People who give large gifts to not-for-profits do so because they have a passion about the subject and the mission of the not-for-profit. Many times they do it because they have a relationship with the organization that has been developed over many years and they are very interested in seeing that organization either survive, thrive, or multiply. Michael, welcome to the show.

Let's get started by telling people a little bit about your background and how you got involved in nonprofits in the first place. So I have a very eclectic career. I spent the first 14 years of my life in the gas and oil business.

I spent several years in the record business. I built some condos and I was asked to come down to the Illinois Institute of Technology to help with a very large campaign that Bob Pritzker and Bob Galvin of Hyatt and of Motorola were putting on. And I went down there to help raise money from wealthy individuals in Chicago.

I thought it was for a few months and it turned in to be about 25 years. So, you know, you never know where you're going to end up in this world. Wow.

So you were, so I want to make sure I understand. So you were working for some big time industrialists basically, and they said, Hey, we need to raise money. You're the perfect guy to do it.

Correct. Correct. They respected me as a good relationship person for their project.

And we turned out to be very successful. We ran the largest campaign at that time, which was, you know, late nineties was about a $260 million campaign, which was very, very successful. That's a lot of money.

Yeah. A lot of money. And even today it's a lot of money.

No, it is. That is a lot of money. So after that campaign was over, then did you say, this is, this is my thing.

I want to do more of this. No, I actually, I didn't. I was going to take a bagel franchise to Australia, but the bagel market imploded.

And so I was asked to join another not-for-profit, a music school where we raised several million dollars to build them a new facility. And then I got asked to build another not-for-profit, which was the Chicago history museum with Lonnie Bunch, who is now this director of the Smithsonian. And then from there to a theater company in Chicago, victory gardens and a children's hospital and another hospital, and then some social service agencies.

And I never escaped from that for profit world. It wasn't intentional and it's not because it's the pay is the greatest. It's because the projects were interesting and I seem to be capable of managing them.

Okay. So help dispel a myth for some people, right? Cause you're, you're a business guy at heart because the title not-for-profit is associated with these projects. That doesn't mean that they're not run exactly like a business, right? They are businesses and they are essential businesses that the government usually doesn't want to perform.

They are so essential that they've been given a special tax designation, which means they do not pay taxes on their income, but they better be run efficiently and for profit, even though they are designated as not-for-profits. It's very important. So they have PNL statements, they have balance sheets, they have all the, I mean, the, the nomenclature may be different, but everything that they do is structured.

Just like you, people who are listening to this or who are watching this would structure a regular business. Absolutely. It is essential.

You know, I do, one of the reasons I associate with Sandrowski Corporate Advisors is because they do a lot of organizational work, back of the office, that kind of thing. And it is essential that these agencies, these arts organizations, these health organizations get structured so that they are profitable and so that they're run efficiently. Okay.

So let's talk about how and why people get into contributing to and being associated with not, not-for-profit organizations. So you've been around a lot of affluent people. You've been around a lot of successful people.

When you talk to them, I would assume you don't want to come out and say, Hey, listen, why do you want to give me all this money? But what's the reason? Why do people, you know, give us the, I'm sure there's a spectrum, give us a spectrum of reasons why affluent people or folks of wealth associate and donate and contribute to not-for-profits? Well, I want to dispel the first myth of not-for-profits and why people give money. And that is for, there's a tax incentive. People who give large gifts to not-for-profits do so because they have a passion about the subject and the mission of the not-for-profit.

They don't necessarily do it, although there are some benefits in doing that. And our government has set it up so that, you know, we can support dance or we can support theater, we can support hospitals, but many times they do it because they have a relationship with the organization that has been developed over many years. And they are very interested in seeing that organization either survive, thrive, or multiply.

Which usually comes first. It's a kind of a chicken or the egg thing, right? Do you have to introduce them to the not-for-profit or do they come to the not-for-profit unsolicited? Or are you creating a not-for-profit specifically because they have an interest in a certain area? How does it work generally? So it works in all three ways. Today, more so than ever, many people of wealth are forming their own not-for-profits or their own LLCs.

