The following is a conversation between F. Warren McFarlan, Professor at Harvard Business School and author of Effective Fundraising: The Trustees Role and Beyond, and Denver Frederick, the Host of The Business of Giving.

Denver: Social enterprise organizations have played a vibrant and important role in America for more than a century. And yet, the business of fundraising has not become any easier or more elegant. So my next guest has created a blueprint to help provide a sustainable revenue model for nonprofit organizations so they can best fulfill their missions.

He is F. Warren McFarlan, the author of Effective Fundraising: The Trustees Role and Beyond. 

Welcome to The Business of Giving, Warren. 

F. Warren McFarlan, Professor at Harvard Business School and author of Effective Fund Raising: The Trustees Role and Beyond

Warren: Delighted to be with you this morning.  

Denver: You know, the book is about the trustees’ role in securing the necessary financial resources for the organization. But, to create some context here, this is just one of three key roles of a trustee that you outlined in your previous book, Joining a Nonprofit Board: What You Need to Know. What are those other two roles, Warren? 

Warren: I think the other two roles are first, helping to work with management to define and evolve the mission of the organization which is critical. And then, the second one is basically the selection, coaching and evaluation of the chief executive officer.

Those are very similar roles in the for-profit world, but what of course differentiates a nonprofit is the need to really focus on securing the financial resources. 

Denver: Yeah, there’s been a lot of other books written on fundraising. What is unique about this one? And what contribution do you hope it will make to the field?

Warren: I think the thing that’s unique about this one is that it focuses right on the governance function and basically points out it’s the most important committee on the board in relation to development is not the development committee, but is in fact the governance committee. And it is the governance committee that, while balancing off the other two items, helps to secure the kinds of individuals who are able to move the organization forward.

And we talk about it as two quite different kinds of individuals. The first are the people who are able to go out, and with their own personal financial resources, be able to set examples and help move the organization forward. And the second equally important are the connectors, people who have broad access to families, individuals, and so forth, and can help set up the meetings and facilitate the interactions with the organizations, your management and potential donors.

Denver: So, what you’re saying is that not everyone on the board has to have the means to make a big gift themselves. They either need to be able to do that and more, or at least they need to be connected  so that they can bring other people to the table and secure funding in that way. 

Warren: And I would say that, again, I would say that covers the majority of the board. There are legitimate reasons for wanting to have people who aren’t development-oriented on the board, and I expect that they basically will support the organization in this area.

Denver: Right. A lot of times it’s going to be people from the community that you’re serving who might not have money but have an insight and expertise and lived experience that can really be instrumental.

What have you found to be the biggest misconception that trustees have about their role related to the fundraising for the organization? 

Warren: The number one is right when they come on the board. It is almost always the first question is, “Warren, I’m just thrilled to be a part of this organization. You don’t expect me to ask people for money, do you?” 

The answer to that question is, “We’re thrilled to have you, and yes, we do expect you to be able to do it.” And that basically the job is to all, you need to sort of reframe it because the people who are difficult about this think about it as begging, and I don’t feel about it that way at all. It is… I view it  that the trustee is giving other people opportunities to contribute to the development of an organization which they may not have time to spend their whole life in, but whose cause he really believes.

And what that means is the first thing the trustee has to do is to internalize that mission and be able to make a pledge consistent with their resources such that they really take it seriously. And with that, they are then able to go out and ask people to help build something important for the community, and that mind shift is really an important one.

“I’m just working through a couple of cases recently where people who were off the board 12 to 20 years suddenly produced a multi-million dollar gift for the organization. Several cases, quite out of the blue… they weren’t being anticipated.”

Denver: Yeah. Sometimes it’s easier said than done because it’s really tough to get people to go out there and ask for money very often. A couple of things on what you said: number one, I have found a lot of CEOs that say “We are thrilled to have you on the board,” and, no, you don’t have to ask for money” because they believe over time that that person will come around.

They’re so desperate to get a yes of somebody joining the board that they back off at that critical moment. And I think your point is, you really got to lay it down and say it straight at the very beginning because it’s hard to circle back again when you’ve had those conditions laid out. 

