Curtains on cowboy philanthropy: a cruel lesson from the Madoff scandal

From Margaret Soltan's excellent coverage of the Bernard Madoff scandal comes this tip regarding the impact of Madoff's $50 billion scam on Jewish philanthropy around the world.

According to Jonathan Sarna of Brandeis University, an expert on Jewish history, Madoff's swindle represents "an unprecedented loss to the 'Jewish economy' — the networks of Jewish institutions, donors and charities that include universities, schools, hospitals and community centers." Among Sarna's many insights is his prediction

that the wholesale destruction of fortunes and endowments would prove to be a turning point in American Jewish institutional life, which over the past 20 years has moved from a model of community funding — collecting small donations from a broad swath of donors — to focusing on a handful of "cowboy" mega-donors who launched hugely successful programs like Birthright Israel outside of the traditional federation system.

Although the Madoff scandal has cruelly concentrated much of its pain on Jewish charities — exclusive reliance on Madoff investments has already forced the Robert I. Lappin Foundation, the Chais Family Foundation, and the JEHT Foundation to close — Jewish philanthropy is not alone in suffering the vulnerability exposed by Madoff's fraud. Charitable organizations across the spectrum, including law schools, have come to rely more heavily on "a handful of 'cowboy' mega-donors" rather than "small donations from a broad swath of donors." Reliance on a single benefactor, like its agricultural equivalent (monoculture), simplifies fundraising at a terrible price. Any instability in that single funding source spells doom for the entire enterprise.

"Cowboy philanthropy," a neologism readily suggested by Jonathan Sarna's evaluation of the Madoff scandal's impact on Jewish charities, is ultimately as unstable and unsustainable as the "cowboy economy." The dreaded counterpart to Kenneth Boulding's "Spaceship Earth," the cowboy economy assumes boundless resources and prescribes no duties of stewardship. As long as the open range or a blameless, wealthy benefactor continues to supply new resources, cowboy economies will appear to operate smoothly, in the for-profit and the philanthropic worlds alike.

That assumption, as the Madoff scandal demonstrates, is deceptive and dangerous. Monocultures don't last. Even the best of benefactors has her limits — mortality, if nothing else. And Bernard Madoff, sadly enough, fell far, far short of the illusory beneficence he used to swindle private investors and charitable organizations.

In discussions of fundraising strategy — which after all is an essential function in educational administration at any level — I am surprised at how many professionals favor cowboy philanthropy over the more democratic alternative. The 2008 political season, so I might have thought, demonstrated the power of small gifts from a broadly distributed base of impassioned donors. But the prospect of a single, decisive strike still holds its allure. Far too many university presidents, deans, and development officers imagine themselves too busy to bother with face-to-face, "retail" fundraising unless putatively transformative money hangs in the balance. Bernard Madoff, alas, has provided negative support for a fundraising proposition that has swept Barack Obama into the White House: small donors on the upswing can open big doors. The broader world of philanthropy, beginning unfortunately with the Jewish foundations that put all of their trust in Madoff, now knows that big financiers on the downswing can wreak utter havoc.