At the Helm

5 things CEOs need to know about philanthropy

This post was updated on December 8, 2017

Welcome to the "CEOs Need to Know" series, where our top experts help hospital and health system CEOs understand the most pressing issues facing the members of their leadership teams.

In this installment, Cynthia Schaal, former practice manager of the Philanthropy Leadership Council, explains what CEOs really need to know about philanthropy.

To learn how to respond to margin pressures through strategic philanthropy, join experts from Advisory Board's Financial Leadership Council and Philanthropy Leadership Council for a webconference on Monday, Dec. 11, 2017 to learn how to respond to margin pressures through strategic philanthropy.

Register Now

1. Philanthropy is your highest ROI business line

A growing number of forward-looking executives have been investing in their philanthropy infrastructure to improve their institution’s finances and fund capital and program investments—and it’s well worth the look. Why? The potential for remarkable return.

Not only does philanthropy contribute a significant portion of net income, 20% or more at high-performing organizations, it generates about $3.50 for every $1 spent.

The reality is that a dollar generated by philanthropy takes less organization-wide effort, resources, and space to produce than most operational revenue streams. At one health system, it would take more than $70 million in charges, or about 5,000 inpatients (a staggering volume increase in today’s market), to produce the same $1 million that its foundation secures.

2. Your development office is an investment, not a cost center

While the amount of money you raise depends in part on the wealth and generosity of your local population, no one foundation or development office has fully tapped the philanthropic capacity of its market. So how can your foundation or development office improve its financial impact on your institution? By focusing on raising more dollars, not by cutting costs.

The adage “money begets money” holds true in philanthropy—foundations and development offices with higher budgets tend to generate more revenue. What’s more, our data shows that philanthropy’s ROI is more closely tied to how much you raise than how much you spend. So, investing more pays off not only with more funds raised, but also with a higher ROI.

3. Donors are consumers and treat their gifts like investments

Hospital executives traditionally build consumer strategy around the three main purchasers of clinical services:

  • Government: Our largest payer, which is pushing us toward taking on more risk
  • Employers: Especially those using a more “activist” approach to managing health benefits
  • Consumers: Who are more accountable for the cost of care and are seeking price and value transparency

But, given the impact that donors have on the bottom line, we posit that they are the fourth “purchaser” that you need to consider. And like the other three, they have new demands as well.

Today’s donors want to drive the highest impact with their philanthropy dollars, and they are increasingly thinking of themselves as investors in the nonprofit organizations that they support. They conduct regular reviews of nonprofit performance and increasingly invest in high performers, while dropping low performers and institutions unable to demonstrate results.

So what does this mean for your development team? Philanthropy leaders are increasingly creating compelling business plans prior to solicitation, and they’re expected to keep donors apprised of gift impact to secure continued support.

4. To create meaningful impact, philanthropy can’t be a sideshow

To fulfill the demands of donor investors and extract the most value from your development function, philanthropy must be embedded within your strategy-setting and planning processes.

The investments that philanthropy supports should link to the highest mission-critical priorities of your hospital or system. To ensure this is the case, you should include development leaders on your executive team, and integrate philanthropy into capital allocation processes and planning around big organizational goals, like care transformation.

5. CEO time is often the golden ticket for successful major gift solicitation

Your development office or foundation needs your advocacy and collaboration. While a strong partnership with philanthropy starts with integrating development into overall strategy, it must also include your participation in donor-facing activities. Many CEOs take an active role in speaking at the annual gala, or add their signatures to outgoing letters, but those who have the greatest impact on philanthropic revenue generation are putting in one-on-one face time with top donors and prospects.

It is no surprise that savvy, investment-minded donors want some personal interaction with the chief executive before making 7- or 8-figure donations. In one survey of top health care donors, we found that CEOs influenced investment decisions for 42% of the largest gifts to hospitals and health systems, with CEO involvement being an “essential factor” in nearly 70% of those decisions.

As a CEO, joining a donor solicitation meeting could be the most revenue you generate with one hour of your time.

Next, learn how to respond to margin pressures through strategic philanthropy

Join experts from the Financial Leadership Council and Philanthropy Leadership Council for a webconference on Monday, Dec. 11, 2017 at 3 p.m. ET to get an update on hospital margin performance and learn how to use philanthropy to drive growth at your organization.

You'll learn the latest outlook on hospital margins; philanthropy's potential to boost net income; and high-impact tactics for CEOs and CFOs to inflect hospital philanthropy.

Register Now