|
Home
: News and Events : Staying Strategic in the Face of Uncertainty
Staying Strategic in the Face of Uncertainty
Initiatives e-newsletter
September 2008
The past few weeks, days and even hours have brought turmoil and uncertainty front and center. The near-term economic prospects are not promising. The nonprofit world is bracing itself as demand for basic human needs assistance rise.
As we all assess our surroundings and try to determine our next steps, TPI though it important to collect and share donor voices. We hope you find today's edition off Initiatives valuable and we encourage you to share your own thoughts with us. Get2us@tpi.org
A Time to Be Strategic
Thoughts from Ellen Remmer
Let’s face it. In these uncertain and volatile economic times it’s easy for us to get a little skittish about giving. With the stock market’s wild gyrations, unprecedented government intervention, and literally a redefinition of the investment infrastructure, who knows how much we’ll have to invest in philanthropy next week, or even tomorrow? Belt-tightening, cutting back on giving, not so crazy.
Or is it?
A donor I greatly admire delivered a very different message just last week. Ken Nickerson is a former hedge fund manager who recently launched a poverty fighting venture in Boston called Boston Rising. In speaking before the initiative’s new advisory committee about why he committed $15 million to the fund, Ken stressed that these uncertain times are exactly the right time to encourage folks to dip into their wealth and join a fight against poverty. He reminded us that Paul Tudor Jones founded the Robin Hood Foundation - Ken’s inspiration for Boston Rising – right after 1987’s Black Monday with a similar message: there are others who are going to hurt a lot more than us. “We may have lowered capacity during a recession,” Ken said, “but we can choose to be more generous.”
Not all donors will buy this message. Some will fear that the current economic climate poses a real threat to the prudent management of “social capital” intended to fund a long- term philanthropic legacy. Nonetheless, we at TPI believe that more than a few of us will dig deep in this time of need.
But we are not Pollyannas. We also believe that times of economic uncertainty require laser-like attention to the bottom line -- maximizing the impact of our philanthropic investments. If ever there was a time to be highly strategic and search for ways to make the philanthropic dollar work overtime – indeed double-time – this is it.
Translated into the practical, examples of such strategies might include, more collaboration with other donors, the market or government; more attention to shoring up the capacity of the strongest nonprofits; more investment in sustainable, social enterprises; or greater use of our portfolios for mission or program related investments. We encourage each of you to find the strategic approaches that will enable you to continue to work towards your long term goals.
We are once again asking you, our friends, clients and colleagues, for your perspective, questions, and ideas. And just as important, for your contrarian views. We want to learn from you and from one another how to make the most of our philanthropic investments. We would be grateful to have your stories and your wisdom about the role of philanthropy and your philanthropic strategies in these uncertain times. Please let us hear from you. Eremmer@tpi.org
- Ellen Remmer
While many donors may step back onto the side lines until the smoke clears, we sat down for a conversation with one donor for whom recent turmoil has brought clarity and a renewed sense of focus.
Ken Nickerson is no stranger to the ups and down of the financial sector. A former hedge fund manager who recently retired from Morgan Stanley (confirmed to exist in some form at the time of publication), Ken reminds us that our entire financial system is based on trust. When enough of that trust erodes, the entire system is at risk for complete collapse. Likewise, there is an inherent sense of trust that supports private philanthropy – a sense of trust we’d need to uphold especially during times of chaos.
“While the uncertainty of the market place makes us nervous and has hurt many of us financially – it is really only impacting our marginal behaviors.” Ken said. “Think about the impact this will have on those who do not have a cushion. Those who are right on the edge. It will be devastating.”
“As donors, we may have lowered capacity during a recession, but we can choose to be more generous because this is when follow citizens truly need our help. A great philanthropic investor should be a counter cyclical investor.”
