Hartford Business Journal

8 Hartford Business Journal • February 23, 2015 www.HartfordBusiness.com Focus NoNprofits Strengthening economy boosts fortunes of Greater Hartford foundations By Sheena Butler-Young sbutler@HartfordBusiness.com G reater Hartford foundations experienced many of the harsh effects of the Great Recession, but as Connecticut's economy picks up, so too have the prospects of the region's largest charitable arms. Charitable giving in Connecticut has gradually accel- erated in recent years, helping private and community foundations maintain or boost donations to nonprofits that provide social, education, health and other services to some of the state's neediest residents. And the timing couldn't be better, especially as the state's budget woes have left many nonprofits cash-strapped. In 2012, the latest available data, Connecticut amassed $4.6 billion in charitable donations, which was up 30 percent from a year earlier. Foundations raised about $1 billion of that total, according to Maggie Gun- ther-Osborn, president of the Connecticut Council for Philanthropy, which produced the data. More recently, The Hartford Foundation for Public Giving, the region's largest philanthropic gatekeeper, said it disbursed in 2014 more than $32.5 million in grants to community and education nonprofits — a record for the 90-year-old organization. While two tragic events in the last quarter of 2012 — Super Storm Sandy and the Sandy Hook Elementary School shooting — might explain the significant uptick in donations that year, Gunther-Osborn said philan- thropic giving by individuals and foundations has steadily remained at around 2 percent of the state's GDP. "One of the things we're trying to do is have a conver- sation about who is giving and try to increase that giv- ing," said Gunther-Osborn. "We have remained relatively flat and we want to grow our giving." Learning lessons from the Great recession Area foundations say that while their goal is to increase donations, they must be somewhat conservative in their community investments, keeping annual grant spending fairly consistent from year to year to protect their assets and long-term viability. It's a lesson many foundations and nonprofits learned after the Great Recession wreaked havoc on their endowments and other nest eggs. The Hartford Foundation for Public Giving, for exam- ple, has enacted a five-year spending policy that aims to buffer the organization from unavoidable and frequent economic swings. "When 2008 hit we were still working off of income and investments from 2003," said Judy Rozie-Battle, Hartford Foundation's vice president for grantmaking and community outreach. "There were other founda- tions that were severely impacted. This policy allows us to be smooth and steady through rough times." Carol Pollack, vice president of finance and opera- tions for the Hartford-based Connecticut Health Foundation, said her organization lost about a third of its $150 million investment portfolio during the Great Recession, but was still able to honor most of its com- mitments to the nonprofits and communities it serves. Connecticut Health is the state's largest private health foundation focused on expanding access to health care for minorities and underserved communities across the state. "We pretty much maintained our level of grantmak- ing," said Pollack. "In order to do that, we dipped into our portfolio balance because we didn't want our giving to fluctuate with the market." Since then, Pollack said the foundation firmed up its spending policy and began looking at its investment per- formance over a five-year period. "We now know that we shouldn't spend more than 5.4 percent of the average investment portfolio over a five-year period," said Pollack. Cynthia Clegg, president and CEO of the Community Foundation of Middlesex County (CMFC), said her organi- zation's $4 million endowment took a sizeable hit during the recession, but its finance and economic committee quickly created strategies to counteract economic hardships. Clegg said CMFC, which awards grants ranging from $500-$7,500 to arts, education, environmental and other causes, began actively and aggressively fundraising to supplement its endowment. It also created a nonprofit resource center to complement its charitable-giving role. "We wanted to see what we could do outside of the financial giving," said Clegg. "The center offers work- shops, seminars and consultations to address the well- being of area nonprofits." By the end of 2014, Clegg said CMFC had $12 million in assets, which includes its endowment and cash. The Hartford Foundation's five-year funding average is $31 million, said Rozie-Battle, but they increased it to nearly $33 million in 2014 because donors were eager to spend more. In all, Hartford Foundation distributed 1,997 grants to nonprofits in 29 Greater Hartford communities last year. Rozie-Battle said the largest share (29 percent) of grants went to the Hartford Foundation's biggest prior- ity: education. n Total Connecticut Giving 2011-2012 2011 2012 Change Foundations $851 $1,010 