Inside Philanthropy

Fundraising, part 1: Scholar calls for improvement

2009-07-20T05:35:00.000-05:00

By Todd Cohen

While they generally do a good job involving their boards in fundraising, securing major gifts and planned gifts, and focusing their fundraising on their donors, U.S. charities get only an average grade overall in their fundraising, a leading fundraising scholar says.

“I would probably give it a ‘C’,” says Adrian Sargeant, the Robert F. Hartsook Professor of Fundraising at the Center on Philanthropy at Indiana University. “There is a whole range of thing we’ve done very badly and it’s masked because people in the U.S. are very generous and getting more generous.”

Nonprofits do a terrible job retaining donors, raising money online and securing bequest pledges, Sargeant says.

The fundraising profession also lacks a mechanism for learning from the latest research, which in turn generally has failed to study why people actually give and what would spur more giving, he says.

And nonprofits typically focus their fundraising on the “transactional” strategies and tactics of raising money, Sargeant says, rather than on givers, the causes they care about, and the way fundraisers treat them.

“We’re too hung up on the mechanism,” he says. “Donors are interested in solving problems and making a difference, and whether you call it an annual fund or a capital campaign is irrelevant. We need to organize around what interests donors.”

Marketing perspective

Sargeant, who is believed to hold the only endowed fundraising chair in the world, brings to his research a marketing perspective.

After holding marketing jobs in the business world, he decided he wanted to teach at the university level.

So he enrolled in the master’s program in business administration at Heriot-Watt University in Edinburgh, where he did research for the YMCA of Scotland on its declining supporter base.

“And I’ve been hooked ever since,” says Sargeant, who later received a doctorate in marketing from the University of Exeter.

“Fundraising for me is a form of marketing,” he says.

In comparison, he says, fundraising in the U.S. typically has a public-relations perspective.

Fundraising research

In fact, he says, research on fundraising has tended to focus on the economics of fundraising, such as the impact of tax rates on giving, or who gives and how much they give, and also has drawn on the psychological or sociological perspectives of why people give.

“There needs to be more work in the domain of philanthropic psychology,” he says.

“That’s important because one thing we need more research on is growing the pie,” he says. “We live in a time when a smaller proportion of American society is giving, the giving base is declining,” he says. “There is still a lot more we need to know about donor retention and what we can do practically to improve rates of attrition.”

Research is needed to explore fundraising opportunities that have not been tapped fully, including bequests, online giving and the use of social media, Sargeant says.

“All of these things are potential audiences we can grow,” he says, “and research that helps fundraisers do that is really key.”

Next: Givers’ psychology seen as key

Recession creating ‘new normal’ for giving

2009-07-13T05:24:00.001-05:00

By Todd Cohen

The economic crisis is spurring new thinking in the giving sector, with givers and giving organizations looking for innovative ways to increase the impact of their giving.

That is the view at The Philanthropic Initiative, a 20-year-old nonprofit consulting firm based in Boston that has provided strategic philanthropic advice to 200 to 300 individuals and organizations, and facilitated over $1 billion in giving.

With 30 percent of philanthropic wealth “sucked out of the system” because of the recession and failure of the capital markets, individual givers, foundations and corporations are taking a hard look at the way they give and the causes they support, says Ellen Remmer, an 17-year TPI veteran who was named its president a year-and-a-half ago.

The recession has triggered self-scrutiny in the giving sector about the nature of philanthropic leadership and the role of strategic collaboration and partnerships, she says, and has created greater willingness to move beyond financial contributions.

“That imperative is incredible now with fewer resources,” Remmer says.

Jim Coutre, vice president at TPI, says corporations, in particular, are looking for ways to “embed” giving into their organizational culture, increase the involvement of their employees in their communities, and step up their giving in other countries in which they do business.

Remmer says the recession also has prompted givers and giving organizations to pay more attention to the operating needs of nonprofits.

“They’re being forced to look very deeply into how nonprofits are achieving the mission or not,” she says.

Foundation trustees, for example, traditionally “haven’t been that smart about understanding balance sheets and the finances of nonprofits,” she says.

But now, she says, “they really need to understand that,” as well as nonprofits’ need for working capital, and to be “thinking practically about how to sustain the mission.”

The recession, which is creating a “new normal” for the giving sector, represents a rare opportunity for nonprofits to develop new ways to work together “to accomplish the mission, as opposed to institutional survival or preservation,” Remmer says.
Nonprofits are “starting to suspend their egos,” she says. “And the donors are listening.”

Donors are being “more flexible and more willing to give operating support,” she says. “They’re really trying to understand nonprofits better, and become more attuned to the challenges for nonprofits. The best of the best funders are giving more for strategic planning and to do reflection and encourage those kinds of collaboration.”

And with government evolving to cope with the economic crisis, she says, givers and giving organizations are talking more with government about how to work together, and government is more open because of the decline in its resources.

“We’re poised for some interesting changes in the field,” Remmer says.

Recession offers lessons for giving sector

2009-07-06T07:25:00.004-05:00

By Todd Cohen

The giving sector quickly needs to become a learning sector.

An urgent task for nonprofits and giving organizations is to understand the connection between their recession damage and the way they do business.

By recognizing and addressing internal flaws that put them at risk, charities can better equip themselves to carry out their missions.

So charities must be brutally honest about their operations and the changes they need to make to fix their finances.

And the financial pain in the charitable marketplace has been serious.

According to recent reports:

* Overall giving in the U.S. is down.

* The value of foundation assets has plunged.

* Financial reserves at nonprofits in the District of Columbia are inadequate.

* Most foundations burned by Bernard Madoff had boards that were too small and probably too homogenous.

* Most nonprofits say they are under serious financial stress.

* Nonprofits are taking tougher steps like layoffs and programs cuts to cope with the recession.

No one can predict the ups and downs of the economy, but nonprofits and giving organizations owe it to their donors and constituents to be prepared.

No magic formula exists for survival. So instead of desperately accepting philanthropically-correct trends and feel-good gimmicks, often peddled by consultants and trade groups that are in the business of promoting themselves and often are dependent on big foundations' support, nonprofits and giving organizations should tap the knowledge and common sense of their own boards, staff, supporters and constituents.

What truly matters is an organization’s mission, not what a hired hand or big funder preaches.

And advancing the mission requires smart, committed staff, board members and volunteers who can and will work together; listen to and communicate clearly and honestly with one another and their funders, clients and partners; keep their operations and goals clear, simple, realistic and focused; take calculated risks when they make sense; and learn from their mistakes.

Nonprofits and giving organizations are in business to address the symptoms and causes of social and global problems.

Those problems often are complex and interconnected, and typically get fixed slowly through a step-by-step process, often with missteps, that requires commitment, vision and a willingness to listen and adapt.

By learning from the mistakes that made them more vulnerable to the current economic crisis, nonprofits and giving organizations can equip themselves to be more effective in running their operations and programs, and fulfilling their mission of making our communities better places to live and work.

Time for nonprofits to declare independence

2009-06-29T07:56:00.003-05:00

By Todd Cohen

Nonprofits are society’s unsung heroes.

Sadly, however, many see themselves as victims and supplicants, or at least act as if they are.

Nonprofits are heroic because they address the symptoms and causes of urgent social and global problems that government and business cannot or will not take on.

Nonprofits work hard for little pay, continually are expected to do more with less, and face growing scrutiny and expectations from funders.

And in the current economic recession, with rising demand for services, nonprofits face growing pressure to reduce costs and increase their fundraising and impact.

With those kinds of seemingly intolerable working conditions and stress, people who work at nonprofits often feel alone, under siege and burned out.

They stick with it, however, because they care, and because they find fulfilling the job of making a difference and working with people in need and with other people who care.

Yet, needing revenue to meet their payroll and pay their rent, and fearing they lack the know-how to map a business strategy to sustain their organizations, they are too quick to swallow funders’ demands and consultants’ advice without critically questioning it.

Nonprofits are not victims and should not underestimate the knowledge of their staff and board, the value of their programs and services, the extent of their impact in the communities they serve, or their potential to generate even more contributed and earned income.

