I always thought that HFI was a part of BHS.
Why would BHS want to attempt a takeover of their own department?

HFI has never been a department of BHS. The authority for the operations, vision and direction of the Foundation rests with the Foundation’s Board of Trustees. The Society Board of Directors (SBOD) has no role in the hiring and evaluation of staff or fiduciary responsibility for HFI.

What has the relationship between HFI and BHS been historically?

The “Trust Agreement,” under which the two organizations have operated for nearly six decades, provided for the SBOD to elect the Foundation Trustees and approve all changes to the organizational bylaws. In addition, the CEO of BHS has held a seat on the Board of Trustees as a non-voting member for nearly ten years. The same is true of the HFI CEO for the SBOD.

What has changed about the relationship between HFI and BHS?

Prior to expressing formal dissatisfaction, seeking clarity or discussing any suggested changes to the HFI operational model, BHS began applying for permissions to fundraise at some point in 2019 (perhaps, even earlier). Unbeknownst to HFI, BHS began registering its organization to be eligible to solicit charitable contributions as confirmed by the State of New York as of September 2019, which clearly demonstrates its intention to separate while informing us face to face that it had good intentions to find common ground and be better working together.

In late February 2020, the SBOD requested that the Foundation’s General Counsel meet with the Society’s outside legal counsel to review the arrangement between the two organizations. At that point, on the advice of its General Counsel, the Foundation engaged outside legal counsel to represent HFI.

Through the month of March, the Foundation and BHS attorneys discussed the authority of the SBOD to unilaterally change the relationship.

In letters from the BHS attorney, BHS CEO and Acting President of BHS, dated April 2, 2020, the Foundation Trustees were notified that BHS had taken unilateral actions purporting to give BHS absolute control over the operations and governance of the Foundation and outlined their steps for the ensuing transitional phase, with an expected completion date of September 30, 2020.

Based upon the actions taken by the SBOD and applicable law, the Trust Agreement was no longer binding upon HFI and the SBOD had no authority to take those actions. This process required the Foundation to incur significant legal expenses, dollars that could have been used much more effectively to support BHS programs.

In April, both Boards agreed to establish a subset Task Force to further conversations on how best to work together. The objective of the Task Force was to rebuild the relationship and reinforce each other’s mission. Although HFI Trustees made multiple attempts to convene the two organizations’ Task Force members to continue discussions to improve communications and work toward mending the relationship, BHS continued to push the meeting out as it had not yet identified its Task Force members. There was little substantive communication from the Society until the Foundation was informed, on June 4, 2020, of BHS’s intent to establish its own fundraising department.

Through every communication between legal teams, the Foundation continued to emphasize its strong desire to come to an agreeable resolution and continue the good work that the two organizations have done together over the years.

Some claim HFI never supported the “Everyone in Harmony” (EiH) strategic plan. Is that true and why?

Such a statement could not be further from the truth. However, the Foundation staff was diligent in representing the donors’ various perspectives to BHS leadership.

The first iteration of the “Everyone in Harmony” concept was excellent. It brought all barbershop organizations together under a common umbrella, but allowed each to keep its own organizational identity. What emerged from the SBOD is very different and, while reasons have been given, they seem very incomplete. Indeed, many of the donors with whom the Foundation representatives visited expressed deep skepticism of the Society’s responses, regardless of their individual support for the initiative.

The Society’s rollout of the “Everyone in Harmony” Strategic Plan impacted HFI revenues significantly. Unfortunately, the Foundation was informed by the SBOD of that Strategic Plan only a few days prior to rollout.

Prior to the EiH announcement in June 2018:

o The Foundation’s revenues were up 19%, year over year

o The Foundation’s operating expenses were down 14%, year over year

o The Foundation’s activity had increased year over year

o The reaction to the EiH announcement from the most generous demographic of BHS members (who make up 90% of the Foundation’s donor base) was to stop supporting BHS programs by reducing or removing their support to HFI

o BHS did not calculate any reduction in donated revenues to the Foundation as a result of Everyone in Harmony which equates to reduced available grant funds to BHS; they did however build in decreased membership revenue in their projections.

Finally, when the SBOD informed the Foundation that the Society leadership had placed a price tag of $4M on the implementation costs of “Everyone in Harmony,” we met with the SBOD leadership. HFI leadership informed the SBOD and CEO that such a ramp up in funding would require a campaign and that pledges would need to be paid over a 3-5 year period. However, prior to executing a campaign of that size, the Society would need to pay for a Feasibility Study to test the campaign pillars with the donor base to get any sense as to the viability of such an effort – as is common best-practice in fundraising. To date, HFI never received a formal request or clearance to engage that Feasibility Study.

Why do some people think the costs for the Foundation to raise funds is too high?

