“I think people, more and more, want to make certain that their money is being put to good use by the nonprofits that they’re giving to.” – Jeremy Tennenbaum
In a conversation for both nonprofits and donors alike, Jeremy Tennenbaum, senior nonprofit strategist at Vanguard shares how current challenges and trends are impacting philanthropy. Together with Nicole Stuke, Philanthropic Advisor at the Community Foundation, Jeremy shares advice and predictions for what the future of giving looks like.
Listen to the Conversation
About Jeremy Tennenbaum
Jeremy Tennenbaum, CFA, is a senior nonprofit strategist at Vanguard and leads a team that creates thought leadership for hospitals, higher education, foundations, and other tax-exempt organizations. He writes on a wide range of issues, from spending to fundraising to improving financial health.
Before joining Vanguard, Jeremy was CFO at the Altman Foundation, responsible for investments, finance, and information technology. Previously, he was CEO of Spouting Rock Consulting, and before that role, he led a single-family office for the owners of Continental Grain, in addition to investing on behalf of the company.
Jeremy has held senior roles at Seagate Technology, Wellington Management Company, and Salomon Brothers Inc. He sits on the advisory board for MIT’s Sloan School of Management, where he earned a master’s degree in finance. He earned a bachelor’s degree in politics and intellectual history from Princeton University.
Jeremy holds the Chartered Financial Analyst® certification and is a longtime board member and former president of the CFA Society of Philadelphia. He presently serves on the investment committee for Main Line Health.
Episode Transcription
Nicole Stuke:
Welcome to the Grow Your Giving podcast, powered by the Greater Kansas City Community Foundation. We are excited to bring you conversations featuring experts in philanthropy, share impactful stories happening in the Kansas City community, elevating the voices of those, making a difference around the Metro. My name is Nicole Stuke, I’m a philanthropic advisor at the Community Foundation, and I’m excited to host today’s episode of the podcast. In my work at the Community Foundation, I work with nonprofit organizations on agency funds that help establish a home for reserve funds and a place to build long-term assets through investing. It’s a privilege to have a front-row seat to the impactful work happening in our community, and to play even just a small part in helping nonprofits make a difference.
So I’m excited for you to hear a conversation with Jeremy Tennenbaum, CFA and senior nonprofit strategist from Vanguard. Before we jump in a little bit about Jeremy and then some background on the Community Foundation’s relationship with Vanguard. Before joining Vanguard in March 2018, Jeremy was CFO at the Altman Foundation. He was responsible for investments, finance, human resources and information technology. Previously, he was CEO of Spouting Rock Consulting. And before that role, he led a single family office for the owners of Continental Grain, in addition to investing on behalf of the corporation and helping to run their defined benefit and defined contribution plans. Mr. Tennenbaum has held senior roles at Seagate Technology, Wellington Management Company, and Solomon Brothers. He earned a bachelor’s degree in politics and intellectual history from Princeton University and a master’s degree in finance from MIT’s Sloan School of Management.
Now to talk a little bit more about Vanguard’s relationship with the Community Foundation. About 10 years ago, which was 2013, the Community Foundation’s investment committee made the decision to convert the holdings in our investment pools to a hundred percent passive investments. Vanguard was selected for 99% of the dollars invested. They were literally the vanguard of passive investing. Vanguard’s mission is to take a stand for all investors, to treat them fairly and to give them the best chance for investment success, which aligns succinctly with the Community Foundation’s values and mission.
The Greater Kansas City Community Foundation has two investment criteria. The first one is the fund we select must track its benchmark with very low tracking error. The second criteria is that we also look for very low expense ratios so that the vast majority of the performance of the pool accrues to the pool participants rather than the investment manager. Vanguard is truly a leader on both counts. Through this great partnership with Vanguard, we’re able to work with the institutional investor group, which created a position of senior nonprofit strategist, which Jeremy holds today. I’m excited for you to hear this conversation. Jeremy and I talk all things trends in giving, how nonprofits and donors have navigated the unprecedented last couple of years and what the future holds for philanthropy. So let’s jump right in. So Jeremy, can you tell me a little bit about your role at Vanguard and how you came into this position?
Jeremy Tennenbaum:
Oh gosh, Nicole, I came into position… The fellow who hired me… Vanguard has thousands and thousands of employees, most of whom were really experts on aspects of investing. We didn’t have very many employees who actually were experts on nonprofits and how nonprofits work, the issues that they grapple with both on the investing side, on the non-investing side and just generally the business challenges they face. At the foundation I probably did spreadsheets on over a thousand small and medium-sized nonprofits throughout the New York metropolitan area, which is where our grantmaking was based. I was trained as an investment analyst 35 years ago, and that training informs everything I do. So I spent a lot of time thinking about different types of nonprofits, whether what different types of food banks have in common, or homeless shelters, or hospitals, or higher education systems, as well as the differences. And, again, Ken who recruited me just wanted us to, I think, wanted Vanguard to get more of a down and dirty in terms of our understanding of business challenges, not just investment challenges for nonprofits.
