How to Calm the Dow Jones Jitters
By Henry Goldstein
Reprinted with permission from The Chronicle of Philanthropy, September 1998

Given the rate of turnover at charities, many board and staff members now at the helm have never carried their organizations through a stock-market shakeout like the current one, and they are nervous.

For good reason. Not since October 19, 1987--when the 508-point dive in the Dow Jones Industrial Average showed up as a 3.8-per-cent loss in personal giving at the end of the year--have we seen a market break of this depth or volatility.

Ann E. Kaplan, editor of Giving USA, which is published by the American Association of Fund Raising Counsel's Trust for Philanthropy, points out that the 1987 tax overhaul also worked as a disincentive for donors, because it lowered the tax rate, thereby lessening the financial advantages of making a charitable deduction. What's more, the overhaul eliminated the deduction for people who don't itemize on their tax returns.

Thus, we will never know which negative factor exerted the greater force: the bum market or so-called tax reform. But if the many inquiries I have received in the past few weeks are any indication, there is a great deal of concern about the current volatility of the stock market among charity trustees and executives trying to make ends meet and to plan next year's budgets.

Indeed, charities are faced with some important decisions, such as how much weight to put on stock-market behavior when they consider whether to begin a campaign or a planning study. They also want to know whether they will see a drop in contributions this year, and what effect a serious and continuing market tailspin will exert on their future.

Current concerns, however, should be tempered with some historical perspective. Except for 1987, giving has increased every single year sincethe Great Depression, a period that includes World War II, Korea, Vietnam, the Gulf War, several mini-wars, four recessions, two market collapses, the resignation of one president (so far), price controls, high inflation, and at least a half-dozen variations in hemlines. Having been in fund raising and consulting since 1956 and gone through the majority of those events, I offer the following suggestions and observations:

* Don't panic. A non-profit group contemplating a capital campaign or other fund-raising activity cannot wait for the market to recover. Nor can it predict when that will occur, if at all. The time to move is when the variables over which the charity does have control are lined up: a strong case for support, resolute volunteer leadership, good research on prospective donors, and a comprehensive plan. Though objectives predicated on unrealistic assumptions about the stock market or any other aspect of economic activity will have to be adjusted, charities must move when they are ready.

* Don't overestimate the market's effects. A ``down market'' is one reason that people use for not giving, but most people do not donate stock in the first place. What's more, those who do are not giving away the value of last week's or last month's stock. Because of the tax rules on capital gains, most stock donations reflect greatly appreciated assets that cost the donors very little to acquire and have been held a long period of time. Even in a depressed market, the gains remain impressive.

* It's the mood, not the money. More important than the day-to-day fluctuations of the stock market is the mood of the country. Although third-quarter corporate earnings are not looking very rosy, Asia is a basket case, and the President may or may not resign or be impeached, the restaurants are full, luxury items of every kind are moving briskly, and office space in every big city in America is going at a premium. The bottom line is that donors are not broke. They may feel that way, but after having received annual returns of 25 to 40 per cent for several years, they may just be spoiled. The main reason big gifts are not made is not because of the stock market. It's usually because nobody asked.

* Stay in touch with donors. By now, everyone responsible for fund raising in an organization should know exactly how much gift income is dependent on donations of stocks. Those fund raisers should be in touch on a regular basis with donors who make such gifts. Offer them some options, and tell them that multiple-year gifts, and gifts of assets other than stock, can help meet the needs of your organization. And, of course, don't forget to remind them that high estate taxes await those who are unprepared.

* There is a silver lining. To be sure, because of the current market a few sizable gifts may not be made-at least not in the amount once contemplated-but it is still possible for charities to adjust for a drop-off. In fact, that may be a good thing. Many non-profit organizations have not managed their growth very well; like Topsy, they have just grown and grown. Their needs expand geometrically, while their support grows arithmetically.

Shakeouts, cuts in government funds, and other crises, as hard on everyone as they are, can be an excellent opportunity for an organization to take stock-of a different kind.

Of course, those groups willing to do that are probably the least likely to need it. Meanwhile, philanthropy's leaders need to call for complete accountability.

Henry Goldstein, president of the Oram Group, a fund-raising consulting company in New York, is a regular contributor to these pages. Click here to send an email.