There are three main reasons why charities establish foundations: to create a new home for the annual fund; to establish an endowment; and/or to segregate funds. Speaking at the recent Infonex Conference, Charitable Organizations in the 1990s: Efficient Management & Effective Fundraising, Jane Burke-Robertson, Partner in the firm Drache, Burke-Robertson & Buchmayer, explored the use of foundations in conjunction with capital campaigns. “For the most part”, she pointed out, “charitable organizations busy themselves each year with an annual fundraising campaign. By using a foundation, an endowment can be built up through a separate capital campaign. The concern is that if a charitable organization embarks on a capital campaign, the first time the charity is in a cash crunch, it will use capital funds to meet the immediate needs of the organization. Usually, however, foundation fundraising is carried out on a year-round basis, and often by different people than those involved in the organization’s annual campaign. This allows two campaigns to be run at the same time for different purposes.” The use of the foundation structure is also ideal for establishing subsidiary named funds within the foundation, she stressed.

Another potential advantage of the use of the foundation approach is the protection of surplus funds from future board members, who, in the event of a difficult financial position, might be tempted to encroach on capital to pay the shortfall, rather than looking to doing more fundraising or striving to meet the need in some other way. “The fear with government funders is often that an accumulated surplus of donated funds may be treated as if it is simply undisbursed government grants, subject to possible demands for reimbursement,” said Burke-Robertson. And as for government funding consideration, the organizations lucky enough to have built up excess funds “have been concerned about the appearance of holding a large capital fund when the charity is soliciting operating funds from other sources. In these circumstances,” she pointed out, “it may not be prudent to allow a large capital fund to appear on the charity’s financial statements. Traditionally, for example, many hospital foundations were established so that hospitals could transfer funds to the foundation in an attempt to avoid the possibility of a government cut back.”

Who should consider setting up a foundation? According to Burke-Robertson:

• An organization that has already received significant bequests or other planned gifts could use the capital received as seed money to endow a foundation (provided that these funds are not already impressed within a trust);
• An organization that is involved in a successful planned giving campaign could consider moving the whole program into a foundation so as not to detract from the perceived operating needs of the charity;
• An organization that relies heavily on government funding should consider establishing a foundation to provide future protection in the (likely) event of government cut backs; and
• Depending on the dynamics of a given organization, there may be a need to protect capital funds from future board members.

Once the decision to proceed with a fundraising foundation has been made, four key areas require special attention to make it work.

Structure, says Burke-Robertson, is the first and most important. “Decisions about how the foundation will be linked to the charitable organization in terms of control and representation should be made at the beginning.” Focus also on the fundraising mandate of the foundation, she said, paying special attention to family and major givers. “The third area of concern is planning, with special attention to clarifying the case for giving and recruiting first-class volunteer leadership. A well conceived plan, rooted in well-articulated, compelling needs and championed by first-class leadership in the community, will virtually assure the foundation’s success.” Finally, she pointed out, “in Canada’s competitive fundraising environment, the extra effort necessary to secure appropriate professional assistance is crucial.”