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Giving & Getting
The
University's $70 million windfall from an unorthodox class gift
has highlighted the way fundraisers and donors are retooling their
relationship.
by Mark Alden Branch '86
February 2001
It was enough to give a development officer severe stomach trouble: Members
of a Yale class entering their prime giving years had decided to
set up a private fund, manage the money themselves, and give it
to the University 25 years later. The worrisome part for Yale was
that it would have no control over the fund, which was going to
be invested in high-risk securities. What if all the money was blown
by these "amateurs"? And what if the scheme siphoned off other potential
donations?
Happily, everything
turned out for the best. Despite Yale's initial efforts to discourage the Class
of 1954 from its plan, the class persisted. And last October, its leaders announced
that their original collective investment of $380,000 had grown to $70 million, earning unalloyed gratitude from the University and the right to name two new
Science Hill buildings after their class.
But Yale's early resistance to the idea was characteristic of a time when fundraising
was a simpler affair conducted largely by volunteers and trading
on an uncomplicated sense of loyalty to alma mater. Twenty-one years
later, development offices in universities all over the country
are dealing with a new, more activist kind of philanthropy. "Donors
are more inquisitive, more assertive, and more specific about what
they give money for," says Terry Holcombe '64, who was vice president
for development andalumni
affairs at Yale from 1981 to 1998 and who now works as a development
consultant. "When I began, gifts were simply given. Now they're
almost always negotiated."
As a result, development
has become a more complicated -- and sophisticated -- business. Yale's development
office now occupies two floors of a Church Street office tower, a suite of
rooms that still looks more like the law firm it used to be than part of the halls
of academia. "In 1972," says Charles Pagnam, Holcombe's successor as vice president
for development, who has been with the University since 1977, "we had two fundraisers
on the payroll and the Alumni Fund, which was run outside the University. Now
we have a 180-person office, including 40-plus front-line fundraisers." As the
work of soliciting capital gifts has become more involved, more of it is being
done by professionals. And as the strong economy of the 1990s and a looming transfer
of wealth to the Baby Boom generation put more money in more hands, Yale, like
other nonprofit institutions, is taking a fresh look at how to make its case.
In recent years,
the office has had dramatic success, bringing in $1.7 billion in
a capital fund drive that ended successfully in 1997 despite an
alumni firestorm over the return
of a $20 million gift for a program in Western civilization to Lee
Bass '79. The money has helped to close a budget deficit and to
fund the massive renovation and construction projects now under
way on campus. Meanwhile, the percentage of alumni contributing
to the Alumni Fund remains among the highest in the nation -- 49
percent, behind only Princeton (66 percent) and Dartmouth (52 percent) -- among
national universities.
The
participation figure traditionally has been an important one for
Yale and other institutions. In annual fund drives, the percentage
of alumni who give something -- whether it be one dollar or a thousand
-- is seen as a measure of a university's health and well-being.
Corporations, foundations, and individuals look to those numbers
when deciding whether to make capital gifts, and college rankings
like those of U.S.
News and World Report include alumni-giving percentages
in their formulas.
But keeping participation
rates up is not easy, says Pagnam, noting that for Yale, one percentage point equals some level of contribution by nearly 1,300 alumni. "We spend a lot of money
trying to increase participation," he says. "It's expensive, and you don't necessarily
get a lot of return, but in marketing terms it's a loss leader; it pays off in
other ways."
Many universities
are worrying less about participation, says Trish Jackson, vice president of the
Council for the Advancement and Support of Education (CASE),
a professional association for development personnel. "More institutions are saying
'We're not going to spend as much time on participation. We're just going after
the big gifts,'" says Jackson. "But this could be a problem if the economy shifts."
Pagnam says that
while he still considers participation important, the cost-effectiveness of soliciting
larger donations has become clear. "We're a little more focused on the big donors
now," he says. "Where once 80 percent of our money came from 20 percent of the
alumni, now it's more like 90 percent from 10 percent."
One reason development
offices need more professional staff is to turn up money in places where it traditionally
hasn't been expected. "The organizing principle in development has been a lifetime
cycle of involvement, with increasing gifts toward retirement and death," says
Jackson. "Now there are so many young people with significantly more wealth than
they expected -- it's a real growth area for philanthropy." At the other end of
the generational spectrum, older people who never had much discretionary income
are finding that the recent bull market has left them with money to spare after
providing for their retirement and their children.
"It's
more difficult to know who has the ability to make a capital gift,"
says Pagnam. "It becomes a more labor-intensive proposition." Part
of the effort involves sending staff on the road to talk to alumni
and learn more about them and their classmates. Pagnam says his
research staff also relies on public information that might provide
hints about alumni and their ability to give (including this magazine's alumni notes section, which he says they read "front to back").
Another
reason that development has become more staff-driven is the more
activist stance that donors are taking. An increasing number
of them see their gifts as a form of investment and expect to be
involved in decisions about how their money will be be used. Development
professionals call the phenomenon "venture philanthropy." Holcombe
says that as a result, discussions about a major gift now can routinely
take up to two years, involving frequent contact with academic officials,
development staff, and University lawyers. It is difficult to tap
alumni volunteers for such specialized and time-consuming fund-
raising, Holcombe says: " Volunteers are important for opening doors.
