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Change in a New Economy
Date Published: April 14, 2009
Initiatives e-newsletter
February 2009
Ideas for Change
CEO Checklist
Reset: the New Name of the Game
Power in Numbers
Let's Get Together
Balance Sheet Solutions
A New Friend in the IRS
Keeping Tabs on the Times
Is today’s economy a “game changer”? For many of our long held assumptions and accepted norms – there is no light at the end of the tunnel. New ideas, priorities and leadership are certainly needed, yet by redefining “resources” and looking at past solutions from a new angle, we may not need to completely reinvent the wheel to create opportunity from turmoil.
One of TPI’s new Board members recently called this a “game changing economy.” Certainly the philanthropic context and the challenges before us are like none we have seen. Those with financial resources – foundations, high net worth individuals, corporations – are recalibrating their sense of wealth, abundance, security and generosity. Those without financial resources – Main Street, the working poor, the unemployed, the homeless and disabled – are painfully experiencing less money, fewer services, fewer jobs and less trust. All of us who want to contribute to healthy and vital communities are rethinking the definition of “resources” and what it will take to make change in the new economy. Many of us are inspired by Barack Obama’s spirit of hope, and we are searching for ways to create opportunity out of crisis, to tackle these challenges with new and better solutions that wouldn’t have been considered in an era of greater affluence. As they say, “necessity truly is the mother of invention.”
There have been many, many conversations among funders and donors around the country about what to do. In this newsletter, we are pleased to connect you to several organizations and websites which we think have done a valuable service capturing these conversations. We also summarize some of the more promising and creative strategies that we have seen emerge – or reemerge. Take this opportunity to challenge your thinking about what it takes to make change in your communities and let us know if you could use a little help.
Throughout 2009, TPI will host a series of webinars on Ideas for Change in a New Economy starting with a series on Collaboration scheduled for March. We invite you to join us as we learn together.
Best, Ellen
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CEO Checklist
Three Strategies Corporate Leaders Should Implement Now
There is no denying it – the economic climate is dismal, and the impact on the nonprofit sector will be profound. While corporate giving only represents about 5% of all U.S. philanthropy, this translates into more than $15 billion that companies contribute annually. And all indications point to reduced corporate giving this year, as more and more companies find themselves struggling to stay in the black.
Despite the bleak predictions, TPI’s discussions with corporate leaders indicate rising concern about the growing community needs. Rather than pull back, corporate leadership to address critical needs is more important than ever. According to Lucia Quinn, Executive Vice President of Human Resources at Boston Scientific Corporation, “We cannot as a society sacrifice education or baseline health care due to an economic crisis. We cannot allow the next generation of adults to be undereducated or without access to quality health care because revenue is down. We believe for-profit companies have a responsibility to their schools and communities, period." What are some of the ways in which corporate leaders can stand up and be counted? Here are a few ideas:
Determine how your company can best help key nonprofit partners survive, and perhaps even thrive. Through corporate giving programs and corporate foundations, many companies have longstanding partnerships with one or more nonprofit organizations. These partnerships may involve grants for targeted initiatives, sponsorships or other resources. Take a close look at what kind of support for these partners makes sense in the coming months and years. Are your key nonprofit partners well-positioned to weather the economic storm? If so, how can your company’s resources – financial and other – best support these organizations?
Mobilize corporate skills and talent around creative solutions. Corporate executives with strategic planning and management skills have much to offer to nonprofit organizations struggling to maintain services or even survive. How could talent within your company help nonprofits explore creative solutions to budget gaps and other problems – including opportunities for consolidation, shared services, and other potential efficiencies?
