Money Talk

Episode 34

Transfer How “Not for Profit” Organizations make Profit w/ guest John Morris

Special guest John Morris, CEO and president of the Peoria Riverfront Museum, joins Ed and Chuck for a discussion concerning profitability for non-profits.

Welcome to our listener-supported podcast, Money Talk, uncompromised absolute financial truths behind financial perceptions with host, Ed Sutkowski and Chuck LeFebvre. Let’s listen in.

Chuck LeFebvre:  This is Chuck.

Ed Sutkowski: I am Ed. Our guest for today is John Morris. We’ll talk about giving John’s background but first the question today is, how does a not-for-profit organization make profits, that is the excess of the revenue over the expense’s growth, perhaps a little leftover to make some capital expenditures? John is a guy that’s been with the Peoria Riverfront Museum; is the CEO and president since April of 2017. Before that, he was the founding director of the Ronald Reagan society Eureka for 10 years. Before that, vice president of development for WTVP. Before that, and then part-time, I guess, an at-large member of the Peoria City Council and a mayor pro tem do you even. Then a Master’s in Public Education and an undergraduate degree in Fine Arts from George Washington University in DC. His wife, Cindy is the president of the Peoria Public School System Foundation. They have two children, a son, Jordan, and a daughter, Taylor; a well-rounded family. John, welcome.

John Morris: Ed thank you. It is a great privilege to be on this podcast.

Ed: Well, just a nominal charge.

John: I’d be willing to pay anything.

Chuck: We keep the charge low enough that even a not-for-profit can–

John: You’re right. Thank you.

Ed: Tell us about the museum. WTVP tends to be funded by government, largely, and then the Reagan society was obviously a Republican.

John: Nonpartisan, but sure, named after the great Republican presidency, but a nonpartisan educational endeavor.

Ed: Now the museum funded how?

John: It’s good question and just as a review, my entire professional career coming out of my Master of Public Administration at the George Washington University and being exposed to not only government problem, but probably more importantly, those non-governmental sector organizations that made a difference in the world from the museum infrastructure and really through the eyes of being in that city for my education. Coming back here to my hometown in Peoria, I have spent my entire career working with not-for-profit 501(c)(3) organizations, starting out of grad school and then Lakeview Museum of Arts and Sciences, which morphed in 2012 the Peoria Riverfront Museum. As you mentioned, WTVP, which 20% of its funding came through the Corporation for Public Broadcasting, a not-for-profit corporation funded by the US Congress but 80% came from private contributions and that’s the sector I was in; the membership and major donors and capital fundraising. Then I went to a small private 501(c)(3) church founded school called Eureka College, founded in 1855 by abolitionists from that church, and I tried to help them leverage their most famous alumnus, the smallest college to ever graduated president United States in American history of the 23 presidential alma maters for undergraduate degrees. Eureka is the smallest and one of only two as far west. The next over is Stanford for Herbert Hoover. Ronald Reagan at Eureka is kind of a story of the promise of American opportunity and I’ve become really enamored with the idea of private philanthropic activity, private giving, as the tip of the spear of capitalistic society; of a free society. You don’t really have private sector voluntary giving, under socialistic, or communistic societies, nowhere near as much if you look across Europe and so forth as you do in capitalism. Capitalism, if you want to see where capitalism is healthy, look for private charitable giving, and you will see it because it is voluntary, it springs forth from the character of each of us individually. In America, more than 80% of individuals give somewhere charitably every year, whether it’s healthcare, education, arts, environment, and on and on. That’s been I didn’t set out necessarily to grow up in this spirit of philanthropy; I really set out to as a lover of our country, of our free society, and philanthropy to me was the greatest way of expressing that love along the way. I know that sounds like the flag should be waving and the fireworks should be going off, but I believe it. I’ve run into the best people imaginable along the course of this journey because people who give generously and charitably and purposefully and strategically and ethically, but people who give are the people who actually transform their communities into places we all want to live and raise our families and do business. That’s been my story.

Ed: I’m not changing it.

John: I’m sticking to it.

Ed: John, why did you start in this area where you had all kinds of opportunities?

