Episode 217: Endowing Positions Outside of Higher Education - Strategic priority but terribly underused
Welcome to another edition of Around with Randall, your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett.
It's a terrific day right here on this edition of Around with Randall. I want to venture into the conversation in our 20 minutes or so together around the concept of Endowments, but I'm going to be very specific. If you're wanting general information about Endowments, I would recommend going back to Episode 127 of Around with Randall, where I talk about it in a more generalized form or fashion.
Today I want to talk about Endowing chairs and Dowing positions. And in particular, I want to steer toward and away from higher ed. The higher ed has figured out how to build a chair system to endow the positions that are the faculty members for the most part, some researchers, maybe some administrators, but they've used this strategy for quite a number of years. What I want to talk about today is other sectors of the nonprofit world and the fact that we have to figure out how to do something very similar. So I'm going to steal from them to give to the other sectors.
I may highlight more today, health care than other sectors just because I tend to spend a little more time there, although I work in higher ed and work in social service. I think it provides the best platform. Also I think there's also the most amount of resistance. And so if we can overcome the challenges within the health care arena in this area, we can do it so probably much more simply much more ably in the non health care areas or sectors.
So let's start with what we're talking about. What we're talking about is raising endowed funds that help support or maybe in total pay for a particular position. And just as a quick example, if you have, let's say in a university, a chair who teaches, let's say, it doesn't make a difference. And then on top of that, they do some research. They might find $5 million as an endowment gift and create a chair. And that's producing, if just basic numbers, $250,000 per year, 5% that goes against that faculty members paid compensation.
It may also provide additional resources for research. It might provide some additional resources for travel, for maybe graduate students, things of that nature. It depends on a lot of different circumstances and what the needs are for that particular faculty member. The family or the individual or the company who gives that money becomes the namesake for that position using a bad example of Randall Hallett, if my wife and I were the donors, it would become the Randall and Mary Lynn Hallett chair of chemistry at so and so university.
If the value of the disbursement and on an annual basis, we said $250,000 isn't enough to cover everything, it just offsets it. So if the salary in total was $400,000, that means university only has to come up with $150,000 to make that faculty member’s compensation or research the promised agreement come to bear because $250,000 would come from philanthropy.
Why do I put this into place? Because we're seeing a retrenchment of all call it services in healthcare, in nonprofit work, in social service because expenses are growing. Just one factor, a number of states have increased their minimum wage effective January 1st of this year. One of those states I live in is Nebraska. The minimum wage is gone to $13 and I believe 25 cents, which is a pretty large jump from where it was. It was a statewide vote so you can argue it's good or bad, but it happened.
What does that mean to nonprofits who are paying a lot of hourly employees? The costs of our healthcare have dramatically increased. It's 20% of our GDP across the United States. We're seeing a retrenchment in rule health when it comes to different specialists who are now longer willing to go to smaller communities because they don't have enough patience and I make enough money.
We could talk about the other types of nonprofits where they're serving a wonderful mission. Think about a client that I have and come to the middle eastern part of the United States where they literally are into working with kids, chemical, mental, emotional health issues. They do spectacular work, but their costs are going up and because they are a heavy personnel driven process or engagement with these kids who need this support in these families.
This is all to say that there are underlying fixed costs that we have in our nonprofit, mainly around people from the most part. And the challenge becomes how do we afford them on a regular basis? What universities figured out was their biggest cost is faculty people is that if they began to create endowments to help fund those positions, we talked about that chemistry professor being paid X number of dollars, doing some research, maybe having a couple of graduate assistants. That has costs and what the universities figured out is if we can start building funding to offset those fixed costs in totality or in part, that's going to create more flexibility.
The challenge is is that for, I don't know, maybe 10 or 15 years, I have been yelling and screaming about community-based health care, endowing chairs or positions and it's never really caught on. And as our health care costs continue to grow as well as the other sectors of our nonprofit world, this idea needs to gather more strength, more power.
So let's start into really talking about the benefits of why this happens and we'll get into the quickly about the how and finally we'll talk about some examples. So the first thing is is that one of the benefits is just mentioned was it brings financial stability. When you are able to have a number of endowed funds that creates a reservoir, it's not a savings account because it's endowed, you're not in less, there's an emergency dipping into it, but it creates a reservoir of annual giving back into the organization.
