This new decade is bringing great uncertainty for nonprofits and foundations. Whether it’s the expectation for lower investment returns, a potential decline in giving from individuals, or the COVID-19 crisis, which is increasing the likelihood of a recession, how can nonprofits navigate these mounting challenges?
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Disruption, there's no question that we're all feeling it these days as we're practicing social distancing and recasting our work and education and social lives as virtual in this way that we've never attempted before. We were already entering a decade characterized by uncertainty from a policy and an economic perspective. But now we're faced with this COVID-19 crisis and an economy grinding to a halt.
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So an already uncertain path just quickly became a bit more complicated for all of us who are engaged in the social impact sector. Hi, everyone, I'm Clare Golla, Head of Endowment and Foundation Advisory Services at Bernstein, and this is Inspired Investing. This is where we inform and educate organizations and individuals who strive to invest purposefully with and for a mission. In and around the social impact sector, we're concerned, just like everyone else, about our health or well-being, our financial condition.
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We're also concerned, though, about continuing to get the job done in terms of mission fulfillment. Some of us are providing or supporting critical services in those communities that are most vulnerable right now. And then others of us are concerned about causes and initiatives that are really becoming de-prioritized as a result of this crisis.
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So we held an event a week ago with two industry leaders to get their insights on the current environment and hopefully look at a path forward out of this. Eric Weinheimer is the president and CEO of Forefront, which is the nation's only state-wide association that serves both nonprofits and foundations. And Linda Zager is the president and CEO of The Back Office Collaborative, which is really an organization that promotes expense reduction and financial sustainability through collaboration.
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Here are some excerpts from our conversation. Before we dive into current events, I want to just do a little level setting for the many listeners out there in terms of definitions.
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I know that you've always been a really outspoken advocate of cross-sector engagement. So could you please share with our listeners what, number one, what Forefronts is or who sort of you might consider your peers in that industry, and then describe what you mean by social impact sector? The world has changed dramatically. Millennials mostly have driven this change in that people are sector agnostic. They want to have an impact in their communities.
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They want to further social good. And it may be through a nonprofit, it may be through a for-profit and all the different iterations in between. And so we are all about, Forefront, our mission is about building a vibrant social impact sector here in Illinois so that all of these organizations, nonprofit, for-profit, philanthropy, government, whoever is focusing on social good, we're about creating the ecosystem, the environment that allows all of these organizations to do their best work. So what does that mean specifically?
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Number one, Forefront is all about getting more dollars, more investment into the sector, so that there are more resources to do social good. Number two, it's about developing the talent, making sure that people have the skills and the education to navigate these really turbulent times in which we live.
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Number three, it's about advancing policies at the state level, at the national level that advance the work of the social impact sector, nonprofit and philanthropy and others. And number four, it's about advancing, as you said, Clare,
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it's about advancing cross-sector engagement. I am convinced that we are not going to move the needle on many of these seemingly intractable problems that we're all facing unless a few things happen. Number one, policy change, and number two, cross-sector engagement. So our job is to build this cross-sector collaboration on big issues like Census 2020, but also build the cross-sector collaboration on specific issues, whether they be education or alleviating poverty or cleaning up the environment. Shifting to the present, which is on everyone's minds,
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we're clearly in the midst of a global crisis in different ways than really anything that we've experienced to date. So I guess I have a two-part question here.
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Eric, where do you see the most vulnerability today from the health and economic perspective within the social impact sector? And then what kind of opportunity is there for the rest of the social impact sector to respond? So what do you think needs to happen for us to get to the other side? Well, I would say that the vulnerability is really where it's always been, on two levels.
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Number one is lack of capacity and the question about sustainability for nonprofits and others to do this work. We have a sector and I'm talking historically the nonprofit sector, but I think it certainly could include the broader social impact sector. We have a sector that is historically under-resourced, addressing some of the most pressing and complex issues of our society.
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How do you sustain this under-resourced organization doing this important work? How do we sustain that over time, over years? Because these problems that they're addressing, they took decades to emerge and they're certainly going to take decades to alleviate. So now you have this pandemic that just makes these vulnerabilities more acute, more critical, more real, more immediate.
