Disclosure?
(Added 11/12/2009)
In the aftermath of the Madoff scandal, several donors have asked who we invest our planned gifts and endowment gifts with. They want to know how we know that we have not invested with an unscrupulous organization, and for that matter, why our organization doesn't disclose all relevant investment information to our planned giving donors. One person I'm thinking of in particular is a donor who established a unitrust with us five years ago and his income has dropped more than 40 percent in the last two years. What should I tell him?
After I testified in 1995 with Barry Barbash, the then head of the investment division of the SEC, in support of the Philanthropy Protection Act, I asked him about disclosure. Under the PPA (the first one), disclosure to donors became part of the requirement when taking in commingled assets, such as gift annuity assets or trust assets from several donors. The question I had for him was, "No problem with the requirement, Mr. Barbash, but can you tell us all what is required to properly disclose?" He said, "I can't tell you the ingredients of a disclosure statement, as it's subjective, but I can tell you this: If your 85 year old grandmother doesn't understand it, it's not disclosing anything."
I've seen young, intelligent, and financially sophisticated board members fall asleep when the investment report is trotted out at meetings; it's certainly a challenge to communicate to donors the appropriate amount of information on anything, including investments. Yet, after the fact, everybody wants to know, for example, if there are any other Bernie Madoffs hanging around.
I think all charities with endowments and planned gifts under management ought to re-visit the question of disclosure. Too many disclosure statements read like legal briefs, when, in the end, deciding what to tell the public what's going on is an ethics-based decision-making process. (Board members also need to work on what they tell one another, but that's a different matter.) Tell people whether you were in any way connected with Madoff - either directly or through a feeder fund - and be certain that it's true. You also might want to mention the safeguards you have in place to ensure that you won't be ensnared in scandalous investment activity. In addition, I'd communicate the investment policies (and translate them into English, if necessary) to share with donors. They have the right to know.
The process isn't easy because it's so subjective, so a good guide to start would be: What would I or should I want to know if I were a donor? And then, don't let the lawyers screw it up.