By David J. O’Brien and Matthew D. Craig are the authors of BUILDING SMART NONPROFITS: A Roadmap For Mission Success.
My Building Smart Nonprofits co-author Matt Craig and I were excited to read about the Ford Foundation’s recent announcement of its intent to issue $1 billion in bonds to dramatically boost its annual grantmaking. The foundation made its decision in response to an equally pronounced rise in need for funding among many nonprofits and their beneficiaries affected by the global COVID-19 pandemic. As reported in the New York Times, in order to keep the groundbreaking strategy private, “Ford code-named it Project Wanda… a reference to a striking 2015 portrait of an African-American woman, Wanda Crichlow, that hangs in the foundation’s lobby.”[i]
Wait, groundbreaking? Companies issue bonds (ahem, debt to you and me) all the time, right? Yes, but many nonprofits – except for those in certain industries, like health care and universities – don’t. In fact for some, nonprofit debt is anathema to good stewardship and governance. A four-letter word in every sense. Which is what makes the Ford Foundation’s recent action so refreshingly bold. It both epitomizes leadership in a time of crisis (Ford’s clarion call to increase giving was heeded by at least four other mega-foundations) and represents smart financial management of the foundation’s assets. The latter boils down to simple math, really. But more on that in a moment. First let’s take a look at the state of nonprofit debt in general.
In our numerous journeys around the sun, we’ve seen far too many instances of leaders (including boards) at what we call “Main Street Nonprofits” (those with annual revenues of $2-30 million) equating “debt” with “catastrophic existential risk” and thus as something to be avoided at all costs. But in doing so, they are denying their organizations the use of leverage. Put more simply, borrowing has the power to potentially enhance an investment’s return. In the case of nonprofits, we’re talking about greater mission impact! A word of caution would be wise here. Leverage, credit, debt – call it what you will – must be used with prudence. Sparingly – like saffron in a Spanish paella. You get the point. As anyone who’s ever taken a finance class knows, leverage is a double-edged sword: it can magnify both gains and losses. But prudence doesn’t have to mean total avoidance or casting debt as something tantamount to original sin.
And yet, eschewing debt has been de rigueur in the nonprofit world for so long, it’s practically part of the sector’s lore. Even huge foundations are not immune to dogma. “For most foundations, the idea of taking on debt is outside of normative thinking,” wrote Ford Foundation president Darren Walker in a May 2020 letter to his board. “Covid-19 has created unprecedented challenges that require foundations to consider ideas — even radical ones that would have never been considered in the past.”[ii]
A smart financial move…
Just a few scant months ago, as the world was awakening to the health and economic consequences of the coronavirus pandemic, it wasn’t uncommon to witness enormous daily volatility in the financial markets. Overall, the trend in stocks from late February to late March was decidedly negative with the S&P 500 index losing roughly a third of its value during this period. So long-term investors – including foundations – could be forgiven for not wanting to sell their assets into this terrifying maw of uncertainty. Ford thought it might have a better idea.
Under Walker’s guidance, the foundation believed it could markedly increase its annual giving while avoiding the risk of liquidating assets amid a market decline of historic proportions. The solution was Project Wanda – a call to leave the $1 billion (roughly 7% of Ford’s $13+ billion endowment) in the foundation’s investment pool and use OPM (you know, Other People’s Money) to finance the surge in spending. Now here’s the simple math part. According to Ford’s published results, its endowment generated “annualized returns of 7.3% and 6.6%, respectively, for the three- and five-years ending December 31, 2018.”[iii] If those numbers strike you as a bit “meh,” consider this: When Ford took its $1 billion “social bonds” to market last month, they were priced at 2.415% for a 30-year issue and 2.815% for a 50-year variety.[iv]
In other words, Ford is paying less than half the cost to borrow $1 billion than it can reasonably expect to earn over time in a fully invested portfolio. Walker and his team are betting this tradeoff will allow Ford to repay its bondholders without raiding the Foundation’s endowment. Like we said, smart.
Many of Walker’s peers at other mega-foundations chose not to jump onto Ford’s bandwagon and boost their grantmaking because they didn’t want to sell investments in a rapidly declining market. Certainly, most professional portfolio managers would agree that when you are investing for the long haul (with foundations that time horizon is, well hopefully, forever) folks who try to time markets or sell into downturns do not fare as well as those who say “leave it alone”. Ford’s use of debt while maintaining its portfolio overcomes this issue.