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And so it's the struggles that we've had historically, but again, they are more acute, and I think that there is hopefully a good way, an even greater urgency to address these vulnerabilities. As Rahm Emanuel, the former mayor of Chicago, said, never let a good crisis go to waste. And so I think to your next question, what kind of opportunity is there for us? I think there is a huge opportunity.
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We certainly need to rethink how we do our work. And I think the good news is that we know many of the answers already, things that we at Forefront and so many others have
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proposed and advocated, and now we're in a crisis that I think these issues and these ideas are going to take on more relevance and more urgency. So the challenge, I think, is going to be changing those behaviors and processes that we've been used to over decades and effectively and thoughtfully
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Addressing the power dynamic that often prevents a barrier to addressing these issues, that the power dynamic between funders and operating nonprofits, that's something that we have to address and overcome if we're going to work in a different way. So let me just discuss a few opportunities as I see them.
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Again, these are ideas. These are issues that we've been talking about, but they take on a greater sense of urgency. I think from a funding perspective, foundations, they need to provide larger, multi-year general operating funding with less reporting and burdensome processes for grantees. So, again, let me go back to that. Foundations need to provide a larger, multi-year, underlying, multi-year funding with less reporting and burdensome processes for grantees. I think foundations may need to rethink their five percent minimum payout.
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Other foundations we've been hearing from a number of our members, they're considering, do we increase our minimum five percent payout? I think other foundations need to rethink if they are going to be operating in perpetuity or are we going to spend down? I mean, this is the whole, we may be facing this whole Rome is burning moment, like it cannot be business as usual. We must act now and have this sense of urgency.
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I think another opportunity for us is to really look at strategic partnerships and collaboration among nonprofits, as well as philanthropy as well as other organizations. Here at Forefront, we started a mission sustainability initiative in which we created the infrastructure and a one stop shop for nonprofits to get confidential information, technical assistance, education, and in some cases, funding to move in this place of strategic partnerships, collaborations, and mergers. They're really difficult in the nonprofit sector.
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But I think given this crisis, they're going to take on greater relevance. I think from the philanthropy side for our listeners here, really exciting.
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That Forefront is working with a number of foundations and working with an organization called FBRK, to start an impact house. It is going to be the largest coworking space for philanthropy in the country. They'll be about ultimately 20 foundations located under one roof at 200 West Madison. Think of the partnerships and the collaboration that's going to occur with those foundations.
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So, again, I think there's a lot of opportunities, things that aren't novel, things that we've been talking about for years. But I think given what's going on, people hopefully will take these opportunities more seriously and give them a real, real hard look.
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So, Linda, that is a good segway to use. And you are specializing really in creating economies of scale, specifically in financial solutions, specifically for nonprofits, oftentimes those that I would say have sort of larger overhead types of burdens.
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Right now, I'm thinking about this crisis that we're in right now and with many of the social services agencies, healthcare, you name it, people still have to go to work, like we're working with human beings. We're working with people. Right. And so business in certain capacities doesn't stop. And so where do you see really the most financial vulnerability, I would say, within the sector, within organizations, and then help us understand some strategies that nonprofits can employ really to mitigate this financial burden?
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There is an important piece that is often overlooked by the leadership in our community. They met, many of our nonprofits are working together to implement systematic approaches and collaborative approaches to some of our biggest problems we have in the community, for example, gun violence. But when it comes to financial strength budgets,
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To be really honest, it gets put in a corner, so going forward, especially what we've been going through in the past 30 days, I really want to take a step back and figure out how to get our community to really embrace this. I can't say as much as they would embrace solving these crisis problems we have, but not putting it in a corner of their organization.
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It's the CFOs job. It's the project manager's job. It's really the best results will come when the leadership of an organization is including this as part of their overall strategic plan. We're going to have to take a step back in our organization and put a bigger push on what collaboration really means, not just to an individual organization, but to our whole community.