Rather than falling prey to the herd hysteria the recession has unleashed in the giving sector, nonprofits should treat the economic crisis as an opportunity to get back to basics and recognize the value and impact of the work they do and the untapped potential they possess to do more and do it better.

That means scrutinizing their mission, board, staff, operations and programs with brutal honesty.

It means using common sense to look for ways to improve their efficiency, impact, fundraising and communications.

And it means finding smart supporters and partners who care about their cause and understand that getting involved by making a donation, volunteering, serving on a board, collaborating or even merging requires recognizing the organization’s true needs and potential.

Nonprofits play an indispensable role in America, serving both as the safety net for the most vulnerable among us, and as the research-and-development arm to find ways to fix our biggest social and global problems.

America’s economic crisis has underscored nonprofits’ role and value, and compounded the challenges they face.

To fulfill their role, expand their value and meet those challenges, nonprofits must stop acting like victims and start thinking and working as independent and entrepreneurial agents for social change.

Doing the right thing is job one for nonprofits

2009-06-22T05:50:00.001-05:00

By Todd Cohen

Nonprofits need to raise their sights, move beyond their panic-driven goal of simply surviving for one more day, and start leading America out of its economic crisis.

Because that crisis is rooted in a widespread breakdown in ethics across the government, for-profit and giving sectors, nonprofits need to lead by example in doing the right thing.

That is the view of Tim Delaney, the president and CEO of the National Council of Nonprofits, who says nonprofits can best serve their mission and communities by “focusing on their core missions and then acting with purposeful attention to ethical leadership.”

The first step, he says, is for nonprofits to “see the broader context in which they operate” and then set high ethical standards and build them into their thinking, planning and operations.

Speaking last week to a lunch ‘n’ learn workshop in Charlotte, N.C., sponsored by the Philanthropy Journal, Delaney said a widespread “moral meltdown” led to America’s current “economic meltdown.”

To show the context in which massive ethical failures have eroded public trust, he cited dozens of recent headlines about scandals in all sectors, often involving groups “previously seen as pillars of community values.”

To help America rebuild its economy, Delaney says, nonprofits need to lead the way in “rebuilding the public’s trust that has been breached.”

Rebuilding public trust, he says, starts with organizations intentionally gearing themselves to make sure they always do the right thing.

Delaney suggests 12 steps for creating a responsible ethics program.

Those steps range from recognizing the need to set ethical expectations, naming an ethics officer and assessing the current state of the organization’s ethics to involving all stakeholders in developing an ethics policy, continually monitoring compliance and tweaking the policy, and making sure the organization’s leaders serve as ethical role models.

In the worst economic crisis since the Great Depression, nonprofits face rising operating costs, growing demand for services, and the fear that individual donors, foundations and corporations will cut back their giving.

Instead of panicking and worrying only about the survival of their own institution, nonprofits can best serve their missions and communities by setting high ethical standards and organizational aspirations, Delaney says.

By doing the right thing and truly practicing what they preach, nonprofits can help lead America out of its moral and economic mess and move on to the job of addressing the symptoms and causes of our most urgent social and global problems.

Resourcefulness can boost nonprofit advocacy

2009-06-15T04:48:00.001-05:00

By Todd Cohen

Speaking up for a cause is critical, yet the giving sector often lags in pursuing advocacy work.

Many nonprofits may be reluctant to play an advocacy role because they believe they lack the resources or know-how, or because they fear they might put their foundation, corporate or public funding at risk.

But advocacy work can make a big difference in shaping the public policies that affect nonprofits and their clients

Recent research in New Mexico and North Carolina by the National Committee for Responsive shows investment in nonprofit advocacy and community organizing in those states yields a big return in benefits for underrepresented constituencies.

And as two new reports make clear, nonprofits that are resourceful about fundraising and use of the Internet can better support their advocacy work.

Untapped, a new report by The Linchpin Campaign, offers a practical guide for community organizers to cultivate and strengthen their relationships with major donors.

“Community organizing attracts financial support from major donors, pointing to a viable and important opportunity for those raising money for organizing,” says the report by Linchpin, a project of the Center for Community Change.

Ninety-four percent of over 100 private donors Linchpin surveyed give to community organizing, with 42 percent of those donors focusing less than one-fourth of their giving on organizing, suggesting the potential for even greater giving for that work.

A second report, published in Administration & Society, says nonprofits are becoming more active through their web sites in promoting causes and civic engagement.

While regulations limit nonprofit advocacy, many nonprofits are finding innovative yet legal ways to serve as advocates, says the study, Nonprofit Advocacy and Civic Engagement on the Internet, by David Suarez, an assistant professor of policy, planning and development at the University of Southern California.

Already faced with more than enough challenges in delivering services and operating their shops, many nonprofits may look at advocacy work as beyond their mission or their means.

But advocacy work can address the policies at the root of the problems nonprofits exist to address.

By tying their fundraising to their role as advocates, and using the web to push their cause and engage their supporters, nonprofits can be more effective in serving their clients and advancing their mission.

Foundations should step up in downturn

2009-06-08T05:40:00.001-05:00

By Todd Cohen

The recession is putting a world of hurt on nonprofits, and foundations can be doing a lot more to help ease that pain.

Responding to big losses in the value of their endowments, foundations have looked for ways to reduce their spending.

That has ranged from cutting staff and freezing pay to trimming benefits and curbing training and travel.

But foundations also have been slashing the funds they pay out in grants, and that is deeply troubling.

Private foundations are required each year to pay out only five percent of their assets, and can count overhead as part of that payout.

According to a recent report by The Foundation Center, the combined U.S. foundations’ endowment fell nearly as much last year as the total grants those foundations paid out over the past four years.

Hoarding, in short, cost the charitable world four years’ worth of grant dollars that now is lost forever.

Economic crisis is a time when foundations should be giving more and giving smarter. For example:

* Grantmakers for Effective Organizations, in a new report, calls on grantmakers to hold their grants budget steady, engage their stakeholders to get a better idea of their needs, and provide flexible funding for operations and free of restrictions.

* Hodding Carter III, former president of the John S. and James L. Knight Foundation, in a guest column in The News & Observer in Raleigh, N.C., calls on foundations to provide more unrestricted support, longer-term funding and multi-year grants “so nonprofits have the flexibility they need to respond to changing conditions.”

* John Hunting, founder of the Beldon Fund, commenting on its successful completion of plans to spend its entire corpus of $120 million that was dedicated to supporting environmental policy work, says that, given the state of the environment, “I felt it would be inexcusable not to spend out now.”

Despite the loss in the value of their endowments, foundations should be digging deeper and acting more strategically during critical times to help nonprofits address urgent social and global problems.

Cutting back on giving when it is needed most betrays the purpose for which foundations were created in the first place.

Fundraisers should get more respect

2009-06-01T07:32:00.000-05:00

By Todd Cohen

Fundraising professionals play instrumental roles at nonprofit organizations but get less pay and support than they need and deserve.

Two new studies suggest nonprofits may not be investing enough in their fundraising staff, particularly in women.

A new Compensation and Benefits Study by the Association of Fundraising Professionals says salaries for charitable fundraisers fell 2 percent in the U.S. and 3.9 percent in Canada.

Paulette Maehara, the group’s president and CEO, attributes the declines to the recession.

But a recession, when raising money can be a lot harder, nonprofits should be careful not to reduce spending for the part of their business they depend on to generate financial support.

And the recession does not account for a persistent gender gap, with men consistently paid roughly $20,000 more than women with comparable jobs in the nine years the survey has been conducted.

Women, who account for the majority of fundraising professionals, represent 70 percent to 75 percent of members in the Association of Fundraising Professionals, and of members who have responded to the organization’s annual salary surveys.

The study also says four in 10 fundraisers responding to the survey looked for jobs with new employers within the last year.

The reasons, the fundraisers say, include wanting higher pay, or frustration with their work environment, or the desire for more interesting or challenging work or for opportunities to advance their careers elsewhere.

Underscoring the key role fundraisers play at nonprofits is a second study, by the Association for Healthcare Philanthropy, which says high-performing philanthropic fundraisers heading up major-gift and planned-giving programs often were their organization’s most-effective “rainmakers” in fiscal 2007.

