Making the Most of a Landmark Gift

Tuesday, August 5, at 12 noon, U.S. Eastern time

Mike Batchelor is president of the Erie Community Foundation, in Pennsylvania, and is managing a surprise $100-million gift from an anonymous donor. The donor asked that $85-million be used to make unrestricted gifts to local nonprofit groups and $15-million be allocated for national charities.

Joe Evans serves on the Board of Directors of the George School, a Quaker boarding and day school in Newtown, Pa. Mr. Evans has played a key role in helping the school solicit and manage a $128.5-million pledge from Barbara Dodd Anderson, a 1950 alumna who will provide the school with $5-million a year through a trust for 15 years, and then $10.7-million annually for another five years.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Hello and welcome to today's live discussion about how to manage landmark gifts. Most organizations dream about the type of gifts that have bestowed upon our guests today. Joe Evans of The George School has played a key role in ushering a $128-million planned gift to his school Mike Batchelor of the Erie Community Foundation is overseeing a $100-million gift from an anonymous donor. Both of them are available to take your questions about how they've managed these gifts, what they've learned, and how you can prepare your organization to be able to handle such a windfall. It's not as simple as it might seem.

Peter Panepento (Moderator):
    You are encouraged to ask questions during the next hour. To do so, simply click on the "ask a question" link on this page and then type in your query. This is a text-based discussion and we post all of the questions and answers on this page, which refreshes every minute.

Peter Panepento (Moderator):
    Ok. Enough housekeeping. Let's get started, shall we?

Joe Evans:
    My name is Joe Evans and I have been a member of the George School Committee (board) for nine years. I served on the finance committee, as well as the nominating and strategic planning committees. My background is as an investment adviser to small and medium-sized endowments and foundations. I also run a large investment partnership for a family group, as well as a family foundation. I serve on the boards of a large university related hospital in Philadelphia, as well as three other non-profits, and two for profit corporations.

About this time last year, George School became aware of the intent of one its alumni, a previous significant donor to the school, to make the school a gift totaling $128.5 million over a twenty year period. The funding vehicle is a charitable remainder trust, which pays installments annually, and any remainder at the end of 20 years to the donor's family.

This gift came as a "surprise" in terms of its aggregate size, but actually evolved over a number of years. Barbara Dodd Anderson's father taught Warren Buffet while he was a student at the Columbia Business School, and Dodd purchased original shares in Berkshire Hathaway in his daughter's name. Those shares were ultimately the source for this gift, and Barbara was inspired to make it by Buffet's gift to the Gates foundation, several years ago. She came to agree with Buffet, that seeing the benefit of her charitable gift during her lifetime became a desired goal.

The school has an endowment of about $70 million, before the Anderson gift. The board has determined, at least initially, its intention to add as much of each year's Anderson installments to the endowment, so that its eventual benefit can be spread forward to as many future beneficiaries as possible. Barbara Anderson heartily concurs with this objective.

Question from Peter Panepento:
    Hi Mike. Perhaps we can get started on your end with a short introduction about the gift you've been managing. How did it come to pass? How much time were you given to prepare for it before you made it public?

Mike Batchelor:
    Hi Peter: There is only so much I can say. We did know the gift was coming for several years and I did work with the donor over time to structure the gift. We were only given a few months before it was made public. Making it public was actually our decision. We had hoped to keep the whole thing quiet, but the local press was starting to speculate

Question from Sharon Schneider, Foundation Source:
    What kind of due diligence does such a donor go through to ensure that the organization is able to handle the gift? What questions *should* they ask to evaluate your preparation? Were there questions you were afraid they would ask?

Joe Evans:
    In our case, the relationship with the donor has been pretty continual since she graduated in the late 1940's. It is also not the first gift the institution has received from the same donor. So due diligence has occurred over a long period. My expectation is that these requirements will vary and be dependant of each individual.

Question from Peter Panepento:
    Hi Joe. What would you say has been the biggest surprise you've faced as you've worked through making this gift happen? Was there something that came up that you wish you had thought of earlier?

Joe Evans:
    I wouldn't say a surprise, but our board clarified early-on that we needed to be looking at the long-term use of the Anderson gift from the perspective of a strategic plan for the institution. So we determined early-on that refreshing a strategic plan was an early priority for the institution. We began that process late last fall, and we expect to recommend a final plan for approval by our board in December, 2008.

Question from Peter Panepento:
    How significant is this gift compared with your overall budget?