Join together with other community leaders to address critical needs. Corporate leaders can often leverage much greater impact when they join together – or join with government and community leaders. Vehicles for collaboration include business associations (e.g., business roundtables and chambers of commerce), funder collaboratives targeting specific issues, and government task forces. State Street, for example, is spearheading the creation of a funder collaborative to address youth violence in Boston – and is also supporting a citywide violence reduction initiative launched by The Boston Foundation. As George Russell, President of the State Street Foundation, says,“Preventing youth violence is a complex challenge; one that requires a sustained effort with input from many to be effective. Through collaboration, we can have the greatest impact on the issue – the best chance at improving lives and building the future workforce of the city." In the coming months, TPI will be offering additional advice on how companies can demonstrate leadership to address the growing needs in communities throughout the United States and beyond. Let us know what your company is doing to step up to the plate. Contact Leslie Pine at Lpine@tpi.org.
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“There will not be an economic ‘recovery’ – everything is going to be ‘reset’.” This comment from a very smart TPI client, spoken three weeks ago, was the first time I had heard the term ‘reset.’ Since then that word, and others like fundamental, and transformational, are being used by economists, business leaders, commentators and government leaders to indicate that “what is going on” is a huge disruption of business as usual for the American and the global economy. Disruption is the term used when entrepreneurs introduce their innovations and in the process disrupt or destroy existing business models/industries. This disruption, however, was not of any entrepreneurial vision or design, but has been thrust upon us with astonishing vengeance.
President Obama’s Chief of Staff, Rahm Emanuel, was quoted as saying “never waste the opportunity that a crisis brings to the table.” The question then is whether we can use this crisis as a kind of jujitsu that lands us as a society in a better place.
Philanthropy is contingent on the ebb and flow of individual, family and corporate wealth, and the nonprofit sector is dependent on philanthropy, government resources, and earned income. What will a major reset of philanthropy’s fundamentals look like, and what should the actors in this massive Third Sector – more than 8% of GNP – do to turn it in ways that are positive?
In 2005 in The Atlantic Monthly, Jonathan Rauch wrote an article entitled Seeing Around Corners. The article dealt with how “we might learn to anticipate the kinds of events that lie ahead, and where to look for interventions that might work.” In my interview with John Abele, the co-founder of Boston Scientific, in The World We Want, John talks about the experience of using “parallel tracks” to overcome the “body of gods” that fiercely resisted the introduction of less invasive surgery into the medical care system, which today seems almost incomprehensible when those procedures have become normative. I think some of the answers lie in exactly these ideas – seeing around corners, running parallel tracks, and overcoming the resident body of gods. And perhaps even more relevant, “we have no idea the power we have to create the world anew,” as Peter Senge wrote.
So far, the chorus of concern emanating from the field has had some predictable themes. Nationwide, foundations and other major donors, with assets down 20% to 40%, are struggling with how to (1) do no harm, (2) stand up and be counted at a time when it is important to do so, and (3) be responsible to their fiduciary responsibilities. Nonprofit institutions and organizations, reeling under the impact of reduced income from all sources, are trying to figure out how to maintain mission critical programs and services with less. While difficult and painful, these steps don’t go far enough.
A plan for a nonprofit based on the assumption that revenue will recover from the same sources to pre-crisis levels is very different from a plan that acknowledges there may never be such a recovery. A plan that is based on a foundation’s assets returning to previous levels is very different than one that assumes what we have today is what we have. A plan that only makes adjustments, even big ones, to the status quo, and does not transform how one goes about doing the work, is one of diminishing returns.
What else could be done now? Here are the elements on my short list:
Deal with, and acknowledge fear – the deer-in-the-headlight kind of fear that freezes intelligent response. Talk about it, stare it down.
A clean slate – sweep everything that you do now off the table. Take a deep breath and step way back and assume nothing exists except a blurry vision. In essence, it is as though you are starting from scratch. Reinvent the way you pay for and do the work.
Look around the corner. Exercise your moral imagination. Make wild scenarios. Do complete end runs around the prevailing best practices – create multiple parallel tracks. As Barry Dym, the director of the Institute for Nonprofit Management and Leadership, put it, “Shift the paradigm from loss to gain, from preservation to creation.”
