Hunt for donors in hard times

The downturn in the economy is making development officers at business schools increasingly nervous about the prospects of raising money from financially stretched donors.

While most business school fundraisers say that large capital gifts – those of more than $100,000 – will probably be unaffected by the economic slump, they predict a softening in rates of alumni participation and a decline in giving from young alumni who make smaller gifts of about $1,000.

“In many ways the impact of economic downturns are intuitive,” says Michael Burton, assistant dean for advancement at the Fox School of Business at Temple University. “When organisations and individuals feel wealthy, they are more inclined to make philanthropic commitments. When they do not feel wealthy, they are less inclined.”

Charitable contributions to colleges and universities in the US grew by 6.3 per cent in 2007, reaching $29.75bn, according to a survey by the Council for Aid to Education. Over the past 10 years, the average increase in contributions to higher education institutions has been 6.5 per cent. Even during a strained economy, giving to institutions of higher education and religious groups typically remains more robust than giving at other non-profits.

Still, development officers anticipate some retrenchment, particularly among donors who tend to make smaller annual gifts – usually those who are less established in their careers and therefore earning less money. “That’s a sector of the donor pool that may be feeling the impact of a negative economy more than others,” says Mr Burton.

Unlike in other countries where universities and graduate schools are heavily subsidised by the government, US schools rely mainly on donations. Alumni tend to be generous when economic times are good, but during a stock market decline are more reluctant to dig deep into their pockets.

Cautions

During the downturn in 2001, for instance, total charitable giving dropped 2.3 per cent to $212bn, when adjusted for inflation, according to research from the American Association of Fundraising Council Trust for Philanthropy in Indianapolis. Giving to educational institutions dropped that year about 1 per cent.

David Kennedy, associate dean for development at the Stanford Graduate School of Business, says that after the technology bubble burst, some donors revoked pledges and rescinded gifts. “People were making speculative commitments with stock that had basically evaporated,” he says. “People are much more cautious now.”

Stanford is one of the wealthiest institutions in the country and last year raised more money from private donors than any other university. It is in the middle of a five-year, $4.3bn capital campaign, which was launched in 2006.

Mr Kennedy foresees that gifts in the range of $1,000-$2,500 could be hit by the tough economic climate, as these gifts are usually made either at calendar year-end or fiscal year-end. “Typically, people who make gifts do so out of present income, so those gifts could be impacted by a bonus that goes away,” he says.

Graduate programmes usually do not fare as well in an economic downturn because they tend to fall lower in the pecking order of an individual’s giving priorities, according to Rae Goldsmith, a vice-president at the Council for Advancement and Support of Education.

“People tend to be most loyal to where they got their undergraduate degrees,” she says.

“Graduate programmes sometimes struggle because people didn’t spend as much time there.”

Volatility

Business schools, however, tend not to be hit as hard as other graduate programmes because their alumni base tends to be wealthier – the Graduate Management Admission Council estimates that the starting annual base salary for new MBAs is nearing $90,000 a year.

In spite of the anticipated decline in smaller gifts, Ms Goldsmith says that large capital gifts should remain strong. Gifts of that size are usually the fruits discussions that take place over years.

Development officers also say that gifts in the seven-figure range could be delayed because of the present volatility in the stock market; many of those gifts are generated by certain types of transactions such as the unwinding of stock options or the sale of a business.