And with major gifts averaging $55,000 from individual givers, the highest-performing fundraising organizations invested three times more, on average, than other groups surveyed, and earned five times more in high-dollar gifts.

As the U.S. moved into a recession in December 2007, and fewer dollars coming from government, business and foundations, the study says, the cost of raising a dollar was rising while the return on investment was declining for annual giving and special events.

Still, the study says, the highest returns from annual gifts and special events were generated by fundraisers who invested the most in staff and resources devoted to those fundraising programs.

Annual giving and special events, while not producing the highest return on investment, “remain worthwhile sources of contributions from new and repeat donors,” and “provide the base in order to succeed with major-gift and planned-giving solicitation,” William McGinley, the group’s president and CEO, says in a statements.

Successful fundraising requires adequate investment in fundraising, but professional fundraisers, particularly women, are not getting what they want from their organizations.

And as a Bank of America-sponsored study conducted by the Center on Philanthropy at Indiana University found last year, wealth donors are relying a lot more on legal and financial professionals to help them make decisions on their charitable giving than they did two years ago, and a lot less on nonprofit staff.

The way a charity’s fundraising staff treats donors is more important than any other factor in determining whether givers give to a particular charity, according to Adrian Sargeant, Robert F. Hartsook Professor of Fundraising at the Center on Philanthropy.

So if they expect to be more successful in their fundraising, nonprofits will need to increase their investment in fundraising, particularly in paying and supporting the work of their fundraisers and closing the pay gap between men and women.

Women, giving circles reshaping giving sector

2009-05-26T06:31:00.001-05:00

By Todd Cohen

The giving sector should pay more attention to the increasingly influential role that women and giving circles play in the charitable marketplace.

Women are shaping the future of charitable giving, while giving circles are making a bigger impact in giving.

Those are the conclusions of two new studies that suggest nonprofits should be investing more in getting to know and engaging women and givers who pool and give away charitable funds through donor circles.

A study by Fidelity Charitable Gift Fund says women are playing a prominent role in philanthropy in their households and communities.

Nearly half the women surveyed say they make the decisions in their households on how much money to give to charity and which charities to support.

“Women have always had a hand in their household’s charitable outreach,” says Sarah C. Libbey, president of the Fidelity Charitable Gift Fund. “But that role is evolving as women increasingly create their own wealthy and become the beneficiaries of wealth transfers because they live longer. As a result, women are stepping up to take on more philanthropic leadership roles.”

And a new study by the University of Nebraska at Omaha, the Forum of Regional Associations of Grantmakers, and the Center on Philanthropy at Indiana University says givers who take part in giving circles say they give more, give to more charities, give more strategically, and know more about nonprofits and community problems when they take part in giving circles.

Members of giving circles also are more likely than other givers to give to groups that serve women and girls, ethnic and minority groups, and for arts, culture and ethnic awareness, the study says.

With the recession stressing them and sending them scrambling for donations, nonprofits should make sure they better understand the givers who are reshaping the giving sector and get them involved in their organizations.

Nonprofits’ attraction to stimulus funds could prove fatal

2009-05-18T05:59:00.000-05:00

By Todd Cohen

Smitten with their new best friends in government, nonprofits need to be careful not to betray what makes them essential to a healthy democracy and civic marketplace.

The job of nonprofits is to take on social and global problems and make our communities better places to live and work.

To do that, nonprofits need to deliver effective services, find innovative ways to address both the symptoms and causes of problems, and ride herd on government lawmakers and policymakers.

But with Democrats controlling the White House and Congress, and spending billions of dollars to build the capacity of the giving sector and stimulate social innovation, nonprofits face a big temptation and a run a huge risk.

Seeing a chance after years as outsiders to get a piece of the action, both in federal spending and influence with policymakers, nonprofits risk losing the independence and incentive that have been essential to their work as civil society’s conscience and research-and-development arm.

On the political left and right alike, experts on the giving sector warn that nonprofits should not to abandon or abdicate their role as social innovators and government watchdogs.

Rick Cohen, a left-leaning watchdog who is national correspondent for The Nonprofit Quarterly and former executive director of the National Committee for Responsive Philanthropy, says keeping quiet about the Obama administration and Congress is the worst thing nonprofits can do.

“No, there’s something worse,” he writes in The Cohen Report, a publication of the quarterly.

“We can transform into an uncritical handmaiden of the handful of insiders who have grabbed the ‘nonprofit expert’ roles in the new administration, rather than doing what the nonprofit sector should always do, which is to stand apart, critique, mobilize the communities we represent, and demand social justice.”

Howard Husock, vice president for policy research at the right-leaning Manhattan Institute and head of its social entrepreneurship initiative, wrote recently in The Wall Street Journal that the Edward M. Kennedy Service America Act that President Obama signed into law threatens to stifle the social-entrepreneurship movement that has flourished in recent decades.

Standing in “notable contrast to established, large organizations – from Catholic Charities to the Salvation Army – which, in many cases, have come to rely on government contracts,” the social-enterprise movement has been fueled by “new, inventive nonprofits established and operated with little or no government support, says Husock, former director of case studies in public policy and management at the Kennedy School of Government at Harvard University.

But the Kennedy Act “will throw so much money at nascent programs that these otherwise independent efforts will lurch after federal dollars and bend toward government directives,” he says.

Nonprofits are known as the “independent sector” because their effectiveness in serving people and solving problems is rooted in their separation from government.

Nonprofits indeed stand to gain from a closer partnership with government that would generate more investment in the giving sector and give nonprofits a greater voice in shaping public policy.

But nonprofits should be careful that in chasing government money and access to power they do not devolve from entrepreneurial watchdogs into lazy and dependent lapdogs.

Giving-sector should raise its advocacy voice

2009-05-11T07:07:00.000-05:00

By Todd Cohen

Fear of offending giving-sector powerbrokers, and a lack of resources, are muzzling nonprofits.

But supporting nonprofit advocacy, policy and community-organizing work can yield big returns.

Those are the conclusions of two new reports that underscore the need for greater investment in helping nonprofits to be stronger advocates.

While supporting a cause is central to their mission, a lack of funds and staff, along with concern that that speaking out will upset donors and board members, often keeps nonprofits from raising their voice on policy issues, says a new report by the Nonprofit Listening Post Project at Johns Hopkins University.

“Nonprofits are supposed to be the agents of democracy and give voice to the powerless,” says Lester M. Salamon, director of the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies. “But their ability to do this is hampered by limited funding.”

Participants in a roundtable discussion on the topic suggested nonprofits take a more strategic approach to advocacy, integrate it into all aspects of their organization, encourage foundations to support advocacy, build long-term relationships with government, and use social-media tools to support their cause.

A separate report by the National Committee for Responsive Philanthropy says $20.4 million invested over five years to support advocacy and community organization by 13 groups that work with underrepresented constituencies in North Carolina yielded over $1.8 billion in benefits, or $89 in benefits for every $1 invested.

An earlier report late last year found that $16.6 million in advocacy funding over five years for 14 groups in New Mexico generated $2.6 billion in benefits, or a payoff of $157 for every $1 invested.

“When nonprofit organizations and foundations tackle urgent issues in the state,” the National Committee for Responsive Philanthropy says in its report on North Carolina advocacy, “they can achieve tremendous success – especially when they use public policy advocacy and engage affected constituencies in the problem-solving process.”

The report says “philanthropic best practices” to fund advocacy and community organizing in North Carolina include providing grants for “core support” and over several years, soliciting input from nonprofits and helping to build their “capacity,” exercising leadership on issues, and reaching out to other funders to expand available resources.

The giving sector can be much stronger advocates to address the symptoms and the causes of the social and global problems the economic crisis only is making worse.

Nonprofits need to know their givers better

2009-05-04T06:03:00.001-05:00

By Todd Cohen

Nonprofits could raise a lot more money if they paid closer attention to retaining their best givers over the long term.

That means understanding what their givers want, an approach that requires investing in the kind of market research the for-profit world has developed to retain customers.

