Benefits of a Charitable Foundation

Are you considering setting up a foundation? There are at least eight benefits of a charitable foundation. Many hospitals, educational institutions and charities have set up separately incorporated charitable foundations, also known as parallel or affiliated foundations.

Foundations operate on a spectrum of support to their parent institutions, from acting as a notional segregated fund within the organization to an active organization where certain staff and functions, such as fundraising, are dedicated to the foundation; to external but closely tied to the parent; and finally to wholly independent of the institution.

While there is no research to identify whether parallel foundations are a more successful fundraising model, largely because of the variation in how foundations are utilized, there is a growing trend for parallel foundations to play an important role as fundraisers, advocates, real estate owners and entrepreneurial partners to their parent organization.

The Eight Benefits of Establishing a Foundation

1. Attracting community volunteer leadership beyond the governing board. The opportunity of working with people with affluence and strong connections to prospective donors, including businesses, individuals and foundations.
2. The foundation can be more responsive to the institution’s immediate needs without constraints imposed by government policy, such as the ability to borrow money and purchase real estate.
3. Strategically segregating pools of money and assets to separate institutional finances from fundraising activities and accounting policies.
4. Facilitating entrepreneurial ventures, such as gift shops or other enterprises, not generally within the scope of the parent.
5. Managing and preserving endowed and other assets, which is particularly important when significant changes such as mergers of dissolutions occur with the parent.
6. Providing another marketing and fundraising vehicle to promote the institution.
7. Focusing on fundraising activities aside from the core operations of the parent.
8. Donor preference to give to a separate foundation versus an entity perceived to be controlled by government.

There is a noteworthy distinction between the role in fundraising of foundation boards and governing boards.  Rarely do governing board members of hospitals or educational institutions feel it is within the scope of their duties to fundraise. They focus on governance. They are often uncomfortable asking for financial support in their communities.

This gives support to the rationale for creating separate foundations with board members who are recruited specifically for fundraising and for the affluence and influence they possess.

From personal experience of working with hospital and post-secondary foundations, I can attest that the quality of the relationship between the parent institution and its related foundation depends on several key factors:

• the maturity of the partnership;
• operational funding;
• society membership and board structure;
• the quality of the board members recruited;
• a shared understanding between the institution and foundation; and
• an articulated agreement on the respective roles of each entity.

It is often the lack of clarity about the respective roles, prerogatives and responsibilities of governing and foundation boards which leads to the most fundamental and common sources of conflict.

Leadership in the boardroom is identified as a critical component of fundraising success and advancing the missions of both entities.

Almost as important as the structure of the foundation, its membership and board, is the culture created within the foundation.  Important steps here are careful recruitment, orientation, training and engagement of volunteers who should demonstrate a passion for the foundation’s primary purpose of fundraising.

From the beginning, volunteers must understand the purpose of the foundation is to augment and support the organization’s mission and goals.    It is important to develop a shared understanding of respective roles and cross institutional collaboration, including effective board orientation which engages foundation directors with institutional staff in key positions. In the hunt for additional revenue, the parent organization might develop unrealistic expectations about what donors will and will not fund. This can heighten the tensions within the institution and its fundraising entity.

Best Practices to Ease Tensions Between Boards

To ease tension between the respective boards and arrive at a shared understanding, these best practices should be employed:

• Ongoing open communications including periodic joint board meetings, retreats and training;
• Official documentation, including a well-articulated Memorandum of Understanding between the parties;
• Joint strategic planning to strengthen how foundations and institutions advance broader based, more integrated fundraising and entrepreneurial activities for shared priorities;
• Strong recruitment criteria and plans to attract key volunteers and educate both institutional and foundation leaders on the roles of those volunteers (even high caliber volunteers need some fundraising coaching); and
• Multiple means for evaluating performance and success, including beyond financial return.

Global Philanthropic has the experience to help foundations achieve great success in fundraising, from strategic planning to planning studies, board and staff training and campaigns, both annual and capital. Give me a call and let’s talk about your options.