Nicole Stuke:
Which yeah, that makes a lot of sense to really dig into that philanthropic world and endeavor, and to really analyze it a lot like you do the investments at Vanguard. And so I’d love to talk with you a little bit more about what are you seeing as the current trends in philanthropy?
Jeremy Tennenbaum:
When I was a kid, I used to do a lot of sailing, and sailors, there’s a term in sailing that strikes fear in the hearts of anybody who gets on a sailboat, which is called cross seas. That’s when you have currents that are running at angles to each other and they can turn over the most seaworthy vessel. And that’s what we’re facing now, we’re facing cross seas on the investment side, on the economic side, on the giving side. And I’ve been spending a lot of time with our clients trying to separate the differences that are influencing what’s going on.
So let me start. Although in the United States we’re acting as if the pandemic is over, it’s still with us. Many organizations are still coping with the lingering effects of the pandemic in terms of challenges, retaining workforce, hiring new workforce, heck, hospitals are dealing with, they still have people crowding their emergency rooms every day coming, who have the COVID. And you’re seeing a lot of stress on hospital balance sheets. I think the second cross current that we’re all coping with is inflation. So inflation has two aspects that impact nonprofits. First and foremost, everybody’s cost structure is being impacted. Whether if you’re looking for new space, you’re going to have to pay more on rent. You’re having to pay more for employees. And again, as many of our listeners know, the nonprofit world, because we’ve never had a lot of money, have historically depended a lot on low-cost labor. And if you are going to pay people $15 an hour, that might have been acceptable pre-pandemic, now it’s going to be 20, 22, $24 an hour. So all of our nonprofits are facing challenges to their business model.
I’m an old investment guy, or as my wife likes to say, I am an investment fellow of longstanding. One of the reasons that inflation bothers investment people so much, it’s a silent thief. It takes the money, it takes the food out of your mouth without actually realizing it. So if you’re a fundraiser, well, guess what? The $100 contribution that you were thankful to get last year, or the $1,000 contribution, or the $10,000 contribution, well, the nominal value is still the same, but then a $100 is really only worth $92 based on what’s happened with inflation. And so in order to really keep pace, you’re going to have to raise more money. I think the, I wouldn’t say it’s a challenge, it’s just a complication.
Nicole Stuke:
Yeah. No, great points. And so as we think about the COVID-19 pandemic, and you talk about maybe it’s calming down a little bit, but there is still definitely a lot of things occurring. And you talked about health systems and things like that, and those are part of the nonprofit ecosystem. So how are the needs of nonprofits changing as we’re moving into, I think that some have called it possibly an endemic, a little post-pandemic. And how can our donors best respond to some of the things that are occurring right now?
Jeremy Tennenbaum:
I think one question that’s going to be on the mind of all the donors, as well as on the minds of the nonprofits listening, the folks at Candid did a really fascinating blog a little bit over two years ago where they try to estimate how many nonprofits would make it through the pandemic. And they did two pieces of research, which I thought was extraordinary. Number one, they estimated that in a normal year, about 4% of all nonprofits go out of business. And then they did, I think it was 20 plus scenarios ranging from, I think no additional nonprofits go out of business, something like 20% of additional nonprofits would go out of business. It’s hard to measure and Nicole, you know this, because the IRS data lags by three or four years, we won’t really know, but preliminary data suggests that the number of nonprofits that won’t make it will be about 13 to 14%. And that’s typically the smaller ones.
So I think what donors want to know is are the nonprofits there are giving to going to make it through. I think that imposes a burden on community foundations because people… Community foundations are the heart of place-based philanthropy in the United States. And historically donors have looked to community foundations to help them figure out, okay, what are the best avenues for my philanthropy? But they also want to know, Hey, Community Foundation, help me give money to people who are going to make it, not to people who aren’t going to make it. And I think that’s a burden that all of us are trying to cope with. Vanguard for three years has been saying that investment returns going forward for the next decade are going to be much less robust than they’ve looked for the last decade.