Reassess your resources, especially those you have not valued enough. Think networks, contacts, the power of convening and access that you, your colleagues and your board have. Make those calls you haven’t made in years, pull out all the stops - be shameless in the use of your cache to further the work.
Forget about going it alone. Subsume your ego. Collaborate and cost-share on a scale that was previously unimaginable. Cross domains, tear down silos between what you do and others with whom you had never imagined sharing services, and jointly serve the needs of your community of interest.
Put endowment capital to work. Make mission-based investing integral to program. Think hard about whether spending down is actually a capital investment in renewed sustainability.
Recruit new talent. Leap on the sea change shift in attitude the financial meltdown is having on young people. The best and the brightest are no longer looking to Wall Street. This could be the biggest opportunity the nonprofit field has ever had to add great human resources.
Realize that the most influential “body of gods” that needs to be overcome, in addition to funders and government policy makers, may be the ‘best practices’ within the field itself, or your board, the staff, and you! Resist to your core – “that won’t work here” and “we tried that before” and “we never do that.”
Grit your teeth. This is going to be hard. Thousands of marginal nonprofit organizations will not exist eighteen months from now. Funders need to be objective, honest, and caring. Nonprofit boards need to be the same.
Renew your vows. The passion you feel, or once felt, for the work that you do, is central to the exercise of creative moral imagination. The centrality of philanthropy to the making of a better world is the heart and soul of why you are an actor on this stage. Make a poem of it.
Will the above better prepare you for a “reset”? Will the field come through renewed and stronger? I think it is a fair beginning.
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As donors struggle to respond to ever-increasing societal needs and challenges at a time when, for many, resources for giving are significantly reduced, collaborations with fellow donors offer enormous benefits. By joining with colleagues, donors can:
Leverage philanthropic resources – For smaller donors collaboration provides the opportunity to be part of a significant effort, with a level of credibility and scale that they are not likely to achieve through their individual grantmaking. For all donors, collaborative giving can leverage their diverse strengths into a whole that can be much greater than the sum of the individual parts.
Make more efficient use of available resources - Participation in a collaborative that includes aligned or pooled funding saves donors the administrative costs of soliciting individual grant applications and conducting due diligence on each potential grantee, a benefit that can be particularly significant for smaller donors. And by pooling administrative tasks, donors can free-up resources to expand direct investments.
Achieve greater impact –By targeting the collective ideas, strategic thinking, and financial resources of many players at a particular issue, a collaborative effort can achieve significant traction. This can result in local capacity building, greater public awareness of the targeted issues, new funding streams, and changes in public policy, all critical elements in sustaining change.
Donors who seek to join collaboration can choose from numerous existing issue-based or place-based efforts; and where none exist, a collaboration can be easily created.The first step can simply be an informal meeting of donors with similar interests to compare notes and explore similar interests. This informal gathering was the genesis of the Community Development Funders Affinity Group at the Delaware Valley Grantmakers.
Five years ago, the Philadelphia-based Wachovia Regional Foundation realized that, while they asked their grantees to develop long-term comprehensive community development plans, they did not have the capacity to fully support those plans. The Foundation’s maximum grants are $750,000 and the plans could reach several million dollars. As Denise McGregor Armbrister, Executive Director of Wachovia Regional Foundation, put it, “We are only one piece of the pie.” In a recent newsletter of the Council of New Jersey Grantmakers, she challenged her foundation and other grantmakers to join together to have a greater impact. “As funders, we expect nonprofits to collaborate, learn from each other, and leverage possible resources when and where possible. We should practice what we preach.”
So the Wachovia Regional Foundation invited every local funder with an interest in community development to a meeting. Twenty-five people showed up and the group literally went around the room and said “what do you fund?”, “how do you define community development?” Based on that sharing, the donors began to map out what one another are doing and decided to create a forum for regular sharing.
