Ever wondered if a foundation is the right move for your organization? Building off a recent exposé on athlete-run foundations, Cone's own Social Impact expert, Erica Kendall, weighs in on why foundations fail and why they may not always be the best fit.
Recently, the Boston Globe critiqued the impact of many nonprofits run by professional athletes. Nearly half of the 50 professional athlete-operated nonprofits reviewed by the Globe spent less than 65% of revenues on charitable programs and donations. According to Charity Navigator, a leading independent charity evaluator, nonprofits spending less than a third of their budgets on program expenses are simply not living up to their missions.
The Globe highlights several athlete-founded nonprofits that have demonstrated gross operating inefficiencies, including the Josh Beckett Foundation, which donates a mere 37 cents of every dollar raised, and the Rajon Rondo Foundation, which was created to support the Massachusetts Society for the Prevention of Cruelty to Children but failed to raise any substantial funds and spent all its money on IRS filing fees. Rondo has since closed his foundation and now works through the Blue Grass Community Foundation, an organization with 30+ years' experience successfully managing charitable giving.
Why is it that so many of these noble efforts turn into mismanaged endeavors? I suspect (or at least hope) that it’s not a case of insincerity or even greed – and that in most cases, athletes' hearts are in the right place. They want to make a difference, to give back. However, the reality is that giving away money is harder than it sounds – and starting your own foundation can only complicate things.
A foundation is a financial vehicle to support charitable giving, and creating and managing one effectively requires a certain skill set and experience. Too often, foundations are set up with lots of good intentions but too little planning. There are certainly times when a foundation may make sense – for example, if you need to put a large lump sum of money somewhere (and get a tax break) and you don’t trust another entity to handle. If you don't have a clear understanding of the parameters, or a specialized team of experts, however, the foundation will be doomed to failure. Foundations aren’t the only answer – such as working directly with a nonprofit (e.g., Tom Brady’s partnership with Best Buddies) or through a donor-advised fund managed by a community foundation.
It is not only athletes that make this mistake but companies as well. Some corporations fall into the trap of believing a foundation is critical to an effective giving program. Often the opposite is true – many corporate giving efforts are successful because they are not run out of a separate foundation, but are imbedded into the business strategy. This approach gives companies more flexibility to direct corporate assets, including cash, as well as products and time toward social impact. Working outside a foundation allows companies to be more creative in how they support their nonprofit partners by drawing resources from across the business to help address the unique needs of their partners and their social causes.
So the next time someone – whether a company or an individual – suggests setting up a foundation, take some time to consider the following:
- Why a foundation? What makes this financial instrument more compelling than other giving options?
- Do the benefits of a foundation model outweigh the potential downsides?
- Do you have the resources (time, money and talent) to start-up and effectively manage your foundation?
The ultimate goal is to find the best way to give back. You may find that starting your own foundation can do more harm than good.