Trends Reflected in 20 Years of American Charities Receiving the Most Donations

1. Trends Reflected in 20 Years of American Charities Receiving the Most Donations Bill Cleveland October 29, 2013 WIMPS Seminar

2. Today’s Presentation • Interesting findings as starting point • Define fundamental terms and issues • Explore 3 questions • Is this a phenomenon of concern?

4. Number of 501(c)(3)s doubles ~ 20 years

5. Persistence in the Philanthropy 400

6. What is the Philanthropy 400? • Chronicle of Philanthropy ranks annually since 1991 • Ranks public charities with most private support • Individuals: Gifts and bequests • Corporate gifts: Cash and in-kind • Foundation Grants • NOT fees for service or government funds • Stable method: most recent fiscal year data available • Does not exclude any category of organization • Includes consolidated financial information • 900 entities ranked, upwards of 50,000 locations • Completely unstudied: “Unexploited data set”

7. Why Private Support? • Fundraising distinctive to the nonprofit sector • 87% of public charities receive donations • Solicitations educate public about organizations • Branding important to attract donors • Significant source of income for some organizations • >50% of revenue for 20% of organizations • >75% of revenue for 12% of organizations All figures from Horne, C. S. (2005). Toward an understanding of the revenue of nonprofit organizations. Georgia Institute of Technology.

8. Is Private Support a Good Measure? • Distinctive of public charities • Indication of an organization’s ability to convince people to make donations • Minority of cumulative income for public charities • Intermediate outcome • Does not evaluate effectiveness of service delivery • Allows comparable measure of many types of organizations

9. If not financial results, then what?

10. Compile Rankings to One Data Set • Distill 8,800 entries into single list of names • Name variations, changes, and mergers • Include all variables year-by-year • Income, expense, and fiscal year accounting data • EIN, Category, and headquarters location • Notations: affiliates, in-kind giving, capital campaign • Ranking number and age • Some published data outdated • Carried over from year to year or outdated by a year • Cumulative impact of updates <1%

11. Is Philanthropy 400 Data any Good? • Data voluntarily submitted by organizations • Most organizations use Form 990 data • Most studied 990 data flaws for expense allocation • Less incentive to lie about revenue • Council for Aid to Education for public universities • Allows fairly direct comparison • Difference in accounting rule application • Include some, but not all religious organizations • Published with factual and typographical errors

12. Other Data Issues • Attempts to include entirety of affiliated organizations • United Way included as entire organization in 2005 • Jewish Federations report individually • For commercial firms, Wal-Mart reports consolidated for entire corporation and McDonald’s excludes independently-owned franchises • Including all franchise revenue would ~double McDonald’s total revenue

14. Question 1: What ages of organizations drove the concentration of private support for ranked organizations? • Hypothesis: New Entrants will surpass incumbents in overall private support because they are better suited to the current environment than persisting organizations. • Theoretical Backing: • Organizational Inertia • Organizational Legitimacy • Organizational Ecology: Senescence

19. Question 2: Do ranked organizations change dependence on private support? • Hypothesis: Organizations are more likely to diversify income streams as they get more mature, relying less on private support • Theoretical Backing: • Resource dependence • Organizational Isomorphism • Risk and rewards of revenue source diversification

20. Encountering Data Problems • Around 70 organizations with no total income reported each ranking • Majority are colleges and universities • May be able to replace with 990 data • Many Universities report total income for fundraising entity and not entire organization • Several organizations each year with private support exceeding total income

21. Question 3: Do certain categories drive increased private support, or does growth mirror all categories? • Hypothesis: Ranked organizations will collectively track changes seen with public charities overall in number of organizations and private support received. • Theoretical Backing: • Organizational Ecology: resource partitioning and density dependence • Organizational Legitimacy

24. Categories Declining • Not strong growth categories • Expect a declining percentage of organizations • Not closely tied with giving • Declining popularity of federated giving • Giving decreases tied to aging organizations • Youth as an exception

27. Categories Increasing • International growing in number & private support • Accounting Issues • At least 3 organizations with restated financials • Commercial Funds with a strong impact • Number of hospitals outpacing increase in their private support • Private support to Human Services group more volatile than number of organizations ranked

30. Should Concentration be a Concern? YES!!! NO!!! Economies of scale allow effective groups to scale up Specialization improves efficiency Resources shared between orgs Donations: Federateds, In-Kind Contracts: Komen to Planned Parent. Professionalization & bureaucratic inertia for consistency Weeds out marginally effective New organizations have grown Groups representing minority interests have flourished • Creates barrier to entry & growth • Inhibits innovation • Stasis in sector more likely • Corporatization of sector • Donors increasingly set agenda • More power to the influential • Marginal voices at greater disadvantage • Big bet philanthropy can fail

31. Recurrence of Concentration? • United Way steadily dropped in percentage of receipt of overall private support • 5% in 1950s • 1% today • Other organizations with huge market shares • Red Cross >1% in 1950s • March of Dimes ~1% in 1950s • Reliable statistics likely unavailable prior to 1990