And one of the reasons they form an LLC to give away money is because, even though it is taxable, is because they don't have to show statements, annual reports. If they're involved in a not-for-profit, there is a 990 form, which you have to look at and you have to provide every year, which basically shows how you're using your money. Today, more so than ever, people are using not-for-profits to leverage what their thought processes are and how the world should be run.

And that's not uncommon at all today, all over the world. And it's a structure that is very easy to influence those who need influence and to either make a difference for good or make a difference for their own personal purposes. All right.

Now, when people give money to a not-for-profit, we see on TV all the time, we see any type of not-for-profit. These days, St. Jude Children's Research Hospital is running a national campaign. Animal charities are running national campaigns all the time that you see.

Those types of charities are looking for small donors and lots of them. Yes. Is there a different approach between not-for-profits that look for small donors and not-for-profits that are soliciting big, large endowments? Do some do both? Do some only do one or the other? How does that work? Well, many do both.

The ones you see on TV many times, I would have to look carefully at those because I always worry that their overhead probably encompasses more than the money that they give away or apply to their mission. That's not everybody. St. Jude's, for instance, is extremely efficient, so I would never knock them.

I actually know those people fairly well, and they do a really good job. They were graced with Danny Thomas, who did the TV for years for them and brought in a lot of small, medium, and large donations, but they solicit large for research as well as small on a regular, ongoing basis. Many institutions need either new programming or they need new facilities or they need some entity that they need to fund and they have no other way to fund it, and so they run a campaign where you basically start with large gifts, and that usually comes from a board member or someone who is closely affiliated with them.

Then you picture a pyramid where the large gifts are at the top. You cover about 50 percent of your ask, and then you go down from there, and either people who have given you the large gifts help ask for it or you have a plethora of friends who go out and solicit money, and you work your way down the pyramid until you get to the small gifts. Is the sales process, and I'm going to call it a sales process, it's got to be different for the large affluent people who are going after the affluent donors versus the smaller donors.

It's got to be a different process, right? Does it require a different skill set? It requires a different skill set totally. The upper echelon is relational sales. It is not transactional.

It is always relational, and if I said it is a sales process, the people at the Association of Fundraising Professionals would slap me on the hand and say, we are not sales people. The truth is they are sales people, and have become more and more transactional over the last 30 years. In terms of the smaller donors, that's a sales pitch.

You see that on TV. You're sitting there eating your cookies and milk at night, and you see an animal who's been abused, and you want to push the donate button and help them. That's what that's all about.

It is to tug at heartstrings and to sell something. We don't always know. We know that some of that money goes to the process, but not necessarily as much as could go to the process.

I want to talk about that in a moment. Let's stay on the ask part of the equation first. People who are looking to raise money, is it a function of the best people? Do they come from a political background? Do they come from a business background? It strikes me that there's a lot of correlation between the way politicians raise money or political campaigns, let's put it that way, the way they raise money and the way not-for-profits raise money.

You have small donors, but you also love the big dollar donations. Where do the best people come from? I would say some today are trained in schools like the Lilly School or several other. Harvard has a school.

Several other big schools have schools that train people in not-for-profit administration and development. The best people are those who come from, they're good relationship people. They come from a plethora of different areas.

They come from banking. They come from political bundlers. One of the best persons I know was a political bundler here in Illinois before she became a not-for-profit development person.

In order to get people to give you money, you need to be able to create a relationship with them. There are many transactional relationships that go on. I think people would be offended if they thought they were transactional, but the truth is long-term donors like a relationship with the Okay.

Let's get into what you mentioned. You and I have spent a lot of time talking about how to vet a not-for-profit organization to make sure that when an affluent person is donating their money, it's going to exactly what they want it to go to. Help our listeners, help the people who are watching understand, how do you know that your money is going to go for exactly what you want? There are several ways to guarantee that.

Let's say it's a large gift. A large gift, you can write a contract. It used to be that all gifts were given under gift law, which is a lot more fungible.