That is the view of Adrian Sargeant, the Robert F. Hartsook Professor of Fundraising at the Center on Philanthropy at Indiana University.

Speaking to 100 people who attended a Philanthropy Journal lunch ‘n’ learn workshop April 23, Sargeant said the single-most-important factor in determining whether givers continue to give to a particular charity is how the charity’s fundraising staff treats them.

Givers who are more than just satisfied with the way they are treated are much more likely to give again, Sargeant says.

And the “lifetime value” of givers who continue to give can be significant, he said, particularly among those who give at higher levels and whose giving often can culminate in a huge gift they make through their estate, Sargeant says.

Increasing loyalty by just 10 percent among givers can increase the lifetime value of a nonprofit’s fundraising data base by up to 200 percent, he says.

Yet while 60 percent of givers who give to a charity for the first time typically do not give a second time, and those first-time givers typically make only small donations, many charities focus much of their energy on retaining those givers, often by emphasizing the impact their organizations have on their clients.

While focusing on their impact is important in helping givers understand their value, Sargeant said, charities could generate a much better return on their investment by focusing instead on higher-end givers, understanding those givers’ values and needs, and engaging them in the organization.

Many nonprofits, however, short-change their fundraising operations and staff, he said, and allocate to them only those funds, if any, that remain in their budgets after other spending has been determined.

Instead, he said, nonprofits should develop fundraising strategies likely to generate lifetime giving, and should invest the resources those strategies require.

Fundraising is a critical part of a nonprofit’s business, and charities need to move beyond business as usual, stop treating givers as automated teller machines, and recognize that a worthy mission and success in addressing social problems are not enough to attract and retain givers.

Like the customers of any business, givers respond to good customer service.

And like any business, nonprofits must invest in building their customer base by investing in fundraising strategies that focus on knowing, engaging and serving their givers.

“The quality of service they receive as donors is the key driver of loyalty,” Sargeant says. “And yet precious few organizations actually measure it.”

Giving sector needs to adapt to economic crisis

2009-04-27T06:28:00.000-05:00

By Todd Cohen

Business as usual should be history for the giving sector.

The recession should be spurring nonprofits, giving organizations and individual givers to regroup and find innovative ways to address urgent social and global needs that only are getting worse because of the growing economic crisis.

Three new studies underscore the need for givers and nonprofits alike to change the way they operate.

On study looks at steps U.S. foundations are taking to cope with the crisis, another looks at the need for U.S. nonprofits to fill key jobs, and a third says U.S. corporations and nonprofits could do more with pro-bono and skilled volunteers to offset a decline in corporate giving.

Foundations already are retooling their work, with nearly two-thirds expecting to reduce the number or size of their grants, or both, according to a new survey by the Foundation Center.

Over half the more than 1,200 foundations responding to the survey say they are responding to the crisis by taking on more work other than grantmaking, with two-thirds aiming to collaborate more, one-third planning to act as convenors, and one-fifth planning more staff-led work such as technical assistance, bridge and emergency financing, or advocacy.

Foundations also say they will tap a range of resources to fund their giving this year, with nearly 40 percent expecting to dip into their endowments.

Fourteen percent of foundations have made or launched, or plan to make or launch, special grants or initiatives to address the economic crisis, mainly by shifting existing grants budgets.

And in response to the economic downturn in 2000-02, nearly one-third of foundations say, they made operational changes, such as adjustments in their investment strategies or reductions in their operating expenses, that they believe better prepared them for the current crisis.

“Foundations are not rolling over in the face of adversity,” says Steven Lawrence, senior director of research at the Foundation Center. “The new survey shows foundations being creative, strategic and willing to dig deep to ensure that their agendas move forward while this crisis persists.”

In a separate survey of nonprofit executive directors, Bridgespan Group finds a leadership deficit projected in 2006 may have widened in 2009 and that, despite tighter budgets, nonprofits already see a need to fill 24,000 vacant or new jobs, in areas such as finance and fundraising, in the face of growing management complexity and retirements by Baby Boomers.

Developing nonprofit leaders remains critical, Bridgespan says, with nearly three-fourths of 433 executive directors responding to the survey saying they value skills from the for-profit sector.

But despite big layoffs of corporate managers, 60 percent of those nonprofit executives believe they will not get enough qualified candidates.

“It’s a wake-up call that even as the rolls of unemployed executives swells, nonprofits are struggling to fill key positions,” says David Simms, a Bridgespan partner. “There is an overwhelming perception that these roles will be difficult to fill due to the need for specialized skills, compensation and funding challenges, competition for the best candidates, and lack of career development opportunities.”

The third survey, by Deloitte, finds that while nearly 40 percent of nonprofit executives say they will spend $50,000 to $250,000 of “hard-won” cash on outside contractors and consultants this year, 24 percent say they have no plans this year to use skilled volunteers or pro-bono support.

“The current economic crisis and the new [Obama] Administration’s national call for service underscores the need for corporations and nonprofits alike to broaden their definition of corporate giving,” says Barry Salzberg, Deloitte’s CEO.

“Nonprofits and corporations are encouraged to think of pro-bono and skill-based volunteerism as a valuable form of currency,” he says. “It is an opportunity to more fully maximize corporate assets, especially when demand for nonprofit services are on the rise and corporate giving is on the decline.”

The ruins of the U.S. economy and capital markets can be the seedbed for innovation in the charitable marketplace.

Instead of bemoaning the obvious, which is that times are tough, nonprofits and givers alike can look for ways to work smarter and make a greater impact.

Giving sector should invest in social media

2009-04-20T06:34:00.000-05:00

By Todd Cohen

The giving sector, especially in the face of the continuing economic crisis, needs to retool its model for charitable giving and fundraising.

Nonprofits, for example, should start looking at building social media into their overall fundraising and communication strategies.

Often reluctant to move beyond traditional strategies, whether or not those actually produce positive results, nonprofits should look at social-media tools that are changing the way people communicate, connect and spur one another to action.

“If you don’t get started now, you’re going to be playing catch-up,” says Beth Kanter, a social-media strategist who is serving as scholar in residence for nonprofits and social media at the David and Lucile Packard Foundation in Los Altos, Calif.

Consider Facebook, the wildly-popular online meeting place for young people that has been attracting a growing number of Baby Boomers.

Membership on the site hit 200 million active users in April, double the total just last August.

Or consider the unprecedented use of social media that Barack Obama made in raising money and recruiting supporters in his successful 2008 presidential campaign.

Kanter says nonprofits should be strategic about their use of social media, starting with small experiments linked to their marketing or fundraising plans.

At 3:01 p.m. on Dec. 13, 2007, one minute after the Case Foundation launched a social-media contest, promising to contribute $50,000 each to the four social-media campaigns that raised the most money, Kanter entered the contest, using several tests of social-media tools and strategies.

And while conducting those tests, she also was blogging to her network of readers about the progress she was making.

Through GlobalGiving, using an application on its site, along with email and blogging, she raised $43,000.

Altogether, including seven different campaigns she launched, plus the Case Foundation match, she now has raised over $215,000 for The Sharing Foundation, a charity that works to address the needs of children in Cambodia living in poverty.

The key was “starting small, figuring out what worked and what didn’t,” she says. “And by doing it over and over, I built up a community of donors who donate through social media.”

In addition to starting small, Kanter says, nonprofits should pay close attention to what people are saying about their cause or organization in the blogosphere.

“You listen and you learn and you adapt,” says Kanter, who with Allison Fine is co-writing a book, to be published by Wiley, about how social media are reshaping the way nonprofits operate, creating a more networked nonprofit.

It also is important to remember that social media do not represent an “either-or” strategy, Kanter says. “It’s both-and.”

And nonprofits cannot afford to ignore new social media, she says.

“Nonprofits putter along and, yes, they tend to keep doing what works,” she says, “but they also need to understand that the old way of fundraising is not going to work forever.”

While nonprofits should “not throw out the baby with the bathwater,” she says, they cannot stand still and simply expect old fundraising tools are all they will need in world increasingly driven by social media.

Nonprofits also should not use the failing economy as an excuse to avoid social media.