And so last year people said, well, are you crazy? The market’s up 20%, but I think we’re not feeling great about the turbulent markets, but I think it’s validating our belief that investment returns will be tougher to achieve. So, that means that fundraising is going to be more important, but also I think that nonprofits are going to have to say, well, we need to raise more money. We need to assure that we’re going to make it through, that a year from now will be standing, but we also need to make some hard choices. Are all our programs equally effective, or are all of our programs worthy of donor support? Can we shape our business model for what might be a more difficult environment ahead? And I think that those are the big challenges that I suspect our listeners are all thinking about.
Nicole Stuke:
And so, as you think about donor response to that and what they can do, and you talked about working through systems of community foundations, or through your donor-advised fund plan giver, or whatever it is that you’re doing, how can the donors best respond to a lot of that stress that you’re talking about?
Jeremy Tennenbaum:
I suspect that what’s going to happen… In the past a lot of donors, strictly donors of means have spread money around, a wealthy family might give out a $100,000 a year, but it might go to 10 or 11 different causes or areas. My suspicion, and it’s only a suspicion, is that going forward, particularly as they want to make certain that their philanthropies having as great an impact as it could, is that people will be, instead of supporting 10 causes they might support seven or six. So the good news is that the dollar amount to each cause will be greater, bad news is they’ll be supporting six instead of 10. What does that mean? That means, I think it’s more important than ever for nonprofits to love their donors, for nonprofits to get the message out to the donors about how important, A, how important the donors are, and B, make it clear what the donations are going for.
I think what we see, I see this very clearly with my children who are millennials, I think it’s true for all demographic cohorts, I think people more and more want to make certain that their money is being put to good use by the nonprofits they give it to. And so let me go back to what you’re asking Nicole. What we saw the last couple of years was, donors were voting, I wouldn’t say voting with their feet, but they were instinctively giving money to where the needs were greatest. So we saw a lot of huge increase in donations to hunger and homelessness, but corresponding drop in donations to arts and cultural organizations, frankly most of whom were closed. I think donors were saying, well, look, they’re in suspended animation, and they’re not open now anyway. So let me give money to the homeless shelter or to the food bank.
So the question is, will that continue? Because frankly, the needs of food banks are maybe not as quite as great as they were a year ago, but they’re still pretty substantial. And the challenges food banks have, because it’s costing them more money to get food and it’s going to cost them more money to hire folks to distribute the food. So I think you and I, and everybody else who’s an observer of the scene is trying to figure out, okay, are folks going to say, well, we still need to give more money to help hunger, or we’re just going to give a little bit less to arts and culture, or we’re just trying to find out what’s happening.
Nicole Stuke:
So how can donors put plans in place now to ensure that their favorite nonprofits are prepared for the future? Are there certain gifts, legacy gifts, bequests, endowments that you’re thinking about that really can change thing, you talked about donors probably making larger fewer gifts, but are there things that they can start thinking about instead of if and or, but and?
Jeremy Tennenbaum:
Legacy giving is very much in the mind of your donors, if you’re a nonprofit. So what can you do as a nonprofit? Number one, you can work with local nonprofit attorneys to make it as easy as possible for your donors to make legacy gifts. It doesn’t require a little work on your part, but put the forms on your website, just have one of your… Because again, small nonprofits might only have one or maybe two development people. So make sure that one of those development people’s really pretty good at legacy giving, because to get legacy giving, you’re not just reaching out to donors, but reaching out to that whole ecosystem, you’re reaching out to the donor’s estate planning attorneys and to their financial advisors and to their accountants.
Now on the flip side, if you are a donor, you are going to have to do a little homework. So number one, what are the causes that really mean the most to you and to your spouse? How do you intend to fund those causes with a combination of current giving and giving legacy giving? How do you know that the organization that you’re going to give to is going to be around? It’s one of the reasons we like donor-advised funds, whether done through Community Foundation, or done through a national, a DAF (donor-advised fund), is that it creates a vehicle that’s relatively inexpensive that allows a donor to make plans for years in advance as to where the money’s going to go.
Nicole Stuke:
Great point. And really there is that opportunity and there are those services and that expertise, but like you said, there are a lot of resources that you should think about not just the Community Foundation, but also your state attorney, some other things like that. Are there any other resources that you think donors can use on their own, or in collaboration with the Community Foundation?
Jeremy Tennenbaum:
Giving money in and of itself is not easy, but when you say to the donor, you should do some homework about the organizations to which you give is like, oh my God, I just want to give the money. I don’t want to have to do homework. I’m not back in the fifth grade or something like that. But in fact, if you as the donor are not prepared to do the homework, you need to work with someone who does do the homework, whether that’s your Community Foundation, or a financial advisor who understands philanthropic giving.
