This is an online resource for ethical questions and answers as they relate to fundraising and planned giving. The NCGPC posts real questions from real people and Doug White answers them. All identities, both of people and places, are kept confidential.
Transparency and Fungibility?
Submitted February 1, 2021
We have a donor who is considering making a $1.5 million gift to fund a named scholarship. (Before I get going, please know that, even though it’s not technically accurate, I use the term “financial aid” and the word “scholarship” interchangeably.) We get to that number by dividing the tuition, about $60,000, by four percent, our endowment’s spending rule. The head of the finance office has stood her ground to ensure that this scholarship, any scholarship, actually, is funded with the proper amount, and not something less — an argument that some of the trustees, as well as the president, have made in order to encourage the gift by allowing the donor to get recognition without paying as much. I agree with the finance office. All good. That is, until I asked what the current budget for scholarships is, thinking that adding $60,000 per year will be a great addition. My boss answered my question by saying it doesn’t matter, that money is fungible. He told me that the actual budget won’t be increased, but that the donor will have the satisfaction of seeing his name associated forever with such a good project. My concern is that, while the donor wants to be recognized by having the scholarship named for him, he also wants — and maybe wants even more — to increase the scholarship budget.
Ah, yes, the old fungibility defense: It doesn’t really matter that the money swims around deep in the accounting ledgers as long as things get paid for; funds in one account are mutually interchangeable with funds in another. Which is fine — as long as the donor never finds out that he’s really funding $60,000 of the university’s general operations, which might include the dining hall, lawn care, the light bill, or any of a number of other budget items. Then, it could get messy.
The issue here is what the donor expects. The question is pretty much never asked because it would sound so awful: Do you mind that we don’t actually use your gift to expand our scholarship budget and instead use it for other purposes? Not to worry; your name will still be associated with aid to a deserving student.
Even though donors almost never ask – mainly because they never think about the question — the university has a moral obligation to satisfy their expectations, even if they don’t fully know or haven’t articulated what those expectations are. I have a strong feeling that if you had that conversation with the donor, he would say he wanted to add to the financial aid budget. And if the university doesn’t ask the question for fear of that answer, then shame on the university. You are making an agreement with the donor: He gives you money for something in return — recognition as a financial aid donor — and you are ethically bound to determine and fulfill the expectation, even when it is only understood, vague as the understanding may be, and not in writing.
The president might say that donors don’t have the right to tell him how he should set the budget or how he can spend revenues, that only the board has that authority. Otherwise, the argument may go, donors would have chaotic control. That would be disingenuous, though, because the endowed gift, which materializes because of a voluntary act, adds to the budget. The president may say that the budget is going to rise next year anyway, not by only $60,000 but by $100,000, so the gift could be considered a part of that increase. Again, disingenuous: the impact of a gift should not be whittled down to nothing because of other financial decisions.
As you can see, the real issue is hardly financial; it’s ethical. It’s a matter of understanding where donors are coming from and fulfilling their expectations. If you don’t know those expectations — and you almost never will, as it’s something most people don’t think about — then it’s your duty to ask.
If you have a question, please feel free to contact Doug White at email@example.com. While all issues discussed are real, identities are kept confidential.
Doug White, a long-time leader and scholar in the nation's philanthropic community, is an author and an advisor to nonprofit organizations and philanthropists. He serves as the Co-Chair of the Walter Cronkite Committee at FoolProof, and as a board member of the Secular Coalition of America. He is the former Director of Columbia University's Master of Science in Fundraising Management program, where he also taught board governance, ethics and fundraising. Prior to that, he was a lecturer at and the academic director of New York University's Heyman Center for Philanthropy and Fundraising.
Doug has published five books. His most recent, "Wounded Charity" (Paragon House, 2019), analyzes the allegations of mismanagement made in January 2016 against Wounded Warrior Project. Kate Bahen, the managing director of Charity Intelligence Canada, wrote, "An epic whodunnit. A sweeping sector perspective. A gripping read for everyone interested in the charity sector. The facts behind the news headlines leaves one reeling. How could this happen? Using the dramatic case of Wounded Warrior Project, Doug White addresses the key forces shaping today's charity sector. From his unique perch, he generously shares his insights and those of the sector's thought leaders. Doug White's books should be required reading for charity directors, journalists, staff and donors alike."
"Abusing Donor Intent" (Paragon House, 2014) chronicles the historic lawsuit brought against Princeton University by the children of Charles and Marie Robertson, the couple who donated $35 million in 1961 to endow the graduate program at the Woodrow Wilson School. The family contended that Princeton abused its mandate to spend the money as the donors wished — and as the university agreed. The Foundation Center had this to say about the book: "Well-plotted with the slow burn of a decades-old frustration, and immensely readable with the fate of hundreds of millions of dollars at stake — to say nothing of the reputation of one of America's most august universities — Abusing Donor Intent is equal parts thriller and cautionary tale."
His three other books are: "The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation's Charities" (Palgrave Macmillan, 2010), "Charity on Trial: What You Need to Know Before You Give" (Barricade Books, 2007), and "The Art of Planned Giving: Understanding Donors and the Culture of Giving" (John Wiley & Sons, 1997), which was awarded the 1996 Staley/Robeson/Ryan/St. Lawrence Prize for Research by the Association of Fundraising Professionals.
He has written several articles for a variety of magazines and periodicals, including Trusts and Estates, the Journal of Gift Planning, Charitable Gift Planning News, and the Chronicle of Philanthropy.
Since 1979 Doug has advised hundreds of charities of all types and sizes — including social service, educational, health and environmental organizations. Today, he works closely with select organizations on ethical decision-making, board governance, and fundraising, as well as with individual philanthropists who want to see their gifts used most effectively.
A graduate of Dartmouth College, Doug worked as the development director at Holderness School (NH). For almost two decades (1982 – 2000) he served on the Capital Giving Committee at Phillips Exeter Academy and as its national chair for several years during that time. He has served in leading roles with two national planned gift and endowment investment firms. As a long-term consultant to Blackbaud, Inc. in the 1980s and 1990s, he developed one of the first planned giving software programs.
In 1995 Doug testified before a Congressional committee in support of the Philanthropy Protection Act, and served as an expert witness for the charitable defendants in a national lawsuit - the "Texas Lawsuit" - that threatened the ability of charities to raise money. He has also since served as an expert witness in other lawsuits relating to donor intent.
Doug is a past member of the Board of Directors of the Partnership for Philanthropic Planning (formerly the National Committee on Planned Giving). In 1996, while on the NCPG board, he founded the national initiative of Leave A Legacy. He is also a past chair of the NCPG Ethics Committee and the 1995 NCPG National Conference. He is a past president of the Planned Giving Group of New England and a past president of the New Hampshire/Vermont chapter of the Association of Fundraising Professionals. He writes the ethics column for the National Capital Gift Planning Council; in 2002 the council presented Doug with its Distinguished Service Award.
Since 1981 he has spoken at over 750 conferences on philanthropy, including the Association for Fundraising Professionals, The Council for the Advancement and Support of Education, the Partnership for Philanthropic Planning, the Association for Healthcare Philanthropy, United Jewish Communities, and hundreds of local professional organizations and planned giving councils, as well as many audiences sponsored by local charities and other groups.
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