John: Truth is politics. It’s funny I’m a recovering politician. You mentioned I was on the city council here for eight years in Peoria and a short part of that as mayor pro tem. I was on every committee and commission, and at some point, I guess I felt government can make a difference, but I will say the difference government should make is probably getting out of the way and letting the private sector including the private not-for-profit sector, find solutions and do its work and exert philanthropic investments in ways that solve problems. I didn’t necessarily start off to have a career in philanthropy, but I love the idea of social change and the maintenance of our constitutional values, our individualism, and I just became more and more attracted to teaching people the joy of philanthropy, and there is joy in it. Let’s say, for example, that a not-for-profit had the cure to a form of cancer, and that cure could only be disseminated in society to people with that cancer. If other people who could afford to pay for that cure to be disseminated would donate that money, it would feel pretty good. Literally, each dose that was distributed, that was made possible by your individual private giving, it would feel pretty darn good. That’s an exaggerated example, but I feel like at the Peoria Riverfront Museum for three and a half years that I’ve been CEO, we are devoted to unleashing the full talent and genius of every individual. Objects tell stories, these authentic, incredible objects whether it’s the young schoolgirl having a chance to touch the meteorite right that actually came to the earth surface from outer space or go to an exhibition on Leonardo da Vinci, the greatest Renaissance genius, or see a duck decoy that was carved up the river and is now valued at hundreds of thousands of dollars as one of the most beautiful works of folk art and folk culture of Americana. Exposing our young people, our families, and actually, people of all ages to the stories that those objects tell that will inspire them to some greatness in their own lives makes me feel like I’ve got a dose of that medicine of whatever cancer that may represent. Every day I feel like if I can convert a charitable investment into a return on investment in the way of social uplift, that makes me feel good about it.

Ed: John, I think of qualitative and quantitative value. The qualitative value that you’re expressing is more meaningful than the dollars and cents, but getting to the quantitative value, how do you raise this money? I understand your passion, your mission, but how do you do it?

John: The old in philanthropy as Alexis de Tocqueville, the French men who came to the United States in the early 19th century to study initially our prison system. He ended up staying a long period of time, I think a year, and writing on our charitable organizations, on our voluntary propensity to come together voluntarily and form our organizations. He’d never seen anything like it in Europe. Much of it stemmed from the churches and their desire to serve their fellow human beings, and out the sense of the Judeo-Christian belief and serving each other and so forth. He wrote a book then called Democracy in America, which is a tome that I had never fully completed and great scholars read it and reread it, but it is probably the greatest single volume ever written on the United States of America and on our unbelievable propensity, as I mentioned earlier, to voluntarily come together to solve each other’s problems Your question about quantitative and qualitative sort of review that’s very interesting. Very difficult for an organization like a symphony or a ballet or an opera, or say a cultural organization, like a museum of art, science, history, and achievement which is what we are, to have the resources to quantify the pre-test, post-test outcome like the dose of cancer medicine, did it solve the problem or did it not? I have been very committed to attempting to do so nonetheless, it’s difficult to do so. We created something called the net promoter score, which is often used in marketing on a scale of zero to 10, how much did you feel like what it was you intended to get out of this experience met your needs and are willing to recommend it to other people? We have certain goals to meet a net promoter score that is above where we think we should be but, in my experience, Ed, people give to people for emotional reasons. Actually, there’s a lot of folks that say, give me the evidence, we want to know this, we want to know that but if their neighbor, Little Johnny came home from the museum and can’t stop talking about it, that’s not a quantitative experience, a qualitative experience, they feel good about it. The way people give is they give to people they trust. I try to be trustworthy. I try to tell people the truth, even when they don’t want to hear the failures or behind the scenes; I try to let people know straight up. Then I think they can feel it, they can see it when it happens, emotionally they can see the results of their actions. All across the charitable sector, there’s desire to get more data. In education, we pretest and post-test like crazy. In healthcare, there’s more what’s the response time, what’s the dwell time in the hospital room, and so forth. In a museum, we have quantitative statistics, how many people came to the exhibition versus what we thought? How many people filled out the survey that indicated their net promoter score at such? Our every student initiative which has for the last three years been a pioneering national class program to get every single student in our public schools here on a curriculum-related basis to have a museum experience, we test for that, but when it comes down to it, I think it is more of an emotional reason that people give.

Chuck: Who are the donors? We had a little bit of this discussion with our last guest about– I made a comment about somebody making a $20,000 contribution to St. Jude’s and the response was, well, wait a minute. The funding doesn’t come from these $20,000 contributions, it comes from these $20 million distributions people who want to have their name on a building or something like that which may be true for St. Jude’s but you’ve run the gambit here with a lot of different charitable organizations. To what extent is it about hunting whales.

