You won’t find a lot of words written about Rotary club charitable foundations. Perhaps because donations to our club Foundations are thought to compete with contributions to the Rotary Foundation? I dunno. But I’ve been spending a lot of time lately counseling Rotary club President-Elects about real and perceived concerns about their club foundation. So… I thought I would share some opinions (these ain’t facts, folks!) and observations about the proper care and feeding of Rotary Club Foundations.
(NOTE: I don’t know if it’s properly Rotary Club, rotary club, Rotary club, club Foundation, club foundation, or Club Foundation. You are likely to see all of the above iterations in this missive. Please forgive the horrifying grammatical lapses that are sure to come.)
For the most part, Rotary clubs set up their own Charitable Trust or Foundation so that they can have a legitimate non-profit entity be the beneficiary of their fund raising events. Having a 501c 3 entity allows event tickets and other donations to be tax deductible. And that’s really important. (Another note: If you are a tax accountant and are feeling the need to share those instances where event tickets and donations are not tax deductible, please get over it. We have bigger fish to fry here.)
One of the most basic tenants of a 501c3 is that it has to be a separate, stand alone entity apart from the Rotary club that creates it. And therein lies most of the tensions that evolve with regards to Rotary clubs and their Foundations. While the Foundation presumably “serves” the Rotary club with regard to the non-profits that are funded by the Foundation, in fact the decision making has to be legally separate from the club. So while Rotary club members typically raise the money and provide the sweat equity for running fund raising events, it is the members of the Foundation Board that legally make the final decisions about what charity or charities will ultimately receive the funds. How these decisions are made and the perceptions about the Rotarians who make them are critical to the health and well being of a Rotary club.
Different clubs have different rules for who serves on their Foundation Board, and the rules are critical to the long-term health of the relationship between the Foundation/ Charitable Trust, and the Rotary Club. I would suggest the following steps for good governance and transparency for Club Foundation Boards:
Board Members should have clearly defined terms that are not so long as to raise a concern among club members that they won’t have a reasonable chance to serve on the Board. Three to five years at the longest seems about right. Many club leaders have never even seen the by-laws for their club’s Foundation. Be sure that the rules for rotating Trustees are being followed.
The eligibility requirements for being named to the Foundation Board should not be overly exclusive. For example, clubs should consider rules that allow Past Presidents AND non-Past Presidents to sit on the Foundation Board. Allowing newer, younger members, a seat at the table allows for a fresh approach to understanding current club concerns about serving the community. The best Foundation Boards consist of current club leaders serving on both the Club Board and the Foundation Board, Past Presidents with institutional knowledge of past club and community activities, and other club members who can represent the concerns and interests of newer members.
The rules for how the Foundation Board members are nominated and elected should also be clearly understood. There is nothing worse that club members feeling like there is a “shadow group” of “powerful” Rotarians making decisions about the money they worked so hard to raise on behalf of the Charitable Trust. In many clubs one of the motivations to serve on the club’s leadership team is the opportunity to eventually be nominated to serve as a Trustee of the club’s charitable trust.
The Trustees of the Club’s Foundation should consider some mechanism for allowing the Rotary Club to suggest philanthropic ideas to the Trustees of the Charitable Trust. For example, in the Columbia Patuxent Rotary Club the responsibility for making grant recommendations belongs to the club’s Community Service Committee. All club members are invited to serve on the committee if they have an interest in doing so. The committee evaluates member recommendations for grants and then submits the recommendations to the Trustees. The Trustees feel obligated to honor the wishes of the club as much as possible under the rules of the Foundation. In this way all club members feel they have a voice in how the Charitable Trust makes grants to the community, while at the same time preserving the independence of the Trustees.
Another “best practice” to consider is for the Trustees to ask for an opportunity to present the Trust financials and Trust operations to the Club once each year in a Club Assembly. During the presentation the Trustees are reintroduced to the club, the prior year’s financials are disclosed, and perhaps most importantly, the rules for how the Trustees evaluate charitable opportunities are fully reviewed. As a long-time trustee of the Columbia Patuxent Charitable Trust, I was always surprised at how much information was forgotten from year to year about how the Trust served the club.
It is inevitable that club members, new and not so new, will at some point become confused between the operations of their Rotary Club Foundation, and “The Rotary Foundation.” It’s easy to see why. I’m constantly involved with discussions with PEs about their goals for Foundation giving only to find out five minutes later they were discussing their club’s Foundation and not TRF. Make certain that new members understand the difference between the two entities and position them both as important parts of their Rotary story. There is no need for a “competition” between the two different non-profits with similar names. Both should be fully supported.
Clubs that have large endowment funds have a special obligation to be as transparent as possible to club leaders and club members. Often the sums distributed each year from a large endowment equal or exceed the annual fund raising activities of the club members. Be sure that EVERYONE fully understands the rules for how money is distributed by the endowment and how the Trustees decide how the funds will be used.
Finally, Rotary Clubs and their Club Foundations should consider how “democratic” the grant process should be in their community. Approving numerous small grants allows the Trust to fund many different worthy projects and allows the Trustees to serve the interests of many club members with different views of community needs. But small grants tend not to be overly impactful to any one charitable organization and may not be easy to promote in your community. Clubs that don’t “pass through” 100% of their fundraising proceeds each year in terms of grant giving, and instead reserve funds each year in order to reach a much larger charitable giving goal, may find they can stir more excitement in their members, have much more impact on any particular charitable project, and create much more buzz in the community, by promoting and funding one very large grant.
It is surprising how much tension can be created between Rotary clubs and the Foundation’s they create to serve their needs. With careful planning and good will from all concerned, both should be able to coexist in ways that meet the needs of Foundation Trustees as well as Rotary club members.
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