Money well spent
Walker and his team don’t intend to use the proceeds from their historic bond sale on a shiny new building or luxurious office suites. No, Ford will use these funds in pursuit of its mission “…to reduce poverty and injustice, strengthen democratic values, promote international cooperation, and advance human achievement.”[v] But unlike philanthropy of yesteryear, many foundations, including Ford, now consider their grants to be long-term investments in their grantees, often with multi-year commitments. These investments are made in a variety of forms – including “program related” and “mission related” loans that are repaid by the recipient over a number of years. Others think of their grants as a form of “start-up” capital, with a goal of getting the grantee to a point where the organization can prove its impact and then attract other forms of funding. Just as in the for-profit world, foundations facilitating additional funds to ensure that those they have invested in will survive the present storm is not just good philanthropy – it is good stewardship of their assets – and a prudent use for borrowed funds.
ESG, SRI, and Alphabet Soup
By issuing its social bonds, Ford is tapping into exciting, new sources of capital for nonprofits and joining the vanguard of innovative funding models within the sector. Called Environmental, Social, and Governance Investing (“ESG”), Socially Responsible Investing (“SRI”), Green Investing, Impact Investing, among many other names, a wave of investment options now exist to help individuals and institutions align their money with their values. Some estimate that over one-third of investing today (up to $8.7 trillion in the U.S. and $23 trillion globally) is part of this tsunami of conscious capitalism. And demand is growing. Ford’s decision to issue its bonds was simply a reasoned response to several concurrent factors: the need for funding among the foundation’s constituents was rapidly rising; the desire for socially responsible investments was booming; and the interest rate environment (that is, the cost to borrow) was historically low.
Leadership & Risk-taking
Critics often proclaim – not without some merit, mind you – nonprofits are behind the curve of their for-profit brethren when it comes to taking on risk. Perhaps as justification, they cite the lack of financial incentives for nonprofit leaders to make bold bets in the hope of reaping the rewards of successful ventures. That’s one reason Ford’s Project Wanda is so unique, and represents the fallacy of this thinking. Yes, nonprofits are different, and some (too many, we’d argue) are busy simply trying to keep the lights on and just don’t have any spare assets to risk. But there are even many large organizations that lack not the ability, but the will, to put their money to work in service of their missions. Ford, by contrast, represents those in the nonprofit sector with significant resources who are comfortable undertaking prudent risks to amplify the amount of social good they’re doing for their stakeholders. Its leadership doesn’t require stock options or performance bonuses to prompt action. Furtherance of the mission is the incentive: probably why they work for nonprofits in the first place.
Foundations in particular are frequently criticized for annually paying out (contributing to grantees) less than they are earning on their investment portfolios. Here again the critique levied is often justified. Many stick close to the IRS mandated minimum annual distribution of 5 percent even when their assets are growing at a much higher rate. Some critics claim that foundation managers are limiting payouts in order to maintain the status quo (read: their jobs), while other detractors go so far as to posit that many endowments and foundations – particularly among the nation’s wealthiest colleges and universities – have become de facto “hedge funds with schools attached.”[vi]
Now hold on a minute, you might be saying. Haven’t Ford’s investments been averaging only 6-7 percent a year (a performance figure not uncommon among its peers)? So a 5 percent payout is actually pretty good, right? In a word, no. And the reason why is the financial force of nature known as compound interest – what no less a mind than Albert Einstein reputedly called “the eighth wonder of the world.” Let’s say for example you have a $1 million endowment (lucky you, but a pittance for a major foundation). If this sum were to grow at 5 percent each year for 30 years, you’d end up with a pile of money worth roughly $4.3 million. Not bad. But now, assume your initial $1 million grew at an annual rate of 7 percent for those same 30 years. How much would you have then? More than $7.6 million! Let’s see the Hanging Gardens of Nineveh do that! Extrapolate this on a scale equal to the vast wealth horded by our charitable foundations and you’ve got a compound interest mic drop, friends!
Imagine all the extra good that could be done in the world if foundations brought their payouts just a wee bit closer to their investment performance. Or let us do the imagining for you: It’s estimated that “every one percent increase in the annual payout rate of all foundations translates into approximately $4 billion in new grant funds for the nonprofit sector.”[vii] In rebuttal, many foundations explain the motive for leaving their assets to grow is to increase the corpus, thereby enabling larger annual grants in perpetuity rather than in any single year. Fair enough. But now we’re back to Ford’s issuance of its social bonds. It obviates the Hobson’s choice between keeping funds fully invested and increasing payouts to grantees, allowing the foundation to do both.