When answering such a question, we must be sure we are comparing apples to apples.

o There are two formulas to consider – Overall expenses vs. “Cost to raise $1”

 The common formula when comparing non-profit costs is “Cost to Raise $1”

 This formula allows non-profits with a disparate number of revenue streams to be compared appropriately.

o The Foundation has no other significant streams of revenue other than annual fundraising – That is, we raise all funds from donors for support of operations and grants within a single fiscal year

o Other non-profit examples with more than one stream of revenue bury costs within programs or cover costs from different revenue sources. (This would be an apples to oranges comparison with the Foundation, but one to which people often point.). For instance:

 Colleges or universities pay salaries and benefits from tuition, room & board revenues, student fees, book store sales, and/or significant distributions from general endowment to support program and operations.

 Salvation Army, and others, leverages sales of donated items for revenue from stores to supplement philanthropy

 United Way has established a vast and unparalleled network of corporate and individual volunteers

o When utilizing this formula, the Foundation’s Cost to Raise $1 = 35 cents, or one penny under the national non-profit average

“Overall Expenses”

o The Foundation has no other significant streams of revenue other than annual fundraising – That is, we raise all funds from donors for support of operations and grants within a single year. This makes the predictability of the grant pool unstable from year to year.

o Most Foundations are funded by a significant endowment, which covers operational costs. Recently, through more focused energy, growth has been pursued and has occurred in the Foundation’s endowment. However, it is not at the level necessary for the general endowment to cover any of HFI’s costs. We would certainly like to change that and put all annual dollars raised directly to program. You can help us toward that end with a Legacy of Harmony gift.

What about my current legacy gift?

Through the annual audit function, the Foundation is held strictly accountable for fulfilling the restrictions on any donations as they were solicited and agreed to by the donor.

You not only have our word that those gifts go directly to the purpose as outlined in the restrictions, you also have our auditors’ word, as the Foundation has experienced nothing but clean audits.

Has HFI increased expenses in recent years?

No, any disparity in available grant dollars from year to year is not an expense issue, but a revenue problem.

o HFI’s expenses have remained essentially flat over the past three years

o HFI’s costs are fixed expenses (see list of HFI necessary activities and costs in the next question)

o Data clearly indicates that there is a direct correlation between the number of fundraisers to the raw dollar amount raised by the Foundation over the years. Fundraising is a relationship business. People give money to people whom they trust to do something impactful with their resources.

o Because of the instability in committing to a grant before the funds have been raised, HFI, as well as the grantee organization, is at risk when any external or internal disruption occurs (COVID-19, economic conditions, donors’ disagreement with organizational decisions, staff changes/turnover are some prime examples). HFI has been slowly seeking funding to start a grant pool in which we would have a stronger guaranteed model to grant BHS funding on an annual basis.

Where does all the monies raised actually go?

In recent years, the Foundation has sought to be transparent, which has brought some criticism, but we are committed to that transparency. The organizational annual reports reside on the web page and public documents will show that:

o When embedded program costs are extracted from the personnel line, the Foundation’s highest expenditure is the dollar amount that goes out in grants.

o Then, after extracting those program costs, the next highest is personnel – the people who serve as the direct connectors of donors to program and directly serve our donors and the mission.

 Included in those program costs are the promotion and recruitment for BHS programs that HFI reps regularly perform while on the road. For the past number of years, especially for people whose only experience with barbershop is at the chapter level, the Foundation reps have been the only boots-on-the ground publicity BHS programs generally receive. This has been an extremely successful cooperative arrangement and BHS has never had to subsidize any portion of this embedded service. It is part of the allocated connect and enrich program services provided by HFI.

o The third place for those dollars to go is to all of the “back office” support necessary to do the work of professional and compliant fundraising:

For the period of 2015 – 2019:

o There was $16.2M in total revenues. Of that, 11.5% of those revenues are not able to be spent due to things like endowment gifts, donor restricted contributions in which the restriction was not met during this time period, and the payment of the HFI's startup debt. As a side note, 6% of total revenues (or $1M ) is on the balance sheet as pledges receivable not yet collected.

Of the remaining $14.34M Revenues available:

o Spending and Investments in Barbershop and Singing

 25.5% Total Grants to the Barbershop Harmony Society HQ Programs

 15% Total Grants to Districts and Chapters through the Donors Choice Program

 5% Program Services-Connect Program

 4.1% Program Services-Enrich Program

 1.5% Endowment Program Management

 1.0% International & Midwinter, Outreach & Engagement

 0.9% Other Grants directly to Districts, Chapters and Barbershop Associates such as AIC

 0.4% Staff Travel allocated to engage with participants at conventions

 0.3% Harmony Fellows 50 Year Singer Celebration!