Warren: It’s also very important that… I view this as really very much a process of lifelong engagement. I see somebody being a trustee for a period of time. They are in fact a donor for hopefully the rest of their life, and that one of the things I spend a lot of time on is, as people finish their service as a trustee, helping to find other ways where they can be engaged with the organization.

It may be as a board member of a board of advisors. It means staying on, you’ll be a part of one of the major committees of the board. It may be working on a special search process, but I’m just working through a couple of cases recently where people who were off the board 12 to 20 years suddenly produced a multi-million dollar gift for the organization. Several cases, quite out of the blue… they weren’t being anticipated.

So, I view that I’m a trustee for a while, but I am hopefully buying into an organization for the really long term. 

Denver: Yeah, and that is really incumbent upon the organization because too many of them, I think, when a board member leaves, they tend to forget them, and nurturing that relationship for the long-term is not only the right thing to do, it’s also really the smart thing to do. 

What about a board member who might be up for asking, but just can’t get that specific number out of their mouth? Probably the hardest thing is to ask them for a number. What do you advise? How do you encourage people to put a number out there on the table and have people react to it?

Warren: I think the basic point is that it requires just a little bit of chutzpah, but you never, in fact, can insult somebody by asking them for too much money. A number of my friends are much relieved if I under-ask. They say, “Whew. We thought you were going to really go for something more. Let me give you the check right now, and let me get out of here.”

So, the real point is to sort of basically start the dialogue, and it helps a great deal if you’ve basically… very, very often that the organizations I’m raising for, I will basically say, “This is basically what my wife and I have done. We really believe in this, and we hope that you’ll be able to think about it in the same kind of a way.”

And there, it really depends on the individual, the nature of the relationship. I had.. I would say, a hospital board chairman earlier in my career… and I’m heading up the hospital campaign now… And that I’ve picked up on that  for one of my successors who was  board chair 13 years ago.  He just became kind of distant to the hospital, lost track of him and so forth. And we got him back to come to a cultivation event at a Red Sox game. And  I hadn’t seen him in six, seven years and took him out to lunch, and…” this is what I’ve been doing. I haven’t been much more involved until recently  then you have; this organization, you know, it saved your life…”   and without anything more, why just an enormously generous kind of a contribution. But, many of these things, these are long term processes. 

And it’s one of the things that when I headed up the development activity at the business school, it was at the alumni clubs; the ongoing activities are absolutely as important as the major gift officers because they are hoping to build understanding and commitment. The reports that go out from the school on what they’re doing, they inspire different donors in different ways in terms of seeing what you’re doing.

Denver: Absolutely. And, Warren, what’s your take on fundraising training or a coaching session for the board of trustees? Is it a good idea, a bad idea, or even if it works at all, what have you seen work?

Warren: Well, I think the basic thing is that it raises the awareness of what needs to be done, and that’s really important. And the question is, the governance committee, their job is to basically assemble the people. It is the job of the board chair and the head of the development committee to be able to stimulate a series of activities that are going forward.  I know an organization that I was working with recently, they had reached essentially nothing on development of the institution. Gained nothing other than a modest-sized annual fund for 30 years.

 And the different group of board members had been recruited, and with no thought of where we would get the money from, a big building project was brought forward. And so, we looked at it and got excited, and one of the board members said, “You know, I just don’t see why we can’t do this now, this school.” And I listened very carefully because I knew something about that board member’s individual capacity. And I said, “Maybe we could do this. Would you like to put a challenge gift?”

To cut the story short, we were able to, in three weeks, and put a blind panic inside the board… you’ll raise $6 million out of nowhere. Went right out to the parents, raised another $6 million and basically put the project on. This went on to raise $35 million over five years. It was a question of priming the pump, getting the right people in the room, and then you kind of lit a spark. And because the project made sense, it was absolutely aligned on the mission; it took off, and it’s one of those magical moments that basically make fundraising worthwhile, where suddenly you’re able to secure the delivery of the mission for another decade forward. 

Denver: That is a great story, and it is wonderful to see that combustion and that energy at the start. Sometimes things just lumber along, but when you get that spark, as you said, and it takes off, it’s incredible how much you can raise in such a short period of time.  And that intensity is just a thing to behold. 

Well, in other parts of the book, you really start talking about all the different campaign aspects and campaign functions of a nonprofit. Let’s touch on a few of them. Why don’t we start with the annual fund? How does the annual fund fit into the overall fundraising effort of an organization, and what are some of the more effective practices that you’ve observed, Warren?