“Look at everything you’re doing in fundraising and marketing,” she says. “If you’ve been going on automatic pilot, look at the effectiveness of everything, and make room for a small amount of experimentation. Stop doing stuff that doesn’t work.”

As they regroup and rethink how they do business to survive the economic crisis, nonprofits of course need to get back to basics.

But innovation always has been basic to the giving sector, and nonprofits need to begin testing social media and building those strategies into the way they operate.

Foundations can be smarter investors

2009-04-13T06:50:00.001-05:00

By Todd Cohen

The crisis in the financial marketplace should be sounding alarm bells in the charitable marketplace.

With the failure of the capital markets, the value of the endowments of U.S. foundations fell nearly as much last year as the total grants those foundations paid out over the past four years.

Despite those huge losses, foundation endowments still total roughly $550 billion, yet foundations are blowing a big opportunity to shape social and economic change because they continue to operate as passive investors, says Michael Passoff, associate director of the Corporate Social Responsibility Program at As You Sow.

Foundations typically delegate their proxy-voting responsibilities to investment managers who often vote the foundations’ proxies based on recommendations from management of the companies in which the foundations own stock, say As You Sow and Rockefeller Philanthropy Advisors.

So foundations fail to influence corporate policies on a broad range of governance and business issues and even can support actions directly opposed to their own philanthropic values and goals.

Passive oversight of their investments also can put foundations at serious risk.

As The Wall Street Journal reported last week, that was a key message from New York Attorney General Andrew Cuomo in a fraud charge filed April 6 against J. Ezra Merkin, the former chairman of GMAC Financial Services who Cuomo says was a middleman for the convicted investment manager Bernard Madoff.

Big losses to charities that invested through Merkin underscore how charity boards fell down on the job, the Journal said.

A key step foundations can take to be more responsible investors in the charitable marketplace is to be more responsible investors in the capital markets, say As You Sow and Rockefeller Philanthropy Advisers.

“The surge in shareholder scrutiny of financial matters that cut across the traditional ‘governance’ and ‘social’ divide should signal that foundations now have greater opportunity than ever to exert more influence in how companies conduct business,” says Doug Bauer, a senior vice president at Rockefeller Philanthropy Advisers.

Taking a more active shareholder role is an important step foundations should take to put their assets to more productive use in addressing the charitable purposes for which givers gave those assets to foundations in the first place.

Private foundations, which are required to pay out at least five percent of their assets in grants and overhead, typically do not pay out more than that minimum.

Community foundations, which do not face a mandated minimum payout, often pay out a bigger share of their assets than do private foundations.

But far too few foundations treat their investments as assets they can use to address the social and global problems they care about.

That is a huge waste because, as shareholders, foundations can play an important role in shaping the corporate and business policies of the companies in which they own stock.

Foundation boards have a lot to answer for: Their hoarding of assets, combined with plunge in the capital markets, has cost the charitable world billions of dollars that now will never be used to address urgent problems.

And in providing only passive oversight of the investment of their assets, foundation boards have acted as enablers of corporate boards and executives in setting and carrying out business strategies that have seriously damaged our economy, our environment and our national security.

For the fifth year, As You Sow and Rockefeller Philanthropy Advisers have published a “Proxy Review” that aims to provide the leadership of foundations with guidance on shareholder proposals on social and governance issues directly related to their mission.

Also available on the websites of both organizations is a downloadable copy of their earlier publication, Unlocking the Power of the Proxy, which offers information on how foundations can exercise their fiduciary responsibilities in voting their proxies.

Foundations can do much more to address the economic crisis and the human toll it is taking.

Instead of hoarding their assets so they can perpetuate their wealth and the power, foundation boards should be voting to pay out more in assets and better fulfilling their governance role by taking a more active role as shareholders.

Foundations should be putting all their assets, including those they pay out and those they invest in the capital markets, to more productive use to address the critical and escalating social and global problems we face.

Should nonprofits ‘strike’ against foundations?

2009-04-09T06:19:00.002-05:00

[A reader named Neal, responding to my March 23, 2009, Inside Philanthropy blog about foundation hoarding, offered a thoughtful and provocative comment in the Stanford Social Innovation Review, which also publishes the blog. The comment follows. – Todd Cohen]

I work for a large foundation and agree with many of your points but also want to acknowledge that it can be complicated.

Our endowment must last into perpetuity and other foundations are not allowed to dip below corpus.

That means all of us have to manage spending to meet the obligations we have to the founders; meet our obligations to non-profits; and create a cushion so we can weather market downturns.

We, for example, make on average about 10 percent on our investments each year.

We spend 5 percent to meet federal tax regulations.

Inflation averages 3 percent so we really only make on average 2 percent a year.

That percent annual growth allows us to build up a cushion so we can maintain spending in down years.

We obviously make a lot more during the up years and lose a lot more during the down years but on average it works out to be fairly reasonable.

I do agree, though, that foundations can and should do more when the opportunity is there.

I also agree that nonprofits need to kick the habit.

The rate of return on grants can be appalling because the time invested in writing the grant can be disproportionate to the size of the grant.

I know this sounds crazy, but nonprofits could band together and refuse to take foundation money until the rules changed.

Foundations would get desperate to find places to spend their required 5 percent and would potentially come to the table to talk about real systemic change.

Nothing will change, though, as long as nonprofits are willing to spend four days applying for a $1,000 foundation grant.

It is clear that foundations need to be pushed to change and that we could and should do more.

We have no outside influencers to force us to change so please keep pushing.

Someone has to.

Giving sector needs to reengineer itself

2009-04-06T07:22:00.002-05:00

By Todd Cohen

In the same way the breakdown of the economy is forcing businesses and policymakers to change the way they operate, it should be prompting the giving sector to remake the way it does business.

And because the economy’s collapse shows no sign of hitting bottom any time soon, the giving sector needs to get started on its makeover immediately.

Nonprofits and foundations typically find it tough to move outside their comfort zone and take a hard look at how they operate, but that is precisely what they must do.

Many of these groups have strayed beyond their mission, and many have become more preoccupied with perpetuating themselves than with truly serving their constituents.

To retool, nonprofits and foundations must get back to basics and find innovative ways to streamline their costs and improve their impact.

They need to move quickly because challenges for the giving sector are rising quickly.

Fewer than half of nonprofits raised more money in 2008 than the previous year, for example, and increases in fundraising lost a lot of ground, according to new data from the Association of Fundraising Executives.

And fundraising fell across the board, regardless of cause, organizational size, or geography, the data show.

Equally troubling, if not more so, is a new report from the Foundation Center that says assets of the more than 75,000 U.S. grantmaking foundations fell $149.4 billion in 2008, or nearly 22 percent.

That loss is nearly as much as the $165.4 billion in grants those foundations made over four years, from 2005 through 2008.

And the combined value of gifts to foundations will drop sharply this year from a record high in 2007, with foundation giving likely to decline even more, the Foundation Center says.

Instead of continuing to treat givers as automated teller machines, nonprofits must treat them as partners, involving them in their organizations, understanding their values and needs, and keeping them informed about the impact of their giving.

And instead of continuing to hoard their assets and treat nonprofits as supplicants, foundations must pay out more and treat nonprofits as partners, better understanding and addressing their operating and programmatic needs.

Lawmakers have given the giving sector tax-exempt privileges because it serves the indispensable role of taking on the symptoms and causes of critical social and global problems.

The giving sector, in short, can be a leading force for progress.

But it cannot make progress if it continues to act like it is entitled to special treatment.

What it must do, now more than ever, is justify the privileges it enjoys by adapting itself to an economy and a charitable marketplace that will never again be the same.

Indeed, the giving sector must help shape the new economy by redesigning the charitable marketplace to operate more fairly, efficiently, creatively and collaboratively.

Instead of fighting to protect their own turf, for example, nonprofits should think hard about consolidating back-office services, or even merging, with other nonprofits.

And instead of focusing on perpetuating their own wealth and power, foundations should think about pooling their assets with those of other funders, or finding innovative ways to put their assets to more productive use, such as making loans to nonprofits that help them equip themselves to stand on their own feet.

