Extravagance in Fundraising: How Much Is Too Much?

There are several schools of thought in fundraising. The first two are polar opposites and the rest are somewhere on the continuum in between. In fundraising, as in life, extremes are usually, well, too extreme.

School of thought No. 1 says that nonprofits should be poor and struggling, never buying pens or supplies, and groveling for every penny they get in support of their missions. This could be because of a misguided notion that nonprofits have to operate in the red in order to be worthy, or simply from the lack of an established fundraising program.

School of thought No. 2 says that if nonprofits are asking for investments from people of wealth, those nonprofits have to be able to play in the realm of the wealthy and glamorous.

Both of these strategies take things a bit too far.

It is the wealthy end of the spectrum that I want to address here. (But believe me, if a nonprofit doesn’t have enough funding to buy pens, there are many issues that need to be addressed there, too.)

Recent exposes on the Wounded Warrior Project shine light on some of the problems inherent in what I’ll call the "Glamour and Airs Frivolous Fundraising Extreme" (GAFFE).

I have encountered nonprofits that operate in GAFFE mode. No amount of money spent on fundraising events is too much, country club memberships are a given, only the best hotels are booked, and huge speaker fees are paid, all in the name of looking good and reaching the right people.

I am not saying that nonprofits should not spend money on fundraising. On the contrary, it is necessary to invest resources in the appropriate ways to maximize fundraising efforts. But there is a vast difference between investment and extravagance.

I have found that donors at even the most fortunate levels of wealth appreciate sound business practices. Many donors will say things like, "Don’t spend money on gifts to steward your relationship with me. I give my money to the charity to further the mission, not to buy presents for myself." It is very possible to show appreciation to donors without spending excessively. Most donors will appreciate a $10 plant personally dropped off at the holidays just as much as or more than they would the delivery of a $150 gift basket of cheese and wine. Donor relationships can be maintained with written notes, phone calls, small lunch meetings and home visits.

There are donors who have the opposite reaction, and do not feel cherished if they are not courted with lavish or extravagant gifts. My contention is that this is an expectation that is set by the organization's CEO/executive director for how the organization will operate. When identifying potential board members, it is up to the CEO and the governance committee to set expectations about not only what is expected in board service, but also about the philosophy of the organization and the position it takes regarding finances, donor engagement and financial management.

Why am I talking about setting expectations for recruiting board members in an article about fundraising spending? First, your board members are your principal, most engaged and often biggest donors. Second, those board members are your key partners in cultivating, soliciting and stewarding other donors. So, if you set the precedent when recruiting board members that the charity always will pick up the tab and will arrive with expensive gifts, it is on you if your board members then expect this to be the standard of operations.

Instead, let it be known that the nonprofit appreciates it when board members pick up the tab for lunches with donors when they are able. Choose restaurants that are nice, but affordable. You don’t have to bring your donors to McDonald’s, but most will understand if you don’t bring them to Ruth’s Chris Steak House either.

There still will be the few donors who want to be seen at the right club with the charity’s CEO, but these donors can be taken on a case by case basis. Maybe a board member or charity friend belongs to the best country club and is willing to take the CEO and the donor to lunch. Then do it! But that doesn’t mean the charity should budget to have its own membership to that country club every year. Not all fundraisers will agree with me on this point. For example, fundraisers in a retirement golfing community may have a better argument for needing to meet the donors where they are.

But, absent that golfing-community scenario, it is possible that some nonprofit executives and fundraisers support the need for extravagance partially in their own self-interest. This may sound like a harsh position, but it, unfortunately, can be true. Nonprofit professionals often make less than their private sector counterparts. They may see the organization’s country club membership as a perk of their jobs. It isn’t unusual for a CEO of a larger nonprofit to have a car as part of his or her benefits package. Does it really need to be a Lexus, or would a Camry suffice? As long as it runs well and looks nice when picking up donors, it doesn’t need to be a Lexus.

The Association of Fundraising Professionals (AFP), the international trade association that promotes ethical fundraising, addresses this in its code of ethics by stating that an AFP member should, "not exploit any relationship with a donor, prospect, volunteer, client or employee for the benefit of the members or the members’ organizations."

I’ve heard too many fundraisers say things like, "That donor is my friend, it is OK if I take the piece of jewelry she wants to give me." No, it isn’t. Not if the relationship with that donor is because of your position at the organization. If you knew her before you worked at the nonprofit, then maybe. But if you met her as a donor, you are not supposed to benefit personally from that relationship.

This again is all about expectation setting. Note that Wounded Warrior Project's board of directors fully supported the CEO's excessive spending—the same spending that got the organization into trouble. Why? Possibly because he set the expectations that such spending was necessary.

This brings me to my last point. Transparency in fundraising and accounting in nonprofits is a must. In working with a variety of organizations, I have discovered that there is sometimes a significant disparity in the amounts that nonprofits include in their reported fundraising expenses versus what they actually spend. Their fundraising expenses may look good on the surface, but upon deeper inspection, that may be because certain relevant expenditures were expertly reclassified as another type of expense so they were not counted in the fundraising total. It is a bit like statistics; with a little work, numbers can support any position you want them to.

My rule of thumb is that if you need to manipulate numbers to make an action you are taking look more appropriate, you should not take that action.

I witnessed a positive example of a CEO doing the right thing years ago when I worked for the American Red Cross. A new CEO had been at the helm of a local chapter for a year. In that year, she worked hard with the board to turn around some financial shortcomings and instability. At the end of the year, a very kind and generous board member gave the CEO a check for $1,000 as a thank you for doing such a good job. The CEO let the board member know that, ethically, she was not able to take this personal gift from him. But she offered him an alternative; she asked if he would instead give that $1,000 to fund a scholarship for someone to take Red Cross classes. The CEO gave back the personal gift check, the donor wrote a check to the organization for the scholarship, everyone was happy, and the organization won.

As nonprofit professionals, we should always evaluate our practices and the messages we’re sending to donors and board members with our actions and policies. There can be a balance between looking professional, being in the right place to meet donors and spending appropriately on the one hand, and avoiding extravagance and self-benefit on the other. We can avoid GAFFE and still be effective.

Fiscal responsibility, accurate accounting, expectation setting and transparency are the keys to not ending up in an expose about irresponsible charities that mismanage donor funds.