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And how are we going to work together in a bigger way to make this change. Financial imperative. Alliance for Strong Families has been talking about this. The financial imperative of nonprofits is not new. It's been in action in the last couple of years.
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But now with COVID-19 pandemic, it's, and all the uncertainties, it's more important than ever. And nonprofits are used to managing to budget. And I'm glad to hear from Eric some of the initiatives to help on the revenue side. But this is still very important. Work together, call your peers, share ideas. A lot comes out of that. Pick up the phone and call your fellow CEO, your fellow CFO. They might be doing something that you never thought of.
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When you're purchasing, do some homework, there's options out there. You might think you're comfortable with what you're doing and you don't want to change. But there might be a different option out there that can open up cash flow like you never realized. And don't just assume that something better is not available and use professionals. There's professionals that know the best and better and they can help with increasing cash flow and better service opportunities, new technology ideas.
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I wouldn't be afraid to use the professionals. Go to your suppliers. They want to keep your business, especially now, the time with this pandemic where the suppliers will work with you on new ideas. Go to them. They'll help you with pricing and services. And another important thing is, I hear this all the time.
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Well, I'm going to shop around. I'm going to get the best deal. Sticking to a program that you've implemented is really the best deal that you can get.
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You don't want your employees spending time shopping when they have social impact jobs. Very important point that I have to keep making over and over again.
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And if we collaborate as a community as much on the financial side, on the buying side as we are so determined to do on the program side, then we are looking at 15 to 30 and more percent better than we're doing now. As difficult as it may seem to look past the next few days and weeks, I do want to look longer term and if you look out over the next decade and beyond, what do you see as the biggest challenges and I guess the opportunities too for philanthropy at large?
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Where do I begin? Right. And again, I certainly don't want to go all negative, there's just some really big challenges. And I think what is unique about now is the pace. That this landscaping is shifting right under our feet. And it's been doing that for quite a while, but it's accelerating with each passing year. And like so much of what's happening, our world is changed. And this acceleration, it really can be dizzy.
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I mean, so you first start with this notion of government funding. We talked about sustainability earlier. It's not going to increase. It's not sustainable. I mean, you think of this pandemic and the impact that it's going to have on the federal budget. They're talking about 850 billion dollar bailout. You know, the debt continues to rise. So when we talk about tackling the most pressing issues of our society, where is that funding going to come from? It's not going to come from government.
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Then you look at the largest component of philanthropy, which is individual giving. You know, roughly 80 percent of all philanthropy in the country is from individuals. And we had the Tax Reform Act of 2017 and it doubled the standardized deduction for individuals. And the question is, OK, you've doubled the standardized deduction for all individuals, which provides less of incentive for people to itemize their charitable deductions.
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So what does that new doubling the standard deduction, what is that going to do to charitable giving? Well, it's still too early to draw any concrete conclusions. Some of the fears or the projections from organizations like the Lilly School of Philanthropy is that 12 to 20 billion dollars of individual giving is going to be lost as a result of this Tax Reform Act of 2017.
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Early indications are that overall giving is up. However, the number of givers is down and the giving are the high-net-worth individuals. So the middle class and other people who are not the big philanthropists, their giving is down.
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And again, so many, particularly smaller organizations, rely on those philanthropists to support their missions. And so that's another huge challenge or certainly a huge question mark. I think also this is not a challenge. I think it's just, getting back to this acceleration of the changes, all of the social innovation that is occurring throughout so much of our society, I mean, you look at what businesses are doing and how they are incorporating social good into their DNA.
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You have the emergence of benefit corporations and the emergence of B corporations. And then you have people, organizations that are not B Corps or Benefit Corps. But they understand that nine out of 10 millennials consider social good when purchasing goods and services. And so this notion of how we marry profit and purpose in order to advance our businesses.