Before they can fix the world, nonprofits and foundations must fix themselves.

Giving sector needs to get real

2009-03-30T06:03:00.001-05:00

By Todd Cohen

Instead of gearing up to weather the deepening economic crisis, the giving sector continues to descend into hysteria.

Fueled by their sense of entitlement, nonprofits and foundations find plenty to complain about rather than taking the tough steps required to advance their mission.

The proposal by President Barack Obama to reduce the tax break for charitable giving by the wealthiest Americans, for example, has unleashed a chorus of wailing by nonprofits such as Independent Sector that say the tax change could hurt donations to charity.

Nonprofits apparently do not buy Obama’s common-sense view that what drives charitable giving is altruism, not lower taxes.

But if they truly want givers to give, nonprofits need to do a much better job telling their story and engaging givers in their organizations.

That story is important yet is becoming downright alarming.

As Nonprofit Finance Fund says, based on its new survey, nonprofits are “strained to the breaking point.”

That survey of nearly 1,000 nonprofit leaders finds only 12 percent expect to keep their head above water this year, only 16 percent expect to cover operating expenses this year and next year, 31 percent lack enough operating cash to cover over one month of expenses, and another 31 percent have less than three months’ worth of cash.

Nonprofit Finance Fund recommends funders and nonprofits “address fundamental practices and strategies, along with tactics, that will improve the strength and readiness of the sector.”

For its part, Congress last week took some big steps to invest in the sector, with the Senate approving an act to create an army of 250,000 volunteers a year, up from 75,000.

It also adopted an amendment to that act to create a $25 million matching grant program to provide needed technical assistance and training to boost small and mid-sized nonprofits on issues such as financial and legal compliance, grant-writing and board governance.

While that is good news, the giving sector cannot expect government to bail it out, especially when it is not willing to fix itself.

The economic crisis has handed nonprofits and foundations a rare opportunity, maybe a final chance, to stop their sobbing, get rid of their entitlement mindset and build market-driven business models.

To cope in the real world, nonprofits and foundations need to get real.

Instead of looking to foundations and government to bail them out, nonprofits need to get their own houses in order.

And instead of squealing like stuck pigs over the loss in the value of their endowments, foundations need to dig deeper and invest what is needed to help nonprofit equip themselves to take on the social and global problems they exist to address.

If it expects to help the communities it serves help themselves, the giving sector need to stop looking for handouts and take responsibility for itself.

Foundation hoarding backfires; billions lost

2009-03-23T05:45:00.001-05:00

By Todd Cohen

By hoarding and not paying out a bigger share of their assets in grants, foundations have cost the charitable world of billions of dollars now likely lost forever because of the plunge in the value of their endowments.

Givers gave those funds to foundations to support charitable causes.

But the law does not require foundations to pay out more than 5 percent of their assets a year.

So rather than use more of their assets to support causes for which givers gave them in the first place, most foundations hoard them, although big foundations have been willing to invest millions of dollars to fight moves to require they pay out more.

Instead of giving more each year and truly honoring their givers’ intent, most foundations sit on their assets, betting the investment of those funds will earn returns big enough to cover their required payout and also build their endowments so they can operate forever.

The sad irony is that while foundations hoard so they can go on forever, their hoarding has resulted in the loss of billions of dollars that now likely will never go to charity.

In 2006, the last year for which data are available from the Foundation Center, the assets of nearly 72,500 U.S. foundations totaled $614.7 billion.

Those foundations, in contrast, made grants totaling only $39 billion.

And in 2008, with the capital markets in flames, the assets at 127 foundations responding to a survey by the Council on Foundations lost 28 percent of their value.

Those assets totaled $16.9 billion at the end of 2008, down from $23.4 billion a year earlier.

To put that decline in perspective, the value the endowments of all foundations lost in just one year represents the total grants they might have made over multiple years at their current payout rate.

Instead of hoarding, foundations should have invested more in the charitable marketplace.

Those dollars could have helped house the homeless, feed the hungry, protect women from domestic violence, keep children safe from neglect, preserve the air we breathe and the water we drink, and enrich our communities by engaging more people in civic and cultural activities.

Now those billions are gone. And those problems just get worse.

Still, rather than acknowledge their greed and poor judgment, foundations remain in denial.

What is more, shaken by the hemorrhaging economy, a growing number of foundations are delaying or reducing their grantmaking.

Foundations just do not get it.

Compounding the missed opportunities their miserly annual payout represents, foundations continue to play only a passive role in overseeing their investments.

What they should do is exercise greater scrutiny of their investment managers, track their investments to see if they are in sync with their missions, and push companies in which they invest to be better corporate citizens.

Sadly, foundations are not alone in blowing the opportunity to expand the pool of resources invested in charitable causes.

Nonprofits also are to blame because they rely too heavily on foundation grants and ignore the main source of charitable dollars.

While foundations account for only 12.6 percent of charitable giving in the U.S., nonprofits invest a disproportionate amount of time and effort in seeking foundation grants.

Living individuals, in contrast, account for 75 percent of all giving, with another 13 percent of giving provided by individuals through bequests and family foundations, according to Giving USA 2008.

Yet many nonprofits are not comfortable asking individuals for money, or simply are not prepared to ask, and instead focus on foundations, feeding those institutions’ inflated sense of power and influence.

It is time for foundations and nonprofits to face reality.

Foundations are the stewards, not the creators of wealth, and their job is to make sure the donated wealth they oversee is invested in the charitable causes it was given to support.

Members of foundation boards have a fiduciary responsibility to exercise discretion in overseeing assets given to their foundations.

And at a time of unprecedented economic crisis, those boards should be using their discretion to spend more of those assets, not save it for a hypothetical rainy day.

That day is now.

So instead of continuing to withhold from charities the assets they oversee, foundations should invest a bigger share of their assets in nonprofits that show they can make effective use of those funds in addressing increasingly urgent complex social and global problems.

And instead of begging for scraps or tailoring their programs simply to pander to what they believe foundations will fund, nonprofits should ask foundations for the resources they truly need to fund their current operations, build their organizational capacity and better serve their clients.

Nonprofits also need to kick their addiction to foundation grants and instead invest the time and effort needed to better engage individual donors.

The economic crisis and the human suffering it is causing should be spurring foundations and nonprofits to remake the charitable marketplace and replace bad habits with market-driven strategies and services.

Foundations can be better advocates

2009-03-16T05:59:00.001-05:00

By Todd Cohen

With the U.S. in economic crisis, the stakes for the giving sector and its constituents are greater than ever.

Nonprofits are scrambling to secure the resources they need to cope with soaring demand for services that will address escalating social problems while also keeping their doors open and their lights on.

A small but growing number of foundations are digging deeper to support nonprofits’ need for operating funds.

An increase in operating grants from foundations is long overdue, as is an increase, from 5 percent, in the share of their assets that foundations are required to “pay out” each year for grants and overhead.

But foundations also should be doing a lot more to help shape public policies that affect the giving sector and the causes of social problems it exists to address.

Foundations can raise their voice on policy issues, do more to spur a more inclusive conversation to address issues, invest more in policy and advocacy work by nonprofits, and use their role as shareholders to help shape the business practices of companies in which they invest.

As the Los Angeles Times reported recently, a group of California foundations and think-tanks, moving beyond the funding of studies and pilot projects that have failed to generate broad improvements in medicine, have turn to social activism to push state and federal lawmakers to make the health-care system better.

And in New Mexico, according to a study by the National Committee for Responsive Philanthropy, foundations and other groups invested more than $2.6 million over five years to help 14 nonprofits in the state with their advocacy, community-organizing and civic-engagement work, generating $16.6 million in benefits for residents.

The National Committee plans to study and promote advocacy grantmaking in up to 10 states, starting with North Carolina.

Too many foundations for too long have not been willing to use their money, their connections and their voice to help shape policies that affect them, the nonprofits they support and the people those nonprofits serve.

With the U.S. economy is crisis, the problems that foundations and nonprofits exist to address only will get worse.

Now more than ever, foundations need to invest more time and resources in policy work.

