For some non-profit leaders, it seems intuitive to establish separate structures for operating fundraising activities, collecting gifts, and distributing funds. Often this is not a legal necessity but the result of an effort to generate credibility with donors by creating a perception of independence. There are many organisations that make decisions to establish legally separate foundation entities or bequest societies in the hope that the creation of a separate entity would automatically trigger more giving.
I find that this move is misinformed and requires unnecessary extra work that ultimately results as nothing more than an unwelcome distraction. In speaking with donors, I don’t recall any mention that a primary driver in their judgment about organisational credibility (and thus their decision to give) came down to the presence of a separate legal structure.
WHAT DETERMINES CREDIBILITY?
So, if it isn’t financial structure that determines credibility, then what does? There are many ways that potential donors form a favorable judgment about an organisation, but the most reliable way to establish or improve credibility is through action: good leadership, great communication, and proper transparency.
Donors are much more supportive of organisations whose leaders are:
- Taking a keen personal involvement in the relationship with the major donor,
- Publicising good quality financial information on a regular basis, and
- Whose thoughtful actions are taken to articulate the impact of donor support.
Fundamentally, donors care much more about what you do, rather than what you look like.
YOU DON’T NEED ADDITIONAL ENTITIES TO IMPROVE CREDIBILITY
It is also ironic that an additional entity created to engender credibility can also create an inordinate amount of extra work and bureaucratic tennis that becomes a great source of unnecessary frustration and conflict for all involved.
The time required to service extra board members, the financial accounts, the meeting minutes, all the compliance work and much more, can easily pull a fundraiser off the core task, and it often does.
Additional stress can also develop if board members turn out to be difficult people to deal with or if a lazy board turns itself into a policing unit that foists all kinds of dubious, time-wasting administrative tasks onto the one full-time (paid) fundraiser. Later, the board may even start to complain that the fundraiser hasn’t raised any money.
Welcome to the typical black hole of a separate entity. While this is obviously not the case everywhere, I have encountered many of these black holes during my consulting work, and still do.
Unfortunately, it often takes some kind of catastrophic event for the people involved to wake up and consider a change.