Why Wealthy Donors Are Distancing Themselves From Nonprofits

We know that we're the most philanthropic country on the planet. For decades, wealthy and not-so-rich donors have contributed billions to nonprofit organizations. However, something has quietly been happening at the millionaire and billionaire levels right under everyone’s noses. It's a shift away from dealing directly with nonprofit executives and fundraisers and instead, wealthy donors are adding layers of distance between themselves and the nonprofits they support. 

The fact is there’s an expectation among nonprofit boards or executives that wealthy donors should support their cause. How often has someone said, “Mackenzie Scott should support the nonprofit. It's such a great cause”? Of course, your nonprofit is a great cause. That goes without saying, but wealthy donors have been expected to support every nonprofit that gets a chance to pitch them.

In recent years, Scott stands out as an example of what’s happening with wealthy donors. Of course, she’s earned lots of praise for her hands-off approach to giving and also providing unrestricted funds. That allows nonprofit experts the flexibility to allocate the funds they receive as they need. However, when someone’s so hands-off, the downside is that they’re not as involved. 

Further, Scott uses The Bridgespan Group, an advisory firm, to coordinate her giving. So, adding another layer between herself and nonprofits creates greater distance between her and nonprofit leaders — and fewer opportunities to build meaningful relationships. Scott isn't the only one doing this, however. Slowly but surely, this distanced approach has taken over major donor giving and especially that of wealthy donors. 

Wealthy Donors Using Intermediaries to Donate 

Many wealthy individuals and families now prefer working through intermediaries, such as lawyers, donor-advised funds (DAFs) and donor advisories to handle their giving activities. You may have noticed you’re seeing fewer and fewer major and wealthy donors — and more and more of their intermediaries. It's a pattern that's developed over some time, and it’s becoming much more commonplace. 

The Emerson Collective

Laurene Powell Jobs coordinates her giving through the Emerson Collective, founded and named after the 19th century writer Ralph Waldo Emerson. The collective is innovative on a few fronts. For one, it operates under a limited liability company (LLC) structure, so it's not a typical donor foundation. 

When the new monied donors from Silicon Valley started creating LLCs rather than foundations, it was a new approach, but it prompted the distancing. As a result, the collective doesn't simply provide funding for nonprofit organizations. It also provides capital to impact investors, and works on policy and advocacy to try to effect change at the government level. Here are the Emerson Collective’s priorities: 

• Philanthropy. It provides grants to nonprofits working on education, immigration reform, environmental sustainability, health concerns, as well as issues of social justice.
• Impact investing. It also invests in for-profit ventures, such as those in media and technology, that meet its mission. These investments aim for systemic change while producing financial returns that can get reinvested into other projects.
• Policy advocacy. It tries to influence policy reforms that align with its mission. So, it works with policymakers, advocates, and others to drive legislative and policy change aligned with its mission.
• Partnership and collaboration. The Collective also forms strategic partnerships with other philanthropic organizations, companies and groups to expand its impact. These alliances happen to scale solutions more quickly.

The Emerson Collective takes an innovative and multidimensional approach to its giving, but there are drawbacks for nonprofits wanting to get close to decision-makers. For instance, the fact that it's structured as an LLC means less transparency as a private entity than a traditional foundation. Further, in the case of Powell Jobs, everything goes through the collective, so a committee does her decision-making for giving through the LLC. Again, that approach distances nonprofits from donors.

Chan Zuckerberg Initiative

The Chan Zuckerberg Initiative, created by Mark Zuckerberg and Priscilla Chan, also operates differently from traditional private foundations. Like the Emerson Collective, it, too, is an LLC. Again, donors rightly believe that it provides them greater flexibility; however, LLCs are less transparent and intend to create an institutional structure that makes personal distance. The initiative accomplishes its work through various approaches.

• Grantmaking. It offers grants to nonprofits that align with its mission to support research, innovation and social good programs.
• Investment. Like the Emerson Collective, the Chan Zuckerberg Initiative makes private investments in for-profit companies. Profits generated may then be reinvested back into projects furthering its goals.
• Policy and advocacy work. It engages in policy and advocacy work in education, science and criminal justice reform.
• Technology development. And, of course, technology plays a prominent role in its efforts, as it develops and leverages technology to share and analyze data.

This trend of creating LLCs or using advisories echoes a larger narrative. Donors want control of how and when they give. They also don't want to deal with the expectations or assumptions they should give to anything they don't want to support. As I always say, donors — not nonprofits — dictate the terms, and they're using LLCs, donor-advised funds and intermediaries to create distance between themselves and nonprofits.

Strategies for Nonprofits in an Era of Philanthropy

As a result of all of this, nonprofit organizations face a growing challenge. They must adapt to a world that will create even more distance. Here are a few tips to help make the adjustment.

1. Leverage Technology

Donors will soon have more opportunities to leverage tech to vet nonprofits making a substantial impact. That said, it's essential and an existential need for nonprofits to lean into technology as well. Those that don't will perish. It might sound hyperbolic, but that's the reality.

2. Strengthen Reporting and Transparency

Now’s the time to be more transparent than ever. If you want intermediaries to pay attention to you, you have to put your best foot forward. So, publish and guarantee effective spending of donor dollars and create robust reporting that documents impact and upholds high transparency standards.

3. Develop a Broad Donor Base

While wealthy donors remain vital to nonprofits' fundraising success, organizations should also work toward cultivating an array of smaller donors as a sustainable funding source and reduce dependence on just a few significant contributors.

4. Engage With Donor Advisories

Nonprofits must engage proactively with donor advisory firms, DAFs and other intermediaries to increase the chance of securing funding. Understand their selection criteria and try to build relationships to increase opportunities for funding with perhaps grantee-hosted informational events in your favor.

As we all know, philanthropy is evolving, and nonprofits must adapt accordingly. While additional layers of separation present challenges, they also present opportunities for innovation, transparency improvement, and expanding donor bases. As they say, "necessity is the mother of invention," and this maxim rings true within philanthropy's ever-evolving landscape. Now’s the time to be a step ahead and prepare for the future that’s already here.

The preceding blog was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.