Many times you'd give a gift and somebody would call you up from the entity and say, could we use some of this to help with our overhead this year because we're a little short. Those things do happen and probably still happen, but if you really want to lock and load on your gift, particularly large gifts, millions, hundreds of thousands, or multi-millions, the best suggestion is one, always to hire someone to do a terrific vetting of an entity. You can look at 990s.

You can look on the web at different things where you can study these organizations, but what you really want to do is you really want to dig deep and see how efficiently their money's being spent. Are they meeting their goals? Are they running a good balance sheet? When you do all that, what happens is then you can be guaranteed that if they ask you for $10 million to build a building on their campus or on their hospital, something like that, then what you can do is you can be pretty assured that your money is going to that because if it is not going to that and you have written a contract, then you can get your money back or you can sue them for it. That's becoming much more the standard operating procedure.

So they have to disclose all of that, right? Under the law, they have to disclose really every penny and where it's going, correct? They should, for a large donor particularly, if they want those gifts. Now, the little donors, there's not much you can do about it. The little donors, and when I say little donors, for you and I, it probably wouldn't seem so little, but a few hundred thousand dollars is not as much as it used to be.

I have a very wealthy family. I always said, gee, we used to give $25,000 to all these entities. It used to be a lot of money, and now that would have to be $2.5 million to all these entities because that's the way the world is going.

But they want to look at the efficiency of the organization and the fact that it is getting its work done on an annual basis. And that's the crux of this matter, whether you're an art museum or whether you're a home for destitute children or whether you are trying to do rehabilitation work in Africa for children, whatever it happens to be that you're working on, animals, et cetera, you want to make sure that they have an efficiency rate with that mission. Okay.

So what's a good percentage of revenue of total overhead should an organization have? You can give me a range. You can tell me big organization versus small. What's a good- A small organization, the overhead might be more because they're not receiving as much money.

And if you want to hire good people, and when I say that, we're not talking about extravagant salaries, we're just talking about getting good people to run an organization until it gets to a certain point. I would say 10 to 35% would be reasonable for running an efficient not-for-profit. So that's actually similar, like in the 30, between, I tell law firms and professional services firms all the time, you're looking at, if you're running really well, you're talking about 22, 23%.

If you're a little on the fat side and you're positioning yourself for growth, you're talking about 28, 29, 30, 31%, something like that. So it's really similar to professional services firms. It is very similar to professional services firms.

And you always want to look at those figures. What are they paying their people and why? And is it a average for the industry, whether it's professional service or whether it's animal welfare or whether it's hospitals? One of the problems has been is that the jobs in these larger organizations are plum jobs. They come with a pretty hefty salary and they come with a lot of influence in the community and people are loathe to give them up and they are loathe to reduce their salaries.

Okay. So let's start at the top then. The executive director of the foundation, is that salary based on what is necessary in order to get that person in the door and keep them? Or is it based on something else? How do they set the salary for the executive director? Usually because most of these organizations have boards run by business people.

They set it based on what they consider an adequate salary for someone to work off of. But I'll give you an example. I used to work with an organization where they paid very well for their executive director because of his credentials, because of what he brought to the institution.

And when he left, they brought in a clone of themselves, a clone of the board. And he actually was smart enough to reduce his salary by 25% because he realized one, he was retired and this was a retirement gig for him. But two, that the organization, he did not have the same qualifications as the prior executive director.

So it's all over the place is what I'm saying. But there are, you can do studies, you can talk to people and figure out what an adequate and what a reasonable salary is for the CEO or the president of the organization and should do that. Now you mentioned a board, right? So if I'm in the corporate world and I have a board of directors, I have to conceivably, theoretically, I have to justify my salary pretty much every year.

I go to them and I say, here's the return to our shareholders. Here's the return to the owners that the business has provided. This is what we've done.

This is where we're going. And that really positions you as the person who's earned this money. For the not-for-profit, how do they judge the performance of that executive director? How does the board sit back and say, well, we helped this many people versus last year, or we expanded our mission and fulfilled it.