Joe Evans:
    Our annual budget is about $17 million. Of that amount, our endowment currently provides about $2.1 million of that. So if we assume a 5% annual return on the money, each annual installment of the Anderson gift, if placed in the endowment, would add about $250,000 in endowment income to the budget.

Question from Peter Panepento:
    What surprised you most about the reaction to this gift? I know there were a lot of efforts by some folks to "out" the donor?

Mike Batchelor:
    Well, lots of things. We were totally unprepared for the spreading of the news via internet. We granted one local interview and that led to one AP interview. Virtually everyting else was reprints. It then went around the world. The most interesting thing I did was spend 15 minutes with Voice of America. It wasn't on the gift per se, it was about philanthropy and community foundations. The interviewer said she would translate into Mandarin and then re-broadcast throughout China. That was cool...

In our case, the gift is designated to a number of charities favored by the donor. To the charity, it is unrestricted with a strong preference (from donor) that they endow and that they use our community foundation for this. i.e. an agency endowment fund. We are a bit suprised about the range of feelings on this. Some charities we felt would definately endow are not, and vice versa.

It has caused boards throughout our community to think critically about their fiduciary responsibilities. And, of course, we are suprised by all the various investment managers who are actively competing for this, against us.

It isn't dull.

Question from jim, small nonprofit:
    Mike, Why would you want to keep this wonderful gift quiet?

Mike Batchelor:
    Jim: It was the donors wish. That's all I can say.

Question from Kathy Smith, The Immigrant Learning Center, Inc., small nonprofit:
    In addition to legal, tax and investment expertise required to handle a large, unexpected gift, what other expertise should a nonprofit seek?

Joe Evans:
    You didn't mention fund-raising experience/expertise and while obvious, it's absolutely key. Our gift was nurtured over about 15 years, by three different advancement directors and two different heads of school. Consistent, low key, but absolutely essential.

Question from Mary Jo Herbig, Community Foundation of Greater Flint:
    Was it difficult managing the anonymity of a $100 million donor?

Mike Batchelor:
    yes... There has been speculation, some of it wrong. We had, frankly, hoped to even keep the fact that a gift was made quiet (this was donor wish). That is impossible, particularly in a smaller town.

We then went to "how can we best protect identity of donor." We felt the best way to do this was to release to local paper details of gift; including donor request it be referred to only as Anonymous Friend Fund.

Local press was actually good. The story died. But then, the AP picked it up. We made decision to grant the interview. We felt it was needed to control the story. If we didn't grant the interview, we might have reporters in town speculating on who donor was. That is something we tried to avoid at all costs.

So, while the actual story spread like wildfire, there really wasn't much speculation on the "who." In hindsight, I think we did the best we could.

Question from Tom, small nonprofit:
    Mike, What are the "strings" that are attached to the 100 million? Is it only for certain nonprofit groups or types to use or is it for all to benefit through your work? How is distribution planned?

Mike Batchelor:
    Tom: There are definite strings. The money is allocated to, I believe, 46 different charities selected by the donor. Most are in town, a few out of town. Most get a million, or two, over a three year period. In most cases, this is the largest gift these individual charities have ever received.

Peter Panepento (Moderator):
    We're approaching the midway point in today's discussion and have received some excellent questions thus far. We do have another half hour, so I invite you to ask your questions soon so our guests have time to get to your queries. Click on the "ask a question" link to submit your question.

Question from Greg Boal, ALSAC:
    What was the single biggest challenge to managing this windfall?

Mike Batchelor:
    Well, remember that 10% is designated to our community foundation as an unrestricted addition to our endowment. So, we need to plan on how to allocate a grantmaking budget that is going up by about 30%. We've hired TCC to help us with that.

Regarding the amount designated to other charities; the donor asked them to consider adding, or creating, an agency endowment within the community foundation. We've had to get much better at explaining how this works. We've had to get better at communitcating our investment management approach. We are also offering value-add services as we are not an investment manager and do not want to compete in that marketplace.

Its been a lot of work, but good problems to have

Question from Greg Boal, ALSAC St. Jude:
    Are there estate or tax benefits to the individual for donating now instead of posthumously.

Joe Evans:
    Yes. And from a comparative standpoint, the tax advantages of gifts made during a donor's lifetime can be importantly greater than those from gifts from a donor's estate. Since these advantages are dependant on both the age of the donor and the form of the gift, I suggest you check with your tax counsel regarding specifics, but having some examples which you can discuss with prospective donors is important information for you to be carrying to them.

Question from Joe Cuozzo, Pickering Manor:
    If your organization and board is new to fund raising, what are some of the things your organization shouldn't do or things to watch for? Particularly if the organization is not strong in its strategic planning.

