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.

THE BUSINESS OF GIVING

Friends,

Last week I was interviewed by Denver Frederick on his WOR Talk Radio show, "The Business of Giving." Here's the link. Paste it into your browser and enjoy.


http://www.wor710.com/topic/play_window.php?audioType=Episode&audioId=5377151

MALICE IN WONDERLAND

Class is in session.

Thought Leaders take your seats. Today we will discuss Giving USA. As Edith said on NPR this morning figures were released for 2010 showing $290.8 billion raised - up from $305 billion in 2009 that was corrected from $303 billion to $280 billion because IRS issued revised estimates and the model was tweaked because the recession was very bad. And now we will march to the new numbers and salute the new flag - until the next IRS correction and then we’ll remodel the model and next year we will raise more money! Patrick: SIT DOWN! Is everyone clear on this? So class the takeaway is more money was apparently raised last year than the year before but over the last four years philanthropy was smacked really hard. Thought Leaders you have to explain this all to your clients and they might care if they can stay awake and if you can convince them that it matters. What Leo? Yes the data are a national model and shouldn’t be used by a single organization to judge their results. It’s sad that one of your clients fired some benighted fundraiser because of this goosy data. That’s awful! Yes Rob: your group, Philanthromax, has algorithms for projecting data in almost real time while GUSA is retrospective – and you and they are $36 billion apart!!! - and you won’t be able to fall back on IRS numbers later. Whom should we believe? If GUSA issued numbers every two years IRS figures would be up to date even if they aren’t right and miss a lot of giving. Nancy we know you don’t believe in the algorithm but please raise your hand first! Thank you. These are verities: a robust stock market gooses giving. Religion books the most; individuals give the most; planned giving is either up or down; foundation and corporate giving is a modest percentage of all funds given. Thought Leaders drink the Kool-Aid. Henry what is it? You don’t like Kool-Aid. Even if it’s giving flavored? Henry, drink the bleeping Kool-Aid!

Board Beyond Belief

By definition a board is a long, thin wooden object.

Take for example the board of the City University of New York (CUNY) arguably one of the best public universities in the country and among urban institutions of its kind, it is without peer. By now as you have probably heard, unless you reside west of Newark, the CUNY trustees withdrew the award of an honorary degree to Tony Kushner after one trustee objected, opining that the Pulitzer prize-winning playwright is rabidly anti-Israel and therefore an unfit degree recipient. He offered this assessment intending it as an aside, an objection to be noted in the minutes but otherwise ignored. Oops.

Instead, proving that even a rubber stamp leaves an impression, the board - without deliberation - voted to deny the award an untoward turn given that honorary degrees at CUNY, as most schools, are normally approved more by rote and less by vote. The ensuing hullabaloo ended only when, we learned, the executive committee of the CUNY trustee board can rescind any decision made by the board. And so in the shortness of time it came to pass. The decision was scrapped, the award reinstated and, I believe, Kushner will show up and add one more to his already full deck of honorary degrees.

There may be fraud and other misbehavior at charities from time to time but it is really a rare event. By far loopy governance is the problem, over and over again. Why otherwise reasonable, mature, and thoughtful people seem to check their brains at the door when they join a charity board has long amazed we who toil in these places. But this example of goosiness is sui generis. Never before have I encountered a board setup that allows a committee of the board to rescind a board action. Though it is true that executive committees can often act for a board between official meetings it is also the practice that any such decisions must be ratified by the full body later.

I can only surmise that because the taxpayer-supported CUNY board is stacked with political appointees through an undisclosed process and with no apparent standards that are publicly stated allowing the executive committee (though chaired by the former president of Yale) a check on irrational behavior is an inherently upside down methodology but it worked. However the inescapable conclusion is that the board is indeed a wooden object. The executive committee decides. Like other boards this one is a parking lot for philanthropists real and potential. They may not be expected to act like a board but by law they are the legal stewards of the University. I guess.

Meanwhile there have been calls for this trustee, who has previously weighed in as Israel's lobbyist on the CUNY board, to step down. Among others the head of the CUNY faculty union has made this demand proving only that faculty unions have no more lock on sense than boards do. Odious as they might be this trustee's opinions are an expression of free speech if not to re-appointment in two years when his term expires.

"Not You Madam. The Attractive Woman To Your Left"

Giving USA ... The Good Gray Lady.

Giving USA, the annual compendium on philanthropy published since 1955 has long been the industry standard. With research and development conducted by its partner the Center of Philanthropy at Indiana University it is thorough, complete and has always maintained that it's the best estimate available based on IRS data. The major criticism of course is that Giving USA doesn't come out until six months after the year's close. Though it's not ho-hum it is sort of historical and less effective than a speedier output. We all live more instantaneously (than we probably should) these days; old information simply has less currency. The Holy Grail of information is expert knowledge, accuracy and speed. Giving USA is two out of three.

For the third, speed, there's an attractive newcomer on view. Philanthromax, the brain work of two Texans and, they say, an army of academics has developed a proprietary algorithm set that reports philanthropic data in what is real time in this business: monthly. They've been in business since August 2009; CEO Rob Mitchell told me their model enables them to to have data back to 1969. I hadn't heard of them until an article appeared in Chronicle of Philanthropy a few weeks ago.

