Jewish philanthropy watcher Gary Tobin: “Does any donor need more excuses not to give.”
by James D. Besser Washington Correspondent
Bernard Madoff’s alleged, record-shattering Ponzi scheme may ignite a crisis of confidence among donors to Jewish causes, adding to the impact of an economic climate that already has many reeling.
A prominent Jewish activist in Washington described his own Madoff-related rebellion. While writing end-of-year charity checks last week, this activist decided to withhold his customary $1000 contribution to the Jewish Federation of Metropolitan Washington. The reason: the group revealed it had lost at least $10 million in the Madoff collapse.
“I realize a lot of groups were caught up in this, and maybe their motive really was to maximize their return so they could do more good works,” this activist told The Jewish Week. “But part of me resisted; why should I give more money
to an organization that made this kind of mistake, without some assurance it won’t happen again? I’m donating money because the federation provides important services, not to give them money to put into risky investments.”
While not predicting a wholesale flight from philanthropy, experts in Jewish charity say the Madoff fiasco and the impression it left of lax financial management and weak ethics standards is already leading to strong pressure for more transparency and accountability.
“It’s a wake-up call for the entire philanthropic community that we have an obligation to use the money we get wisely and carefully,” said Larry Garber, executive director of the New Israel Fund — a group that had no money invested with Madoff-related entities. “You need accountability standards not only for out-and-out fraud, but standards relating to performance and objectives.”
Pressure for change will build as evidence mounts that some investors were raising alarms about Madoff’s too-good-to-be-true returns almost a decade ago. That, along with the continuing economic slide, means givers will watch their charitable dollars more closely and hold recipients to higher standards.
At the same time, the huge losses experienced both by the charities that entrusted their funds to Madoff and individual givers to Jewish causes could force a re-evaluation of the recent shift by most charities to focus on only the biggest of givers.
And the scandal’s repercussions could widen a gap between younger and older givers as a new generation of donors rejects the Old Boy network way of doing business that produced fertile ground for Madoff’s alleged scam.
Numerous analysts say that while Madoff’s alleged Ponzi scheme was the direct cause of the failure of almost a half-dozen Jewish foundations and has cut deeply into the endowments of other groups, the real impact may be the way it is combining with a disastrous economy to alter the emotional climate for giving.
“The Madoff scandal comes in the midst of the worst financial and housing market meltdown since the Depression,” said Gary Tobin, president of the Institute for Jewish and Community Research.
“Foundation portfolios, Jewish organization endowments and annual giving to nonprofits were all down significantly before this happened. The climate of fear and uncertainty that’s been generated in these markets is only made worse by the Madoff scandal.”
Tobin said it is a mistake to view the Madoff disaster in isolation.
“Does any donor need more excuses not to give? We were already seeing cutbacks all over the place; this just adds to it.”
At the very least, Tobin said, “every nonprofit right now is having to re-prove itself to contributors.”
Rabbi Donniel Hartman, co-director of the Shalom Hartman Institute, said he worries about a growing atmosphere of fear in the philanthropic community — “something the Madoff episode exacerbated.”
Rabbi Hartman’s Israel-based group lost a $50,000 grant from the Chais Family Foundation, which closed last week after massive Madoff-related losses, although he said the impact on his group’s operations will be “minimal.”
But he said the combination of a sliding economy and the Madoff scandal will change the way Jews do philanthropy.
Before the economic crisis began in earnest, “there was a whole culture of ‘sub-prime’ philanthropy,” he said, because steadily rising incomes meant donors didn’t feel the need to closely monitor their donations. “Financial planning was irrelevant, even when it came to tzedakah,” he said. “Now, suddenly, this has all changed.”
Today, Rabbi Hartman said, donors are reneging on their pledges, “albeit sometimes for very legitimate reasons. And sometimes it’s out of fear for the future. Fear is becoming normative.”
Few observers are predicting a catastrophic drop in contributions as the Madoff affair and a souring economy upset philanthropic predictions, but there is widespread agreement that contributors will be asking tougher questions before giving and demanding more accountability.
That could be particularly true of younger givers, who are more likely to want to know exactly what the charities they support are doing with their money and are much less likely to trust the kind of casual philanthropic networks that drove so many wealthy, market-savvy Jews and Jewish charities into Madoff’s waiting arms.
“It’s too early to know the impact of this, but I do think younger donors, already more skeptical of these kinds of networks, will definitely give ammunition for those calling for new fundraising thinking, new methods,” said Mik Moore, public policy director for the Jewish Funds for Justice.
Donors who can keep giving despite the plunge of the economy will demand stricter ethics rules to prevent the kind of insider dealing that led to huge losses for Yeshiva University, among others, more professional practices for selecting investments and greater accountability in the wake of a shattering year for Jewish philanthropy.
“It’s not just organizations that have been directly affected by Madoff; anybody asking people to give charitable dollars is going to need to show what kinds of policies and procedures they have in effect to guarantee the safety of those funds,” said Mark Charendoff, president of the Jewish Funders Network, a group that seeks to bring Jewish philanthropy into the 21st century.
Jewish groups seeking contributions to add to their endowments may face special problems, in part because some of the worst carnage resulting from Madoff’s alleged schemes was inflicted on the investments made by charitable groups.
“It’s one thing to say, we need a dollar because tomorrow we’re going to feed hungry people,” he said. “It’s another to say, I need that dollar because I’m going to spend 50 cents on programs and put 50 cents away for a rainy day.”
Even before Madoff, younger Jewish donors in particular were becoming more reluctant to contribute to funds that philanthropies then invested, he said.
“Younger people were already becoming more uncomfortable with this idea of adding cash to endowments,” Charendoff said. “Now, unfortunately, we’ve given them a striking piece of evidence that their fears are well founded.”
The combination of hard times and a record-shattering scam, Charendoff continued, will put huge pressure on every Jewish philanthropy to “show they are using and investing money wisely.”
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