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Parallel foundations: Does it make sense for your nonprofit to set up its own foundation?
By Louise Chatterton Luchuk
May 22, 2007
You’d be hard-pressed to find a nonprofit organization that doesn’t spend an incredible amount of time focused on resource development. As a result, some organizations establish their own foundation - known as a "parallel foundation". The parallel foundation dedicates itself to fund development and management, which frees the “parent organization” to focus on the daily operations associated with its mission. Parallel foundations are most often associated with large organizations like universities and hospitals, but can also be found connected to other types of organizations.
“It’s like a marriage and shouldn’t be entered into lightly”
That’s according to Allan Arlett, partner with the Arlett van Rotterdam Partnership and co-founder and first CEO of the Canadian Centre for Philanthropy (now known as Imagine Canada). A parallel foundation may be a good idea for a nonprofit to consider; however, Arlett advises that organizations shouldn’t do it just because others have done it or because it’s the thing to do. There is a lot of important homework and that includes investigating the benefits and challenges.Benefit #1: Protection of assets
Linda J. Godel is the head of Torkin Manes Barristers & Solicitors not-for-profit and charities law group. She finds that one of the primary reasons for setting up parallel foundations has to do with protecting assets. “If someone sues your organization, all of the organization’s assets are generally available to satisfy any lawsuits. If you have a separate corporation, they may not be exposed,” says Godel. (That is, unless the court found, for example, that the transfer of funds to the foundation was in order to avoid liability, in which case they may not be protected.)Benefit #2: Attracting board members with specific skills
Some organizations want to separate fundraising from operations so they can attract board members with specific fundraising and fund management expertise as well as an influential network. If you attract big names to the board, those names can attract funds. As Godel points out, when you operate a charity there are many items that the board must discuss. Not all potential board members may be interested in all the details, but if they are going to meetings that focus on fundraising, that may be more attractive to certain people stepping forward to sit on a board.That certainly is an advantage for the Boys and Girls Clubs of Canada Foundation. Initially set up more than 20 years ago as an endowment fund board to administer two major endowed gifts, today’s foundation formally came into being eight years ago. According to Mike Meadows, director of resource development, “the parallel foundation was the preferred route because it allowed us to recruit focused board members with specific investment management experience as opposed to broader social services experience. Recruitment for the foundation is with the knowledge that people are joining a fundraising organization, and that allows the board of the Boys and Girls Club of Canada to be totally mission focused.”
Challenge #1: Increased administrative load
While the benefits are logical, Godel makes it clear that this is not the route for every charity. For one, establishing a parallel foundation creates a whole other level of administration and all its associated record-keeping, government filing and costs. Essentially, you are running two organizations and that requires resources. And as Arlett points out,“if increasingly donor funds are restricted, then how will the foundation be funded? Often the parent organization must be willing to provide start-up funding for a period of two to five years.”Challenge #2: Staying in sync
The parent organization and parallel foundation need shared values, shared unity of purpose, and the ability to sustain that year after year. Debbie Evans, executive director of the British Columbia 4-H and recording secretary for their parallel foundation, advocates for strong terms of reference so everyone is clear on the purpose of the foundation. Cross-representation on each other’s board is another helpful strategy.Says Arlett, “I’ve seen situations where the two are warring camps. I believe strongly that the role of the foundation is to meet the needs of the parent organization.” That means that the strategic plan of the parent organization sets the direction for the foundation and allocations are made against the objectives of the strategic plan.
Challenge #3: Unrealistic expectations
The parent organization sometimes has unrealistic expectations about the dollars to be raised and what they are to be raised for. The parent organization needs to realize the importance of being accountable to the foundation and report how the money was used so the foundation can, in turn, explain to donors what was achieved.Both Evans and Meadows run into the challenge of unrealistic expectations for the foundation. With a foundation in place, the parent organization can sometimes divest responsibility for fund development. For Evans, their foundation hasn’t reached its full potential yet and BC 4H needs everyone to take ownership and work together to raise funds, rather than looking at the foundation as the sole answer. Meadows likens it to the flag dropping at the starting line. Setting up a foundation does not answer the funding dilemma, but it could be an important starting point.
To decide if it is the right starting point, Godel encourages nonprofits to identify what they want to achieve from setting up a parallel foundation. “It can be very useful in many situations, but charities need substantial resources to make it work properly; for that reason it tends to work better for larger organizations.” However, she’s seen it work well for smaller organizations after they receive a substantial gift or grant. Regardless, any nonprofit must be prepared to devote considerable thought and planning to such an endeavour. In other words, to remember that it’s like marriage and shouldn’t be entered into lightly.Louise Chatterton Luchuk is a freelance writer and consultant who combines her love of writing with experience at the local, provincial and national levels of volunteer-involving organizations. For more information, visit www.luchuk.com.
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