Giving sector should get over sense of entitlement

2009-03-09T06:07:00.004-05:00

By Todd Cohen

Slapped in the face by the economic crisis, nonprofits should be focusing on how to best run their shops, serve their clients and engage their givers.

The news is grim: Paul Light of New York University expects 100,000 of the 1.3 million nonprofits in the U.S. to fail this year, while a new survey by consulting firm Marts & Lundy says the recession has triggered roughly 20 percent in staff cuts at nonprofits.

And barely a day passes without reports of charitable retrenchment.

But despite the reality check, nonprofits and foundations alike seem lost in their delusion of entitlement.

Instead of getting their act together and making their own way, nonprofits are rushing to belly up to the federal-stimulus buffet while moaning that the federal government is ignoring them and that proposed limits on tax deductions for charitable contributions will hurt them.

And foundations continue to squeeze out crocodile tears about the decline in the value of their investments, forced tears that cloud the vision of foundation officials so badly they cannot read the bank statements showing they still control vast wealth.

That wealth, which givers donated to foundations to support charitable causes, is not the personal piggybank of foundations’ boards and staff, or an investment portfolio for perpetuating their personal power.

Despite the drop in its value, foundations can and should use that wealth to address the urgent needs of nonprofits and the communities they serve, needs that are escalating in inverse proportion to the free-fall of the U.S. economy.

Foundations need to do a lot better.

In “Philanthropy at its Best,” released last week, the National Committee for Responsive Philanthropy prescribes benchmarks designed “to assess and enhance” grantmakers’ impact.

Saying the largest U.S. foundations give only one of every three dollars, for example, to benefit “the economically and socially disadvantaged,” the watchdog group wants every foundation to make its board more diverse, and to invest at least half its annual giving in meeting the needs of low-income communities, communities of color and marginalized groups, and one-fourth for advocacy, organizing and civic engagement.

Foundations should in fact be required to give more of their assets in return for the generous tax breaks they and their donors enjoy, and they should indeed be pushed to give more to groups mainstream philanthropy often ignores.

And instead of griping about the plunge in the value of their assets all the way to their expensive luncheons and gala dinners, foundations should be digging deeper than ever to address urgent social and global problems that simply are getting worse in the economic crisis.

But forcing foundations to pick their boards and make their grants to better reflect the complex demographics of the communities they serve would betray the free choice in which democracy and the charitable marketplace are rooted and on which their survival and success depend.

And where would the mandates stop? Should foundations also be required to make their boards and grants better reflect the broad range of spiritual belief, political affiliation, sexual orientation and cultural taste in their communities? And who would be the final judge of whether the makeup of the board and grants was correct?

The pain and suffering the economic crisis is causing for millions of people, including the most vulnerable among us, underscore the need to foster a charitable marketplace that will expand and improve giving and its impact, and produce the most effective solutions to our most urgent social problems.

That requires a charitable marketplace that is open, competitive and fair.

Nonprofits must be free to develop the strategies and partnerships they believe will strengthen their operations, more effectively serve their clients, and better engage givers.

Foundations and individual givers must be free to invest in the charitable causes they choose.

And because they have failed to show they can police themselves, nonprofits and foundations must be subject to tougher regulation that is even-handed and requires they be more open and accountable for the way they do business.

Regulations also must require that foundations pay out a bigger share of their assets in grants.

Foundations now must pay out only five percent of their assets each year, and they can count overhead costs as part of that payout.

In donating their assets to foundations, givers dedicate those assets to support charitable causes, and receive big up-front tax breaks in return.

Instead of sitting on their assets, foundations should give more of those funds to the charitable causes they were donated to support.

In a collapsing economy, the tired claim by foundations that paying out more of their assets will force them out of business rings hollow, whiny, self-serving and plain selfish.

With Washington policymakers at a loss to know how to fix our malignant economy and overwhelming social problems, foundations and nonprofits need to get over their sense of entitlement, face reality and make their operations and programs leaner and smarter.

Moving beyond their belief that their cause alone entitles them to the support they need, nonprofits must prove their value and effectiveness in a fiercely competitive charitable marketplace that will get only more cut-throat as the economic crisis deepens.

Foundations, which do not get a license to operate virtually unchecked simply because they control donated wealth, need to stop making empty promises that they can police themselves.

Instead, foundations must start giving the taxpaying public a full accounting of their operations and a fair return on the tax breaks they and their donors enjoy.

In the face of the damage the imploding economy is causing, the indispensable role the giving sector plays in addressing social and global problems has never been more clear.

Playing that role effectively will require that givers and nonprofits alike stop complaining and instead develop strategies and partnerships that can succeed in the charitable marketplace.

Shakeout rumbling in giving sector

2009-03-02T07:21:00.000-05:00

By Todd Cohen

The economic meltdown is starting to set off shockwaves in the charitable marketplace, and plenty more are likely.

In early February, Silicon Valley Community Foundation announced it was laying off 14 percent of its workforce and closing its San Jose office, while the company that manages the endowment for Harvard said it would cut 50 jobs, or roughly one-fourth of its staff.

Small nonprofits are not filling jobs.

Fund drives at local United Ways are falling short of their goals.

Foundations large and small, shaken by big declines in the value of their endowments, are talking about reducing or delaying their grantmaking.

A growing number of foundation executives say they expect the economic crisis will trigger the shutdown of a growing numbers of nonprofits, possibly even in epidemic proportions.

And one in five nonprofit executive directors who responded to a new poll by Bridgespan Group say mergers could play a role in how they try to cope with crisis.

Bridgespan says the poll is in line with its new study that finds a total of over 3,300 nonprofit merger deals in four states over 11 years, the same rate as in the for-profit sector.

Sadly, Bridgespan says, those mergers were made not to reach longer-term strategic goals but in response to financial distress or leadership vacuums.

“If economic conditions continue to deteriorate, more and more nonprofit leaders will likely consider” mergers, says William Foster, a Bridgespan partner.

The writing is on the wall.

Yet few nonprofits seem able or willing to see that the massive failure of the U.S. economy is going to inflict deep pain on the giving sector, pain that many nonprofits are not prepared to take and for which their lack of preparation will be partly responsible.

If they do not move quickly to streamline and strengthen their operations, services, message and fundraising, and to focus relentlessly on engaging and connecting with their supporters, nonprofits are going to be in big trouble.

Giving sector making wrong turn in crisis

2009-02-23T07:24:00.005-05:00

By Todd Cohen

To cope with the economic crisis, the giving sector is betraying its roots.

Instead of joining hands to better address social problems, many nonprofits are chasing handouts and looking out for themselves.

And instead of looking for ways to give more and pool resources with other funders to get more impact from their giving, many foundations are hunkering down and hoarding.

Tough times are a time when those in the giving sector should rise to the occasion by digging deeper and working together.

But in the worst economic collapse since the Great Depression, many nonprofits and foundations, despite all their talk about entrepreneurialism and collaboration, are sinking in the quicksand of entitlement and self-preservation and elbowing one another as they claw for solid ground.

Instead of rolling up their sleeves and figuring out how to strengthen, streamline and even merge their operations, big nonprofits and their trade groups are licking their chops over the prospect of federal bailout funds.

And instead of pitching in, as Pablo Eisenberg argues they should in an opinion column in the Philanthropy Journal, big foundations are doing little or nothing to offer a helping hand, let alone take a leadership role, in bailing out the sector.

What’s more, with a few honorable exceptions, foundations not only are failing to give more but are continuing to pitch a fit in the face of critics’ calls to increase the share of their assets they are required to pay out in grants.

Foundations now must pay out only five percent of their assets, and they have fought hard against an increase of even one percentage point in that requirement, arguing that any increase in the payout rate would force them eventually to spend all their assets and go out of business.

And for all the maneuvering in the giving sector for bailout funds, few if any giving-sector leaders have had the courage to push foundations to use more of their vast wealth to help nonprofits strengthen their operations and programs so they can serve more people more effectively at a time of rising social need.

Likewise, in its rush to hit up taxpayers for what easily will total over a trillion dollars to stimulate bank lending, business spending and new jobs, the Obama administration has been shamefully silent, and surprisingly blind, about the need to push foundations to shoulder their fair share of investment to stimulate the giving sector, which accounts for five percent of gross domestic product in the U.S. and 10 percent of jobs.