But don’t take our word for it; industry leaders across the nonprofit sector have applauded Ford’s strategy. As the Center for Effective Philanthropy president and author of Giving Done Right, Phil Buchanan, commented on the Ford Foundation’s decision to double its grantmaking by issuing debt, “It’s great to see this kind of leadership … It’s an unprecedented time, and this is an appropriately unprecedented response.” Antony Bugg-Levine, CEO of the Nonprofit Finance Fund agrees saying, “the [Ford Foundation’s] move makes sense because spending money now, at a moment of societal crisis, when many nonprofits are in danger of failing, will pay big dividends for many years to come …what a wasted opportunity for foundations to sit on the sidelines at this crucial moment because they face resource constraints that they could solve by issuing long-term debt at historically low rates.”[viii]
So it turns out nonprofit debt isn’t a four-letter word after all. And if you’re looking for an example of bold leadership taking prudent steps to protect its existing investments while balancing risk and reward by engaging new sources of financing that allow for increasing annual payouts AND building the endowment during unprecedented times…well, we have a word for that. Two actually: Bravo, Wanda!
[i] Leading Foundations Pledge to Give More, Hoping to Upend … (n.d.). Retrieved June 16, 2020, from https://www.nytimes.com/2020/06/10/business/ford-foundation-bonds-coronavirus.html
[ii] Leading Foundations Pledge to Give More, Hoping to Upend … (n.d.). Retrieved June 16, 2020, from https://www.nytimes.com/2020/06/10/business/ford-foundation-bonds-coronavirus.html
[iii] “Https://Www.fordfoundation.org/Media/4610/financial_snapshot_2018.Pdf ,” accessed July 13, 2020,
[iv] Barnett, Chip, and Christine Albano. “Ford Foundation’s $1B Social Bond Prices, Geisinger Authority, Los Angeles Deals Sell.” Bond Buyer. Bond Buyer, June 18, 2020. https://www.bondbuyer.com/news/ford-foundations-1b-social-bond-prices-geisinger-authority-los-angles-deals-sell.
[v] “Mission.” Ford Foundation, 4 Mar. 2020, www.fordfoundation.org/about/about-ford/mission/.
[vi] Taylor, Astra. “Universities Are Becoming Billion-Dollar Hedge Funds With Schools Attached.” The Nation, 23 Jan. 2018, www.thenation.com/article/archive/universities-are-becoming-billion-dollar-hedge-funds-with-schools-attached/.
[vii] Deep, Akash, and Peter Frumkin. “13 The Foundation Payout Puzzle.” Taking philanthropy seriously: Beyond noble intentions to responsible giving (2006): 189.
[viii] Parks, Dan. “Ford and Other Funds Issue $1.2 Billion in Debt So They Can Give More Now.” The Chronicle of Philanthropy. June 11, 2020. Accessed June 20, 2020. https://www.philanthropy.com/article/FordOther-Funds-Issue/248971.
Younger generations drive UK alternative payment method adoption for online transactions
- 42% of Millennials and 35% of Generation Z feel confident using alternative payment methods, or have used them previously
- 81% of consumers agree security of their data and money is the most important aspect when choosing a payment method
UK London, 11th August 2020 – As the migration away from traditional payment methods in the UK accelerates, younger generations are leading the adoption of alternative payment methods (APMs) such as bank transfers and e-wallets, reveals a new study from PPRO. According to the findings, 42% of Millennials (born between 1980-1993) and 35% of Generation Z (born between 1994-2001) feel confident using, or have used, these methods of payment before.
In the UK, any payment method other than credit or debit cards is viewed as an alternative payment method (APM). However, across the globe, these forms of payment are considered local payment methods (LPMs) due to their broad adoption. In fact, there are over 450 significant local payment methods currently available worldwide, which account for more than 70% of global e-commerce transactions.
Ongoing COVID-19 restrictions have seen a surge in e-commerce in recent months, with many consumers forced to shop online for everyday goods. As a result, UK consumers have been more inclined to try a range of digital payment methods to enable a convenient transaction experience. Currently, 89% of UK consumers are confident using PayPal, whilst a further 31% express the same confidence in using mobile wallets such as Apple Pay or Google Pay. This form of payment is particularly high for younger generations, with 68% of Generation Z stating they use mobile wallet technology.
For younger generations, seeing a buzz about new payment methods in the news and on social media has been a key driving force for local payment adoption, 31% of Generation Z consider this the biggest motivation to try new payment methods. For Millennials, 37% said that merchant acceptance is their main driver.
