Fundraising Fundamentals, Section 3.6

Institutionally Related Foundations

It is common for an institution to have a related foundation (e.g., the Loughborough University Development Trust or the University of Oxford Development Trust Fund). These foundations are dedicated to the support of a college, university or teaching hospital.

Although foundations may perform a wide range of functions, their primary purpose is to raise and manage private support for the institution with which they are affiliated.

Foundations tend to provide their affiliated institutions with guidance on which projects or purposes are most likely to appeal to donors and to cultivate support that will help the institution achieve its goals.

Why Are They Established?

• Institutionally related foundations provide a way of clearly separating state and private funds.
• They are subject to different financial regulations and legislation, which can be advantageous both to donors and the affiliated institution.
• Many donors prefer to donate to foundations rather than directly to state-funded institutions, as they feel reassured by the autonomy of the foundation and the clear delineation between philanthropic and state investment.
• Foundations provide additional opportunities to engage alumni and other influential individuals in the work of the institution as board members.
• A foundation board can maintain a long-term perspective on the needs and priorities of the institution, extending beyond the outlook and tenure of institutional staff and trustees who may be subject to a wide range of circumstantial pressures and influences.

Why Do Donors Make Gifts to Institutionally Related Foundations Instead of Giving to the Institution Itself?

Donors often feel more secure making a major gift to a foundation governed by individuals with extensive legal, business and financial management skills. Unlike college and university trustees, who are often politically appointed and have primary responsibility for institution policy, foundation trustees are recruited for their ability to raise and manage private support for the institution.

Foundation boards can operate in a businesslike manner and provide an engaging role for powerful and successful individuals who want to advance an institution. Foundation boards can ensure that gifts are used in strict accordance with donors’ wishes. Foundations can also serve to safeguard the privacy of donors who may not want the details of their personal finances to become a matter of public record.

How Are Institutionally Related Foundations Governed?

Like other charitable organisations, an independent volunteer board governs institutionally related foundations. In most cases, the leadership of the primary institution and/or other senior institution staff are included on the foundation board. A member or members of the institution board may also have ex officio seat(s) on the foundation board. In many instances, the chief executive of the foundation also holds a position within the primary institution. These arrangements help to maintain open communication between the foundation and the institution it serves.

Foundation board members support the primary institution in a variety of ways.

• They typically contribute personally, serving as leaders and examples for other donors.
• They help foundation staff with prospect identification, solicitation and stewardship.
• They may serve as advisers to institution and foundation staff and represent the institution to the media and legislature.

How Are Institutionally Related Foundations Accountable?

As public charities, institutionally related foundations are accountable to their donors, the students, faculty, staff and trustees of the institutions they serve. They also may be accountable to financial and legal regulators (e.g., the Charity Commission and HM Revenue and Customs in the UK).

How Do I Decide if I Need One?

The situation surrounding issues such as education funding and tax relief, to name but two, varies greatly between countries. Make sure that you understand your own context well. For example:

• In some countries it is feared (or genuinely the case) that any philanthropic income will simply be deducted from the next government subvention. This is not just counterproductive, but damaging. Channelling gifts through a foundation will avoid this.
• In some countries, gifts to education are not tax deductible, whereas gifts to a foundation are. In this situation, donors may be convinced to increase their level of giving if they can give via a foundation.
• In some countries, educational institutions are ineligible for certain public and private funding streams. Applying to these sources of funding via a foundation can overcome issues of ineligibility.

What Are the Drawbacks?

The administrative burden and associated costs of operating a separate legal entity should not be underestimated.

Also, the independent nature of the foundation can become an issue if the views and opinions of the foundation board and the institutional leadership diverge. This can lead to the foundation’s exerting undue influence over the institution or delaying institutional plans by refusing to release funding.

Formulating robust by-laws, articles of incorporation and gift agreements that retain the institution’s control over the foundation and reduce this risk.

Action Items

• Familiarise yourself with the constitution of any pre-existing foundation. Is it compatible with your purposes?
• Understand the legal and financial context for your institution. Seek professional advice if necessary.

You Might Also Want to Read:

The value of fundraising in an educational context
Volunteer advisory boards
IRF Data Book: A New Benchmarking Tool for Foundations