In New York City, Deborah Iarussi of the Sills Family Foundation recently convened donors to work together on an issue that she cares passionately about – children with incarcerated parents. Says Iarussi, “It’s kind of crazy when you see how many small foundations are making piddling little grants. Our typical grant is $25,000. That is obviously not enough to really create change.” While Iarussi understands that her foundation may not have the capacity to make the largest gifts, they bring valuable connections and experience working on the issue and they are committed to giving their time to make the collaboration effort work.
This spring, TPI will publish “Donor Collaboration: Understanding Power in Numbers”, a primer for creating, assessing and undertaking opportunities for collaboration among donors. In this spirit of collaboration, TPI is currently sharing a draft of the primer with donors of all experience levels who are interested in providing feedback. To participate, please contact Joanne Duhl at jduhl@tpi.org.
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Let’s Get Together
Characteristics of Successful Donor Collaborations
While connecting with other donors can be a powerful tool for bringing about positive change, creating a truly successful collaboration requires patience – and an understanding of what makes them truly work. Through our research and advising, TPI has identified key characteristics shared by successful donor collaboratives:
A passionate champion (or champions) who spearheads the collaborative effort and provides initial leadership. The champion often serves as the public face of the collaborative and helps to recruit other members.
A unique opportunity. Collaborations often have their roots in a particular crisis or a call to action around a critical problem. Donors decide to work together because of a realization that “business as usual” is not sufficient.
A diverse group of funders and inclusive participation structure that encourages participation by a range of funders. Successful collaboratives may include local and national foundations, public and private funders, individual donors in a particular community, or other combinations.
Time for planning, especially at the outset. Members need to spend sufficient time reaching agreement on shared goals and operating structures. They should also come to consensus on an initial agenda, with a set of questions to explore together. Often a group of donors will begin operating as a learning network and, once they have developed a level of trust, will decide to pool funding. And there should also be an opportunity, after the initial planning period, for participants to decide that – at least for some – further collaboration is not desirable.
A comfortable interactive forum in which donors have the opportunity to learn from one another, share information about objectives and outcomes, and strategize about how to achieve greater impact. This sharing can be done through in-person meetings, conference calls or an online forum.
Flexibility. Successful collaboratives adjust their strategies based on initial results. While they begin with a shared interest in a particular issue or problem, they continuously learn from experience and apply that knowledge to their ongoing efforts.
Sufficient resources. Once well established, successful collaboratives often decide to invest in staff or work through an intermediary organization. Staff with subject knowledge and process skills can help keep collaborations on track, organize and facilitate meetings, and collect and disseminate information. For collaboratives that pool funds, staff can efficiently manage the grantmaking process and support grantees.
Stability. In successful collaboratives, most members participate over the long-term because they find the experience rewarding. Members value the ongoing interaction with their collaborative partners and the results of the collaborative investments. Some of the most successful long-term collaborations have retained their original members, while expanding to include new funders.
Long-term agendas. Real change takes time. Often donors involved in a collaborative make an initial commitment for a pre-determined number of years.
Trust. Successful collaborations are built on successful relationships: the members have learned to work well together, accommodate one another’s needs, and take advantage of one another’s strengths. The best collaborations meet the needs of the individual donors involved, as well as the needs of the group.
While there is no litmus test to determine whether a collaborative effort will truly meet the needs and expectations of participants, keeping these characteristics in mind when forming new efforts may help realize a greater return on your investment.
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Balance Sheet Solutions
Expanding Philanthropic Resources with Mission Investing
The current economic crisis underscores the need for real changes in the way nonprofit organizations use philanthropic dollars and the way foundations and individuals deliver these dollars. Non-traditional capital – structured as Program Related Investments (PRIs) and Mission Related Investments (MRIs) – offer funders the opportunity to enhance their grant making strategies, increase the impact of their funds, and better align their ‘traditional’ investment strategies with their mission. PRIs are made by foundations in support of their missions, offer return of capital generally through repayment, and are included within a foundation’s payout requirement. MRIs are market-rate investments that seek financial returns similar to conventional investments, while also producing social, environmental, or educational impact, aligned with a foundation’s mission.