John: Yes, that’s the whole thing. In a healthy organization, 90% of your giving comes from 10% of your donor base. In a really healthy philanthropic organization, 95% of your giving comes from 5% of that base. That’s just the way of the world. In some ways, the distribution of wealth there’s been a lot in the media recently about how the billionaires have grown because the billionaires control and have earned and have invented things and have made things. I’m not taking anything away from how it is that they control that amount of wealth. They also control the multimillionaires and billionaires. They also control the ability to transform organizations with the $10 million gift, the $25, the $200 million gift. It’s not hunting for whales, but it is certainly putting yourself in a position to talk to and relate to and communicate with them. If you ignore them, you do so at your own peril. The question is, what’s in it for them and why do they do it? What’s the breakdown? You all work with tax policy all the time, and sometimes it is tax benefits, but I would say in my experience over the 30 some years I’ve been in and around this charitable realm, it almost never is strictly a tax question. It comes down to a question of the heart. What is it they want to do in the world to make themselves feel better? Hedonistic altruism it’s a term that means even if you give purely for altruistic reasons, you feel really good about it, you want to do it again because it made you feel really good; it’s like a drug. I don’t know if anybody’s ever figured out exactly what the motive is and there’s probably multiple motives, some people want their name on the side of a building or some people want to show their neighbors and friends, “Look, I’m in the game.” The old rule in raising money from lawyers is you ask their clients to ask them if they’ll give. The lawyers will say, “Well, sure, happy to help you out.” Whether that’s true or not, I don’t know, that’s an old charitable fundraising rule. Each has a little bit of a different reason for giving. My job is to take all of those various reasons and stick to the main reason we came into business, to begin with. In the case of the museum, that is to build a community of people inspiring each other, being inspired by each other, ultimately trying to help unleash the full talent of the community, entrepreneurial talent, intellectual talent, the spiritual, confident health of the individuals and therefore the whole region.

Chuck: How frequent is it for contributions to be done anonymously? Is that something you bring up or is that something that if someone wants to do that, that typically it comes from them?

John: I always tell the donor, if they will allow me, please let me acknowledge them because it actually has a positive peer pressure effect. Generally speaking, it really lifts things up. Now, sometimes they don’t want to, I’d say one out of 100, probably really prefer to either not have the amount known or not have even any name at all attached. Sometimes that’s for privacy reasons. People don’t want a whole bunch of people ringing the doorbell and so forth. I totally appreciate it. Sometimes it’s just out of humility. There are donors who just want to do something really good. They want to help the cause. It is totally humility that they don’t need their names attached.They just feel good about it. They know I know and appreciate them, and vice versa. That’s a great question. Very few people asked me about the anonymous, but when you go through those donor lists and you see anonymous on there, there’s an anonymous, anonymous category that people don’t even know about. That’s where donors ask me to please not even put anonymous in their category. I’m serious.

Chuck: Don’t list my donations at all.

John: Those are even rare, but they don’t even want to be listed as anonymous. I always ask, “Please, it’s not only because I want you to have your name up there. It’s because it actually helps particularly if people are in a position of leadership or positions where they are respected by a handful or the whole community.” Let me put your name out there because people say, “Hey, Bob Smith supports the museum I ought to as well.”

Ed: He gave 100,000, I gave 105,000.

John: I’m telling you. I got to the museum, our development vice president, and Steve Jackson, our board chair is the owner of a number of companies conglomerate called Prairie Home Alliance and he volunteers a lot of time as our board chair. We have a lot of volunteers, but we said, “Look, Steve is leading the charge of this thing we call the visionary society.” It’s just anybody that gives $1000 or more. We had 99 members of visionary society when I got to the museum three and a half years ago. Today we have 326 members of the visionary society in three years. Part of I think how we accomplish that is we’ve got these monitors, heck you can go to Best Buy and buy a TV and hang it vertically for $400 or something. Now, it didn’t cost as much to do. We made up a simple graph and we said, “List their names and if anybody joins the same day, pop their name up there on the category.” Well, people walk in and out of the museum, they look on those at purple wall, we put purple as the color, and we have people randomly now sending a check “I’d like to join.” People love to feel like they’ve made a difference. That’s my job is to help tell them that they have.

Ed: Your marketing passion.

John: Yes, your marketing passion. That’s a very good word. I believe my team at the museum and I really feel passionately that Peoria deserves to have a great national class museum. We should not relegate ourselves to, “Well, we’re just Peoria, we’re just a middle-sized. What are we? 211th largest city and X.” Forget all that. We’re the only museum of art, science, history, and achievement in the nation of our kind, the only one. You can go to Cincinnati has a phenomenal museum of history and science. You can go to Evansville, they have an art and science museum, but there are none others that we can find that combine all of these kind of topics of interest except possibly for one and that’s the Smithsonian Institution, which has art and science but they have 19 different museums within their system. I’m okay to be in that company.