Warren: The annual fund is, it tends to be the core ongoing activity. It’s where you begin to work to bring new donors into the organization. You move them forward, step by step.  The annual funds that I’ve been doing… it’s always looking to try and get new people.

I look very carefully for people inside the donor base who are giving, maybe giving signaling gifts;  they are people who want to be involved more, and you can suddenly see a number is bigger than you expect. You begin to get that person involved on the development committee, and you move them forward. 

It requires a great deal of detail as you build sort of year after year. So,  for some organizations, it’s just dominant. The church that I’m a member of, 90% of our annual expenditures are secured by the annual fund. So each year, that is an extremely important kind of activity, and it requires just very detailed micromanagement to get the right people on the annual committee, so taking effort, and then to be tracking through each particular step. So, an annual fund, it’s basically the core ongoing activity that keeps the thing going. 

Within that, of course, there are several other things. The first is this is the basis for  resources that will come for a capital campaign. And the annual fund, basically, can keep you moving. It’s new programs, new buildings. These require the special real one-time efforts. And unfortunately, it used to be that a capital campaign was seen as a one-off activity. In fact, in the world of 2022, why the end of one capital campaign is sort of the beginning of the planning for the next one. 

Denver: Absolutely. They never take a break. You get a month off and then you’re back at it.

Warren: And there’s sort of an inexhaustible need for these funds. And so,  I’m looking to begin to get people who, I think, have the capacity, get them involved, toward making  signature kinds of gifts. And then the third kind of campaign, and that’s the one that, it aims at my age bracket, that’s planned giving.

And this is an enormously important time for planned giving. We’re in the midst of this huge intergenerational transfer of wealth. You’re moving from my generation down to the children who work behind us. Our job as nonprofit leaders is to understand that the tax law allows us to do remarkable things to build a nonprofit organization, and maybe our kids could do just a little bit less, and maybe they’d work harder and do their own things. 

And so, for example at Harvard, I never heard of planned giving until my 50th reunion.  And for the 50th reunion, that is all that we talked about– the notion, and the reason for that, of course, is a charitable remainder trust, annuities, and so forth that people like myself… we know we’re going to live forever. And these look like terrific kinds of details. Their planned giving officer knows. In fact, the actuarial tables say the end is much closer than it appears. And so in that happy space, you can do a great deal. And so, I’ve been working very hard with two organizations to just really build up the planned giving. 

And I’m one of the heads of it. To be perfectly honest, you weren’t gonna get much personally during your time of what I’m doing but, in fact, I’ve laid the base for the financial success of your successor and your successor’s successor. 

And so, that, of course, and this is one of the things that make fundraising so important is you always need to have the long-term view. I need money today, but people– their commitment to the mission, where they are in their personal lives– they may not be quite ready to make the commitment. But over time, you keep the dialogue going.  They understand the mission, and you’re able to pick them up later on in the process. So it’s sort of a Japanese type where the basic notion is that “no means maybe; maybe means yes.

Denver: Yes, yes. 

Warren: And  you need to keep the dialogue moving.

Denver: Well, you know, I think that is really the sign of a great leader of a nonprofit organization that they understand that they’re just there for a little period of time. And they are just a part of the history of this institution.

And it’s those leaders that can look at the history of the institution and the finite role they play within that history that really do look at planned giving and realize that I’m just here for this moment; this has many, many years to come. Another thing that we haven’t touched on yet, and you write in the book are about donor advised funds.

Now they have really taken off, but I do know, Warren, nonprofits sometimes are a little perplexed about:  How do I ever get access to this fast-growing pool of wealth? Tell us a little bit about what a donor advised fund is and maybe some advice for nonprofits in that regard.

Warren: Well, the donor advised fund is, basically, it allows you to make a contribution when you’re ready… to the general fund for charitable purposes, and then it can be dispersed at times that you want. So it basically breaks the two activities apart. 

And, we’ve been working very hard to get people to do it that way. The nice thing about it is that the donor advised funds’ highly successful professional money managers… you know the money is being managed. You are able to take your tax deductions when you want it, and then you’re able to at a different timeframe be able to put the money out into the charities of your choice.

