RIP Major Donors

In a recent conversation with a representative of a funding organization that is changing its direction (not uncommon these days), we discussed our mystification at nonprofits’ failure to embrace succession planning.  To be honest, it continues to baffle me. 

Why would an executive director, leaving on positive terms, want to put the organization at risk simply because s/he is moving on?  And, why would a board want to be rudderless at a most vulnerable time for the organization, when it could easily have been totally prepared and in control? 

Without a succession plan, the person who has invested all kinds of sweat equity, as well as caring, nurturing, you name it, is willing to leave the organization without a plan, risking sliding backwards rather than, at worst, holding the status quo.  And why would a board, whose job it is to protect and steward the mission as it ensures its ability to fulfill those mission promises, want to jeopardize the organization’s health and wellbeing?  Perhaps the nearly 75% of nonprofits who lack a written succession plan can answer these questions?

I was reminded of this funder conversation a few days later as I listened to an executive director describe the situation her organization is facing due to the precipitous decline in a lead donor’s health.  This primary donor is facing serious medical issues that, without a miracle, will lead to imminent death.  Naturally, the donor is unavailable to the nonprofit to continue bequest discussions that had begun, in all honesty, much later than when they should have started.  While the executive director and the organization will be sad when this donor passes, they didn’t have to have the added anxiety of failing to do succession planning for its lead donor. 

While I am confounded by organizations that resist income diversification, and even more bewildered by those who renounce income, they nevertheless exist in great numbers.  And while these are the very organizations that should have an income succession plan, I’d argue that any organization, but especially those who rely on large, key donors, should plan for the departure of these donors.

One of the many wonderful things that I learned from my son as he launched his career as a financial advisor was the common practice of small businesses to have a “key person” policy for their CEO (and sometimes other key, central employees).  Quite honestly, I don’t know why this practice hasn’t caught on in the nonprofit sector, especially when the founder is still present. 

Because so often when the CEO of a small business dies while in office the business dies as well, the funds provided by a key person policy allows the organization to survive the turmoil, giving the company time to find a new CEO.  In addition, depending upon the type of policy, as with any insurance policy, the policy has cash value against which the business may take a loan or use as collateral.  Benefits accrue whether the key person lives or dies.

This kind of forethought is the same kind of thinking that nonprofits should give to the possible loss of a key donor.  What should the organization be doing now to protect itself from any possible turbulence that could arise when a key donor dies or switches the focus of her/his charitable dollars?  Yes, legacy giving may be a solution for the death of a key donor, but not every key donor has an interest in leaving a bequest, or a bequest that matches her/his level of past giving.  So, what is the plan?  (As an aside, it is possible to buy a life insurance policy on a key donor, provided, of course, that s/he agrees to it:  the nonprofit pays the premiums and is the beneficiary, but the donor has to agree to requirements, such as a physical and answering the insurance provider’s questions). 

But what about the donor who leaves because the siren call of another nonprofit?  How will that money be replaced?  While I am a firm believer that great protection comes from diversification of income strategies for the organization as a whole and for each program, the loss of a major donor can rattle even those nonprofits with strong income diversification.  So, what is the plan for when that inevitable happens?  If you wait until the inevitable happens, it is too late to avoid the turbulence.