Philanthropy Is A Financial Activity: Nonprofit Executives Need To Speak The Language

Created By: Stephen K. Orr
September 15, 2021

I recently sat down with a friend I’ll call Tim. He’s married, with two sons in their twenties. He has had a successful career and has made smart decisions with his investments, but for a variety of reasons, he and his wife have never had a frank conversation with their children about the wealth they have accumulated, or how they intend to distribute their assets from their estate.

Making a seven-figure charitable donation has helped Tim to realize—even though he likely has a few decades ahead of him—it’s never too early to have the money talk with his family. Eventually, much of a sizable stock portfolio, a couple of homes, a business, and other assets will go to his sons. Like any other major enterprise, transferring wealth involves careful planning.

My career, which has spanned the financial services industry and the nonprofit sector, helped me to understand Tim’s worldview and the financial contours of his decision to make a philanthropic commitment. Our conversation ranged over the stock market, the joys and perils of parenthood, and the state of the world today. I was able to understand the context of Tim’s philanthropic activity much better than someone whose experience is limited to a particular cause or mission.

Businesses and nonprofits are not dissimilar. After all, both are devoted to accomplishing grand ambitions. Both rely on strategy, talent, and teamwork to come up with and execute innovative solutions; yet the divisions persist. All too often, I hear nonprofit professionals confessing they don’t understand business or, worse, regard it as a necessary evil.  There are, of course, numerous exceptions, and I often do my best to recruit them to join Orr Group.

To put it bluntly, you may think saving trees is important, but if you don’t speak finance, you’re going to save a lot fewer trees.

Many people in a position to help you accomplish your mission have money on their minds. They obsessively follow the markets. They admire people who have created enduring value and made shrewd decisions. They tend to think in terms of profit and loss. They view charitable donations as investments—not just gifts they distribute to make themselves feel good.

Above all, this type of individual prefers to associate with those who share this interest. Entering into a comfortable, productive relationship with these donors and prospects means getting familiar with the ups and downs of the Dow (the Dow Jones Industrial Average) and the decisions of the Fed (the Federal Reserve Board). If you’re in a donor meeting, and they bring up fintech (financial technology), cryptocurrency, or exchange-traded funds, you don’t want to give them a blank stare.

You don’t have to become a financial wizard. And don’t worry—donors aren’t going to ask for your financial advice. They have people for that. It’s a matter of becoming financially literate. Start with classic books like Burton Malkiel’s A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing or Steve Schwarzman’s What It Takes: Lessons in the Pursuit of Excellence (I highly recommend his 25 Rules for Work and Life). Develop a habit of scanning resources like the Wall Street Journal (even if you disagree with its editorial page), CNBC, and Bloomberg. Your own financial portfolio, no matter how big or small, gives you the opportunity to read statements and marketing materials. Take a look before you drop them in the shredder.

Like Tim (who is too young to qualify), American Baby Boomers worked hard, benefited from unmatched economic growth, and amassed considerable assets. The transfer of wealth taking place as this generation passes represents an unmissable opportunity for nonprofits and the executives responsible for their advancement. Estimates vary, but Cerulli Associates predicts that $70 trillion will be transferred in the next 20 years or so, with an estimated 13% going to charity.

Many of the Boomers’ heirs will find themselves with greater wealth than ever before, and this circumstance, too, spells opportunity for the business of philanthropy. All of the major financial planning firms offer advice on charitable donations.  By forming relationships with those who advise the wealthy, development professionals position themselves to be part of the conversation. Speaking their language and understanding their priorities enables you to have a more productive dialogue than merely pitching your annual campaign.

Becoming conversant with the investment worldview goes beyond friendly relations with donors. It helps you shift the tone and content of your reason for existing. In all likelihood, your nonprofit has a good investment case to make. As Elijah Goldberg recently wrote in the Chronicle of Philanthropy, ImpactMatters and Charity Navigator have found that the sector is more effective than is generally assumed. “Assessed against objective criteria, most nonprofits are doing an excellent job of improving the lives of those they serve.”

Nonprofits are doing important work. By connecting more meaningfully to high-net-worth donors from the investment world, they can have an even greater impact.