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You have the acceleration of nonprofit led social enterprises. You have nonprofits seeking to purchase businesses, existing businesses that have our values aligned, that are mission aligned so that they can, yes, further their own nonprofit missions,
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But they also need that revenue from these successful businesses so they can diversify their own funding. So, again, I think that there are challenges and things that we need to address. But the social innovation is causing so much disruption that there are bound to be a lot of opportunities. You look at philanthropy, you see the rise of impact investing both NRIs and MRIs. It kind of used to be some of this, particularly for traditional foundations,
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we'll just stick to a grant funding. But more and more foundations are seeing that they have to unleash the power of their 95 percent, that corpus that they have. So, again, it's it can be dizzying and there are some real challenges.
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But I have to believe, I think we all have to believe that this disruption that is occurring, that it's going to be a net good for our sector and for our world. As we likely enter a recession over the coming weeks and months, how do you suggest we change up our communications with donors to acknowledge their hardship while continuing to seek their support for our missions and program participants?
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Well, there was a key word in that question, and that's acknowledge. I think that that's first and foremost is that we as nonprofits need to acknowledge the very unique situation that we all are experiencing, regardless of our socioeconomic background, regardless of who we are. We are all experiencing this and to acknowledge the fears and the anxieties of our donors.
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And I think that we certainly need to focus on our mission and we need to highlight the impact of our good work. But we also need to be very sensitive to the fact that these are unusual times here at forefront.
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We have a number of solicitations to some of our funders and we're holding for a couple of weeks saying, all right, let's not, let's be sensitive to the situation that we all are experiencing right now. And maybe right now isn't the right time to be making direct asks. That's one thing to consider, right.
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That's not in for a long period. But do we hold for the next couple of weeks and just have everybody acknowledge that this is some unusual circumstances? But then, of course, you do need to continue your organizations and you do need to solicit donations from individuals. And that's where I think effective storytelling is critically important. Obviously, communications, storytelling is such a big part of effective communications.
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But now more than ever, I think really effective storytelling is going to be incredibly important because given the fact that we're all self quarantined and we're all virtual and there's this social distancing, I think we're becoming much more focused on ourselves and there can be less of awareness of those that are most vulnerable from a financial standpoint, from a health standpoint.
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And that's where this storytelling needs to be very effective, very strategic, very thoughtful, because we need to make donors aware that, yes, our work continues and that there are people who are already very vulnerable, already on the edge.
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And this crisis could put them in a really dire situation. With the current crisis challenges and opportunities, you're working again with these organizations oftentimes that have pretty complex and large overhead structures. I want to ask what you think some of the trends might be, like, out of this disruption,
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do you see any major changes?
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For instance, do you see an increase ahead in mergers and acquisitions of organizations? Do you see more collaborative work? And what will it take to get there, both in the short term and long term? Yes is the short answer. And this is a subject close to Eric's heart with the Mission Sustainability Initiative and and some of the other work that he's doing, cross-sector type work. It's all about working together, merging, and not necessarily even has to be the formal process of a merger acquisition.
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It's just figuring out how to work together. So it sounds drastic to say, if you don't do all this, you won't survive. But there's a little part of me, Clare, that says, if we don't start thinking this way, then we might be facing the closing of some of the organizations because they just can't sustain themselves. And we all know that the needs are growing, the needs today.
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Now it's just in front of us. This is going to be huge. This is going to be a situation where we all have to be reaching out and helping each other.
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But we really have to take a step back and not be afraid of looking at things that we've never done before in this sector. So collaborating, potentially merging, potentially doing more acquisitions. The bigger organizations, I'm going to say, like Thresholds, going across the country looking for opportunities where they can bring in organizations that have similar services so that they can be more efficient and serve more people.
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This is the way of the future for this sector. Linda and Eric, thank you so much for your time this morning. Thank you all for listening. These are indeed uncertain times. At Bernstein, we're here not only to support
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your mission from a financial standpoint, but we're also here to foster community and collaboration by creating some sort of a forum for connecting you with your peers. In the next few weeks will host another podcast with Henry Berman, who's the president and CEO of Exponent Philanthropy. So he'll be sharing some examples from funders across the country taking action in response to COVID-19. So don't miss out on these discussions. Subscribe to Inspired Investing on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts.
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- Clare Golla
- Managing Director—Head of Foundation & Institutional Advisory Services