Ed: Tax observations.

Chuck: What?

Ed: Tax observations.

Chuck: Yes, when we talk to clients a lot of times, this has been my experience at least, is that a lot of times I’ll be talking to clients about charitable giving from the tax-saving standpoint, and quite often they don’t really have a destination for those charitable dollars in mind during the time of that conversation, and so we do a two-step. It’s like well, we’re going to create this instrument, it’s going to be a charitable trust of some type, it’s going to be a private foundation of some type. Then that way, you’ve got a place for these dollars can land. Then later on you can figure out where they’re going to head from that point. I’m a little curious, the description that you’re giving here involves a lot of personal interaction with these donors and how much of that is flowing through these instruments versus Ed walks in, and he’s just excited, he grabs his checkbook, and he says, “Okay, great, I’ve decided to take money out of my pocket that I could otherwise go down the street and buy a car or something like that, and make a charitable contribution with it.” In other words, how much of this is already earmarked as charitable money that is then coming to you?

John: That’s a great question. We receive certain number of IRA mandatory distributions where you go in, but we have some trust income coming in from more highly sophisticated trust vehicles but vast majority of our guests come from straight-out gifts of cash or securities. Somebody calls, says I’m sending you 10,000 or my broker will transfer the money, and so forth. Most of it is just straight outright. We are maturing as an organization, and our relationships with our donors are maturing, and I’m finding each passing month, frankly, even during this COVID time, especially during this COVID time, I’ve been having much more frank conversations about planning the gifts, the gifts that people want. We have an $11 million endowment fund, which is managed by separate 501(c)(3), a separately appointed board by our board of directors, the museum appoints the board of the foundation that was just set up that way years ago, about 11 million under management. My goal is to get that up to 20 million in the next five years. The only way we’re going to do that is through the more sophisticated higher-level conversations with people who have those set aside charitable resources to help us do it. The reason we want to do it is going to spin off 5% of a five-year rolling average is the way we do. It’s going to spin off a million versus 500,000 a year and I’m going to be able to do a lot bigger exhibitions and a lot better things for our schoolchildren and our community at large. It’s a good question. We see more and more of those conversations, but not enough.

Ed: I was thinking one of the difficulties in the tax area is that the greatest incentive lies at deaf giving where you’re not limited by a function of adjusted gross income and the like, oh, that varies year by year. It seems one vehicle is the gift of appreciated securities, which you’re talking about where you bought stock for $10 a share, it’s worth $110 a share, you can deduct the full 110 and not have a capital gain tax if you otherwise sold it, or the use of charitable remainder trust. Is that what you see, Chuck? Death giving is a little easier in the sense you’re not burdened by all these limitations.

Chuck: Right. I think that’s particularly true when you’re talking about somebody who’s talking about a gift that’s sizable enough that they’re going to run up against these AGI limitations or it’s of a character that they would otherwise run up against these AGI limitations. You just don’t have to worry about that in the context of giving that death, plus you can do it formulaically, which is where you calibrate well, the size of the gift is going to be according to what achieves the tax result you’re looking for, which I suppose, in theory, you could do that as a regular lifetime giving strategy, but you would always be running at a moving target in that context. I would imagine that that’s where the whales in the world are.

Ed: Yes. I like to double lead trust lifetime giving where the charity gets the dollars during your lifetime, a specific dollar amount during your lifetime, with the remainder back to the donor’s descendants. That’s the best lifetime approach aside from a gift of charitable troubled gifts of appreciated securities. At death, if you’re funding a foundation or a donor-advised fund, although it’s getting some pretty bad press recently, the donor-advised fund, but the foundation is a way of living forever. That is the touchstone, that’s what’s really this is all about is–

John: Do you find your clients, Chuck, will bring up their charitable intent with you and then ask for the vehicle that will best match, or does the conversation usually go, how do I protect myself and my state from taxes, or?

