Avoiding the Pitfalls That Can Impede a Giving Circle’s Success

 

From 2007 to 2017, the number of giving circles—a group of volunteers who combine their financial resources and skills to solve social problems rooted in their local communities—tripled. This increasingly popular model of philanthropy has given as much as $1.29 billion since it began.

As the founder and president of the Los Angeles-based Everychild Foundation, a women’s giving circle that began operations in 2000, I am deeply aware of the intense effort involved in creating and operating this type of organization. Getting started and keeping a giving circle going strong involves fulfilling the proper legal requirements, designing and refining grantmaking systems, recruiting and retaining members, and many other challenges.

Over Everychild's more than 20 years of operation to help children in Los Angeles, the missteps and strategies that can cause a giving circle to fail or succeed have become increasingly clear to me. Accounting for them has helped Everychild distribute $19 million in targeted community grants over the years, continue to receive robust donations even though giving levels tend to dip amid economic downturns, and inspire dozens of spin-off organizations. Most notably, we've kept our membership retention levels above 90 percent on average year over year—which in turn produces more dollars for grants and ensures our focus is on solving social problems rather than keeping the organization alive. Here are four insights into how we did it based on our own experiences and those of other giving circles:

1. Embrace Consistent Leadership

Disruptions in leadership must be minimized, and when transitions do occur, it is important to prioritize institutional memory and tap into the experience of longtime members. Without consistency, day-to-day operations become more difficult, and giving circle members may lose confidence in the organization or leave it.

The benefits of uninterrupted leadership became most apparent to us when another giving circle—which had formed after being inspired by Everychild—withdrew a six-figure capital grant several months after it was awarded due to the recipient’s failure to follow the terms of the grant contract. This type of situation is one of the most severe assaults on the confidence of a giving circle’s members.

How did this happen? We learned that the grant vetting process neglected to identify the recipient's poor track record of implementing new capital projects. The omission stemmed from the circle's organizational structure, which required a different president and executive board every two years. A new president of the circle failed to fully understand the critical role played by a longtime grant consultant in working with volunteers to vet grant applicants and, aiming to cut costs, led an effort to push the person out. While the situation did not destroy the organization, it led to the departure of numerous original members and caused lasting damage to the circle's reputation, harming future member recruitment.

Everychild has managed such threats to its stability by avoiding term limits for its president and the two at-large members who are responsible for maintaining the organization's strategic perspective. By keeping the same people in these roles over time, we avoid the distraction of constantly having to identify new directors and expending time on integrating them into the role. We also have been able to develop deep institutional knowledge about how to function smoothly and what members cherish most about Everychild.

Not every giving circle can or wants to identify someone who will desire to be at the helm for two decades. Each organization must judge what works best for it, but if disruptions do occur, it is important to value the insights of longtime members.

2. Get the Help of Outside Experts

While many giving circle participants may have had prior experience raising funds for good causes, most have not previously given them away on a large scale. Even before its grantmaking begins, a giving circle must, for instance, institute compliance systems with IRS rules, state corporation codes, and local regulations. Handling these tasks is a tall order for members who may lack a background in the work.

This complex challenge caused one giving circle in Los Angeles to last only two grant cycles. The young and enthusiastic professionals who made up the organization started it without the assistance of an experienced volunteer, compensated consultant, or fiscal sponsor, such as a community foundation, which many giving circles commonly utilize.  According to the circle's founder, the steep learning curve marked the beginning of the organization's end.

To avoid this pitfall, Everychild has retained the services of two consecutive professional grant consultants over the years. Even though Everychild's members have learned extensively about the issues the consultants have helped us handle, we cannot match the guidance—and valuable relationships with other charitable foundations—they bring through their focused careers.

3. Avoid Winner-Takes-All Grantmaking

For years, Everychild had put grant seekers through a competitive process that resulted in one winning organization. This was problematic for second-place candidates, who put in as much effort only to leave empty-handed. We believe it dissuaded some women from joining Everychild, and we knew it dissuaded some potential grant applicants from submitting letters of inquiry.

To improve this approach, we always encouraged our individual members to donate directly to the runner-up. This helped somewhat but did not compare with receiving a meaningful gift directly from the whole group that had put a grant seeker through its paces. In 2019, we went further to ameliorate this problem by beginning to provide a generous grant to the runner-up candidate each year. To do so, we raised our member annual contribution for the first time; this change also helped us adjust for cost-of-living increases, which we had never before done. Furthermore, recognizing that 2020 was a trying and survival-threatening year for a large number of our grant applicants, we turned away from our established protocol. Instead of giving $1 million to a single children’s agency for a new capital or program project, we split the money among eight groups to address their overwhelming operational needs stemming from the pandemic. Both changes have been well received by grant recipients and Everychild members, and even inspired several new people to join our giving circle during this widespread health crisis. We believe the steps helped us experience lower than average annual attrition, surprisingly turning 2020 into one of our best-performing years.

4. Stick to One Membership Tier

Everychild's members often suggest the creation of another membership tier with a lower financial commitment. We've never taken this step—it makes it too easy to create a hierarchy of participation that would undercut the sense of cooperation and camaraderie that arises from an equal footing among members.

For example, one giving circle in the region allowed a participation tier where five people could share the cost of one membership, each of them obtaining one-fifth of the accompanying annual grant vote. Though the new tier initially increased the amount of the grants, that improvement was more than counteracted when members—many of whom complained the option eroded the group's cohesion as it filled with less-vested participants—quit the organization.

Stability Underpins Success

Half of the women in Everychild have been part of the group for more than a decade. Our ability to keep our membership highly stable over many years has been critical to achieving our mission to ease the suffering of children in Los Angeles and has depended upon our embrace of the four factors outlined above: eliminating the disruption of constant leadership turnover, working with experienced outside professionals, rethinking our grantmaking strategy, and preserving equal status among our members. Though giving circles getting started or struggling to find their footing may want to try just some of the strategies, I believe using them all provides the greatest chance of success—and reaching those who need our help.

Read more stories by Jacqueline Jacobs Caster.