While PRIs and MRIs have actually existed for years, their adoption has remained somewhat limited among the vast majority of foundations due to a few key challenges:
- Many foundations perceive that they lack the skill set to evaluate the credit worthiness of their grantees that a PRI would require, and
- Most non-profits still prefer grant dollars and thus have remained unfamiliar with debt or other non-traditional forms of capital
Even when implemented, mission investments are often ‘one-off’ initiatives, and thus are not truly incorporated as part of an ongoing strategy to align and increase assets targeted towards foundation’s mission.
So how can foundations address some of these key barriers and move from curiosity to execution of PRI and MRI investments?
First, get informed. Build a basic understanding of the possibilities for expanding the range and impact of your grant dollars by seeking information from advisers, practitioners, and others resources.
Second, find a partner. Seek out assistance from advisers or consultants to learn how to evaluate, structure, and implement these investments – either through partnering with an existing mission investment, or structuring your own. The right adviser will ensure the appropriate learning and knowledge needed for foundation staff to learn to make these investments on their own in the future.
Third, create demand. Encourage the organizations you support (or want to support) to investigate MRIs/PRIs and help them implement a mission investment. For nonprofits, these investments can help expand their funding. They can also strengthen an organization by improving management and fostering increased accountability. They can help recipients build credit histories, leading to improved access to funding and reduced reliance on more traditional grant dollars.
Where might it make sense for a foundation or nonprofit to consider a PRI? Here are three brief examples:
A human services agency has a critical need for working capital to address a short term cash flow requirement caused by delays in government reimbursement: by bridging this temporary shortfall, the agency can avoid a cutback of services to its core constituencies.
A community health center is looking for funds to help them hire additional physicians: by providing critical capital to hire additional service providers, the center can expand its programmatic reach and increase its revenue from services.
An urban arts and culture organization seeks program expansion capital that will allow them to build new audiences to help keep an existing program afloat.
Newly launched in partnership with TPI, the Center for Applied Philanthropy (CAP) believes that PRIs and MRIs represent a significant opportunity to bring a fundamentally different approach to funding society’s critical needs. CAP aims to increase the pool of non-traditional capital available to nonprofits and catalyze the use of these funding streams among philanthropic organizations. CAP also plans to demonstrate the ability of MRI/PRIs to drive more sustainable outcomes for nonprofits through its own fund, called The Fund for Sustainability (TFS). TFS will fund critical working capital and programmatic expansion needs among nonprofits and NGOs whose core focus is domestic health and human services, arts and culture, the environment or education. To learn more visit http://www.tpi.org/tpi_services/mri_pri.aspx and www.tpi.org/thecenter.
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Conducting due diligence on nonprofits is more important than ever in this economy, and the recent overhaul of the IRS’s tax return for charitable organizations is making it easier. Intended to promote transparency, accountability and good governance, the new form will be phased in over the next two years. Some revisions promise to be particularly useful to donors:
The front page is a snapshot of an organization’s mission, operations, and two years of finances.
Organizations must identify whether they follow particular “good governance” practices like employing conflict of interest and whistleblower policies and recruiting independent board members.
Information is organized across uniform schedules, so donors can find what they are looking for and easily compare organizations.
More information is included on executive compensation and investment portfolios.
Transitioning to the new form will not be easy for all non-profits. Financial staff face a steep learning curve, some auditing firms are increasing their fees, and many smaller organizations do not have all their governance policies in place. But in the end, donors versed in using the 990 may learn much more about the organizations in which they invest.
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A few resources to help keep current on the shifting sands:
Council on Foundations – Economic Xchange
http://www.cofinteract.org/economy/
The Foundation Center – Focus on the Economic Crisis
http://foundationcenter.org/focus/economy/
Associated Grantmakers – The Economic Crisis – Centralized Information Resources for Funders and Nonprofits
http://www.agmconnect.org/featuresEconCrisis.aspx
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“What is going on” is the question that theologian Reinhold Niebuhr has been asking for decades.
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