I’m a big fan of Candid, their guide star service keeps getting better. They have the metal rankings of the different charities there. You can set up a free GuideStar account and do just some basic research, Charity Navigator does a very good service though with an economy slightly different tilt. And again, your local community foundation spends a lot of time working with all the nonprofits in your geography. And they’re generally pretty helpful if you reach out to them, say, Hey, I want to support arts and culture in Greater Kansas City. What’s out there? What do you recommend I give to?
Nicole Stuke:
That’s a great point. And it’s interesting that you say that, because my next question wraps around that with place-based giving. And we’ve been hearing a lot about it. And can you talk a little bit about place-based giving and what you’ve been seeing from both the donor and nonprofit perspective in place-based giving.
Jeremy Tennenbaum:
When we talk about place-based giving it’s, the visible part are community foundations, because you give money to… You set up a DAF with your community foundation and you know the vast bulk of those disbursements are going to go in your city, in town, or metropolitan statistical area or what have you. But remember there are a huge number of other organizations that are not community foundations that are also engaged in place-based giving, Jewish Federation, Catholic charities, the Federation of Protestant Welfare Boards, the Rotary Club has foundations all over the country, Kiwanis, frankly at the end of the day hospital foundations, that’s all place-based, most higher education, you’re not supporting a university system that has hundreds of campuses around the world, I don’t think so, but you’re supporting someone in your area.
Again, Nicole, you and I have talked about this in the past, this is a… I can’t prove this, but one of my most firmly held beliefs is that as we come out of the pandemic, people are going to be more focused than ever on the health of their communities and on what they can do to really help their communities rebuild and thrive after the devastation caused by the pandemic. And frankly, after all the turmoil that we’re seeing in terms of broken supply chains, in terms of a lot of turnover in employment, our communities are really trying to grapple with how can we rebuild and become strong. And I think that’s going to become more important than it’s ever been to donors.
Nicole Stuke:
Great point. And you talked a lot about supply chain and you’ve talked a lot about increasing salaries and a lot of things that are outside of the realm of what donors normally think about, but in the future, do you think donors are going to have to think about being able to give dollars and say there are open dollars for operating for salaries for supply chain issues. Is that changing in your mind and are you seeing less restrictive gifts?
Jeremy Tennenbaum:
Again, I’m seeing a lot of cross seas, or cross currents. And let’s also set a little context here. 50 and 60 years ago, the household names and philanthropic givings were places like the Rockefeller Foundation and the Ford Foundation and Carnegie. And again, 60 years ago, Rockefeller Foundation gave huge amounts of money to a bunch of agricultural scientists who developed strains of wheat and rice that were resistant to drought, that could be planted in different areas. Forgive the history lesson, Nicole, but I think it’s important. And most of these scientists were working for big research universities. So the research universities basically start saying, okay, here’s a tax. So if you give, Rockefeller Foundation, if you’re going to give $5 million to Iowa State, guess what? 15 cents of each dollar will go to support overhead. And over 20 or 25 years, the giver said, what? What are we doing? We’re not going to pay for the president of Iowa State, we want to pay, put money on the ground to where it’s best used.
And in general, you saw this, the sea change where people became ever more resistant to paying for overhead. Well, guess what? Overhead’s an intrinsic cost for any human organization. And if the donors don’t give money to support the overhead, the organizations are going to have to figure out how to pay for the overhead someplace else. So over the last five or six years, you’ve seen more of an effort to have people, more donors, both big foundations and smaller private donors are saying fine, let me write a check. And either a certain amount will be dedicated to overhead, or will tell in our donation letter or our grant letter, we will tell the organization they can use some for overhead.
Now the cross current is that donors like to be able to say, I want my money to go to this program, not to this other program. And I think increasingly as nonprofits compete for donor dollars, they’re trying to say, well, okay, here are six programs you can support, you pick them. I think what will happen is that the nonprofits will say you pick them, but guess what? Whatever program you support, X percent of that money will be going to corporate overhead or nonprofit overhead.
Nicole Stuke:
So it’s interesting. So we’re in a unique environment, feel like we’re getting towards the end of the pandemic and then it starts up again, some things definitely wanting to take care of our own communities right now with place-based giving and different things. If you could offer advice to both donors and nonprofits right now, what would it be? And maybe you want to take one and then tackle the other. So maybe start with donors about what you would say to donors right now about philanthropy and the needs and things like that.