Chuck: I find quite often that clients don’t necessarily enter the conversation realizing that there are different vehicles available, but they’ll maybe express a general sentiment towards charitable giving or frankly, quite often I feel, I don’t know, I find that I often am the one to raise it to say, are you charitably inclined? Is this something that you want to incorporate into your planning at all? If the answer’s yes, okay, wait a minute, let’s explore that and figure out how to build something around that. It’s consistent with what you’ve been saying about noticing these donors just more or less pull out their checkbook and write checks. It seems like an awful lot of people go into the estate planning conversation, even if they’re charitably inclined or not thinking about that as part of the estate planning conversation unless I bring it up, I don’t know. Ed, have you noticed that as well?

Ed: Yes and perhaps a little different slant on it. I tend to ask questions such as what are your concerns or what are your fears. Never and we’ve talked about this in prior podcasts, never your expectations. Expectations are off the charts, but what are your concerns typically is the best question. You will not get, at least my experience, 80% of the time there is no answer until the client is about to leave and handle on the door and say, by the way, I’d like to do X, Y, and Z, or I have a biological child but it’s another child so you better handle it. There’s always these–

John: Always some little things.

Ed: You never know. The art of the practice of what we do is to shut up, just listen. You will find toward the end of the discussion, whether it’s going to be– and usually, these are hour and a half to two hours and sometimes a three-hour discussion. At the end of the day, I’d like to go play racquetball for 15 hours because you’re so exhausted. The point is, this is such a passionate area, and it’s a function of what you expressed, John, where’s your passion? You have a reason for doing this. Addressing the qualitative aspects of this you hear the local charities and, by the way, you have a leg up by being local versus the American Cancer Society, et cetera, where the friction costs are significant. John, from what I see, you are not going to be a multimillionaire based upon your salary in this museum. On the other hand, I’ve seen some big numbers on these big organizations that make me throw up. If it is a charitable organization, why are you doing this?

John: Yes, that’s interesting. In my case, I love it. I just enjoy it thoroughly and it gives me a real sense of helping to change the world in the way that I wanted to. It’s interesting, both of my brothers are lawyers, as you may know, and just having a conversation over the weekend with one of them about, this very sort of earnings and those who go into the not-for-profit world. Now, there are people in the museum world who make the big dollars relatively speaking. They’re very, very few, but they’re the million-dollar directors, the metropolitan museum of art in New York.

Ed: Why is that?

John: Well, one of the reasons is that they raise hundreds of millions of dollars. They know how to do it. The investment in the handful of people who are so good at working with the major philanthropist and are comfortable known by and trusted by those folks, and in some cases also have really good understanding of the business practice of a museum, for example. They’re hard to come by; it’s just a difficult set of skills. In my case, there are no stock options. There’s nothing that you would find saying that in the publicly traded companies’ sector or something I am working to increase the level of compensation of my folks, as we increase the surplus, which is the fancy word for, your title here, why should a not-for-profit make profit? I’ve got some folks right now, a number of them who are super talented, and they could go places, and they are helping raise the cultural appetite and experience and literacy of the entire region in ways that can really translate themselves into the entrepreneurial vitality of the community. Those are folks who I want to keep, I want to maintain, I want to sustain them. Raising the dollars that I have to invest in them and their training, not much travel these days but their travel, in their compensations and paying them not exorbitantly but paying them in a way that makes them competitive to stay in this market, that’s something I look at. When you don’t do that, you have a total revolving door, brain drain, and your organization can never really get on the path to greater and greater impact. I’m a little crazy because I think that the Peoria Riverfront Museum could be turned into the greatest, most impactful community instrument of confidence-building. It disturbs me how far removed we are from some of the great exhibitions of history, of fine art, and folk art, and scientific. There’s no reason that the people of Central Illinois should not have access to those things. Not everybody can fly off to New York or Boston or Los Angeles, or even Chicago when you pay $75 to park your car for the day. Not everybody can do that. That’s my passion right now is to bring to Peoria that level of cultural experience from the cosmos to guitars, which we have the major exhibition in the country right now in Peoria through January 10th on the guitar, every possible instrument you’ve ever seen.

Ed: Chuck, do you have any?

Chuck: Go ahead.

Ed: I have one final question, John. How do you really feel about–

John: Ed, you and I have known each other for a long time, and I aspire to have half the passion you do for a living and life and your profession, and your clients and your friends. I’m blessed to have had that friendship for many years. I appreciate you having me on the show.

Ed: John, thank you. That is unwarranted but you expect a contribution not for me for my wife because you can’t bribe me. My ego is insatiable. Well, it’s nice having you, and thanks for your time and energy. Your passion is obvious and I can’t imagine your mission not to be enormously successful.

John: Thank you.

Ed: Again, thank you, John.

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