Ken reflected on a possibility of the huge increase in basic needs we’ll see if we slip into prolonged recession – in addition to the struggles donors will face in sustaining their giving. “Some donors will hold back, and even small differences in giving will have an impact. Concerns about paying college tuition and saving enough for retirement are real, yet, we’ll see more and more people who can’t meet car payments and won’t be able to get to work, we’ll see more people who can’t make their rent or mortgage and be forced to move into shelters, we’ll see medical events that trigger personal economic spirals. There are so many urgent needs – and given incredibly high energy prices and increased food prices – any downturn will really stretch our most vulnerable citizens.”
To many wealthy donors, home foreclosures are abstract; the stock market upheaval and restructuring of the financial industry is real. As Ken remarked, “This is a wake up call and an opportunity for all of us to think carefully: What does it mean to be generous? If you want to help people in need, now is the time.”
For more information about Ken’s philanthropic interests, including Eos, his family foundation, and Boston Rising, a new collaborative fund to fight poverty in Boston, go to www.eosfoundation.org
Through a Glass Darkly
Prospects for Corporate Giving from Steve Johnson
The unsettled financial markets are bringing pundits of all stripes out of the woodwork. A recent article in The Chronicle of Philanthropy quoted one philanthropy advisor as branding the recent tumult “…a perfect storm of bad omens for philanthropic giving.”
Yes, the bankruptcy of Lehman Brothers, the federal bail-out of AIG and Freddie Mac and Fannie Mae, the purchase of Merrill Lynch by Bank of America (and the pessimistic inference of reduced giving by the newly-combined corporation), all suggest the probability of a reduction in corporate giving, certainly in the financial sector. As Patrick Rooney, Interim Executive Director of the Center on Philanthropy at Indiana University says: “Corporate giving is driven largely by changes in corporate profits and GDP, so there is some bad news there.”
But the empirical data do not support an entirely gloomy reading of the tea leaves. Corporate giving in 2007 increased by hefty margins (roughly 8%) compared with a 6% increase in 2006. The Chronicle, which surveyed 77 businesses in August 2008, found that two thirds of those surveyed would keep their giving unchanged, at least for now. Twenty-one respondents said they expected to increase their giving, and only 6 forecast a reduction. The Committee Encouraging Corporate Philanthropy (CECP) reported similar results in their 2007 survey, and only 17% of surveyed CEOs reported that “the weakening economy should play an important role in determining cash contributions.”
TPI believes the increasingly important role of employee volunteerism is but one factor that will mitigate the potentially negative impact of the current financial turmoil on corporate grantmaking. Forty-eight percent of CECP-surveyed companies have a paid release time policy. We doubt the current economic tumult will change such policies. Moreover, US corporations increasingly find that their incoming new professionals expect their employers to act in a “socially responsible” manner, through philanthropy, volunteerism and effective CSR programs.
TPI has always encouraged the union of “head and heart” among its strategic donors, both corporate and individual. Burgeoning social needs – both of non-profits and the individuals they serve – often inspire up-ticks in generosity, and natural human compassion. Corporations are responsible to their shareholders. But they are also captained by leaders who live in and care deeply for their communities. In TPI’s experience, many of these leaders are driven by a deep commitment to their fellow citizens, and to staying the philanthropic course even in tough times.
Are we sailing in unsettled seas? No doubt. But it is far too early for hand-wringing over a deep reduction in corporate giving in 2008.
Moral Hazards and Trash
A Philanthropic Perspective from Peter Karoff
I couldn’t seem to lose the trash truck today during my morning walk – - every time I turned down another street, it followed me, or I followed it. And when I got home and sat down for a cup of coffee, the same was true of the newspaper headlines chronicling the chaos and turmoil in the markets, and the growing reality of recession, and depression. I couldn’t shake it. Trash is all over the place – and we, the American people, are about to own a ton of it as we buy the toxic assets of troubled financial institutions.
