Endowments have long been an important tool for arts and culture organizations to promote financial stability and growth in their community. As nonprofits continue to shift programming and strategy in light of COVID-19, CCS finds that 36% of cultural organizations and 56% of performing arts organizations are anticipating a significant decline in their fundraising in the short and medium term. Endowments are not the only component that promotes organizational stability during or following a crisis; however, they provide an important income stream when other earned revenues may have ceased. To illustrate how important endowments are, the Chicago Tribune spoke with leadership of local arts organizations to learn what the pandemic means for their endowments.
As organizations navigate the “Great Reset,” arts and culture leaders should consider implementing a five to ten-year endowment growth strategy, aiming for endowment totals that are eight to ten times their annual expenses. This type of transformational support will allow arts and culture organizations to move forward from a survival-mode mindset into the world of measurable sustainability. Because of this, leaders can and should initiate the process today.
You may be thinking – how could we possibly focus on building our endowment when we are trying to keep our donors contributing to the annual fund? The necessity to engage with your donors to secure immediate support should be the priority of the organization as you navigate moments of crisis. However, the elements of these conversations with your donors will be important first steps for future conversations as organizations embrace the new normal. In this post, we offer thoughts on how to engage and educate your board, lead donors, and artistic personnel on the importance of endowments as you explore this strategy.
Begin Conversations with Board Leadership First
For arts and culture organizations that have smaller endowments, having the “endowment talk” with board members may prove difficult. Some individuals believe endowment strategy shuts out funds that could be used immediately to solve budget short-falls or enhance upcoming programs. These early objections from board members provide an opportunity to educate them on the long-term benefits of endowment growth, such as:
- A well invested endowment will allow an organization to draw about five percent annually from the fund to offset operational expenses in perpetuity, barring any specified fund restrictions. For example, an organization with an endowment of $5,000,000 may be able to draw $250,000 a year to support its annual programs.
- Endowments provide the flexibility for organizations to explore expanded programming and artistic risks. With the presence of a well-funded endowment, arts organizations can be more thoughtful about ticketing strategies, artistic commissions, acquisitions, community partnerships, and the like.
- While allowing for artistic flexibility during stable periods, endowments also allow for stability during uncertain times. This uncertainty can be seen internally during times of leadership change, or externally during crises such as COVID-19.
- Endowment growth will demonstrate an organization’s commitment to sustainable financial practices, opening the door to a stronger philanthropic environment promoting legacy and transformational giving within your organization.
Build Awareness Across Key Constituencies
In addition to educating your board about the importance of endowment growth for the future of the organization, building support with your lead donors is equally important. Consider a virtual lunch-and-learn on the topic of endowments as an effective first step in engaging your donors in these early conversations. The conversation can be framed in this spirit:
“We are cognizant of and are working diligently to address the current issues we are facing. Ever more important, we want to be forward looking in how we emerge and grow in this new normal. As such, we are thinking deeply about the role our endowment plays in our organization today, and how the endowment can support this growth 5-10 years in the future. “
We recommend outlining the same concepts above with your administrative staff as well as your artistic personnel – creating a unified vision across your nonprofit. Musicians and artists want to hear more about what the organization is doing in both the short- and long-term to stabilize, strengthen, and support its work. Beginning these conversations now will build their knowledge and support surrounding the endowment. Many vocal advocates will be crucial if your organization considers a formal endowment campaign in the future. Musicians, artists, and performers are the face of your organization. When they can say, “We believe in the future of our symphony and we know that our leadership is thinking long-term,” the community will follow.
Prepare to Build Your Endowment with Four Key Action Steps
It is worth noting again, we believe that immediate engagement with your donors is imperative to the short-term challenges due to COVID-19. CCS Fundraising has many client partners today who are taking a multifaceted approach in addressing current challenges while positioning for a sustainable future. While the above recommendations will be ongoing efforts, here are four steps you can take today:
- Peer Benchmarking – Explore the endowment landscape that exists in your own community and in your specific sector nationally. Are you a symphony orchestra in a mid-size city with an arts museum up the street? How does the size of its fund compare to the size of your orchestra’s? Similarly, if you are a mid-size orchestra, what trends and similarities can be seen at similarly sized organizations? This landscaping information is going to provide you with valuable insight to support your conversations with board members, staff, and artistic leadership.
- Review Gift Acceptance Policies – CCS recommends that organizations revisit gift acceptance policies to better understand how they are supporting growth in the endowment. Specifically, we have found that arts and culture organizations who designate all bequests to the Endowment Fund see a quicker rise in fund totals. Additionally, this encourages organizations to reduce reliance on bequests to cover annual budget short falls.
- Consider Special Endowment Requests – In addition to your normal annual gift or campaign gift request, you may consider adding 10% above the annual request amount towards the endowment. This can be used as a guidepost and will begin shaping the giving environment in preparation of an endowment campaign. For example, if you have an annual request of an individual at the $10,000 level, invite them to consider an additional gift of $1,000 – $1,500 to the endowment.
- Explore Named Gifts – A practice that has been embraced by higher education institutions and larger arts organizations is the employment of “endowed chairs.” Specifically in the arts and culture sector, this is a unique “naming opportunity” for the highest visible artistic positions in the organization. Consider endowing the Music Director Role, or your chief curator’s position. An important note: it has long been accepted to name these positions in perpetuity. This practice limits the organization’s ability to expand donor naming abilities in the future. CCS recommends considering naming agreements of 20-30 years.
CCS Fundraising is a strategic fundraising consulting firm that partners with nonprofits for transformational change. Members of the CCS team are highly experienced and knowledgeable across sectors, disciplines, and regions. With offices throughout the United States and the world, our unique, customized approach provides each client with an embedded team member for the duration of the engagement. To access our full suite of perspectives, publications, and reports, visit our insights page. To learn more about CCS Fundraising’s suite of services, click here.