Avi Z. Kestenbaum, Co-Chair of Meltzer Lippe’s Trusts & Estates practice group was featured in The Chronicle of Philanthropy in an article titled “What Do Donor Revolts Mean for Fundraising?”
When wealthy donors started withholding gifts to colleges because of the way they handled responses to the Israel-Hamas war, many nonprofit chief executives and development leaders nationwide realized they needed to prepare their own institutions for a new era in relations with benefactors. Not only is the war galvanizing donors, but so too is political polarization, which is especially high in an election year like this one.
“Many charities, not just large Ivy League universities, are concerned about this,” says Doug White, a former fundraiser who is now a philanthropy consultant and author of Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University.
The ripple effects of anger over how some colleges and other nonprofits have responded to the Israel-Hamas war, debates over diversity, and other issues go beyond the richest donors, experts say.
Some donors are “embarrassed” by the behavior of organizations they’ve previously supported, says Avi Kestenbaum, a lawyer who represents many charitable donors. People who feel let down by a charity they trusted are going to be “a lot more careful about where and how they spend their money.”
While donors who give the largest sums typically negotiate gift agreements with charities they support and have a chance to work out conditions for substantial donations, most donors don’t have that opportunity, he says. He believes many of those donors may choose to give smaller chunks annually, with the option of stopping if they feel the institution veers in the wrong direction. Another possibility: Some may opt to create trusts that dole out the money on a regular basis — provided the charity follows the principles set in the trust. As donor revolts become a more pressing issue for nonprofits, the Chronicle asked veteran fundraisers, foundation officials and philanthropic advisers how organizations should prepare for what’s next.
Communicate early and often.
To head off potential confrontations, nonprofit leaders should prepare to have substantive conversations with potential donors. That communication needs to start at the beginning of the relationship, long before a gift is fully fleshed out. It’s important to share the organization’s mission and approach to accepting gifts right away, says Adam Falk, president of the Alfred P. Sloan Foundation.
“When you raise money, you are trying to legitimately persuade someone that the thing that you do as a nonprofit is important, and important enough for them to give the money to do it,” Falk says. “To do that, you have to build their confidence in you as an organization. That process has to include some candor about what a donor’s role is going to be after they make the gift.”
In most cases, that role will be fairly minimal — but it’s important to be clear about that throughout gift discussions, White, the philanthropy consultant, says. “That kind of a thing ought to be well discussed with the donor,” White says. “Say, ‘Okay, this is our value system. We can or we cannot accept the money based on what you say you want.’”
Set guardrails for how donors participate.
Sometimes donors who make demands want to be involved in meaningful ways with the organizations they care about, says Genevieve Shaker, an associate professor at the IUPUI Lilly Family School of Philanthropy. When that seems to be the case, leaders can talk about the appropriate ways for donors to get involved, such as volunteer positions. “Those can be hard conversations to have when you’re trying to build a larger relationship with someone that you hope is going to make a gift to your institution,” Falk says.
Keep conversations private.
The recent donor-pressure campaigns have been unusually public. Typically, unhappy donors make waves behind the scenes. Even if a donor says something publicly that criticizes or threatens an institution, it’s still best for fundraisers to try to use the relationship they’ve built over time to talk to the donor privately. The goal should be to appeal to them in the same way and tone that got them interested in giving to your organization in the first place, White says. He adds that major donors often serve on boards, advisory panels, or attend organization functions, “so there’s every opportunity for these organizations to have these kinds of communications.”
Don’t waver over values.
If a donor is asking a nonprofit to do something that compromises its values and won’t relent, even after discussing the issue with the person the donor is closest to at the organization, then it’s time to let go, White says. “You’ve got to be very strong and value-oriented about how you’re going to respond,” he says. “We can give up $200 million. We can say goodbye to that if we’re committed to our value system.”
Expect new demands over naming rights.
If conversations about a big donation go well, the next step is to put it in writing. But some experts think gift agreements are likely to change in the wake of the recent spate of dustups with donors. In the past, donor agreements have included provisions that allow the institution to remove a donor’s name from a building, scholarship, or other program, if the donor commits a crime or otherwise becomes infamous. Given today’s conflicts, many donors may now want to write similar conditions into their agreements to allow them to remove their name from a building or program their donation supported, says David Lenz, a lawyer who counsels both donors and charities.
“The naming-rights issue is really a two-way street,” says Lenz. “The donor may decide they want to part ways with the institution at some point in the future,” he says, so it’s important to define when and how that can happen. Lenz says it won’t be ideal if donors elect to remove their names, but ultimately the downside is surmountable. “If you’ve got active news media around such-and-such donor has taken their name away from this institution, obviously that’s not good for PR,” he says. “But the institution still has the money; they’re still able to run the program.”
Consider what to do if donors want their money back. Some donors may want to go a step further and add a provision that would require the institution to return the donation if it violates some standard related to institutional conduct, says Kestenbaum. He acknowledges, however, that would be incredibly tricky to craft — it would probably require an outside party to serve as arbiter. What’s more, when donors learn they would lose the tax benefits they received from making the gift, they might think twice. Another avenue donors who make multi-year pledges might take, says Lenz, is to discontinue future payments if the organization angers them by, say, promoting antisemitism or speaking out against diversity. Lenz hasn’t seen donors seek such provisions, but he thinks some might do so.
Create or update policies on accepting donations.
Gift-acceptance policies can be another tool to help fundraisers set expectations for donors. While the policies generally lay out the kinds of donations an institution will accept — such as cash, real estate, and stocks, some organizations also use them to make clear that they will only accept donations that are in line with their missions. This language can help set straight donors who think their contribution gives them the right to exert control over what happens at the institution.
“To the extent one can tie the policy more directly to the mission, it makes the policy perhaps more palatable to the donor,” Lenz says. “They might be more understanding of why there might be pushback on certain aspects of a gift, if you can clearly point to, ‘This is our mission. This is why we don’t really accept gifts that are structured that way.’”
Many small nonprofits don’t have gift-acceptance policies, but they should develop them now, says Shaker at the Lilly Family School of Philanthropy. White, the philanthropy adviser, says organizations can make it easier for themselves in dealing with difficult donors by pointing to the connection to mission in the gift-acceptance policy.
“You shouldn’t wait for a donor to create a crisis mode at the charity to say, ‘Oh, now what do we do?’” White says. “There’s going to be a crisis mode. You should have given some thought to this beforehand.”
A version of this article appeared in the March 5, 2024 Issue of The Chronicle of Philanthropy.