Banks got into deep trouble because lawmakers eased regulations and regulators fell asleep on their watch.

Foundations face far less and looser regulation and policing than banks, an inexcusable lack of oversight that must leave foundation executives and board members grinning all the way to their pricey conferences and retreats.

At those events, particularly in sessions that exclude the news media so they can talk more candidly, foundation leaders can wring their hands over the loss in the value of their endowments, congratulate one another over how effectively they govern themselves, and preach about the steps nonprofits should take to be more accountable and transparent.

In addition to letting foundations off the hook, President Obama also bears responsibility for perpetuating the idea that the giving sector is an underclass.

As Rick Cohen argues in an opinion column in the Philanthropy Journal, Obama’s promotion of public-service jobs for groups like AmeriCorps reinforces the mindset in society and the giving-sector alike that workers at community-based organizations are second-class citizens who should accept low pay for the hard work critical to addressing the symptoms and causes of urgent social problems.

The giving sector is in crisis and needs to get over its sense of entitlement and back to its roots in fixing social problems through voluntary enterprise in a competitive civic marketplace that operates with fair play and tough but even-handed rules.

Nonprofits need to figure out how to stand on their own feet and make their own luck, not beg for government handouts or grovel to foundations that talk one way, act another and cannot see beyond their own face in the mirror or the cherished cause of perpetuating their own wealth and power.

And while government can and should play a role in providing financial stimulus and incentives to the giving sector, which is critical to our economy and society but hurting badly from the economy’s meltdown, Obama should use his clout to push foundations to pay out more of their assets.

In return for the generous tax breaks they and their donors enjoy, using even a fraction more of their assets to help nonprofits do a better job is the least foundations can do to begin to shoulder their fair share of the huge job of addressing the economic crisis and social problems facing America.

Obama’s giving-sector moves send mixed signal

2009-02-16T07:05:00.007-05:00

By Todd Cohen

“Change you can cash in on and plug into” seems to be the giving-sector policy emerging from the Obama administration.

And that is starting to dim somewhat the early hopes that the Obama administration might truly partner with the giving sector to transform the way Americans tackle social problems.

As Rick Cohen of The Nonprofit Quarterly sees it in a column in the Philanthropy Journal, much of the prowess at the nonprofits that seem to be role models for the kind of social innovation Obama champions apparently lies in their ability to secure federal funding.

Some of those nonprofits, including Teach for America, City Year and America’s Promise, Cohen says, all have been highly effective at landing support from the Corporation for National and Community Service, which runs AmeriCorps.

[Also see Rick’s analysis of policy proposals nonprofit groups have submitted to Obama.]

And while the government’s massive stimulus package includes some spending for the charitable sector, he says, nonprofits should be careful what they wish for.

“Nonprofits should not devolve into contract arms of government,” he writes in the Cohen Report. “They have to maintain their watchdog, advocacy, and organizing functions, else they give up their status as being part of a sector that is different than government.”

In their advocacy role, nonprofits “can join government and intermediaries in finding ways of making programs work,” Cohen says.

“At stake is not simply nonprofit budgetary survival,” he says, “This is essential for helping this nation out of its economic freefall. That’s the reason for an economic stimulus bill, that’s what the nonprofit sector should be focusing on, deploying resources to put this nation to work.”

Cohen also sees mixed signals in Obama’s choices, and reported choices, for officials to head a handful of key offices that will work with the giving sector.

Obama, for example, has named Cecelia Muñoz, senior vice president for the office of research, advocacy and legislation at the National Council of La Raza, as director of intergovernmental affairs.

A veteran nonprofit advocate, Cohen says, Muñoz is a good pick and could become the administration’s key player on giving-sector policy at the White House.

Directing the White House Office of Faith-Based and Neighborhood Partnerships will be Joshua DuBois, a former associate pastor and adviser to Obama in his U.S. Senate office who served as his campaign director of religious affairs.

It is not clear, Cohen says, whether that office will play a major role in federal social-change funding.

Still up in the air are Obama’s picks for other important administration jobs that will work with the giving sector, although people reportedly under consideration for those jobs have cut their teeth at Google and MTV, according, again, to good digging by Rick Cohen.

John Kelly of Youth Today, for example, reports in his Obama Job Watch that Obama plans to create a White House Office on Social Innovation and Civic Engagement, an idea proposed by America Forward that would replace the current White House Office on Social Innovation.

Heading that new office, Kelly reports, could be Sonal Shah, director of global development for Google.org, the philanthropic arm of Google.

MediaMemo blogger Peter Kafka reported Jan. 28 that Obama may have picked Katie Jacobs Stanton, a project manager at Google, as “director of citizen participation.”

Stanton worked on Google’s “Moderator” tool that let people submit questions for the presidential debates and then was used to field suggested initiatives for the new administration through its Change.gov site.

And Cohen says Obama reportedly has been considering Ian Rowe, vice president of strategic partnerships and public affairs for MTV, to head the office of social innovation.

While those MTV and Google picks might be good because they would represent a departure from the “same old, same old” in the nonprofit world, Cohen says, he questions how connected those people are to the grassroots nonprofit groups that are on the ground and reflect the diversity of America’s communities yet typically don’t show up on the radar screens of Google and MTV.

Indeed. The last two possibilities – Stanton of Google and Rowe of MTV -- suggest the White House may be focusing more on glitzy social-media gimmicks than on the operational and strategic focus nonprofits actually need.

As Obama showed in his presidential campaign, social media can play a powerful role in engaging and mobilizing people on an unprecedented scale.

So it would be highly productive, indeed a breakthrough, if the new administration could help nonprofits better understand and use social media to secure more support and take on both the symptoms and causes of critical social problems.

New ideas and innovative approaches by government in working with the giving sector also could signal a long-overdue recognition that the insiders’ cartel that has monopolized power in the charitable marketplace for far too long does not represent or speak for all nonprofits, and in fact works to exclude them from critical resources.

That cartel, whose self-anointed powerbrokers have been climbing over one another in their grab for federal bailout funds and for clout with the Obama administration, represents big foundations, big nonprofits and the trade groups, consultants and publications that do their bidding and serve as their mouthpieces.

If there is a giving-sector equivalent of the military-industrial complex, a kind of philanthropy-industrial complex, those powerbrokers control it.

Still, hope-filled and promising as Obama’s early giving-sector moves might seem to some, the new administration must not forget that most nonprofits are small and face huge challenges in running their shops, engaging givers, delivering services and finding the time and skills to be effective advocates.

And addressing those challenges will require more than government handouts and hip online tools that aim to engage and connect givers with causes they care about.

A tool to help nonprofits be more accountable

2009-02-10T08:10:00.005-05:00

By Todd Cohen

With pressure growing on them to be more open about their finances, management and governance, nonprofits have a new tool to help them do just that.

The new Form 990 that nonprofits must file with the IRS requires they disclose more information designed to make them more transparent and accountable.

That is good news because, with the economy in a tailspin, and with trust in a broad range of institutions blasted by wrongdoing and excess, nonprofits need to be more open about who they are, how they operate, where their money comes from and how they spend it.

Greater disclosure is needed because nonprofits must justify to taxpayers the tax breaks they enjoy, and must show givers how they are spending the resources entrusted to them.

Nonprofits also need to show that their staff and board leaders truly are overseeing and approving their organizations’ financial statements.

Making sense of the new Form 990 is the focus of a webinar the Philanthropy Journal will sponsor on February 17.

Led by nonprofit lawyer Marty Martin, the webinar will provide an introduction and overview to key management, governance and reporting issues required to complete the new form.

The new form, which all nonprofits now must file regardless of size, reflects the first complete revision by the IRS in 25 years.

By requiring nonprofits to disclose more information about who they are and how they operate, the new Form 990 may compel nonprofit leaders to practice better management and leadership in addressing growing public scrutiny.

In today’s grim economy and skeptical society, and in a charitable marketplace in which nonprofits for far too long have disclosed far too little about their finances, management and governance, that would be progress.