No Nonprofit is an Island

Posted by on 07/29/10 in Governance, Philanthropy, Philosophy, Stewardship

While Catholic theologian, Thomas Merton, long argued that “no man is an island,” many of us retreat into a relatively solitary world when life becomes most difficult. For some, the isolation is a way of dealing with insecurity or shame, for others it reflects a fear that no one else cares or can understand, while still others figure that they can best rely upon themselves to solve their problems. And of course, when facing tremendous obstacles, sometimes we simply cannot see outside of ourselves very well to seek the help we need or to identify the help that might already be waiting.

Organizations are no different. Small businesses and large corporations alike can become strikingly insular under pressure. The times when they most need to look outside for guidance, financing, or other support can easily become the times when barricades go up, trust disappears, and people turn on each other instead of to each other.

Given their community orientation, collective spirit, and life affirming missions, it may seem ironic that nonprofit organizations face similar challenges. Layoffs, budget cuts, uncertain and declining revenues, and higher demand for services make the equation particularly challenging for nonprofit boards and staffs. Whether leading human service organizations, health care facilities, houses of worship, educational institutions, environmental organizations, museums, or other mission-driven organizations, nonprofit officers and executives often feel much like they are stranded on an island when the storms of economic crisis are looming.

Recognizing that many nonprofit organizations face business challenges on a scale and frequency they have never before experienced, and realizing that it can be difficult to access perspectives from peers in different industries or geographic regions, we thought it might be helpful to identify patterns we have witnessed across nonprofit organizations throughout the nation across size and sectors.

1. Executive turnover is higher than in the past.
We have seen more nonprofit executive (CEO, CFO, Executive Director) turnover in the past nine months than in the previous 10 years combined. The causes are as varied as the people and the organizations. Some executives have completed their main objectives at one organization and simply are ready for new challenges. Others have left organizations going through internal structural realignment designed to increase margins, efficiency, profitability, effectiveness, skill sets, etc. We have seen organizations change leaders as a result of clarifying their missions and others change leaders because they are not sure of their mission. Some leaders have moved on simply because the work is terribly demanding and they need a break. And of course, we have witnessed leaders move on because they lacked the aptitude or value system required. Whatever the reason, there’s change amongst executives is occurring on a massive scale throughout the country.

2. Revenues are more uncertain and for different reasons than in the past.
Many organizations that rely primarily on private donations and/or corporate sponsorships are facing the reality that their private and corporate donors live in a highly uncertain world, one buffeted by questions about tax policy (e.g. Estate tax? Charitable deductions?) as well as radically reduced donor liquidity and net worth. Organizations that rely on federal, state or local reimbursements are in a tremendous quandary as they deliver (and pay for) services for which they may not be reimbursed in a timely manner or in the amount committed by the associated municipality. And many faith based organizations—a final safety net in many communities—cannot rely on the revenues contributed previously. When someone who tithed 10% of their income (and yes, there are many who do so), becomes one of many congregants who needs financial support while looking for a job, then the financial model in many faith-based communities falters. There are numerous churches facing bankruptcy; that is not normal.

3. Mission matters more than it did before.
A nonprofit that is not sure about its mission or cannot clearly articulate its mission likely will not endure this period in history. Some organizations are reinventing themselves despite successful work over the past 20, 50, or even more years. They have to. The landscape has changed, the way that society identifies and addresses problems has changed, the way that people communicate has changed. Meanwhile, other organizations are getting back to their roots, honing in on their core competencies and cutting back on non-core initiatives that seemed logical when times were more flush and the competition for dollars less intense. Whether missions are newly revised or thoughtfully reaffirmed, organizations that can express their relevance have a much better chance of achieving sustainability.

4. Financial stewardship is a higher priority and more creative than in the past.
Most nonprofit organizations are accustomed to doing more with less, running lean, and relying on the generosity not just of donors, but also of staff willing to earn less than they might in for profit ventures. Thus, some behavior we have witnessed recently is simply prudent budget management. But we also are seeing more intense integration of financial planning into the broader strategic vision of many nonprofit organizations. Five year planning is receiving more serious consideration than in the past, with more conservative revenue estimates and more realistic cost estimates. Spending models for endowments and supporting foundations are using more conservative spending assumptions, reduced return assumptions, and making allowances for potential emergency draws. Organizations are analyzing their illiquid assets such as buildings and land to evaluate if they can provide liquidity to support operations and special projects. And like the rest of the world, many nonprofits are doing whatever they can to deleverage, that is to pay down their debt and reduce or eliminate their current debt service.

5. Board leadership is essential.
It surprises us how many excellent nonprofit organizations with strong track records of effective service have relatively weak or at least inconsistent Board leadership. In a decent economy, an organization can limp along without good governance; in an economy like the current one, a lack of effective leadership signals the beginning of the end. Look back over this list—every item on it requires courageous, attentive and skillful Board-level guidance. This item can be a hard one to admit, but believe us, many organizations are trying to figure out this challenge without letting the world know that their Boards are not all they can be.

Nothing mentioned herein is radical. Yet for each nonprofit organization, these may well be life or death challenges; at the very least, they compel a level of soul searching that many officers and directors have not previously faced. And as our nonprofit organizations examine themselves, they echo the self-reflection going on throughout America and around much of the world. Yet because many of these organizations serve as a mainstay of our civil society, because they represent a key ingredient in making capitalism more compassionate, democracy more participatory, and society more sustainable, it is vital that on the whole they are successful in addressing these challenges.

We know our audience, and many if not most of our readers are actively engaged in addressing these concerns as professionals and volunteers. But there is a great deal of leadership needed throughout our communities to address these concerns and there are people who are isolated now who have tremendous gifts to offer and service to provide. Even Merton, who practiced the relatively solitary life of a Trappist Monk, created ways to reach out and connect with others in an effort to effect social change. Let’s find those whom are not yet connected to community and invite them to join us. There’s work to be done.