The Impact of the Nonprofit Donor Revolt

I've always known that donors dictate the terms of how a nonprofit operates as a specialist in major gift fundraising and capital campaigns who's worked in the nonprofit sector for more than 30 years. It might seem that it's the executives — depending on the topic (e.g., hiring) — which should be the case. However, increasingly wealthy donors aren't accepting the role of management and stating that as the “shareholders” who are significantly investing in the future of the organization, they have the right to dictate the terms of what a nonprofit does — full stop.

One example is the conflict between Princeton University and an heir to the A&P grocery stores, Marie Robertson, and her husband, Charles. The couple donated $35 million to Princeton University for an endowment supporting graduate students pursuing "careers in government service." The gift was given in 1961. By 2007, the endowment had grown to $930 million. However, decades later, the endowment supported more programs within the Woodrow Wilson School of Public and International Affairs. The Robertson's children sued for misuse of funds. In 2009, Princeton returned about $100 million, with $50 million plus interest going toward a separate foundation and the rest covering the family’s legal fees.

What Happens at a University Will Spread

More recently, there was the ouster of Harvard University president, Claudine Gay, for plagiarism in her academic work for her dissertation. One of the largest billionaire donors to Harvard University, Bill Ackman, and conservative activists ensured his followers were aware of the accusations. In short, Ackman wanted Harvard University to end its practices and policies around diversity and equity, so he pursued the institution's first Black president to drive home the point in overthrowing her tenure.

The Pulitzer Prize-winning writer, Nikole Hannah-Jones, and professor at the University of North Carolina, was denied tenure in 2021 over her association with the 1619 Project, which took a critical look at U.S. history and slavery. In the case of Hannah-Jones', the board (read, donors) took the rare step of not approving the journalism department’s recommendation. 

In response, the department said, "Failure to tenure Nikole Hannah-Jones … is a concerning departure from UNC's traditional process and breaks precedent with previous tenured full professor appointments of Knight chairs in our school."

We know that we live in very polarized times, and that will stay the same for a while. In fact, it's only going to get worse. The truth is that there is an intellectual battle for the hearts and minds of university students and also for what's accepted in our society, and it focuses on polarizing issues, such as gender, diversity, equity and race. This tension at the university level also exists within corporations and is spreading throughout to tap into every aspect of society, including nonprofit boards. In short, now more than ever — donors dictate the terms.

The Donor Revolution That's Reshaping Philanthropy

For decades, there was détente between nonprofit boards and major donors, allowing management to do what management should do (i.e., hiring, policy, etc.). However, that's not the case any longer. There is a donor revolution afoot, and it's reshaping the nonprofit landscape. Donors no longer have qualms about flexing their economic muscle, and they're demanding direct or behind-the-scenes influence and outright approval of management decisions. That puts nonprofit leaders at an inflection point.

What should nonprofit leaders do? Should they bow to the demands of activist boards and major donors for the sake of the essential funds to support the mission? Remember, from a fundraising perspective, it's exceedingly common for nonprofits to get more than 80% of their operating revenue from fewer than 20% of their donors. Or should nonprofit leaders stand on principle, and instead stand their ground regarding policies and what's traditionally been management decisions? What is the more ethical approach? As a leader, what will you do?

How to Address the Growing Donor Revolt

Due to complex reasons, including divisive polarization in our country, the balance of power within nonprofits and the boards is shifting significantly in favor of wealthy donors and boards. In many cases, executives will have to make tough decisions about how far they will allow these individuals to dictate the terms of their gifts to the organization and how the nonprofit will operate. For example, will a $1 million gift with strings attached be more critical to the mission than the nonprofit's policies around its management and operations? Where are the boundaries between influence and institutional autonomy?

In my experience, there are two critical strategies that nonprofit leaders can employ as these issues seep into their organizations.

1. Open Discussions With Donors and Board Members

It may seem obvious, but you'd be surprised how many executives do not speak truth to power. If nonprofits want their board and donors to refrain from dictating the policies and nonprofit management decisions of their organizations, then they have to set clear boundaries. For example, managers should communicate that they have control and oversight over hiring policies and procedures. Incorporating an annual board meeting discussion about the roles and responsibilities of the board versus management is a solid practice.

2. Strengthening Donor Guidelines and Agreements

Second, before it happens, now is an excellent time to revisit and improve donor policies. Fundraisers and management should go beyond conflict-of-interest, data policy and money laundering regulations and ensure fundraising and donor-gift policies. These policies should consider what is and isn't acceptable specific to donor influence within the nonprofit organization. Further, gift agreements and contracts should include language that shields against donor influence on management and organizational policy decisions.

At the university level and larger institutions, we see a more aggressive push by donors to have a say on how an organization does its business, and it may be acceptable depending on how you frame it. Donors and nonprofits can stay true to the missions and make an impact, but everyone has to empathize and seek to know and understand the other parties. Nonprofit leaders must see what's happening and prepare to strike a balance between donors who generously support philanthropy and their management and organizational autonomy. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.