How do they determine whether the executive director is worth the money they're paying them? Well, door number two, in this case, did they fulfill their mission? Are they serving more people? Are they more efficient with their budgets? There are no bonuses per se in not-for-profits. Now I say that, and that's not true of hospitals and some of the other entities, but on the whole, not-for-profits do not bonus their employees or shouldn't be bonusing their employees. The salary is the salary, and there is no extra compensation for doing a good job.

It's the nature of the business, because you are doing good works or you are working for the community. There are agencies and there are groups that do bonus their executive directors, and this is just my opinion, but I think it's wrong. That's not why you take that job.

You take that job because you want to make the mission successful and you do everything you can to make it successful, and you hope they can raise your salary the next year, but they certainly shouldn't bonus you for having attained the goals that you're supposed to attain. That's just part of the job. Okay.

What about fundraisers? How are fundraisers compensated? Are they compensated on performance or are they given a flat salary? How does that work? Fundraisers, the Association of Fundraising Professionals, or the Association of Hospital Professionals, which covers both groups of fundraisers, basically, you sign an agreement that you will not receive extra money for raising money. I couldn't come to you, Dave, and say, I'd like $10 million, but I get 10% of that, because that's not how it works. You want your money when you're giving to a not-for-profit to go to the mission.

There are some very large salaries for not-for-profit executives, depending on the size of the institution, because they try to make those salaries commiserate with the executive group running the institution. There may be a combination of for-profit, not-for-profit. If they do that, then what happens is they try to help the fundraising department, or at least the head of it, they compensate them well, hopefully.

If they're not earning their salary, and that's a really easy one to judge. You can see what you're bringing in, what you're not bringing in, how far you are along with the ask, all that kind of thing, then you can tell whether the person is doing a good job or not. It's the same all the way down the line, be it a grant writer, or a major gifts officer, or a stewardship officer, or a plan giving officer, any of those things, they do not get compensated for the amount of dollar volume they bring in.

They're compensated well, they have a good insurance policy, and they can go home at the end of the day and sleep, but they're certainly not there to get rich. They're mission-oriented. They have a higher sense of purpose, I guess, than most of us.

When it comes to donors, how do you decide? Is it like, I'm thinking, I have this vision in my mind now of sports sponsorships. How do I get my name on the building? How do I get my name on the arena? Is it just how much I donate, and who decides that? If you're in a campaign, usually what happens is there are naming opportunities. When you come in at a certain level, you are offered an opportunity.

Let's say it's a $10 million campaign, and you give a third of the money. Let's say you give several million dollars. You probably would ask to have your name on the building, or whatever the entity is, and however it fits into the total plan.

Here's the thing, though. It used to be that was in perpetuity. Because buildings wear out, because times change, because things happen, no building is usually in perpetuity anymore.

It's 8, 10, maybe 20 years. In which case, the organization is allowed to resell that naming right. The most famous one being at Lincoln Center, where they removed a donor's name after, I think it was 50 years, actually.

They gave them back their $10 million that had put that name on the Lincoln Center building. The new people came in and put in their name for $100 million. That's the nature of, we're a capitalistic society, and that's how it works.

That's not a bad thing, because it encourages people to continue to think about giving. It changes out those with money. Some fade away, and new groups come up.

Well, it also takes into account the way that the value has increased over the years. If my family bought the naming rights in the 1800s, and it's worth exponentially 200 times more than that at this point, why should we deprive the organization of that opportunity? I get it. Affluent folks who donate to not-for-profits, you mentioned that the primary reason is not for tax purposes, but there are tax benefits, correct? Yes, there are always tax benefits.

Most people who have wealth organize it. People are funny about this in that there's been a period where everyone wanted their own foundation until they get it, and they realize the onus of running that foundation probably costs more than it's worth. We're talking a few million dollars.

If you have $50 million, you probably could run your own organization. It's more like a family office than anything else. If you have a few million dollars, and, oh, I want my own organization, because then I have a foundation in my family name.

What usually ends up with those is they end up getting placed with either large banking institutions in Chicago, the Northern Trust, or large civic trusts, the Chicago Community Trust, and there's a community trust in almost every city in America, because they cannot operate those entities. What happens after a year, after a generation, is then that money then goes back to the community trust or some larger entity, and the family really loses its ability to dictate where it will go. That's usually good for about a generation.

