Donors seek leverage

By Todd Cohen

Before making a $10 million gift to a private school to which they have sent their four children, a donor couple wanted to know more about its strengths and weaknesses.

So, encouraged by Merrill Lynch, the donors persuaded the school to hire a top management-consulting firm to assess its management, financial and programmatic needs.

The study resulted in replacement of the head of school, new financial and reporting controls, and creation of the post of chief financial officer. It also identified programmatic and administrative needs.

To better serve donors who want their gifts to have a greater impact, the Center for Philanthropy and Nonprofit Management at Merrill Lynch is offering strategic consulting to individual clients with a net worth of $10 million or more, says David Ratcliffe, the center’s director.

Consider a donor who was asked to give $20 million over three years as the lead gift in a $100 million campaign to build a performing arts center.

The donor had a $100 million stock position he wanted to liquidate, says Curt Bassett, former director of foundations and strategic philanthropy for Merrill Lynch Private Wealth Management and now a private consultant to individual philanthropists and foundations.

Merrill Lynch suggested that by donating the stock to a charitable remainder trust, the donor could avoid $20 million in capital gains taxes he otherwise would have had to pay.

Merrill Lynch also suggested that the donor spread the gift over 10 years, rather than the three years the performing arts center requested.

And using that 10-year pledge as collateral, the performing arts center could borrow the money it had requested from the donor, and could secure the loan at a favorable interest rate.

Merrill Lynch also advised the donor to make the entire gift in the form of a challenge grant in installments to be paid only if the performing arts center hit a series of targets for completing the campaign.

The installment plan aimed to spur other fundraising and show the donor’s commitment while delaying his actual payment until the center showed it could raise money from other sources.

The donor also wanted a greater voice with the performing arts center, and more accountability on its part, and Merrill Lynch helped him spell out conditions for the gifts.

Not only did he get his name on the center, but it made him chair of its finance committee and gave him veto power over all the committee’s financial decisions.

“If you are a high-net-worth individual and you see your philanthropy as an investment,” says Ratcliffe, “then you are going to be deliberate and ask more questions and hold the organization more accountable than you would by simply making an outright gift.”

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