And two, three, four, five percent if it's on a rolling three or average or however you're financial policies indicate your investment policies. What this does is provide a sense of stability for the CFO. They can count on those funds on a regular basis. That is becoming more important because if we don't have that and this is where, and I mentioned in my prediction show or episode podcast for 2025 that I continue to see a growth in the number of particularly small colleges that are going to close or merge. It's because they don't have a reservoir.
They're of so driven either state or private by tuition that these small colleges, their costs are going up in terms of tuition and they can't, students are going to pay that. Plus, we have a decreasing number of students as I mentioned. So those with funds are going to be the ones that substantiate long term at maybe even like a high school level.
So let's get out of higher ed. The idea of scholarship money, same principle, but why not endow positions? I had a call with my mentor on one of the two who long time president of Jesuit schools and we quickly got into the conversation where they're looking at how do we endow positions, faculty members to ensure that we can provide because our costs are going up provide the best possible options when it comes to providing long term in their case education, financial stability.
Number one, number two is about talent acquisition and retention. When you put a name on a chair, like the bad example at the beginning of our discussion, the Randall and Mary Lynn Hallett chair, that has distinction. It also creates a stability in terms of funding. Can you pay that position? Maybe a little bit more. Maybe you got and get somebody really great in a particular area that you need that service.
It also helps you retain because once you have a chair, it feels elevated. You feel special. Well, it's tougher to leave that position. And so universities have used this as a way of elevating whether the Hallett chair for chemistry, every time they're introduced, anytime they're on the web, anytime they're doing a lecture, any thing that has elevated status for people.
So number two is talent attraction and retention. Number three is it provides a deeper mint and we'll talk about this in a few minutes, a deeper philanthropic engagement. You get closer to people because we're talking about bigger dollars in a sense of permanency.
I'm going to stop there. We'll come back and cover that in a few minutes about what universities have figured out about how to sell this particular concept. The last is is that it gives the organization from a strategic perspective, a chance to invest in the things that are most important. Let me take rule health as an example. I think that we're missing the boat completely in this kind of thought process.
And I don't mean rural health like you got to be in a town of 10,000 people. I'm talking about anywhere that's not an academic medical center because they tend to pay the most. Think about a community that needs a specialist. Maybe it's dermatology. Maybe it's rheumatology. Maybe it's even if you're small enough cardiology or orthopedic, something basic, what we think of as basic.
Part of the problem is that you have challenges, and if it's you, you have challenges in attracting that talent. Sometimes you got to pay a little bit more to get people to come. Maybe you have to pay off their student loans in part to get them to come. Maybe you have to give them an elevated status to get them to come. Think about having two, three, four chairs in your particular organization and rural health as our example here for let's say some type of pediatric oncology that you have more resources available to go attract someone to come into your community. And if not on a permanent basis, on a more regular basis.
Hospitals as an example are having a really strong struggle. They're really fighting the reimbursement model. And in doing so, what's happening is that they don't have the resources because it's a cost benefit. We see this many patients, we get reimbursed this amount of money based on those patients and what their payer mix is. That gives us a revenue stream. And that's all the money we have. But I got to have, if we take our example of pediatric oncologist, I got to have the pediatric oncologist who expects to be paid a certain amount. This oncologist is going to need some type of staffing, facility, space.
All of a sudden, you start adding the numbers together and smaller communities are saying, we just can't make this financially work. Add the chair. Take the most expensive part of that equation, the staff. What happens if you had a chair for that pediatric oncologist? A fund of a million dollars, 1.5 million dollars that would add 50 to 75, maybe $100,000 per year into the revenue streams for that CFO to balance to see, can we afford that pediatric oncologist two, three days a week to bring them up from maybe a different community to partner with another community that we share that responsibility? That flexibility is key.
These endowed positions address massive financial challenge. And particularly in the areas where you need it the most because you can center your attention on it. You can focus your leadership on it. You can focus campaigns on it. You elevate the need for it in the community and be able to explain it in a meaningful, impactful way.
So if we all agree, and I'm hoping after the first 12, 13 minutes, you're on the same page as I am, that these things are really important, that we are not talking about them. The question really becomes, then how do we do this? How do we get more effective chairing endowments for our community? Universities have perfected this. So let's take a look at what they do.
Number one is, they clearly align the need and the vision with strategy. They are unabashedly unafraid and not embarrassed to say the most valuable resource we have is our faculty. And we need to fund them. We have to find ways of ensuring we have the best teachers, the best researchers, the best people that can really elevate the classroom and the output of the university. And to do that, we are going to put money behind this, that's the chair system.
