Gobble, gobble. While Gift Planning in Canada readers were enjoying turkey dinners this Thanksgiving, the Ethics Squad were busy reviewing entries for the GPIC Ethics Challenge. Thank you to all of you who submitted sticky situations for consideration.  We are pleased to announce that we have a tie and two turkeys will be donated to food banks in honour of our winners. Both winners raised excellent sticky and confidential situations, and, in keeping with the terms of the Challenge, we are keeping their names anonymous. All entrants will receive a small token of our turkey appreciation, so watch your mailbox for your parting gift.

This month we will look at a sticky endowment situation and provide some insight.

“Furious with the Foundation” writes “I previously worked for a foundation where all bequests were to be endowed in perpetuity. The program was marketed this way in print for both donors and lawyers creating the bequest gifts…[a new] board went back and looked at bequests they’d already received to see if the ‘perpetuity clause’ [was formally written] in them; if not, they yanked [the money and spent it] after 9 years, 364 days.”

De-sticking this situation

When considering this situation, the Ethics Squad reviewed both Imagine Canada’s Ethical Code as well as the Donor Bill of Rights. We also used Marilyn Fischer’s Ethical Decision Making Model cited in our last column.  Did we mention that we love using Marilyn Fischer’s model?  Well, we do.

When reviewing this sticky situation in light of the Fischer model the answer becomes quite clear quite quickly. Altering endowment policies after agreements have been made will most certainly negatively affect long term relationships with current and prospective endowment donors.

Article IV in the Donor Bill of Rights states that donors have the right “To be assured their gifts will be used for the purposes for which they are given.” When the donors agree to endowments in perpetuity, they expect the charity to honour this agreement.

Perhaps the most clear-cut illustration of this situation is found in Imagine Canada’s Ethical Code under the “Financial practice and transparency” clause in section C. Item 3 clearly states all restricted or designated donations will be used for the purposes for which they were given unless the charity has obtained legal authorization to use them for other purposes. Alternative uses will be discussed where possible with the donor or the donor’s legal designate. If the donor is deceased or legally incompetent and the charity is unable to contact a legal designate, the donation will be used in a manner that is as consistent as possible with the donor’s original intent. If necessary, the charity will apply to the courts or the appropriate regulatory body to obtain legal authorization to use the donation for other purposes.

Donor intent always rules

We fundraisers are bound by our codes of conduct to honour the wishes of the donor whenever possible. It is clear the intent of the donors at the time the bequests were made was that the gifts be endowed in perpetuity. It is also clear that, as the foundation used perpetuity as a marketing tool, it was fully aware of the donors’ intent to make their gifts perpetual. As the gifts were made in good faith with the mutual understanding that they would be endowed in perpetuity, the foundation is ethically obliged to honour the spirit in which the gift was made.

Does this mean that foundations are never allowed to change their policies? No. But as a general rule, policies should not be changed retroactively. It is important to observe past agreements with donors.

That being said, sometimes situations arise whereby policies need to be amended. For example, perhaps the program for which the gift was designated ceases to exist or perhaps it requires additional funding to continue to exist, forcing the endowed funds to be drawn down to fund current operations. If these types of situations arise, there is an argument for altering the agreement which can be done with the consent of the donor, the donor designate, or by applying to the court system.

What would you do differently?

How could this situation have been handled differently? The Foundation might have changed policy prospectively, meaning that all future endowments would be held for the ten-year period while the existing endowments would continue to be held in perpetuity, thus honouring the wishes of donors of existing bequests while allowing the foundation to address more mid-term funding needs. Additionally, the foundation could go back to the estate trustees and explain the need to change the terms of the bequest. A third option would be to go to the courts.

In this example, no extraordinary circumstances are cited as a reason for the change of policy, leading the Ethics Squad to believe this board decision focuses on short-term cash flow and marginalizes the original donors of the endowments in question.

The situation illustrates why the Ethics Squad is encouraging the board of the charity where you work to adopt the Imagine Canada Ethical Code. When it’s adopted as board policy, you can then use it as an argument for why the board should stick with ethical conduct and not expedient conduct.

Next month we will “de-stickify” our other winning challenge: where is the line between professional conduct and genuine concern for a donor’s mental health?