But it's a rare volunteer who's willing to give two years of work
to get one gift. The process has to be managed and driven forward
by the staff."
In addition to finding
well-heeled alumni, Yale must compete with a growing number of other institutions
and causes for the alumni dollar. For the majority of graduates who live far from
New Haven, local institutions can sometimes have a stronger pull, because of frequent
contact and visibility. Many of them, too, are much smaller and poorer than Yale,
meaning that a gift to them will have a greater impact.
Yale's remarkable
success at managing its endowment in recent years has caused more than one two-digit
donor to feel a certain insignificance. Employing a novel strategy focused on
venture capital, chief investment officer David Swensen has become something of
a celebrity in the world of portfolio management. Last year, the endowment grew
by 41 percent, adding $3 billion to Yale's coffers -- almost twice what it took
the University five years to raise in a labor-intensive capital campaign. In such
times, are there alumni who simply feel that Yale does not need their money?
"For those who are
on the fence about supporting the University, that comes up," says Pagnam. "But
that means we have to convince them that all of what Yale does -- from research
labs to athletic fields -- costs money, and if universities are going to continue
to grow academically and take advantage of research opportunities, that takes
significantly more money than it used to. On the other hand, some people look
at our finances and think: 'This is a good place to give my money,' with strong
professional management and disciplined leaders."
The toughest sell
for development officers across the country, though, is the generation of students
who graduated from college in the 1970s, known throughout the development world
as a "disaffected" generation. "Most institutions have the biggest dropoff in
participation of all sorts in classes from the 1970s to the mid-1980s," says Trish
Jackson. "Some are disaffected with institutional culture of any sort. It's really
labor-intensive giving those people a chance to vent."
The
disengagement of this generation has become a matter of increasing
concern as its members have entered the stage of their lives
when they begin to make decisions about philanthropy. As of this
year, more than half of Yale alumni graduated after 1972; the generation
that once outraged Old Blues is looking a little Old itself -- but
perhaps not quite as Blue.
Some observers say
this disaffection is fallout from the distrust of institutions and authority that
characterized the college years of these alumni. Others suggest that the turmoil
of the times was a distraction from the kind of class bonding and other positive experiences that engender loyalty to a college. Whatever the cause, Pagnam says
Yale is not immune to the problem. "We used to see a runup in giving around the
20th reunion -- a significant increase -- and from there it would keep going higher,"
he says. "That has not been proving true for us recently."
Jeff Brenzel '75,
who is executive director of the Association
of Yale Alumni, says he sees the phenomenon reflected in reunion
attendance, and that the experience of earlier groups of alumni
suggests that such groups do not necessarily come around over time.
"The Classes of 1970 to 1973 had about 20 percent fewer people at
their 25th reunion than those that preceded them," says Brenzel.
"There is a similar group from the late 1940s who were here when
there was enormous coming and going because of the aftermath of
World War II. The attendance at their 50th reunion is about 30 percent
lower than the classes ahead of them. In both cases, these classes
were disrupted by changes in Yale and society, and didn't form as
intense an affiliation with Yale and with each other."
The ambivalence of
the 1970s group -- and especially their reluctance to give -- is of particular
concern to fundraisers, since that group is part of the generation that will benefit
from what has been called the greatest intergenerational transfer of wealth in
American history. As their World War II-era parents die, the Baby Boomers are expected to have an unprecedented amount of personal assets. Development professionals
are devoting seminars and conferences to the question of how to solicit them for
gifts.
Pagnam says that
Yale has just begun looking at the problem. "I don't think we've done all we can,"
he says. "We have to look seriously at the message we're sending." What he thinks
he sees is "a transition from giving out of loyalty to giving as an investment."
In other words, where alumni once gave because of feelings of gratitude or duty
to Yale, younger alumni are looking more at where their money will do the greatest
good.
One
result of the development office's effort to reach those alumni
is the hiring of a marketing and communications director with a
corporate background. Anne Marie Phelan, who came to the
office from Bell Atlantic in August, says she will be trying to
get inside the heads of alumni through focus groups, surveys, and
conversations. "People are trying to be smarter in how they use
their money," says Phelan. "From my experience on the corporate
side, we want to look at customer needs. What need are they trying
to fill? What are they trying to accomplish? Are there areas where
Yale can fill that need?"
One question that
Phelan and the development office have yet to explore fully is the changing demographics
of the alumni body and its effect on giving. Increasing numbers of women, minorities,
and financial-aid students have come through Yale since the 1960s, and their giving
patterns have not been examined. Traditionally, women have been viewed as dependable
givers (especially at women's colleges, which have high participation rates) but
their gifts are smaller -- presumably because they have less income. But Holcombe expects that as incomes become more nearly equal, the children of the meritocracy
will give as generously as their predecessors. "I don't think their giving patterns
are going to be any different than the last 30 generations," he says.
