Shakeout rumbling in giving sector

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.