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• By Bob Hicks from the entry 'Vantage Point'
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• By Brendaveggie from the entry 'How Much Is Enough?'
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• By caar from the entry 'Up Periscope'

I have had five thoughtful conversations in the past week with donors who are struggling with the question, “Should I give for endowment?” Since the year-end is a time we reflect on our values, our goals and our legacy, it is appropriate to devote my year-end blog to the ultimate expression of these values—endowment building. What are the pros and cons of giving for endowment?

Endowment Pro: A well stewarded endowment pays dividends forever, whether its focus is the arts, health, human services, the environment, education or simply to meet the changing needs of the community. Contrast this outcome with gifts for new structures, new exhibits and new programs, all of which provide important present benefits but require future expenditures for maintenance and ultimately replacement. How many capital campaigns renovate distinguished buildings of an earlier era for many times their original cost in an effort to adapt to changing usage? A capital gift meets a present need but imposes a future cost, while giving to a well managed endowment is truly a gift that keeps on giving.

Endowment Con: “This concept is fine in theory, but endowments can be hoarded, mismanaged or expended by boards that simply ignore donor intent. So, I would rather my money be spent on something I can physically see like a campus building that has students passing through its doors daily.”

Observation: Some endowments are unquestionably mismanaged. Most frequently, mismanagement comes in one of two forms. Endowed organizations are constantly tempted to dip into their endowments to meet current needs, even though that wasn’t the donor’s intent. Also, many nonprofits are not expert at managing endowment for long term performance. This is why third party endowment experts like community foundations are needed to ensure that donor intent is honored and to give the donor the highest probability of solid investment management over long periods of time. (In order to maximize long term investment performance, The Community Foundation Serving Richmond and Central Virginia partners with the University of Richmond—one of the best managed university endowments in the country—to invest its endowed funds.)

Endowment Pro: Think of endowment as “retained earnings” for nonprofits. Retained earnings enhance a business’s financial stability and provide it the flexibility to seize new opportunities. Nonprofits generally expend all their resources each year, but they have similar needs for financial stability and for risk capital to respond to changing needs in creative ways.

Endowment Con: “I hear you, Thalhimer, but I earned this money that I am giving away, and I want to see it put to work during my lifetime. I see the problems today, and I want to help solve them now. What happens in the future is somebody else’s problem. If I can fund a promising research project or meet a pressing need, then that’s where I’m going to give my money. ”

Observation: Both arguments have validity. Donors choose to what extent they will give for projects today and whether they will also provide endowment for ongoing support. Philanthropy is a personal choice and is maximized in the aggregate when donors with diverse giving philosophies follow their passion.

Concluding thought: If we fail to endow the contemporary causes we support for their operating, programmatic and capital needs, then the next generation will have to replace our level of giving (and maintain the structures we have built) just to maintain the status quo. Progress and real systematic change can only be made over the long term if we build the financial capacity of the nonprofit sector through endowments so that new money raised can be used to address new needs.

Happy holidays to all of my readers, and best wishes for a year of good fortune and good deeds in 2012! My next blog will be from New Zealand in mid-January. Cheers!