Mike Batchelor:
    Joe:

Not sure I can do justice to this question via a chat. There are lots of good resources on web to help' BoardNet, Association of Fundraising Professionals, Center on Philanthropy, etc...

Generally speaking, donors have to "know you, like you, trust you." The further you can get on this continuum, the more likely you are to get a bigger gift. My guess the "trust you" end happens with organizations that have a tradition of good governance/management and whose mission remains critical and focused.

Question from Tom, Small nonprofit:
    Mike, Thanks for the answer. Folowup question now. So if the 100 million is for the 46 charities you mentioned that means any others are out of luck in terms of trying to get some of this money to start an endowment of their own from the donor?

Mike Batchelor:
    Well, they are free to ask any donor for a gift to help start an endowment. In fact, we've done this ourselves with a local charity.

But in terms of this specific Anonymous Friend Fund, yes they would be out of luck.

Question from Peter Panepento:
    Mike, with so many groups involved with receiving this gift, how do you manage helping all of them manage it properly?

Mike Batchelor:
    Well, like many community foundations, we've got a fairly sophisticated investment management committee. We hire an independent investment management consultant to help with asset allocation and manager selection.

We've got a large investment pool, so we can access more sophisticated investment products (private equity, etc.) than a smaller nonprofit can. We can also help lower investment management fees.

But we want to do more than that. We aren't a bank. We want to work with the agency to help them attract additional gifts to their endowment. We hired a consulting firm to help agencies plan... we didn't want this gift to become an excuse that other donors might use not to give.

Unfortunately, that may be happening. It is hard to tell if it is economy, or this gift, but many beneficiaries are having slow years. Including our community foundation by the way.

Question from Peter Panepento:
    Joe: Has the size of this gift had an impact on your other fund raising activities? Has it spurred more giving, or prompted other donors to think that the school doesn't have the same level of need as it had previously?

Joe Evans:
    I think that its fair to say that we've experienced both of those reactions. However, those who have seemed less inclined to consider a gift have generally been among smaller donors, and the good new is that larger donors have tended to be inspired by the Anderson gift and the evidence of confidence in the institution and its mission which the gift provides.

Question from Peter Panepento:
    Has the size of the gift impacted giving by other donors in the Erie community?

Mike Batchelor:
    We aren't sure, but I think it has. The local paper has been good, editorially, about emphasizing the fact that agencies need continued support. And, charities who are endowing the gift need to help donors understand the amount of income they will be receiving.

Question from jim, small nonprofit:
    Mike, Did the donor specify which nonprofits could get the endowments?

Mike Batchelor:
    yes, we had no flexibility there. I can say the donor's "list" remained very consistent over the years. And again, the nonprofits are getting a grant from us. We hope they use it to establish an endowment, but they can also use it for current operations or special projects.

Question from Margot Biggin, The Wayland Group (and George School alum):
    How will you make the case to alumni that their gifts are still needed and important?

Joe Evans:
    Not easily answered in a couple of paragraphs! But the decision has already been reached to add as much of the gift as possible to the endowment in the coming years. Endowment benefits the operating budget where, despite a $70 million endowment presently in existence, we need to find additional income. We presenmtly spend about 23% of our budget on financial assistance to students, for example, and that need is increasing, given present economic circumstances.

In addition to the operating budget, we also hvae pressing capital needs (eg. new, and renovations to existing buildings). So our capital needs will not be entirely met by the gift, either.

As noted, we've chosen to develop future context for the answer to yours, and related questions, by developing/renewing a strategic plan. In that plan, we will ultimately match up the school's needs with available resources, including the Anderson gift. The resulting described priorites will have one of its best uses in discussions with prospective donors.

Question from Peter Panepento:
    In what ways are you better prepared to manage such gifts now that you've been through this process?

Mike Batchelor:
    Well, the mechanical systems needed to handle are in place. I can't get too specific, but there were assets that needed to be liquidated. This had to be done very carefully. It went very well. We know how to do that and could do it again.

We've got lots of materials prepared on FAQ's regarding agency endowments. We got better at that.

Local money managers would say our investment management philosophy has created competition for management of this money. I've had charities tell me bank presidents (plural) are calling them saying "don't put your money at the community foundation." This puts the charity in a very awkward place. It's about fees for the manager. If we don't retain them currently, they lose fees. Even if we do, they might only get fees on a portion of the gift. We could be more flexible here.

Question from Peter Panepento:
    What are some things an organization should consider to make sure they get maximum impact from such a gift? What should they analyze in their own operations to make sure it's managed properly?

