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As you approach the midpoint of the traditional academic year, you are likely to be thinking about your foundation’s budget for the future. Undoubtedly, a number of factors are creating significant budgetary challenges for foundations. Declining tuition revenue and inflation could impact institution budgets, and in turn, institutional support for foundation operations. Low endowment returns will reduce revenue from endowment management fees going forward. In addition, the markets could impact philanthropic giving and gift fees. Finally, underwater endowments could challenge foundations to reduce or freeze endowment distributions and tap reserves.
Boards should be strategic thought partners in the budget process—ensuring that the short-term budget aligns with long-term priorities.
Consider these recommendations:
Ensure alignment. While foundation boards are responsible for ensuring the financial health of the foundation and its assets, they must take both the short- and long-term needs of the institution into account.
- Foundation staff should provide its board and their institution with realistic projections of new gifts, endowment distributions, and other funding streams.
- Liquidity, careful attention to reserves, and prudent management of endowment spending are critical to ensuring the foundation will sustain support for student financial aid and other mission-critical purposes in the event of a serious market event.
Engage the whole board. Newer board members, including those who are not financial experts, should be engaged in overseeing the budgeting process to bring fresh perspectives and develop an understanding of foundation finances. They may ask the most consequential questions.
- In addition, the entire board should feel ownership of the budget.
Don’t rush the process. Start early. Governing boards that have multiple opportunities to weigh in, ask strategic questions, and become familiar with the budget will usually generate and drive more meaningful outcomes.
- Recognizing that budgets can be complex and difficult to understand, boards should review and ask hard questions about budgetary drafts at meetings before they are asked to approve the budget.
Develop and regularly review financial dashboards. Once a budget is approved, dashboards on endowment performance, fundraising, and other budget drivers make it easier to translate operational details into strategic outcomes.
- Foundation boards should also closely monitor endowment accounts in danger of falling underwater. Any anticipated or projected changes to foundation distributions should be communicated to institutional stakeholders.
Foundation leaders must think along dual tracks. They should be prudent stewards of philanthropic assets and ensure compliance with donor intent while ensuring that the foundation’s fundraising and other work are aligned with the strategic priorities of the institution.
- Careful budgeting and financial management can help foundations be prepared to step up as strategic partners when their institutions face unexpected challenges or opportunities.
- Sustained, collaborative financial planning and budgeting are particularly important in advance of campaigns that can grow both gift revenues and longer-term fundraising capacity.
NIFO (noses in, fingers out): Before approving the budget, board members have the responsibility to ask questions about it and provide suggestions to senior administrators, and they need to respect the role of management versus oversight.
Go Deeper: Access AGB’s extensive library of practical tools and resources to help your board navigate its budget responsibilities.
- In case you missed it: I encourage you to review AGB’s report on foundation operations and investment practices. AGB and SEI partnered to survey more than 130 foundations in an effort to identify important issues for foundation leaders.
- Many foundations are examining their real estate footprint. AGB has a podcast episode and an upcoming webinar to help board members understand how real estate fits into the strategic plan, and what is possible in a world of hybrid work and education.
- AGB books on foundation finance and endowment management can further guide you.
Strategic Questions
Questions for Board and Committee Chairs
- Does the board have the requisite skills, perspectives, and acumen to oversee the foundation’s finances?
- How can our board best achieve collective “financial literacy” while recognizing that not all board members need to be financial experts?
Question for Board Members
- Is our board focused on broad, long-term, strategic issues rather than on narrow, short-term operational concerns that are more tactical in nature?
Question for Chief Executives and Leadership Team Members
- Do we need to build more time into the budget planning process so board members can offer strategic insights and perspectives?
The bottom line: The budget is a reflection of your foundation’s priorities. Owning the responsibility for providing strategic oversight makes board members consequential contributors to the strategic budget planning and development process.
Thank you for your dedication to advancing higher education. My door is always open to you and your colleagues. I welcome your questions, thoughts, and suggestions.
I look forward to seeing many of you at the upcoming Foundation Leadership Forum and wish you a peaceful conclusion to 2022 and a prosperous 2023!
