this case, a case that they wanted or thought might be, well-received by the community.
It turned out that it's not. I've now in the in the conversation about how do we identify what's inside the organization so we can better understand how to make that connection with our donors or their donors when they have those gift officers, have those conversations. And there's a disconnect here because the executive team saying, well, we need this.
And I keep saying, I understand that, but your donors don't want to fund it. So can we find a way to turn this around where we go talk to them about what their passion is, those donors, but have a really defined strategy around what we're trying to accomplish so we can tie them back into this. And then that leads into more proper recognition, because we're not just taking money for the size or the bottom line or whatever.
That's not directly tied to what we're doing or should be doing. This is also important because, as we all know, there's less and less unrestricted gifts. I did have a conversation last two weeks with the CFO who talked about unrestricted giving. I said it's doesn't exist. God bless Mackenzie Scott. I mean, she's amazing. The fact that she makes her gifts and nobody ever hears from her is exactly the kind of thing that philanthropy as a definition, love of mankind, kind, humankind is all about.
But she's not the norm. She's the exception. So mission drift and the question becomes, are we changing what we're trying to do to meet the donor's intent so we can get that and there's recognition that's tied to it. The second thing is recognition, disproportional purpose or outcome. There's a it's disproportional. I had a client who many years ago accepted a gift to name an incredibly large part of the organization, a building.
We'll leave it. That and the gift was so small, and the recognition became so big that it's created havoc in this organization, which is not just one location, because everybody says, well, they gay and it's well known. They gave X and they got the building named I'll Give X, and I want a building name there. And there was struggling with this disproportional nature because the recognition was immensely bigger than the actual gift.
That the public displays of what we're trying to do in stewardship. Doesn't reflect the impact of the actual gift. That's a real issue. It's stymies not only in the current moment, but maybe more important in the future moment. And donors push for this some. It's really bad when we offer it and they go, I gotcha. I'll take the recognition.
And then four years later you're looking around going, we've just kneecapped ourselves in being able to give recognition for gifts that are two times, three times, four times larger because we don't have anything bigger. So this idea of recognition being disproportional, number three is access and privilege. I think health care leads this particular area of challenge when it comes to ethics.
Sometimes the recognition, the stewardship as an actually the name on a building or anything else, it's access to a service. I build conscious word most people don't like to use, but stewardship based programs for health care clients. But it's always based on viewership. It's not based on, you know, you make a gift and it's like a fee. Now there are places that do that.
Truthfully, that's not philanthropic. The problem becomes when a donor or family feels as if I've made a gift, I and I got a medical issue. I want access to so-and-so. And now the organization is in this gray area, this ethical, you know, morass of not being able to figure out how to handle it. This is why I defined donor recognition, donor stewardship.
Donor engagement programs strictly in health care are really defined is the key word. We're not guessing on what we do and how we do it. They want VIP treatment. And what I'm particularly in health care we always talk about that. It's kind of like an airplane. The airlines number one and two concerns are to be safe and be on time.
And because someone's a first class a little bigger seat and you get a little different peanuts in a cocktail doesn't mean anybody's safer. And or getting there more on time because they're in first class versus then, as my wife calls it, search. The same is generally true in this area. If the basic service doesn't change, then philanthropy around the sides can find ways of communicating and holding a hand and getting a cup of coffee.
It's not better medical care. There isn't a special clause in a medicine we don't. That's a really important conversation to have internally. Donors look for sometimes access, and we have to be really strong in our recognition programs to make sure that we're not providing too much. We never want to promote inequity. Number four is problematic associations. We'll talk about this tactically in a few minutes here.
But sometimes we take gifts from people and it doesn't turn out that the connection and or reputation that comes with those donors actually helps us. There are a number of stories over the course of the last 25 years where nonprofits took gifts and in the moment didn't do their research, or eventually something happened. And now that organization is tied to that particular name.
We can probably name 2 or 3 right off the top of our head. That's a problem for brand and reputation. And then the tactical, we'll talk about a couple of things you can do. Very simple. That will make sure that there's a flexibility for the organization to ensure it's not tying itself to something that's a problem. The last is what I think of as donor over involvement, where the donor thinks they now have additional influence on either what their gift goes toward or toward the organization as a whole.
One that I think about more personally. And they've talked about this that many years ago, I established with my sisters a scholarship fund to send kids to college in my parents name. And it's been something of a passion project for our family, as we have increased the amount of dollars and kids that we're able to help support going to college.