Now, large organizations, when you have, let's say you have a Gates Foundation, that could go on for 100 years as the Rockefellers did, or the Carnegie's did, or people like that. There are many, many organizations like that. They have such an immense amount of wealth that it is run as a business, and the board changes its direction, and it changes what it wants to do with those dollars.

Also, the responsibility of that board is to make sure that those dollars remain. There have been a couple examples of very large, wealthy people who have what they call sunset their organization, because after they're gone, they no longer want someone else dictating where that money goes. They basically close it down within a couple years of their death.

That's rarer today than it used to be. Give me the five questions, or six or seven questions, that I should ask if I'm an affluent person, and I'm considering getting involved in a not-for-profit. What is the bare minimum that I need to know? Let's start with the assumption that, St. Jude, I know my money's going to go to the right place, so I'm good with that.

I believe in helping kids. I know St. Jude has an impeccable reputation. What else do I need to know? If you know that, you'd also like to know, is where they stand on a ranking of similar type institutions? Are they the best, or is there someone else who does a better job? For your own peace of mind, I would suggest looking at similar institutions and making sure that they really are going to be the most efficient with your dollars going forward.

The second thing I would always look at, and that is their 990 form. The problem with the 990 form, which is their tax reporting, is that you can fudge it. It supposedly rates the top paid employees, but that's not always true, particularly if it's a mix of for-profit and not-for-profit in terms of the entity.

Don't they have a Sarbanes-Oxley thing where the CFO has to certify that those are legitimate books? They do need certifying. There are ways around it. I need to hire somebody like you to look into that to make sure we're straight.

Correct. I think that's very important to do some sort of, even if it's a cursory forensic audit, to make sure that all the numbers are the real numbers and not rely on what they have put in their paperwork and what they present to the public. I think that's very important.

I would always look at the salaries, the salary structure, and does it compare to other organizations in similar businesses with similar budgets, or are these salaries not conducive to reality? I represented a group one time that the man, I looked at his salary and I thought, why is he making so much money? This is true in many cases. The truth is he'd been there a long time. The board was his, they did what he asked them to.

He had a huge salary and it is not an efficient use of the money you're donating to them because eventually that money is going to end up in his pocket as a salary. I think that's very important. I would also do interview their constituents and see how efficient they really are with distributing their money and with the programs that they have.

I think it's very important if you're giving a very large gift to talk to the recipients and say, how does this organization do for you? I mean, I think that's imperative. And a lot of people are loathe to do that. They would rather just say, oh, well, I know they're doing a good job, but are they doing a good job? Are they teaching readers in Overtown in Miami really to read? Do they have a good rate of competency when these kids finish their program? I think that's a really important thing to understand.

It takes a lot more work, but I believe that it's necessary in terms of making sure your money is well spent. What is the reputation of the organization in the community? Are they someone, and this is really important, are they someone who overlay programs in communities because they know there are other dollars available from the state or the fed and they can get money for it even though it's not within their true mission? Do they pick programs just to earn income or do they pick programs to follow their mission? Or do they have what was called mission creep? That is also really, really important because you want to make sure that when you're giving money to the Alonzo Morning Foundation to teach reading in Overtown, that that money is going to teaching, reading in Overtown, and they're not veering from their path because they know they can teach kids to ride scooters in some other part of town. That happens all the time because grants become available from the feds in the state and many institutions get into areas that they are not capable of managing.

Let's say that we know or we're working with affluent people and we want to make sure we're donating a huge amount of money. We want to make sure that this is going to where it's going to go. Is that what you do? Can we connect with you and can we have you go in and audit the foundation on our behalf? Is that part of what you do? How does it work? That is part of what we do.

We would approach other donors. That's really important. How are other donors satisfied with their gifts to this organization? We would approach their recipients.

We would look at their back office. We would see what kind of job their development office is doing. We would see what their stature was in the community.