I am not an economist. Like most of you I am an avidly interested consumer of philanthropic data. Long ago I had a second undergraduate minor in economics but decades past lost whatever skills I had to analyze data like this. So I got in touch with Philanthromax. I wanted to know how their monthly estimates comported with actual Giving USA data. Their CEO, Rob Mitchell, responded with this chart. I don't have the skills to vet this. I also asked Patrick Rooney for a response and what I got was a "Key Points" .pdf circulated by the Giving Institute's new executive director Geoffrey Brown. It's SOS, all stuff the members have heard before; it doesn't respond in any way to Philanthromax.

Rob Mitchell also said "we are in the process of building sector (religion, health, arts, etc) and source (individual, foundation, corporation, bequest) and geography (state and region). Because of the way the algorithms work, we can build data for the last 4 decades and more importantly, provide a reliable forecast for the coming months. Perhaps the more practical application is that we are able to build Atlas customized forecast algorithms for individual organizations and groups of organizations. This enables very accurate budgeting and now, for the first time, organizations can make decisions about the timing of fundraising campaigns and promotions that will produce better results.”

Professional skeptic that I am everything here is retrospective – not yet real time. Keep a sharp eye on the 2010 estimate!

Here's the (unverifiable by me) data. Giving Institute's Summer Symposium is coming up. I'd like to hear Rob and Patrick discuss their methodology.

Year		Giving USA		Atlas of Giving		Variance
2006		295.33		295.86		0.18%
2007		314.07		317.53		1.10%
2008		307.65		313.83		-2.01%
2009		303.75		304.79		-0.34%
2010		?		323.86		?

MARILYN HOYT'S LATEST PHILANTHROPY ROUND-UP

With Marilyn's permission:

Lots of national trends emerging as we "climb the wall of worry" out of the Great Recession. Thanks to everyone who shared local nonprofit trends as I worked across the country this quarter.

2008-2009-2010:
In order to maintain consistent grantmaking, many private and corporate foundations set their 5% federally required grant payout based on a rolling 3 year average. So the dates in this hed tell us why we are not dancing in the streets yet. That said, we are seeing grantmaking begin to strengthen this year. An even more hopeful sign is the renewal of new foundation start-ups. From last June to now we've seen the total foundation number move from about 98,000 to 102,000. So....by 2012 when 2008 drops out of the equation for setting grantmaking, we should see more monies being granted overall by more foundations. More trends info at: http://foundationcenter.org/gainknowledge/research/pdf/nrc_survey2010.pdf

Tending wounds stealthily:
Anxious to appear as healthy partners as grants and gifts in all donor sectors excepting government start to grow again, we are still tending the institutional wounds of these past years. Lay-offs and workweek cuts continue quietly...often disguised as "early retirements," or "desire to work part-time." Since senior management is most likely to retain their furlough days while releasing lower paid staff back to full-time work, I'm hearing employees complaining that they don't see enough of their Directors.

Some of us are merging, but more announced mergers seem to falter and fall through. (Unfortunately, the word on the street is that the new merged agency is likely to end up with the grants that only one of the two got before. And whichever one gives up its well-branded name, may find the loss of many traditional donors)

On the other hand, it looks like there is a trendlet of winning additional funds via collaborating to offer more comprehensive and/or higher volume services by working together. (Think about one agency simply subcontracting to the other for services. The form of collaboration saves fortunes of monies in comparison to the endless meetings needed to form genuine -- and likely unnecessary - consensus on all activity by both agencies.)

Failure:
From the Harvard Business Review to our conferences to the airwaves, we are talking about failure. "Failure is the new success." Well -- sort of. If this is an area of interest to you, send your snail mail address to me at hoytmarilyn@gmail.com and I'll send you a mini-library of sane, well-founded articles on how to assess failure, set up a logic model for circumstances in which failure could be acceptable or anticipated, and how to keep it from wrecking your career or your institution.

The Music is Playing
Ever since this quarterly began two years ago, we've been anticipating the huge staff turnover that comes after a big recession. Now the musical chairs are s well underway at the most senior levels. Recruiters, who generally work with positions in salary ranges at $100k+, are hyper busy. A salary survey covering nonprofits in New York, New Jersey and DC sees both increased recruiting and higher salaries. (http://www.nonprofitstaffing.com) And a Crain's New York 3/14/11 notes that that 87% of U.S. workers are seeking a change.

Now is the time to sit down with valued employees and tell them how much they appreciated...and look together to their career future at your agency. Promotions and job changes don't have to start right now, but they need to be anticipated formally in order to retain your most valuable and ambitious staff.

Now is also the time to refresh those operating manuals and simple cheat sheets that show how things are done in your area of responsibility. Operational effectiveness is hard won. Don't lose it with staff change. Likewise, your donor database or even hard copy files should have notes on interactions with donors, their relationships, past delights and squabbles...and, of course, a history of pledges and gifts, asks and reports. Don't leave this all in the head of a bunch of key staffers who may be going (or being pushed) out the door....

Reading that helps us work more effectively: (e-mail hoytmarilyn@gmail.com with your snail-mail address. I'll respond with a mix of e-attachments & hard copies depending on what articles you pick)

Thoughtful round-up on thinking about assessing return on social media investments

January and February articles regarding Women and the Glass Cliff (includes a really interesting stuffy on hiring patterns of women vs men CEO's depending upon the health of the hiring company)

A reminder that when we accept large gifts, we also accept duties of loyalty. This article covers Geoff Canada's testimony in support of Raj Rajaratnam as part of the Galleon fraud court case.

Good charts from a March study on how nonprofits view current finances and the actions they've taken to cope.

Marilyn is at hoytmarilyn@gmail.com.