We do that because I love honoring my mom and dad and that we had every advantage. I want to help other kids have that same advantage if possible. But being on as an insider, what we don't do is and actually had this conversation yesterday with someone else who says, well, you know, you could be involved with choosing the scholarship winners.
No, there are people inside the school who have a much better understanding. We set the parameters. It's not for the top, you know, 1% or the valedictorian or the Saluda. And it's meant for kids who need dollars to have this opportunity. Other than that, I don't want to know anything about it. What's the worst thing I could do?
I can tell you it's I'd start getting involved saying, well, I want them to have it and I want them to have it. And here. What a window. I'm not at the high school. I'm not the college or guidance counselors. I'm not their teachers. I don't even know these kids. I'd rather have more informed people. So we've taken a very hands off approach to this.
There are lots of other people who get more involved. They give money for a chair, let's say university, and they're asking questions like, hey, I want to be involved with the selection process, and it's a chemistry chair and theoretical chemistry. You're like, but you don't know anything about the art outcomes. Tree. I got another client who received an incredibly wonderful gift, but this donor now is involved with all the way down to what are the metrics of the gift officers helping raising additional funds?
That's a problem. I mean, so this idea of donor over involvement is something we have to watch. It has to be something that we are aware of. Make sure that we're not overindulging. So theory one is mission drift number two is recognition. That's disproportionate. Number three is access and privilege. Number four is associations that are problematic. And number five is donor involvement.
So how do you fix this. So let's talk about kind of the connective step between theory and the tactical, which I always try to get to at the end. The first is is what you can do for a framework. Every conversation about this, whether it's about a specific gift, opportunity or gift being given, the recognition being provided, or in the process of developing the tactical tools which we'll get to in a moment, revolves around three things.
Are we always asking what the intent of the gift is? Many years ago, someone that I looked up to when another organization had a scenario where literally the major six figure gift was to buy their name on a particular structure. There was no philanthropy, nothing, nothing emotionally. And what? When they asked for my help, I framed this as what's the intent?
What's the impact? What's the transparency? And the intent here is not pure, which means that the impact and transparency have better be if someone's gift is to buy something. You got to be aware of that doesn't mean it doesn't happen, because if the impact is genuine and the transparency i.e. we're telling everybody the same story, it is open, then you can overcome that.
But where I see problems is where the intent is not pure and the impact and or transparency, transparency is also not whole. Now we have a problem. So intent is one. What's the goal. What are they asking for. Number two is impact. Is the impact representative of the recognition. Is it appropriate? Does it make sense? Does everybody align with that impact and understanding it.
Which brings us to number three which is transparency. Is everybody on the same page. Have we've shared all the details what we can. And most importantly it's a question that we don't tend to ask enough. Are the internal stakeholders the board members, the executives on board with this? And if the public knew, would they be okay with it?
If you can answer that last one affirmatively, you have a lot more wiggle room. But I'd ask these three questions intent, impact, and transparency. Or at least talk about them. So the tactical what can you do? Well the first thing is, is that you need formal recognition policies. And that's probably not a big surprise here. But all too often I am asked to write.
It's part of the work that I do kind of enjoy it, which is kind of scary about writing policies. And I've got a nonprofit client who moved from one former client to a now a do one more of their work. They don't have any policies, any anything along gift acceptance or recognition or stewardship policies. And I keep saying, you're going to get yourself in trouble because your gifts are going up.
Someone's going to ask for something and you're not going to know how to process. What are your formal policies? Are they established? Do you have thresholds? I always talk about not putting a hard threshold on like $5 million gets you X, but what percentage, particularly in capital or building what percentage of a of a gift for that area or the cost of that area gets you a naming?
My rule of thumb is it's got to be 25% of the total cost of that area. It's a lobby area. It costs $8 million. Minimum gift has to be 2 million. We should be aiming for 50% of the cost of that area for things like scholarship and for endowed funds and for chairs, things of that nature that can be a little more hard core, because you can elevate that.
So you don't have to track as many gift opportunities, but sometimes, particularly in building spaces, don't use a hard number. You use a percentage. This costs more. So it has to have more dollars to be recognized. And it's not always perfect. It's not always exactly 25% or exactly 50%, but that will save you if you have that process in not giving away things too easily.
Number two is some type of due diligence on the donor. So one part is is there a group that is a task force piece together as part of the gift acceptance policy? When we have naming opportunities above a certain level university to this pretty well, there's a process that it's got to go through a dean and it's got to go through that, probably a vice chancellor or two to the Chancellor, to maybe a board of regents, board of directors, board of curators.