Joe Evans:
    First, fulfilling the donor's intent in the most capable way you can. He/she might consider a follow-on gift, circumstances permitting.

Second, look carefully at your mission, and the strategies you could put in place to reinforce that mission. Donors respond to the things you do well as an institution, and added resources should help you to do those even better.

Third, be sure that you're investing well. Every donor of any significance that I've ever contacted asks "how is your endowment managed? what have been your returns?" somewhere between first contact and making a gift, and they see it as a critical question. When calling on prospects, having that information readily available is important

Question from Peter Panepento:
    Mike, you mentioned that many of the smaller organizations that are beneficiaries of this gift have never managed anything of this size. What are some of the most common issues you've seen from these groups as they prepare to accept this influx of capital?

Mike Batchelor:
    This may seem like a suprising answer, but many really don't know what to do with the money. They are taking their time deciding if they should spend it or endow it (or some combination).

If they spend it, on what?

If they endow it, where and with whom.

Also, how to communicate this to donors so that it does not damage existing fundraising efforts. It seems like the Harvards and Yales don't have these problems, but smaller nonprofits don't seem to be seeing this gift leveraging additional support.

I hope it does.

Question from Peter Panepento:
    That's a very interesting point about investment managers. How have you counseled groups that are feeling that pressure about where to place their assets?

Mike Batchelor:
    We are continually taking the high road... thats all we, as a community foundation, can do.

We explain what we do, including the limitations. We then tell them to make their own/best decision.

Of course, we realize local charities can also feel perceived pressure to endow with us. They might think it will help with future grant applications. Or, they might do it out of gratitude for past grants received.

We try to keep all this out of the decision, but I know charities, and their boards, are feeling some heat over this decision. Again, we are taking the high road.

Question from Greg Boal, ALSAC St. Jude:
    Joe, As a follow up to your answer - what advice could you give someone on maintaining the "Consistent, low key, but absolutely essential" method for nurturing the gift?

Joe Evans:
    In the past decade or so, many institutions have been receiving larger and larger gifts from fewer and fewer donors. So identifying your best prospects, and diligently following up with them as a cultivation exercise is most important. "Low key" speaks more to the character of George School, and members of that community. Lots of money spent on flashy marketing, or campaign material is simply not our style. But reflecting the style of your organization in determining how you deal with your best potential donors is an important, though subtle message to be communicating too. So put your best efforts on your best prospects, and be prepared for it to take a long time before big results can be achieved.

Question from Margot Biggin, The Wayland Group:
    Joe: Do you have any sense as to how Mrs. Anderson has reacted to all the public attention as a result of her generous gift? E.g., does she simply feel proud or does she feel overwhelemed in any way?

Joe Evans:
    I think that she certainly feels proud, and that her decision to make such a significant gift during her lifetime was a good decision on her part. My impression is that she found all of the initial publicity a bit overwhelming, but that's the nature of today's media. I hope, and many of us are working hard to assure, that "increasingly satisfied" is how she will come to see the new partnership that's been created to benefit the school.

Peter Panepento (Moderator):
    A quick note here as we approach the end of the discussion. Those who joined us last Tuesday for our discussion with Patty Stonesifer of the Gates Foundation should note that we have posted dozens of additional questions and answers to the transcript. We received a heavy volume of questions and the Gates Foundation took the time to answer every one of them. You can find the full transcript at http://philanthropy.com/live

Question from Peter Panepento:
    Mike: Beyond the big number, what do you think the long-term impact of this gift will be on the organizations who will be receiving it? How will it affect the community you serve?

Mike Batchelor:
    Thanks for asking that... we get too focused on the amount of the gift, and forget about the good work it will do.

There are, at least, 46 different answers to that. In our case, our competitive grantmaking budget immediately goes up by 30%. Think of the good work we can do with that!

I guess all I can say is that for, at least 3/4 of beneficiaries, this is by far the largest gift they have ever received. It is transformational for 30 or so.

This may mean organizational stability. Or it may mean more food at foodbank, a successful capital campaign, staff raises, new facilities, outreach to other areas... Its just impossible to say.

But, that is where focus should be. When you add it up, the cumulative impact must be that Erie is a now a much better place to live. If you believe strong nonprofits make a community better, we are now better.

Peter Panepento (Moderator):
    This seems like a perfect note to end on. Thank you for joining us today. I think this was an interesting topic -- and one that doesn't typically get much discussion. I'm thankful to our guests, Mike Batchelor and Joe Evans, for taking the time to share their experiences.