Jeremy Tennenbaum:
What I would say to donors is as follows, the needs have never been greater, but with inflation, every dollar you give is going to be worth less to the recipient than it was a year ago. And so I would encourage donors think very carefully about the organizations that mean the most to you, to your spouse, to your family. And in the past, if you’ve given to all 10 equally meritorious recipients. And if they are, maybe you want to give more to six of them and less to four. I think it probably is a sensible strategy for you to maybe focus more dollars on fewer nonprofits, knowing that you’re going to have an outsize impact on that. Now let’s flip to the nonprofit side. What we see with nonprofits, particularly small nonprofits, is as a human tendency you want to be all things to all people. Well, you can’t be all things to all people.
You’ve historically had a certain core base of donors. You have to love them even more than you’ve loved them in the past. You have to reach out to them even more than you’ve reach out to them in the past. Don’t be afraid to ask them to help you not so much with dollars, but hey, do you have a friend or relative who feels the way you do, would you be willing to ask them to give money to us? Don’t ask for names, but just ask them for their help, because again, I think historically people are very willing to give what I call nonfinancial support, just getting the word out for you. I think it’s going to be more important than ever before. Again, since the ranks of nonprofits will go down, whether we want them to, or not, for nonprofit boards to be more involved in fundraising than they’ve ever been in the past.
Nicole Stuke:
So true. So true. And so it sounds like there is a little bit of crossover in your advice. Some of the common themes that I was hearing are communicating right, both from the donor side and the nonprofit side, thinking things through. And I think you’ve been really clear in your message when we’ve met before too, about how much communication needs to be and how important it also sounds like not only does the donor possibly need to think about giving larger gifts, but the nonprofit needs to think about asking for larger gifts and putting into effect that there’s an inflationary cost right now, that things are costing more and that kind of thing. So talk a little bit about that, about those crossover themes that you’re hearing.
Jeremy Tennenbaum:
Again, I do think we’re at the early stages that nonprofits are saying, oh my gosh, A, are costs are greater. And B, the real inflation just size of the checks we’re getting has shrunk by six or seven or 8%. So we’re going to ask our folks to reach into their pockets a little bit more, a little deeper. And again, I think that donors are probably comfortable with that message, because I think donors are starting to say, well, again, we can’t give the same dollar amount, but we’re going to be a little bit more focused in the monies that we give. And by the way, we’re going to be a little bit tougher on the organizations to say why they deserve our money. Talk to us about their financials. Talk to us about the programs that are working, about the programs that aren’t working. I just think that donors appreciate your frankness instead of saying these programs have been more successful, so we’re tilting more spending there. We’re trying to scale back these other programs or close some of them all together, because donors want to know that you’re making the hard decisions.
Nicole Stuke:
Yeah, I think that’s a great, great point. So as we close up our conversation today, is there anything else that you’d like to add, or talk about that you’re seeing right now?
Jeremy Tennenbaum:
I would just say it’s more important than it’s been in years for you not to run and hide, whether you’re the donor or whether you’re the nonprofit. If you’re the nonprofit you’re competing for scarce resources, and you may not like it, but that’s reality of life. So you need to be very clear to donors, A that you intend to survive, B, that you have a plan to get there, C, that you are very clear about what you’re going to be doing with every dollar that they give you.
And again, I think now higher education is its own world, its own solar system. I do think there’s been a steady drumbeat over the last six, seven years. People don’t want to just… I’m giving you 50 million and I’m going to create this program and it’s going to do great things. And there’s always going to be a certain amount of people who want for whom that’s really important or naming a new hospital. Again, they’re all praise worthy endeavors, but I think increasing donors want to know, I want to give to organizations who really, really need my support and who have the ability to clearly articulate what they’re going to do with my support and where I really feel I’m a partner in the endeavor. And I think increasingly donors want to just be appreciated for the role and not just pat it on the head and say, okay, give us your money and we’ll bug you again in a year or something like that. I think those days are, if they’re not dead and gone, they’re dying and going away.
Nicole Stuke:
So thank you so much for spending your time with us today.
Jeremy Tennenbaum:
Well, you’re very welcome, Nicole. I love this. I wish I had more in the way of really explicit answers, but again, I can see that we’re in an environment of cross seas. And so I can recognize the cross seas, I don’t know which of the currents are going to end up predominating. The one thing I feel fairly confident about is that we’ll see, I think people are just going to sharpen their giving lens, or their giving focus. And again, I’m not saying that they’ll give less, fewer dollars, but they might give the same dollars to few organizations. I just think that people are wanting to feel more in control of their giving and more confident in the organizations to whom they give.
Nicole Stuke:
Jeremy, thank you so much for a wonderful conversation. I’m extremely thankful for your wisdom and insight and your willingness to share it. Listeners can keep up with the Community Foundation and if you’re interested, learn about how we support both donors and nonprofits by finding us online at growyourgiving.org. Thanks for listening.