“The interesting thing about this is that, when you’re on a board and your development flows, that is a job that is 24 hours a day, seven days a week, year after year.”

Denver: Let me ask you this. How does an organization manage multiple asks? So here I am, let’s say I’m a development manager. And you’re my donor, okay? “Thank you, Warren. By the way I’m asking you to give to the annual fund. Now we have a capital campaign going on at the same time. And by the way, I hope you can buy a table to our gala, come October.”  How does the CEO of the development team, much less a trustee, sort all of that out?

Warren: The answer is: with difficulty. You need to understand, if this is a particularly good time, I mean, that the combination of the financial markets have been very good in the last three years. And  when the pandemic  started, I remember I was sitting on a school board, and we said, “This is going to be a big problem.” And we immediately postponed two capital projects, began to think about what the things are that we should trim. And within a month, we suddenly said, “We’ve got this wrong!”  In fact, as this problem is going on, there’s a flight to quality. Your people are coming to us, and we actually wound up reinstalling both capital projects; enrollment jumped by 25% for a variety of things. 

What this means, coming back to your question is that, when I’m getting you to come onto a board, basically I’m hoping that you’re going to be able to support the annual fund and that I have some feeling of your linkage to the organization. That then, as a board member, I’m going to be putting you through committees and so forth. So you begin to see what the future and what the future capital campaigns are, and you begin to talk about it in a broad way because different people are turned on by very different things. Some like bricks and mortar; some like their names on the wall; others, programs; some people want to be in the deep background but can be very helpful.

And then from time to time, as you point out, that we have these special fundraising events and that you need them… “Yes, we are expecting you to contribute prior to the annual fund. And, of course, the capital campaign is coming. And then we have these wonderful celebratory events, and we certainly hope that you’ll be able to buy a table at one of them, and you can invite the people you want at the table, but we hope that you will in fact be doing it with the view of helping these people be introduced to the organization and starting them through the process.”

The interesting thing about this is that, when you’re on a board and your development flows, that is a job that is 24 hours a day, seven days a week, year after year. You never know. You never know when the moment comes. 

I remember heading up a campaign for a religious organization, and it was a cold January day. I came out of the Boston Common Garage. Temperature was about four degrees. The wind was blowing flat across the ground. And I ran into one of my former students, and I actually said, “What are you doing?”  He said “I’m on my way off to meet with Senator Brown.” and said, “What are you doing?”

I said, “I’m off to meet with the Bishop of Episcopal Diocese of Massachusetts. This guy says, You know, I’m an Episcopalian.” And right at that moment, I stopped. The temperature in my mind rose to 70 degrees. There’s no tempest, no rain. And I said, “Tell me more.”  And the answer was, “Well, yes,  I used to be senior warden of our church down south.”  I said, “Well, of course you can’t be in that church anymore.” He said, “No. Now I’m going to a church here.”  And I said, “What one?” and he gave the name of the town. I said that was interesting. And then we departed, and he went out to his direction of his meeting and I got to my development meeting with the Bishop. I said, “This is what development is all about.”

And three weeks later, my friend was invited in to have lunch with the Bishop, and that was a very good thing. And then, the Bishop apparently indicated and understood that he did some teaching and wondered if he could see him teach.  And  then he went to see him teach. He never wanted to see me teach. And after that it led to a small pro bono consulting assignment, and 20 people showed up to hear the results of it, and all of that came to a very happy half-million dollar gift. 

Denver: Very nice.

Warren: But you just never know. That’s why you have to think about it all the time. I can tell you that when the campaign was over, it was a great sigh to me. I could go back to church coffee hour. For years, as I came in the coffee hour, people would be sidling out the door the other way. 

Denver: That’s very funny. Well, let me look at that from a different perspective. Aside from the fact that you need to have your antenna up 24/7, and I certainly agree with that when it comes to development, you also mentioned in the book and I’ve observed it myself, that there are so many nonprofit CEOs that are spending 50% or more than 50% of their time in raising money. Is that healthy? Is there a better way to get this done? Is there a better way where philanthropy could be more effective that they’re not spending so much time doing that? Or do you think that, in some way, it’s just a great ambassadorial role for CEOs? 

