A LONG, LONG TIME AGO…
April 2020 marked my 20th-anniversary guiding institutions and private investors through the investment markets. In that time, I have observed lessons in nonprofit sustainability worthy of sharing with you today in this age of COVID-19.
First, let me set the stage by contextualizing this 20-year journey. In April 2000, I drew upon my extensive experience in teaching and nonprofit leadership to establish myself as a bridge between the nonprofit and finance sectors. At the world’s then-largest wealth management firm, I started advising investors when the dotcom bubble was at its peak. For 31 months, I learned this trade through the shattering of that bubble, the 2001 recession, and the tragedy of 9/11. Amid that devastation, I witnessed nonprofit organizations become insolvent and private investors destroy years of hard-earned savings. At the time, financial models indicated that we had experienced a once-in-a-hundred-year event.
In August 2008, I launched Syntrinsic to do this work in a mission and values-aligned culture and business model. Three weeks later, Lehman Brothers failed. In the following weeks, AIG, Countrywide, Merrill Lynch, Wachovia, and other financial institutions crashed around us. The fall of 2008 was an inauspicious time to start a small business in America, let alone as an investment advisor and strategic consultant to nonprofit institutions. Another once-in-a-hundred-year event, they said, but even worse than its predecessor.
And now, here we are in this age of COVID-19. The third once-in-a-century event in 20 years—this time, an economic collapse precipitated by a public health crisis. Already, the economic and social damage experienced around the globe is more profound and more rapid than in both previous crises.
We know already that many nonprofit organizations will not emerge well from this situation—and some may not emerge at all. Also, we know that many nonprofit organizations will be even stronger in the years ahead. Why? What enables some organizations to endure and change the world despite such profound challenges?
Competent leadership, wise use of capital, and a people-centric culture dramatically increase the likelihood that a nonprofit organization can survive through crisis and thrive into the future. All three are necessary; miss out on any one of these elements and a stress test like COVID might just break an organization forever. Those organizations that prioritize their leadership, capital, and culture are best positioned to have the best of both worlds, to survive in times like these and to thrive into the future.
DEMAND COMPETENT LEADERSHIP
Successful organizations are extremely intentional about their leadership. They set a high bar for who runs the organization at all levels and relentlessly ensure that they always have the right people in the right places. They recognize that the wrong board and wrong CEO or CFO at the wrong time in history can devastate an organization. Sometimes a board needs to replace a CEO even though the CEO is nice and tries hard; sometimes a CEO needs to replace staff even though they have been there forever. That challenge is particularly difficult for leaders who love helping people grow. However, competent leaders recognize that in most organizations, their effectiveness is primarily based on the quality of the people—the way they think, act, care, reflect, solve, organize, and change the world.
In this time in history, the right leaders are challenging their organizations to develop robust strategies for moving successfully into the future. They are asking hard questions, confronting weaknesses with honesty, bringing in expertise, challenging excuses, crafting business plans with well-defined goals, and ensuring effective implementation. They are trouble-shooting extreme scenarios and taking action to prepare for multiple contingencies.
Organizations that strive to change the future must envision the steps required to make it a reality, then take those steps. An organization’s leadership team today provides a good indication of where that organization will be in a decade. Or whether it still will be an organization at all.
USE CAPITAL WISELY
When confronting insecurity and iniquities in sectors such as education, healthcare, food, or housing, some people imbue financial capital with malicious intent, as if capital itself is at fault for much of what ills us. That mindset can foster an aversion toward financial planning within an organization. How can we spend time, some might think, fretting over budgets and financial modeling when people are suffering? Yet, ultimately, capital is a tool that can enable transformative work to be done. It is neither inherently evil nor inherently benign. It just is. Strategic use of capital can provide organizations with the ability to scale, be a catalyst for change, and more effectively support communities.
Some nonprofit organizations have already secured unrestricted capital sufficient for them to flourish. For those organizations, the key is to properly steward that capital by avoiding poor investment selection and execution, market timing, fee corrosion, over-spending, fraud, self-dealing, borrowing from the future, and other common missteps. These organizations also have an opportunity to more intentionally evaluate the social and environmental impact of their stewardship practices.
But many nonprofit organizations have less access to capital. They live year to year, membership to membership, donation to donation, event to event, grant to grant. Even those with sizable endowments often have business models that place considerable pressure each year to generate the capital needed for short-term viability, let alone long-term sustainability. Over the decades, many organizations have been forced to rethink their revenue models due to changes in donor conduct, government funding, technology, and consumer behavior. Nearly every nonprofit sector has felt the existential pressures of once-reliable revenue streams diminishing or drying up entirely.
Coming into this COVID crisis, some organizations already had done a masterful job of financial management, while others lacked the tools, human resources, or foresight to manage their finances through a situation like this one. And COVID has strained even the most thoughtful of business plans because it seems to be changing how we interact at many levels: how we deliver education and health care, how we house and feed people, how we engage with zoos and museums, theater and music, how we distribute information, promote economic development, and care for our youngest and oldest. Few segments of the nonprofit sector have gone unchanged. And we are just a few months into this crisis.