18.70% Individuals $2,674 $3,416 27.70% Bequests $38 $199 421.90% Total $3,563 $4,625 29.80% S o u r c e : I r S , T h e F o u n d a T I o n c e n T e r . d o l l a r S I n m I l l I o n S . ExpErts CorNEr Nonprofits face heightened management liability risks By Scott Konrad T he nonprofit sector was stressed by daunting chal- lenges in the wake of the last decade's economic collapse, in some ways modeling Charles Darwin's perspective of a world in which the strongest survive while the weak die by the wayside. Consider that the past six years saw: • A complete lead- ership overhaul at the Susan G. Komen Foundation, includ- ing its founder's resignation as CEO, following donor out- cry because of the board's decision not to continue funding Planned Parenthood; • Sweeping changes at Livestrong Foundation to preserve the organization after founder Lance Armstrong's fall from grace in the competitive cycling world; • The New York City Opera's bankruptcy after years of widen- ing deficits and seemingly des- perate leadership decisions; • In Connecticut, the execu- tive director of Hartford Areas Rally Together recently resigned after she admitted using the nonprofit's money for personal expenses. These and countless other cases nationwide illustrate that, while employment-related mat- ters may still be the most frequent sources of claims against non- profit leaders, the risk landscape is changing – with startling results. Today's nonprofits operate in an environment of increased con- sumerism, outcomes-based phi- lanthropy, intense competition for reduced government funding, and greater regulatory scrutiny. As a result, they're accountable to high- er standards of financial discipline, operational transparency, and prudent stewardship -- and they're scrutinized by donors, constituents, watchdog groups, and regulators, among others. Issues that have invited litiga- tion include executive compensa- tion levels, directional shifts in grantmaking and programming, alleged employment discrimina- tion, and financial mismanagement. United States Liability Insur- ance (USLI), a Berkshire Hathaway company that insures over 55,000 nonprofits nationwide, reports that employment-related offenses, misrepresentation/fraud, financial mismanagement, deceptive fund- raising practices, and data breach- es comprise the top five leading causes of action it now sees against nonprofit directors and officers. Christine Murray, USLI's chief underwriting officer for professional liability, observes: "Nonprofits are under increasing pressure to do more with less, forcing them to make difficult decisions. Those decisions at the board table can have unintended consequences – sometimes even threatening an organization's sur- vival – leading to lawsuits against the directors and officers." The best antidote for nonprofit management liability is a healthy board of directors with diverse talents and perspec- tives, the courage to challenge the status quo, and an unflag- ging commitment to act with complete financial and opera- tional transparency, placing the organiza- tion's interests above all else. Progressive organizations promote board-level engagement in enterprise-wide risk management, often by a finance/audit committee. Bearing in mind Buffett's oft- quoted admonition that, "It takes 20 years to build a reputation and five minutes to ruin it," the organization should also develop and periodical- ly stress-test a crisis management and communication plan. From an insurance standpoint, a nonprofit organization should: • Consider separate policy limits for directors' and officers' liability and employment practices liability risks. Although both types of protection are commonly pack- aged within a single insurance policy, the ideal structure firewalls the two risks from each other, with a dedicated limit for each. Defense costs should be covered outside, or supplementary to, the policy limits. • Insure against third-par- ty discrimination. Even if an organization has no employees, volunteers and other third par- ties – clients, patrons, members, or suppliers – can sue for harass- ment and discrimination. • Explore specialty insur- ance for network security and privacy liability risk. Today's electronic age of online fundrais- ing, crowdsourcing, social media, e-commerce, and electronic recordkeeping raises the stakes for custodians of donor, client, and employee data – but manage- ment liability insurance provides only a partial solution, at best. • Periodically seek skilled professional help to assess the threats on the organization's risk landscape and the extent to which its commercial insurance can be expected to respond. No one likes surprises – least of all in a moment of acute need. n Scott R. Konrad is an executive of HUB International Ltd., a global insurance brokerage and risk advisor. He resides in Essex. Scott Konrad Community Foundation of Middlesex County partners, shown above, raise awareness for their bully-free campaign, to end harassment in schools. P h o T o | c o n T r I b u T e d

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