But what I really can’t get out of my mind is what economists call ‘moral hazards’ - a term that has taken on unpleasant currency these days. A ‘moral hazard’ refers to an action that might be benign or even good that is intended to solve a problem, but in actuality makes things far worse. It is the slippery slope – what Robert Frost identified as – “Yet knowing how way leads on to way.” And patterns of behavior, once established, often become irreversible. TPI learned long ago that there are always unexpected consequences to the grants we make, but those consequences have not typically raised moral issues. That is not true today as we face a combination of the most terrifying, financial meltdown in recent history, and the almost overwhelming ethical and social dilemmas that spill out daily in the press.
In these unprecedented circumstances, what are philanthropy’s moral hazards?
Foundations, nonprofit organizations, and NGOs are not immune to moral hazards and because they operate at the very intersection of social dilemmas and appropriate response, they face these challenges every day. With each hazard, however, there is a corresponding opportunity.
In the short list of philanthropy’s moral hazards – two stand out:
One is when a gift or social intervention violates the rule of “do no harm.” Few intentionally do harm, and mistakes happen in every sphere, but I would make the case that philanthropy is more at risk today because it has become overly immersed, even subsumed, by what is referred to as ‘technical rationality.’ Donald Schon, in the early ‘80’s, observed that when the technical becomes the ‘dominant paradigm’ it fails ‘to resolve the dilemma of rigour versus relevance.’ Philanthropy’s relevance is based on its purpose, mission and its role and responsibility as private intervention in public space – in essence its moral imagination. Excessive reliance on data and measurable results makes donors less likely to take actions hard to measure, and thus more risk adverse. But the bigger risk is when relevance becomes a servant to rigour. Great philanthropy is a combination of the heart and the mind - you need both.
Perhaps the biggest philanthropic moral hazard, however, especially in a time of crisis, is when a donor does not stand up and be counted when it is important to do so. If we do not respond we establish a pattern of behavior that sends a message to ourselves, and to others, that either we do not care, or care enough, or do not have the courage of our convictions. If we do not act when we can and when we should, we have indeed done harm.
These moral dimensions of philanthropy and social action have never been so important. Trash notwithstanding!
Global Perspective
Throughs from Olga Alexeeva, CAP Global Trustees
Common feeling prevails that financial crises may bury growing philanthropy in emerging markets countries such as Russia or China. But if you look at recent history, the picture may not be so bleak. The 19998 financial crisis in Russia served as a "wake up" call both for the economy and for philanthropy: Russian entrepreneurs moved en masse from financial speculations and so called "pyramids" of the early '90s to investing in industry. In response to growing social obligations of new enterprise owners, they dramatically increased corporate giving, both in quantity and in quality.
Corporate social responsibility as a recognized concept was born in Russia after the 1998 crisis. Similar things may happen now in China which has already started to evolve from being just a world "sweatshop". More sophisticated business concepts may bring more sophisticated philanthropy. For emerging markets, a financial crisis may become a cold shower: it may wash some down the drain but in the end, as the potential there is so enormous, it will probably open new opportunities. As we saw in Russia in 1998, it may open the eyes of the wealthy by washing some grease and greed from them.
Olga Alexeeva is Head of CAF Global Trustees, a division of the UK Charities Aid Foundation that is focused on the development of private and family giving in the world. Prior to this job, Olga Alexeeva worked 12 years in the Russian office of CAF and in the last 7 years was the Director of CAF's Russian office.
Adding Context
The typical American household’s debt is over 140% of disposable income (2007 data, stateofworkingamerican.org)
Less than half of Americans own stock either directly or through mutual funds. Only 35% own more than $5,000 (2004 data, eip.org)
The wealthiest 1% of all households controlled a larger share of national wealth than the entire bottom 90% (2004 data, eip.org)
Adjusted for inflation, giving falls 1% in any years with more than a month of recession versus rising 4.3% in years with none. (givingusa.org)
18% of children are poor, an increase of 2.2% since 2000 (2007 data, americanprogress.org)
|