They demonstrate that impact by showing that they're bringing in the best people. And they really make it a strategic priority. Campaigns are built around it. I've yet to see a very effective campaign outside of either academic medicine or major higher ed around chairs in the non-health care, social service. But they just don't talk about it. But universities who started this process 30, 40 years ago, formally, started with smaller numbers. One of the fears about the strategic priority or the connection articulating need and vision is like, well, universities doing $10 million now. We can't do that.
I agree with you. But the university didn't start there. They started with professorships and lectureships like at 500,000. They just have grown into it. That's where a lot of other nonprofits should start. So the first thing is, is that there's a push, a conversation, a connection to strategy about need and vision.
Number two is they communicate these needs. They spend resources. There's targeted outreach. Who are our top donors that have resources that could do these kinds of things? And it's all about storytelling. Why is this so important? If you have a particular position in your organization that is quintessential, what are the stories that surround that that make it viable as to why this should be done? What would it mean if they weren't there?
The reason I keep coming back to rural health care is that it's easy to understand telling the story about the importance of, let's say, a pediatric oncologist and not having one locally. Now you've got a sick kid who didn't ask for any of this. Who now has traveled 220 miles to get to a larger community versus what we hope for is 90 plus percent of health care being local. That's a story of what it means for this community to have, in this particular example, this specialist.
If you're a food bank, it's the key, whoever manages all the volunteer services. I mean, how do you tell the story about how important that person is in communicating food insecurity or in housing? So I think about like a habitat for humanity, how important the construction managers are, who keep all of the processes moving forward, all the houses that are being... there's all kinds of stories if you just look for them.
Number two, marketing, communication, storytelling. Number three, this goes back to the heart of what I tend to talk about it quite a bit and what we probably don't talk about enough. And that is the essential nature of more meaningful, deeper, transformational relationships. To do this, you're going to need larger gifts, a $25,000 endowment, while wonderful, and a generous gift buy, let's say a family, if they were to do that.
It's only going to provide $1,250. That's not going to be enough to make a real salary compensation impact. So you got to get bigger gifts, which means you have to get into longer, more trust-based, more importantly connected relationships with people to tell those stories. The communication we just talked about, to talk about connecting it to strategy and vision in the community-wide some board.
What I find tend to often, and this is why it's tough for some not to get to this level, is if we have all transactional giving, I got to make my goal. This year, then all we end up with is a lot of $10,000, $50,000 gifts, which by the way are great. They don't get into the $100, $250, $500,000,000 conversations because we've shortened the process. And there are a number of podcasts that I talk about, strategic stewardship, connection. Go back and listen to them because that's where we get to the deeper conversations. The second, third, fourth level gifts.
Number four is you have to leverage leadership. Your CEO, your board chair, has to be part of the communication to the community. They're the ones with the credibility. To be candid, philanthropy and the philanthropy department, Foundation Development Office, Advanced Fund Office, whatever you call it, is a subset of the CEO, my book, vibrant vulnerability.
If the CEO can't articulate what's needed and why it's important, how is the philanthropy office supposed to do anything with the larger donors? I'm talking, if we're talking about the larger dollars, we're talking about a limited number of people. It's not everybody. Number one, number two is that these people that the CEO should be connected with. Number three is they have to be articulate these messages because, frankly, those kind of people want to hear from the CEO.
That doesn't mean that it's mitigating or diminishing the advancement development Foundation Office. They're still responsible for the technical aspects of the relationship building process. But if our CEO and our board chair and our executive leadership can't get up and say, this is critical to who we are and what we're doing, then it's going to diminish that opportunity. Not diminish the staff, not diminish philanthropy and fundraising as an office, but it's going to diminish the cause. And so we need these institutional leaders to be at the forefront of talking about this, which by the way comes back to number one, aligning what strategic need. I have found CEOs are more likely and better at articulating need if it's aligned correctly because they can understand it.
So getting the leadership team involved is critical. There's also a thought process around kind of the execution of philanthropy and if philanthropy office. What am I talking about?
Number one is there may be some matching gift opportunities. There's going to be tiers, possibly. You might have a, if we use the university model, an electorship, a professorship, a chair, different levels for different opportunities. You need some structure behind that. I would also argue or articulate the investment policies, gift acceptance policies. But just as important, the stewardship policies, not only for the people that you're looking to make these gifts, but the people that have given these gifts are quintessential in this process. If you do not have these kind of basic check marks, you're going to put yourself in a position where things may not be at the highest level executable. So making sure the back end is taken care of.
