NonProfit Trends update July 2011

Colleague Marilyn Hoyt writes:

Benchmarks and more trends for this quarter. Thanks to everyone who shared local nonprofit trends as I worked across the country this quarter.

Fund Raising Costs are Up – 33% in a recent study:

Administrative metrics used by charity watchdogs have been called out as unrealistic for years. They mislead donors and develop unrealistic internal institutional expectations. So it’s a sign of real character and commitment to the field that the health and hospital sector not only produced data to inform each other on fundraising costs, but have shared it with all of us. http://www.fiercehealthfinance.com/story/healthcare-donations-grow-along-fundraising-costs/2011-06-14

Stealth Layoffs continue:

In April I talked about stealth layoffs…staff cuts done quietly so that the nonprofit can present itself as a winner – sometimes even to its own board. Nonprofits with larger percentages of government funding – an area where cuts continue -- and those who tried did not take cuts in late 2008/09 – and thus find their expenses significantly out of sync with income -- are most affected. As the trend continues, I am hearing more instances of development, marketing and sales staff layoffs…a challenge indicator to our long-term capacity to serve.

Mega-Gifts are on the rise all over the place:

The good news about Buffet, Gates et. al. is that they’ve made philanthropy visible. The bad news is that they’ve made it “cool.” So now we are seeing a rise in mega-giving that is designed not only to help, but be visible and cool. Hungry nonprofits, unable to steer these donors very effectively (After all, the “helping” part of the gift is not the majority of the equation) should negotiate for a win-win and then choose to accept or reject the gift.

On the negative side, I’ve seen the head of a department leave his position the month after it accepted an ill-focused mega-gift. He left thinking that he couldn’t afford to waste a key part of his career trying to produce mega-results on an ill-informed project model.

On the positive side, I’ve been watching a gift with potential to destroy an institution. After much fruitless staff and trustee-led negotiation, the board turned down the gift in a community where the donor has potential to strew a lot of trouble. Will there be ongoing personal politics to deal with? Yes…but more importantly is that their courageous decision has already yielded a re-energized senior management team, board, and an encouraging meeting with the community’s largest funder.

We Can’t Keep the Lid on the Pot Forever:

Many nonprofits were not able to give cost of living increases in 2009 and 2010. In fact, many of us worked with staff on furloughs and even our unions to open contracts and change terms so that we could avoid more layoffs. The mood of the times was “we must pull together for our mission, and we are lucky to have a job.”

But now, as fiscal years close in 2011, I’m seeing the return of a demand for cost of living increases (COLA’s) or one time-end-of year bonuses for those nonprofits who still can’t add an ongoing increase to the bottom line.

Nonprofits having the hardest time meeting these expectations are the managers who incrementally increased their bottom line with COLA’s in 2009, thinking that the Great Recession would soon be over. Employees have forgotten those COLA’s, and expect another. (Note to stick in our hatbands for the next downturn…”don’t return to business-as-usual until you have to. Usual can be a long way out.”)

It Gets Better

To borrow a phrase from a truly wonderful public service campaign, a piece of what is happening now is about population trends. Right now we are grumpy about baby boomers, their social security and their pensions. This is the generation whose sheer numbers, productively employed, brought the U.S. to a quality of life never seen in the world. We spent a bunch of their excess payfoll deductions. Corporations and governments never did set aside reserves equivalent to the promised pensions. There never was a “lockbox” as Al Gore envisioned. And we invested many of the excess payroll deductions in a “safe” investment – Treasury Bills…U.S. debt. And now the debt is being called due as the boomers retire. So crashes and bubbles and markets that need to be better regulated aside, right now we are going deeper and deeper into a period where the most productive working years are dominated by a small population cohort – the baby bust.

But wait, there’s more! (another popular phrase, although of not quite such sterling quality)….Another boom is coming…about the same size as THE baby boom. Gen Y, born around 1977, will start turning 40 (those most productive payroll years) in 1917. So if we don’t do anything too stupid with our economy (always a question), the economic engine will have a demographic driver again. Think about these Gen Y folks right now…how can we engage, involve and train this diverse, hands-on young leadership just now rolling through its 30’s, and continuing for many years? They are key to our nonprofit capacity in so many ways beginning in just a few years.