Yes, it's a forensic deep dive and depending on the size of the gift, it is well worth it. I would always recommend that if you're going to give a large gift, you do it on a contract basis. You do not do it on a gift basis, especially today.

Foundations seem loathe to do that. This used to be a gentleman's game supposedly or a gentleman lady game. I don't know that this is true.

We're talking some very large money here. You need to protect your gift. The other reason you need to protect it is that gift is going to represent your family for many years to come.

How is that going to affect the kids in your family coming up or the grandkids? Is that gift representing a good name in the community or is it representing something that didn't really work out very well? Just out of curiosity, is that something you could put in a contract, almost like a morals clause if the reputation of the foundation somehow becomes sullied? For example, if you gave to the Boy Scouts year after year and now the Boy Scouts, it turns out, are serial pedophiles and rapists as an organization, forget about the fact that they're filing for bankruptcy, but can I withdraw my donation as a result of that? If there is money available to withdraw it, yes, or at least you'll stand in line with the rest of the creditors. You should because you don't want to be affiliated with an organization. For instance, a museum that sells off its paintings.

Did you give money to have a museum that kept its paintings or sold off its paintings? That happens. That does happen. I'm talking large gifts here.

I'm not talking $10,000. Millions of dollars. Yes.

You should make sure it's as good a deal and as good a contract as you would make if you who ran a company were purchasing another company or were merging with somebody or were being bought out or however that works. It is the same as day-to-day business and should be run that way. What size of a donation does it make sense to involve you and your team? What size donation does it make sense to call you? I would say anywhere from a million dollars on up.

Our remuneration would vary depending on the size of the gift. If it's a very large gift and you want it ironclad, then that's going to take not only ourselves but getting a law firm involved and getting several other groups involved. If you have a family foundation, you're probably better set up to do that sort of thing.

But a million to $100 million is a lot of money. One of the big universities here took a check for $100 million and it had no sooner come in the door than there was a lawsuit based on how it was being spent on the other end. I'm not mistaken in saying that you will help people vet not only the charity or the not-for-profit, but you'll also help them find the appropriate not-for-profit if they have a specific mission in mind, right? Focused on a specific thing, you'll say, well, let's look at this portfolio of not-for-profits and we'll make recommendations.

I think, yes, we can do that. I think it's very important. I think our job is to lay out a portfolio for them so that they can see the pros and cons of, you know, it may be the area of the country, it may be health, it may be social service, it may be children's care, whatever it happens to be.

They need to look at a plethora of entities that are efficient and well-run so that their money is spent correctly. Yes, we have the forensic talent to, quite honestly, do that probably better than most and will do it. Most people do not think deeply enough about these subjects, even the big foundations and others.

It's just, well, you know, this is what we do and that's why we're doing it. Well, and I think a lot of people think to themselves, well, I'm giving the money away. So, you know, you need to think about that exactly like you would think about an investment, exactly like you would think about, you know, I mean, I don't want to characterize it this way, but you need to think about it like you were thinking about an asset purchase and you need to do due diligence and make sure that your money is going to do exactly what you want it to do.

Yeah. You and your family want to be proud of that investment for many years to come. And yes, that's why you're looking into it.

Okay, Michael. So how can people get a hold of you if they want to engage your services or, I mean, you could do a whole host of things from expert witness work all the way through to due diligence, to audits. How can people get a hold of you? Where can they reach you? They can go to our website, which is cca-advisors.com. cca-advisors.com. What about reaching you? How can they get a hold of you? They can call me the best way to reach me is call my cell phone because I'm always on my cell phone, which is 847-814-2335.

Or you can call our main number here, which is 866-717-1607. Okay. And you want to give us an email address in case people have questions, they want to email you? Yes.

mcc at send cell c e n d s e l.com. All right. So, Michael, thank you very much for joining us today. Those of you out there ready to make multi-million dollar donations, do not do it without calling Michael.

You got to get him involved because you want to make sure that what you're doing and what you're investing in is going to represent you and your family well for years to come. Michael, thanks for joining us today. I really appreciate it.

Most appreciated. Thank you.