The last one is dealing with how you kind of talk about this with universities that figured it out. Number one, part A of that is success stories. You only need one or two to get it rolling. Once you get one or two and somebody else's name is on a chair or a position or whatever, wow. All of a sudden I was like, "Well, hey, hey, I want to do that. I didn't know that was that big of a deal." So when one or two happen, those first ones really sell them to the community, talk about them, steward them for everybody.
Number two, to get it started, it's about exclusivity because most endowment of positions, chairs, professorships, whatever you want to call them are exclusive meaning that position holds that name, family name, individual’s name, couple’s name, company’s name, forever. That exclusivity, that personalization is incredible in terms of stewardship and if you use it correctly. Universities figured this out when they started naming the schools. You just don't have in most places a school of law, you have the Hallett School of Law at University X. Same principle.
So when we talk about how to do this, it's all about articulating and connecting to the strategy, the need, and the vision. It's about marketing, communicating it correctly. It's about building those deeper, more meaningful relationships. Second, third, fourth, fifth-time gifts. It's about getting your leadership, those influencers, those executives, to be at the forefront of the conversation, even though they may not have to ask. And you’ve got to have some backend stuff taken care of to make sure that the technical aspects are aligned correctly. And lastly, it's about that success, the storytelling, this exclusivity that comes for donors.
The last thing I want to do here is just for a moment is give you some examples. They're beginning to pop up, but they're not as much as I'd like, but it's worth mentioning. So, ironically here in Omaha, Children's Nebraska, used to be Omaha Children's Hospital, but Children Nebraska has several endowed chairs in this particular area. They have the Fleming Chair for Pediatric Cardiothoracic Surgery. They have the Barbara and Ronald Schaefer Endowed Chair for Pediatric Orthopedics. They have a naming, they're naming their facilities or their programming, like a university.
Hartford Hospital in Hartford, Connecticut, has the Endowed Chair for different program areas that are starting at 1.5 million for endowed clinical chiefs or 2.5 million. University Hospital in Cleveland, Ohio, has the Dixon Chair for Global Health and the Pell Janude Chair for Dermatology. The Key for Chair for Excellence in Academic Pediatrics. The Pell Hospital has moved into this. They have $60 million in pediatric funds that have been donated into their chair program. They have 22 different endowed chairs. All this is to say that it's possible and it doesn't have to be at the $10 million mark. It can be at lower amounts to get it started.
Think about some of the positions, particularly in healthcare, but you can relate this to other parts of your organization if you're not in healthcare, that this fits. From your Chief Medical Officer, your Chief of Surgery, department heads in terms of the department director for cardiology or emergency medicine, you could have specialized positions. As I mentioned, a pediatric oncologist, you could have nursing chairs, nursing leadership chairs. You could have community outreach chairs or telemedicine directors.
The one that got me that really sparked this conversation was the story that came out about Cedars-Sinai and Art Achoa, who is the head of their philanthropy area. He does a phenomenal job, an industry leader. They announced right at the end of 2024 that they have a $10 million gift for the CEO position and an administrative chair. If we don't find ways to mirror what's going on in higher ed, in social service, in healthcare, in secondary ed, in wherever—I'll throw it into public schools, which is what I write a lot about for doctoral work—is, I think it could go into public schools through the foundation. Why not?
We have to find a way to offset some of these fixed costs, and the university model has provided us a template. The question is, will we accept it? And I'm hoping today this gave you a framework of maybe some things to think about. It's a much more detailed subject, but it's important if we're going to move forward in providing the services we need with the people that we need them from. To take care of and elevate the profession that nonprofits provide through the people that lead us.
Don't forget to check out the blogs at helifelianthropy.com/blogs. If you'd like to reach out to me, it's podcast@hallettphilanthropy.com. A little longer today, a little more detailed subject, but I'm hoping it's helpful. And I'm also hopeful that you realize how important you are to your organization, to your community, to the things that you do. Remember my all-time favorite saying: Some people make things happen, some people watch things happen, then there are those who wonder what happened. And at the end of the day, we serve an important purpose; you serve an important purpose. In being someone who makes something happen, partnering with those who want to make things happen for the people and things in our community that are wondering what happened. And I can't think of a better way to serve our community and spend a professional life.
I'll look forward to seeing you the next time, right back here on the next edition of Around with Randall. Don't forget—make it a great day.