Fleecing in Philanthropy

I received a call recently from an old friend of mine, someone outside of the philanthropic industry, wanting to buy me lunch and ask me a few questions about a nonprofit that he was now a board member of... and thus a fiduciary.  And while I appreciated him buying me BBQ, I was astounded by what I learned.

My friend is on the board of a small nonprofit with a specific intent. Their board is quite inactive, almost passive, but beginning to figure out that things don't look or feel quite correct. Their funding comes from an annual giving process where they have hired an outsourced company to do the calling, most of it cold calling, regarding support for the nonprofit.  This has been in place for a few years and it's generated enough dollars, while limited, for them to accomplish some of their goals.

Why the lunch?

Several board members were questioning the financial arrangement with the third-party vendor. And if questioned how they would justify the relationship. Currently, the vendor takes $0.75 for every dollar raised. Yes, your math is perfect. That means just $0.25 for every dollar is going to the nonprofit and its mission. While it seemed like a good idea several years ago because it was a new nonprofit with no infrastructure and not enough resources to really even have a part-time person involved managerially, the numbers had grown enough that there was some discontent with the fiduciaries regarding the financial relationship.

And there should be a great deal of discontent.

I am a red-blooded American capitalist. I believe in the free enterprise system of the United States. I believe in the entrepreneurial spirit, both in the for-profit and nonprofit worlds. But for any vendor to take 75% of a nonprofit’s revenue, regardless of if it's legal and appropriately contractually obligated, is for me elusory.  And while there may be an argument for an inexperienced and beginning board to do more due diligence, this is obviously the business model of the vendor.

It's these kinds of issues that diminish trust amongst the people who believe in the causes that nonprofits exemplify. It hurts the industry. But after lunch, it may hurt someone else as well. In short order, I was able to give some advice that may find a better solution for this nonprofit.

You know what they say. Pigs get fat. Hogs get slaughtered.