Hospitals don't do this as well. I've recommended this process a couple of times, and the CEO says, no, I make that decision. I'm like, man, no one person should have that much power because you one bad decision by one person may handicap or hurt the organization long term. So one of them is the process who's involved. The second thing is are you doing some type of background checks, criminal employment verification, something of your donors?
Do you know enough about your donors before you put the recognition up? There's a famous story of someone making a gift that turned out to be from a Ponzi scheme, and the organization finally said, nobody's heard of this person. And they started doing some research, a background check, and they found out, whoa, there's an indictment that's come down.
I mean, it wasn't publicized in the larger universe, but the organization did some research to find out this is going to be a problem if it's announced. Do you do some type of check of who your donors are, particularly at higher gift levels? 5 million, 10 million? Where there's recognition, do you know enough?
The second part of the tactical is what do you do to help your teams, your organization, be prepared for this. Number one is to set clear boundaries for everybody. That's the gift acceptance policy. I used to tell my teams when I was more of an active practitioner. The gift acceptance policies are not there to hurt you. They're there to protect you.
It limits your ability to make decisions and produces or provides a process for it to be formally approved. I never wanted my gift off to feel like they had enough authority to do something stupid, and they could say things like our recognition and gift. Acceptance policies are designed to ensure everybody is treated well, treated fair, and there's a transparency to the process.
That protected the gift officers. That was meaningful. So number one is setting boundaries through policies and procedures. Number two is collaboration. It cannot be just the advancement office or development office or foundation. When I was at Universal Braska Medical Center, I, I made sure that I didn't have the authority, even though I was a senior executive in the organization.
It could sign certain things over, certain that, no, no, no no, no, no, not for naming new. I want legal to review it. I want marketing to review it. I want them involved. It's a collaborative process. Are we making sure everything we're doing is on brand and a part of the process clearly identified? Who do you collaborate with to ensure all of this is done?
And the last is just pure staff training role play. It, sit down in a retreat and say, let's talk for 15 minutes about what would happen if a donor wanted more than what we were willing to provide. How would we handle that? Equip your team with the language and boards with the language of working them into the process.
Those donors say, we have a process. This is the way we do it. They don't have to be experts at what that process is. That's what leadership is about. And that's what the policies are in writing. But it's quintessential that they're not allowed to expand it beyond what's possible. So from today, I'm hoping this gives you a sense of some of the things you should be thinking about.
And you can go back and look at your policies. Do they cover all of these things? Are there collaborative measures or people that you're working with that are checkmarks? Do you have a clearly defined levels that you start with, whether it's percentage in buildings or, hey, levels of this in only certain groups, not just one person, have the authority to do this and set up a regular internal.
But it does have to be every year, every three years you're going to review these policies. Are they appropriate? Do they still fit? Are we using them? Does everybody understand them? This auditing process, if done correctly, will save you immense problems and will, particularly in the financial climate we're in. Nonprofits are struggling a little bit more that sometimes those things bring apart this desperate measures that we don't have decisions that hinder our organizations for what we have to do.
The more you plan, the more you discuss, the more you audit. The more you train, the more you review, the less problems you're going to have. The end of the day, that takes care of 90 plus percent of the nuance in this gray issue. Prepping will save you an immense amount of time in how you steward, recognize, and elevate the value of donors, which we should do.
But within the processes that define don't overreach, but still define the missions that we're trying to raise money for. Don't forget to check out the blogs. It helps. Lance beep two a week. Just 92nd reads give you something to think about. And if you'd like to reach out to me, it's podcast at Howard Philanthropy. Dot com. We move into the beginning of the middle part of 2025, and I think a lot of us sense that there's a lot of stress and what I want, if nothing else, in these educational like 21st century classroom podcasts, is to provide you with outlets for information, a way in which you can take pieces of what I talk about
and use them in your organization to be better, because at the end of the day, what you're doing is important. We need this and the more stress there is, the more philanthropy we need in our communities. More and more people are being left behind. And it's me as a way. So I always say to fit between government and for profit industry, it's the whole filler, the gap filler.
What you do every day is fill that gap. Whether you're a board member, executive, certainly a gift officer, infrastructure volunteer, it doesn't make a difference. What you do is important. I hope you know that. Don't forget. So I'm going to make things happen. Some people watch things happen. Then there are those who wonder what happened. You are someone who makes things happen.
I'm hoping today you can use some of the things and apply them in your organization to do even more of that important work, to be someone at greater levels, to make things happen for the people, in things in your community who are wondering what happened. I'll look forward to seeing you the next time, right back here on the next edition of Around With Randall.
And don't forget, make it a great day.