From a survival perspective, liquidity is everything. It means that an organization is more likely to meet payroll, cover the cost of programming, and remain relevant during a societal stress test. Organizations manage liquidity through building operating reserves, securing access to credit, and, if appropriate, taking advantage of efforts like the Payroll Protection Program. A lack of liquidity forces an organization to cut muscle and bone at precisely the wrong time, setting the stage for a massive decline in impact, if not the end of the organization altogether.
Liquidity also enables an organization to prosper. A solid capital base enables an organization to make investments—even modest ones—in initiatives that will shape the future. Everyone expects pharmaceutical and technology companies to invest in research and development whether there is a crisis or not; shouldn’t the same be true for an arts company? Environmental company? Education company? Every company—for-profit and nonprofit alike—always should be investing in its future. A nonprofit that is not allocating capital to its future is rolling the dice on its longevity. A nonprofit that is borrowing against its future is signaling crisis to everyone paying attention; it had better develop a compelling plan to retain or regain confidence.
If an organization’s purpose will be vital years from now, then leaders have an obligation to prioritize access to capital and ensure adequate liquidity. It is precisely because of mission that money must have a seat at the table.
FORGE A PEOPLE-CENTRIC CULTURE
While financial capital provides the fuel that ensures organizational viability, human capital ensures its relevance. Whether serving youth and families, solving for access to housing, addressing climate change, developing energy and transportation policy, or bringing the arts to life, ultimately these efforts all are based on the initiative, creativity, and problem-solving ability of the people who make up the nonprofit organizations we depend upon.
As we speak glowingly of the people of service who have profoundly touched our lives—the teachers, coaches, clergy, healthcare workers, and others—we also recognize that people of service are only rarely appropriately compensated or otherwise acknowledged for their tremendous contributions. We name buildings and initiatives after donors, not after the people who bring those buildings and initiatives to life. In many nonprofits, the nature of the work itself can invite a sacrificial or martyr mindset that saps people of energy and initiative and ultimately invites burnout, particularly amongst those on the front lines of delivering services.
And as we humanize nonprofit organizations, we need to continue broadening our lenses as we evaluate and select talent. The biases that define who we see as competent can cause us to miss out on identifying the best people for the seats we strive to fill. I had expected that over the past 20+ years, our society would have made more progress in hiring based on merit rather than preconceived notions based on economic class, gender, race, faith, disability, or other demographic factors. Some organizations have made meaningful and effective efforts in this regard; however, frequently, organizations in both the investment and nonprofit sectors continue to select for familiarity rather than capability.
Still, there are ample opportunities for leadership to intentionally develop culture to attract, develop, and retain human capital. Although a supportive and nurturing culture takes time and energy to foster, it also can lead to greater productivity, retention, and joy. Serving impoverished families or supporting people with traumatic brain injuries is hard work; doing that work when miserable is near impossible. Doing that work when one is valued and appreciated enables people to dig deeper, try harder, and ultimately help create more resilient and impactful organizations.
In my experience, nonprofit organizations have cultural DNA that persists over time and across changes in leadership. For example, organizations that treat all stakeholders with respect tend to be that way regardless of who is in charge, while mean-spirited organizations tend to be that way over time as well. Culture persists because many people fail to realize that culture is created, not inevitable.
Culture represents the norms for how people treat each other, communicate, make decisions, celebrate, plan, and take action. When we intentionally forge a people-centric culture, we consciously determine how we want people to communicate and make decisions, collaborate and problem solve, hold themselves and each other accountable.
When competent leaders make culture a choice rather than an inheritance, they empower their organization to move forward more effectively, to proactively choose a path rather than reactively and reluctantly struggling down one. Adding this meta-level of awareness about culture honors people as actors in creating their own reality. While some people may act as if they just want to be machines taking orders, most human beings want to know that are valued and powerful. And we all want and need valuable, powerful people on our teams.
THE NEXT TWENTY YEARS
Twenty years from now, some of the nonprofits in our community will be gone, their work unfinished, their organizations unable to carry on. Some—hopefully more—will be thriving, having dramatically increased their impact from wherever they were in 2020. Two decades is far longer than budgets, grants, strategic plans, board terms, and CEO tenures. We can be certain that the years ahead include political, environmental, financial, and social challenges that we cannot even imagine or model today.
Regardless of the uncertainty, nonprofit organizations have far more influence on their destinies than many realize or take advantage of. Despite—or perhaps because of—all the challenges we face now, 2020 is the right time to more intentionally weave resilience and impact into the leadership, capital structure, and culture of the organizations that enrich our world, nonprofit and for-profit alike.
Unexpectedly, 2020 has become a time for both hindsight and foresight. It serves as an opportunity to think about mentors who have helped us reach this place while seeking out mentors who will inspire and enable the journey ahead. To celebrate lessons learned while realizing how much more there is to know. To mark achievements accomplished while preparing for the important work to be done in the years ahead.
How fortunate we are to have this opportunity. Let’s go build a legacy.