Friday, September 26, 2008

All Of Us Are Wondering How The Economic Downturn Effects Nonprofits and Philanthropy

Not unlike your last water cooler discussion, the news, and most everyone; the economy has been a topic of discussion between me, my associates, and my clients. You may be aware that since World War II American philanthropists have increased total giving year to year. This may be the first series of years where total American philanthropy either stays the same as the previous year, or declines.

Tonight's Presidential debates and subsequent debates will impact the national outlook on philanthropy. But, without a doubt, today's (or the next few days') forthcoming news on what legislation Congress agrees upon and then puts into place to effect the liquidity of the United States' banking market, the national economy, and ultimately the global economy will be of paramount importance to all sectors, including the American nonprofit and philanthropic sectors. Like you, I will have my eyes on the news, read multiple perspectives on these happenings' effects on the nonprofit world, in the press. Gather information and then make your own assessment.

Rick Cohen authored "What The Financial Sector Meltdown Really Means For Nonprofit And Philanthropy" for the Nonprofit Quarterly [September 23, 2008].

To quote Cohen, "The significance of the financial sector in U.S. philanthropy is huge. According to Conference Board statistics published in the Financial Services Roundtable’s most recent Factbook, banks were the second largest corporate givers to U.S. groups and beneficiaries in 2006, ranking behind pharmaceuticals. Insurance companies ranked 11th and financial firms (other than banks and insurers) ranked 15th. Because a huge proportion of drug companies’ philanthropy is in the form of cost write downs on prescription drugs and donations of surplus drug supplies, as cash donors, the banks could well top the list.

"If the banking sector (plus securities firms and diversified financials) are in disarray, prompting this past week’s announcement of the Federal Reserve’s likely half trillion dollar intervention to stabilize the markets, the ripple through philanthropy will be visible and painful."

Cohen wraps his post by surmising, " What should be clear is that the sector that accounted for as much as one-third of the nation’s corporate profits in recent years is hardly likely to post numbers in the black, forget about much profit-making. Just looking at the potential losses of a very generous segment of corporate America omits the impact on private foundation endowments and on private donors’ assets as the commercial and investment bankers drag down the Dow Jones and Standard & Poor’s indexes. But nonprofits accustomed to generous grants from banks and financial services firms, especially those in housing and community development fields, should all be prepared for some long, hard efforts to make up for some potentially prolonged fundraising shortfalls."

My concerns regarding the banking industry are: how will donor advised funds be effected by the banking industry's crunch, such as family funds or foundations directed by community foundations? These donor advised funds may own any of these banks' stocks, certificates, or bonds so assets will be lowered (along with all non-liquid assets, right now). How will these funds donate as 'individuals', through grants, and as sponsors, among other donation methods? What about bequests to nonprofits that will come from assets such as the sale of an estate (e.g. housing sale, 401k or other retirement distributions, etc.)? How will American nonprofits' endowments will be impacted?

The failure of the banking industry is, like in all other professional American sectors, hard for our sector; but, perhaps uniquely, it is that the nonprofit sector is providing services, information, referrals, assistance, studies, and other assets, assistance, and work that neither the government nor the private sector provide. Causes, issues, people, and other beneficiaries who may be the least represented in our world, and most vulnerable, could be impacted without other options. Philanthropy's hard hit could be devastating for those served by American nonprofits. Without question, American nonprofits' leaders must work together to innovate and develop tactics to: survey and account for all of the potential damage, develop solutions for losses, and implement the best of the best of responses. We nonprofits will be wise to listen to our colleagues, discuss the situation and ideas, innovate ourselves, and contribute by sharing what you discover works for your organization. You and I have our work cut out for ourselves.


Anonymous said...

Saw this in the Honolulu Advertiser this a.m.--

Contemporary Museum lays off 25 as endowment loses value
Plans scaled back as Wall Street crisis crimps endowment

By Mike Gordon
Advertiser Staff Writer

Half the staff of the Contemporary Museum was laid off this week and the salary of its top administrator cut 15 percent in an effort to keep the Makiki Heights art museum open in the face of a slumping economy.

It'll be interesting to see how OCF and some of those folks are doing in 6 months.

Arlene M. Spencer said...

Dear Anon,
Yes. When it has passed, this tough economy will either have been a lesson, a downfall, or a tough but planned for difficulty for nonprofit leaders.

Thanks for reading, posting, and for sharing.