 0.2% HFI Sound & Recording Booth

 0.1% Printing, postage for Donors Choice Processing

 54% Total Spending and Investments In Barbershop and Singing

o Fundraising activities include:

 22.4% Development and Donor Care personnel & benefits

 3% Development travel directly related to solicitation and cultivation of donors

 2.9% Donor support & recognition, thank you events, specifically at conventions (PC Lounge, PC Reception, VIP seating services, booth services, travel to/from)

 0.9% Marketing, Annual Reports, Website, Brochures, Newsletter

 0.9% Robust Software to track contributions, pledges, payments and receivables (Blackbaud Philanthropy Operational System (NASDAQ:BLKB) Blackbaud provides products focused on fundraising, website management, CRM, analytics, financial management, donor management, marketing, ticketing, mass email capabilities, and education administration)

 0.5% Acknowledgement printing, postage, and staff associated with the process

 0.5% Direct Mail Appeals

 0.4% Systems, office supplies, equipment resources for staff

 0.2% Donated Life Insurance plans that require premiums

 31.7% Total Fundraising Expenses

o Management and Administration

 8.2% Organizational oversight, personnel, benefits

 1.6% Human resource services, payroll, benefit admin, staff meeting travel, staff training, and multi-state department of labor compliance

 1.4% credit card processing fees

 0.8% Board Governance expenses

 0.7% office administration, systems, telephones, office supplies, printing, postage, and equipment

 0.6% audit

 0.4% bookkeeping, budgeting, finance software, IT services, insurances

 0.3% Depreciation expense

 0.2% state registration and legal compliance

 0.1% Legal fees

 14.3% Total Management and Administrative

o The Foundation certainly wishes that BHS leadership would have taken time for discussion to better understand before gently insinuating any financial improprieties on behalf of the Foundation.

BHS claims that their fundraising cost is currently zero.

o HFI believes that the cost of fundraising will be exactly the same for BHS as it is for HFI

o Fundraising expenses will be buried in programs and covered by other revenue.

o Indeed, if BHS currently has a Director of Institutional Philanthropy (Kevin Lynch) and has already registered in states to fundraise, they already have fundraising expenses.

 With a paid staff member having solicited and received a small federal grant, they have already incurred substantial fundraising expenses and have been since 2016, but it has not been reported as such.

Does it really cost the Foundation 65 cents on the dollar to fundraise, as BHS leadership contends?

No.

o When looking at the 990, if you take fundraising expenses and divide them by total revenues, over the past three years you will find, as noted above, that the Foundation’s cost to raise a dollar is 35 cents or less, well within the standard for non-profits nationally.

o BHS’s calculation does not take into consideration a number of significant factors, including, but not limited to, all the programs the Foundation funds on an annual basis (generally donor directed), donations that are restricted to endowment, and uncollectible pledges that must be written off every year.

o HFI, as a seasoned fundraising organization with a history of success within the barbershop community, believes that a truly professional, fully compliant, best practice-based fundraising effort by BHS will result in very little if any savings and will yield a significantly smaller stream of revenue.

From year to year, the cost to raise a dollar is variable as donors react to their realities in life. For instance, since the advent of EiH, gifts to the Foundation have fallen approximately 25%. In addition, prior to EiH member participation was 24%, but has now dropped to only 18%.

Since the launch of EiH, fundraisers have been required to spend a significant amount of their time trying to mend relationships with donors, as well as continuing current and cultivating new relationships with prospects.

We have heard these accusations from BHS leadership in recent months; however, nothing has changed in the funding arrangement and processes since 2003

o Most disappointing, however, is that those who have made these assertions have never taken the opportunity to dig into the numbers with the Foundation for a clearer picture, although the HFI CEO has offered to do just that with the BHS CEO, and any or all members of the SBOD.

Below are samples from the State of Maryland and State of Colorado Charities databases showing each states independent calculation of HFI’s Fundraising costs:

Per the Maryland Secretary of State Charities Database:
https://sos.maryland.gov/Charity/Pages/SearchCharity.aspx

Per the Colorado Secretary of State Charities Database:
https://www.sos.state.co.us/ccsa/pages/search/results.xhtml

What will HFI do now that BHS decided to open their own fundraising department?

HFI will continue to seek and grant support for programs that change lives through singing.

We believe that the best option for a sustainable future for the Society lies at the District and Chapter levels. The Foundation plans to use its expertise and resources to seek greater funding for districts and chapters to use for existing programs (such as Harmony Explosion Camps); for district programs that have yet to be launched; to make resources available to needy chapters; to allow all the districts to determine scholarship recipients for events of their choice – within the district or at the national level, such as Harmony University, Next Generation Choruses and/or Next Generation Quartets, and the like.

With this regional and local focus, each district will be assigned a specific HFI representative/agent who will be the contact liaison for District Boards and leadership. These representatives will also serve as the conduit of communication from the membership to the district leadership.

Thank you for taking the time to read this and, thereby, seek greater understanding of the Harmony Foundation’s position on the recent actions of the Barbershop Harmony Society. From the Foundation’s perspective, we believe in the quality of programs offered by the Barbershop Harmony Society and are extremely disappointed in the Society’s decision. Our hope was that the Society leadership would have taken advantage of the many opportunities presented to engage in true dialogue with an ear toward clarity and understanding. Indeed, that is still our hope for the future, as we are stronger together than apart.

Should you have any further questions, please feel free to contact us directly.