Warren: I personally think it’s  a terrible, but unfortunately necessary way to go about doing it. It’s one of the reasons why, for example,  university  presidents, those are tough, tough jobs…I was just getting the morning paper today and there are a whole group of them that are stepping down after 10 or 11 years of really hard work. And, the reason– you have all the problems of running the organization, but almost every one of them needs new programs, needs new facilities. And that the sad fact is that for major donors, to listen. They expect to hear from the chief executive officer, and that is time over a period of time. 

So, I don’t think it’s healthy, but I don’t easily know how to work a way around it. And that number, 50%, when I wrote my last book, Joining a Nonprofit Board, one of my CEO friends who was on the faculty of the school, I asked him to read the draft. And I gave it to him, and he said, “Very interesting, Warren.” And he said, “But you’ve got one thing absolutely wrong.”  I said, “What’s that”? He said, “Your book says 25% of your time is spent raising money.”  He said, “It took 50% of my time.”  And I said, “I didn’t say 25%.”  And he found a typo in the draft. So, I mean,  the head of Citizen Year who wrote the foreword to my book, she was very clear… former student of mine… that she spends at least  that amount of time.

And, only this year for the first time is she going to be able to spend less because she was fortunate that she got one of Jeff Bezos’ wife’s gifts.

Denver: Yeah. MacKenzie Scott.

Andrew: MacKenzie Scott. She  got a $5 million gift… just transforms, but I know quickly enough, the scale of her activity is going to grow, and she will be continuing to worry about it. 

Denver: Yeah, she’s a great person. I’ve had Abby Falik on the show several times, and I really enjoyed her, and I’ve been out to visit her offices. 

Warren: She was a very challenging person in the classroom. 

“The second thing that’s coming through this time is, I think, people have been able to increase their expectations in terms of what they can do. And I think that as long as the economy remains healthy, this is a wonderful period for capital campaigns.”

Denver: Hey, you know, you mentioned the pandemic before, so what do you think has occurred during the pandemic that might change the way fundraising is done?… I mean, something that might stick well beyond this period that we’ve been living through. 

Warren: One thing that is helpful is that we’ve turned out to be able to do much more personal contact over Zoom. That’s really important because my development staff used to have to spend so much time on the road, driving, traveling, and so forth, and those touches were very important. You can now, I think, you’re going to be able to cut two-thirds of that out. You need the contact,, but you’ll be able to do a much better job of maintaining the contact, talking about things, describing what’s going on through that. So I think it’s going to be very much of a hybrid way that we’re moving on. 

The second thing that’s coming through this time is, I think, people have been able to increase their expectations in terms of what they can do. And I think that as long as the economy remains healthy, this is a wonderful period for capital campaigns.

If you’re one of the organizations that I’m involved with, that, “Oh, we just are having our first annual something.” And that, the original budget for the gala helped raise $400,000. This was an organization everybody knows the name of. We just finished off, it’s going to take place in three weeks, and we’ve raised a million. And it’s on the environment.  If the cause is worthwhile, people are willing to make a contribution. So I think the way of soliciting is going to change. I think the type of outreach is going to change, but you still need print. 

You know, people say, “Well, why do you put together these annual reports, reporting?  Why don’t you just have this stuff up on the web? 

Denver: Yeah. So why? Tell us why.

Warren: I’ll tell you why, because there are people like myself. I’ll take an organization and then I like to sit down and sort of see. I’m watching the Olympics on one hand, I’m sort of flipping through and say, here are the donors. One of the organizations I’m on, when my daughter was involved, and I flicked through and she supported them, which for her classmates, that in the process of thinking about it, she says, “You know, they need to be doing this.” And it’s not just to put out the numbers; it’s the reflection. And you think about who is involved and it basically grows things forward. 

So, I don’t think that the print media, in fact, there was a big move 10 years ago to get rid of the print, and what I’m seeing is that most of the people are now in the process of bringing it back because you need both kinds of things.

Denver: Yeah. You know, essentially what I think sometimes you need, is you need what is not being done as much. So, back in the day, our mailbox would be stuffed, and we would get an email occasionally. Now, my email box gets stuffed, and when I get something paper in the mailbox, I tend to read it because I don’t get that much!

