03/24/2014 08:28 am ET Updated May 24, 2014

Angels or Devils

There are many reasons why arts organizations today are facing cash constraints: lower demand, aging donor bases, substitute forms of entertainment, and on and on. These are serious, problematic and long-lasting challenges facing most of us.

But there is one reason that a subset of arts organizations are facing difficulties that can and must be avoided at all cost: the loss of one, incredibly important donor whose gifts were so large that the organization does not know how to move forward without them.

It might seem like a dream scenario when one donor provides huge amounts to one arts organization. One doesn't have to spend time cultivating new donors nor worry that the bills won't be paid. For organizations in cash flow crisis, the thought of one donor giving half the annual budget seems too good to pass up. And it is often too good to be true.

When the donor dies, loses interest, marches off in a huff, or simply has no more to give, the organization is left with a budget that can be 50% more than it can support.

Then the dream turns into a nightmare.

I have witnessed this scenario time after time over the past two decades. A major donor gives huge annual gifts, the budget increases dramatically and then, all of a sudden, the money stops flowing and a huge cash crisis is experienced as commitments made for productions in the good times cannot be paid for. The pain experienced is great and the problem extends far beyond the sudden loss of revenue.

For these mega-donors frequently expect power that is not appropriate for one person to hold; I know of instances where these donors controlled who was on the board, which works were performed, how the season was marketed and who was the artistic director.

If the donor walks away--and they usually do eventually--the organization is not just cash poor; it is also saddled with strategies, board members, operating systems and staff that are not necessarily optimal. Or even appropriate.

No donor, no matter how generous, should have this power. It is the senior staff and the entire board that must make all decisions that influence the pursuit of the organizational mission, not one person. The boards of all arts organizations have a duty to protect the mission of the institution; ceding this authority to one donor is dereliction of duty.

So should an arts organization desperately in need of funds reject a huge contribution?

Of course not.

But the rules about what power one donor may wield must be explicit and enforced.

And, more important, when a huge gift is received the board and staff must have the discipline to recognize that the organization is now essentially living beyond its sustainable means. They cannot count on this support forever.

They must place the gift into an endowment fund that earns a return in perpetuity, constrain spending to a level that would be sustainable without the donor's largesse or work diligently to expand the donor pool so that if the mega-donor departs, the institution does not face a sudden cash crisis that stops all positive momentum.

Our mega-donors are to be cherished. But they are not to be worshipped.