For the overall UK population, however, security was ranked the top adoption driver, even above reputable brand image, with over half (59%) of UK consumers stating security is the most important influence on their usage of new payment methods. This highlights the growing need for online merchants, Payment Service Providers and FinTechs to address consumer perceptions around trust and assure the security of payment methods at checkout.
“Local payment methods, such as direct bank transfers and pay later schemes, are considered new ways to pay in the UK. However, for online merchants that sell to consumers across borders, these local methods are the norm and must be offered at the check out to reach international consumers,” comments James Booth, VP Head of Partnerships, EMEA at PPRO.
“Traditionally, the UK and US alike have stuck to using credit and debit card payments for online transactions. However, for merchants, local payment methods (LPMs) are much more secure in comparison to card payments, due to chargebacks and being prone to digital theft and fraud. LPMs, such as bank transfers, are more secure and a lot cheaper for merchants to process,” adds Booth.
Teaching children about wealth management and why there has never been a better time
By Annabel Bosman is Managing Director and Head of Relationship Management at RBC Wealth Management
As we approach the end of week sixteen in lockdown, I am breathing a sigh of relief at having successfully navigated another week of juggling work and client commitments with the increasing demands of my children – age six and nine.
My day job is to lead RBC Wealth Management International’s relationship management efforts in the British Isles, but my toughest challenge right now is educating and entertaining my new junior co-workers each day.
While my children’s school has done a great job at setting up daily tasks and learning activities, there is only so much ‘teaching’ they can take from me without World War III breaking out. So instead of rigidly sticking to the school curriculum each day, I have taken the opportunity to educate my young children about a topic that is often not discussed enough in school — money.
What I do for a living has become a central discussion in our co-working space — also known as the dining table. I have found that investment concepts can be grasped quite well by young children and this has led to some interesting conversations about which businesses are doing well in the current situation, and those that are not. Children are often more logical than adults, and in my house, this logic is helping them grasp the basics of an investment philosophy. As a result, I have even passed conversations around stock markets off as maths classes!
For young children like my own, helping them learn the basics of managing money is something that will hopefully set them up well in life. There are some great tools to help them do this – we use GoHenry, which provides children with a pre-paid card to learn about budgeting. Likewise, encouraging conversations around how they spend virtual money whilst gaming on apps like Roblox can give some really important lessons around how you look after the money you have earned – and how if something seems to be too good to be true, it probably is.
The most important thing is not to underestimate your children. Whether it is the application of a “mummy-tax” when they want chocolate or applying interest rates (albeit nominal!) if they want to borrow money, teaching our children the basics around money is something we can all do.
Incorporating new lessons
The first step is to identify the best way to approach teaching these topics in a way they will understand. Resources such as the Usborne Money for Beginners are really helpful to start conversations. There are also several YouTube clips and even TikTok channels dedicated to helping children think about money. I tend to think about what is important to them and use that as a catalyst to start conversations; for example, it could be how they can monetise their love of the gaming app Roblox.
Ending the taboo
Any conversation that leads to a greater awareness around financial discipline and security has to be a positive, no matter what the age – and there are certainly parallels with my experience and that of my clients. There seems to have been a shift in HNW and UHNW families’ willingness to talk about money. Whereas previously it was seen as very un-British to speak about money, the pandemic has meant that a more open conversation is taking place.
Whatever our financial position, we often bury our heads in the sand when it comes to money, and don’t always have a clear financial plan, but when we start to put down on paper what’s going in and out, we immediately start to feel more in control, thus becoming more engaged. It can be uncomfortable to have that conversation with your family, but we regularly speak with our clients about all manner of sensitive subjects including putting wills in place, inheritance and protecting loved ones. Naturally, this is also bringing conversations to the fore around succession planning, legacy, philanthropy and even one’s own mortality. When times are good, it’s easy to not have these thoughts at the forefront of your mind, but in challenging times like these, it highlights how essential it is to talk. And just as with my children, there are plenty of apps and websites that can help you take the first steps.
Varying generational approaches
There is no one way to educate your children about money — what worked for one generation will not necessarily work for the next. Different generations have had to address the different approaches they might take in thinking about money and try to reach a common language to agree on common goals. Whilst many of us grew up with physical pocket money from our parents after completing household chores, today’s young children rarely even touch money, they receive their allowance on an app.
A 2019 study commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit found that seven in ten younger affluent respondents think that their beliefs about wealth are very different to those of their parents; with a similar percentage, 78%, believing that wealth is less easily attained or preserved today. Early, open and continuous dialogue can only help confront obstacles head on and smooth the path ahead.