So you kind of go contrarian and say, “Well, this is different.”  You know what I mean? And I never look at half my emails anymore because you can’t. There’s a billion of them. 

Warren: That’s what the delete button is for. 

Denver: Yeah. That’s right. But I do like what you said about virtual solicitation. It was one of the myths that we always had about major gift fundraising that it had to be done person-to-person, face-to-face, and anything else less than that would be a diss. But, I saw a survey that CCS put out the other day, and many people felt that virtual solicitations were actually more effective than in-person.

They’re tighter. You have greater focus, and about 72% of them, I think, say they worked at least as well, if not better, so it is interesting. And along with the virtual gala, you were talking about galas. Somebody said to me a couple of weeks ago that once the San Francisco Ballet’s Gala gets a gift from Atlanta, there is no going back. You know what I mean?

Warren: Yeah. 

Denver: Finally, Warren, you have worked with so many effective development committee trustees over the years, and you cited a number of them in the book. Share with us a story or two that helps crystallize some of the key points that you’ve made in this book. 

Warren: There are two people that I mentioned in the book that are both Harvard Business School graduates, and they are icons.

So one of them, first one I’ll mention is Steve Schwarzman. He built Blackstone, a  remarkable organization. He’s also a philanthropic person. You read his book, and you understand how he had to ask, ask, ask and ask, that the project that I looked to him for was at Tsinghua University where he created Schwarzman College, which is a scholar type connection to the leading university in China. He made a lead gift of $100 million to that, and then he personally solicited the next $500 million. 

And as he said, “It was just tough because I asked and I asked and I asked and there were a lot of nos.” And he just kept going and pushing his way through it that. 

 I remember working with Hank Paulson, our former Secretary of Treasury and Head of Goldman Sachs, and he was the head of an advisory board. And he said, “Warren,  the thing that I most dislike about  this is having to ask people for money because it doesn’t come naturally to me,” which certainly is a very unusual thing for a Chairman of Goldman Sachs to be saying. “And secondly, if they say, yes, they’re going to probably want me to contribute to their thing,” 

 I consider these our first team. And so, if the first team people are dealing with the issues we’re talking about in the book, it’s normal. And so you’ve got excellent company. And the real issue is to be able to sort of overcome your inhibitions. Don’t think about it as begging, but just thinking of it as a mobilizing support for a cause bigger than you can do by yourself, but one is really changing society. And it’s interesting because this is where business people are very good. It’s interesting that the largest organization at the Harvard Business School is a social enterprise organization. 

Denver: Right. I know that.

Warren: 80% of our alumni are involved in social enterprise. A third of them serve on boards.

What do the largest 50 hospitals, museums and universities have in common? Every last one of them has one or more Harvard Business School alums on it. So that in reaching this, it’s really important that you get the mind turned in the right way, and people can be really enormously philanthropic and help you build your organization forward. And that’s really what I try to get at is that when I walk away from a for-profit board meeting, I have a good time. I’ve been challenged. When I come away from a development operation or a nonprofit, it’s a different one. I don’t say… it’s quite, it’s almost a spiritual one. You’re sort of actually helping society down the field in some important ways. I think that’s why our alumni have devoted… and you know I devoted so much to spend time in it. 

Denver: Yeah. And I love what you say about just asking and asking and asking. And I think, something that probably Steve and others have found out, it is so hard to get a “no,” but every other no becomes easier. You begin to normalize it.You know what I mean? Well, ah, no, no.  

Warren: You get in there. 

Denver: You get in there, like a football player taking that first hit… it hurts. But after that, “Okay. I’m in the game.” 

Warren: It’s a contact sport and you get used to it. 

Denver: Absolutely. The title of the book again is Effective Fundraising: The Trustees Role and Beyond, and it is the perfect companion book to Warren’s previous effort, Joining a Nonprofit Board: What You Need to Know.

Thanks, Warren, for being here today. It was such a pleasure to have you on the show. 

Warren: Thoroughly enjoyed it. Thank you.

Denver Frederick, Host of The Business of Giving serves as a Strategic Advisor and Executive Coach to NGO and Nonprofit CEOs and Board Chairs. His Book, The Business of Giving: The Non-Profit Leaders Guide to Transform Leadership, Philanthropy, and Organizational Success in a Changed World, will be released in the spring of 2022.

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