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The Chicken or the Egg with Endowments

June 29, 2009
by Nelson W. Burns
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Should endowed gifts drive the BH Service or should the BH Service drive the endowed gift? Let me clarify the question; I have noticed two different models that nonprofits follow when they are fortunate to have an endowment at their organization. The first; is where the endowment has a distribution policy and distributes its monies to the nonprofit based on the distribution; the second, is where the organization declares each year how much it needs and the endowment then determines the gift.

When the economy is buzzing, both models work fine, but when the endowment principle drops a good percentage, an endowed account can look pretty scary around distribution time. A policy where the endowment follows the need of the organization can drain an endowment and encourage dependency on the endowment. During challenging times like today, nonprofits need the most financial support possible from its endowments. However, at what level do we reduce the endowment balance; not knowing when the fund will replenish itself?

I prefer the model where there is a clear and consistent policy of annual endowment gift and distribution to the nonprofit. In this case the endowment gift drives the donation. The endowment board might differ its distribution policy during difficult financial times and help the nonprofit but not to the point of jeopardizing its goal: the long-term financial support of a philanthropic community need.

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Good point, Nelson. Even in tough times a sound policy is needed.

Nelson W. Burns

Nelson W. Burns

http://www.coleman-professional.com

Nelson W. Burns has been the president and CEO of ...