These talks also allow HNW individuals and their families to talk about how they can address their non-financial goals, such as fighting climate change or supporting social agendas – something that the younger generation is acutely focussed on. Indeed, more recent social events have led to an ongoing and overdue debate around what privilege looks like and how society needs to change.
With the summer holidays fast approaching, the struggle to keep children occupied will continue, but without the pressure of the school curriculum. This is an opportunity to continue discussions with children about where money comes from and where its value lies.
I have found it tremendously empowering to talk to my children about money and getting back to basics — it may not be school learning, but it is real life learning. And as I say to my clients, the initial step to start a conversation is always the hardest.
From accountants to advisors: changing roles and expectations
By Chris Downing, Director for Accountants & Bookkeepers at Sage
The line between strategic advisor and traditional accountant is blurring. Over the last year, 82% of accountants said their clients were demanding a wider service offering, including business and technology implementation advice. In the current climate this transition has only been accelerated.
Clients increasingly expect their accountants to take a more active role in change management and predicting their cashflow months into an uncertain future. This is enabling businesses to tackle the challenges of day-to-day operations, while keeping an eye on what the post-COVID world will look like, and the support they will need to return to strength.
To solve these new and complex, expectations accountants must develop a different way of working. They will be required to increasingly supplement the traditional, compliance and reporting aspects of their work with business advice and consultancy. To do this, accountants need the ability to move quickly and efficiently, with a firm grounding in technology and data control.
Get straight to the point
The priorities of yesterday are very different to the goals of today. Where businesses once focused on driving growth and efficiency, the objective for many now is continuity – understanding what government support is available and for how long. In the current climate, speed of delivery and client care are top of the agenda.
But the way accountants go about this is very important. Rules are changing every day – the definition of an ‘essential business’, government support and bank loan programmes are constantly in flux. In normal times, an accountant’s role is to ensure their clients are aware of and reactant to these changes. Yet, how much value does this create for them in the ‘now’?
To be valuable, new information must be delivered quickly but it should also be succinct. It isn’t useful for clients to be bombarded with email updates, or reports running into hundreds of pages, trying to explain the week’s changes. With so much present noise, it’s the accountant’s task to break through the information overload and provide the client with crucial resource only.
To understand client pain points and get to the heart of what they really need, a running dialogue is essential. Building individual client relationships will unlock the potential to deliver tailored experiences that meet their business demands. Armed with this insight, accountants can then distil complex information into digestible chunks.
A more entrepreneurial spirit
Sharing insight is only the start. The other half of the story relies on consultancy. In the Covid-19 environment, the routine aspects of an accountant’s work are being supplemented with the transformative changes they can make for clients. Cashflow projections for the next six months are crucial, but even more so is the advice an accountant can offer on improving the financial outlook of a business.
To provide this balance, accountants should embrace a more entrepreneurial way of thinking. Not only advising on how clients can meet current challenges, but also how they can innovate to drive new revenue streams in the future. Part of this means being willing to step outside of their comfort zone. Many firms are already investing in the skills and technologies they need to service novel demands – like advising on relevant accounting and finance technologies.
While many businesses remain closed to the public, even as lockdown eases, they have increased capacity and flexibility to shift operations towards what will be most effective and profitable. Clients will be open to changing their business focus to meet demand spikes in other areas as they do not have to account for a disruption to customer service. For example, many distillers shifted production from beverages to hand sanitiser while bars and restaurants were closed.
With their contextual understanding of client finances, accountants are uniquely placed to advise their clients on change and guide them through the transformation process. Though this requires a more innovative model of accounting, and one that is willing to embrace the latest technologies.
Truth in the cloud
Business advice needs to be backed by data, especially for accountants engaging directly with the CFO. Scenarios need to be modelled, analysed, tracked and compared over time to arrive at the most effective proposal for the client. This is outside the wheelhouse of traditional accounting, but it’s becoming necessary in an industry heavily disrupted by new technologies.
To keep up with the ever-growing need for rapidly available data and analytics capabilities, more and more accountants are turning to the cloud to consolidate and use their data estate, while automating the time-consuming tasks of data management. Indeed, the majority (91%) of accountants have said new technology has delivered fresh value to their business in the last year, whether it increases productivity or frees up more time to focus on client needs.
Against the backdrop of coronavirus and technological disruption, a new breed of accountant is quickly emerging. Innovation is possible for those who stay ahead of client expectations and are aware of their needs, embrace an entrepreneurial mindset and adopt the latest cloud and automation technologies. In this way, an accountant becomes an integral part of their client’s business.
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