But future classes
will have big shoes -- or piggy banks -- to fill if they look to the Class of
1954 as a model. The class's council members became campus VIPs in recent years
as their "54/50" Fund swelled in size from their initial investment to $70 million.
Their story is an extreme example of how an enlightened attitude about creative
philanthropy can pay off in dollars and alumni goodwill.
The fund
has its roots in the Class of 1954's 25th reunion in 1979. Richard
Gilder, an active member of the class who has made his share of
large individual gifts to the University (including $4 million for
the new Gilder Boathouse and
an undisclosed amount for a center
for the study of slavery), proposed to his classmates that they
create a kind of mutual fund to be invested privately in anticipation
of their 50th reunion. "I was thinking about the next 25 class council
meetings and how boring they were going to be," recalls Gilder.
"And Yale's investments weren't doing so well. So I came to believe
that it might be more interesting if each class had some action
of its own."
Over the next few
years, some 80 people in the class gave a total of $380,000 for the fund; none
of the gifts exceeded $25,000. The money was entrusted to Joe McNay '56, a Boston-based
investment manager, who put the class's assets into public stocks.
While
the initial response from Yale to the plan was positive, there was
a change in personnel at the Alumni Fund not long after the reunion. As Gilder remembers it, "a number of classes of our vintage were
thinking about setting up similar funds. But the new people at the
Alumni Fund were concerned that the classes could run amok. So they
not only killed the other class initiatives, but tried to kill ours
over the years. But we had already gotten started, and we said no."
Class secretary Joel Smilow says the University was concerned about
two things: that the money was not under its control, and that the
outside initiative might cut into the Class's annual giving.
By the 1990s, though,
it became apparent that the Class was on to something. McNay, says Pagnam, "was
managing in a very aggressive way. Unlike our investment office, he didn't have
to worry about annual income. The class was just saying 'let's see how big we
can get it.'"
And big it got. As
the coffers swelled, the Class set up a research committee to think about how
their gift might best be directed. The nine-member committee, headed by Bob Quinlan,
interviewed leaders in higher education both inside and outside Yale and spent
hours with University officers learning about Yale's priorities.
By last
year, when the surging stock market had sent the total above $70
million, the Class decided to cash in its chips. Responding to President
Levin's urging, the Class announced its gift three years ahead of
schedule, earmarking $50 million for new science facilities. The
timing of the gift, Levin argued, would be appropriate to celebrate
the Tercentennial and would help launch the fundraising effort for the $500-million
Science Hill plan. For $50 million, the Class will have two of the
five new Science Hill buildings named for it.
As for the remaining
$20 million in the fund, the Class intends to use it to match any capital gifts
by its members in the three years leading up to its reunion. So if a member of
1954 has a spare $1.25 million lying around, he will be able to give an endowed
professorship worth $2.5 million. Through this approach, Smilow says, the Class
hopes to give a total of $100 million for its 50th reunion gift, a figure he confidently
declares will be "the largest gift by a single class in any educational institution
in the history of mankind."
Needless to say,
the development office's objections to this approach to philanthropy
have melted away. Pagnam says that there was no negative impact
on annual giving by members of 1954 as a result of the scheme. On
the contrary, he says, the gift "has acted as a catalyst for the
Class over the last five or six years. The Class took great pride
in it." Pagnam goes as far as saying he would encourage other classes
to employ similar methods -- with one caveat: "Don't expect quite
the same results."
The
remarkable gift from the Class of 1954 comes at a time when development
and alumni affairs officials are noticing a decline in the importance
of class organizations. Up to now, Yale College alumni have
been organized primarily by class year. But at Yale and elsewhere,
many younger alumni are finding "affinity groups" based on race,
culture, extracurricular activities, or other common interests to
be more compelling than class organizations. The AYA lists
more
than 40 such groups on its Web site; they range from sports
associations to alumni groups related to undergraduate activities
(the Pundits, the Yale
Daily News, or the Whiffenpoofs,
for example), to ethnic and religious groups. Many of them have
been instrumental in raising money for specific causes. The Yale
Gay and Lesbian Alumni spearheaded the effort to endow a program
of visiting professors in gay and lesbian studies (after the University
rejected a $4 million gift from
playwright Larry Kramer '57 that would have created a more permanent
program in the field). The Yale Crew Association raised the money
for the construction of the Gilder
Boathouse, and an organized effort by alumni women paid for
the Women's
Table, the 1993 sculpture by Maya Lin '81, '86MArch that
marked the 20th anniversary of coeducation in Yale College.
Efforts
like these can not help but benefit the University as a whole, says
Holcombe. "My most important concern was always that people stay engaged and involved with the place, whether through the Black
Student Alliance or the Football Y Association," he says.
Because
in the end, despite the increasing complexity of some aspects of
alumni fund-raising, Holcombe says, the most important thing hasn't
changed. "What still seems to motivate people is attachment to the
institution. In the end, they have to make a leap of faith and decide
that the University is going to do the right thing with their money."  |
