Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

April 6, 2009

Giving sector needs to reengineer itself

By Todd Cohen

In the same way the breakdown of the economy is forcing businesses and policymakers to change the way they operate, it should be prompting the giving sector to remake the way it does business.

And because the economy’s collapse shows no sign of hitting bottom any time soon, the giving sector needs to get started on its makeover immediately.

Nonprofits and foundations typically find it tough to move outside their comfort zone and take a hard look at how they operate, but that is precisely what they must do.

Many of these groups have strayed beyond their mission, and many have become more preoccupied with perpetuating themselves than with truly serving their constituents.

To retool, nonprofits and foundations must get back to basics and find innovative ways to streamline their costs and improve their impact.

They need to move quickly because challenges for the giving sector are rising quickly.

Fewer than half of nonprofits raised more money in 2008 than the previous year, for example, and increases in fundraising lost a lot of ground, according to new data from the Association of Fundraising Executives.

And fundraising fell across the board, regardless of cause, organizational size, or geography, the data show.

Equally troubling, if not more so, is a new report from the Foundation Center that says assets of the more than 75,000 U.S. grantmaking foundations fell $149.4 billion in 2008, or nearly 22 percent.

That loss is nearly as much as the $165.4 billion in grants those foundations made over four years, from 2005 through 2008.

And the combined value of gifts to foundations will drop sharply this year from a record high in 2007, with foundation giving likely to decline even more, the Foundation Center says.

Instead of continuing to treat givers as automated teller machines, nonprofits must treat them as partners, involving them in their organizations, understanding their values and needs, and keeping them informed about the impact of their giving.

And instead of continuing to hoard their assets and treat nonprofits as supplicants, foundations must pay out more and treat nonprofits as partners, better understanding and addressing their operating and programmatic needs.

Lawmakers have given the giving sector tax-exempt privileges because it serves the indispensable role of taking on the symptoms and causes of critical social and global problems.

The giving sector, in short, can be a leading force for progress.

But it cannot make progress if it continues to act like it is entitled to special treatment.

What it must do, now more than ever, is justify the privileges it enjoys by adapting itself to an economy and a charitable marketplace that will never again be the same.

Indeed, the giving sector must help shape the new economy by redesigning the charitable marketplace to operate more fairly, efficiently, creatively and collaboratively.

Instead of fighting to protect their own turf, for example, nonprofits should think hard about consolidating back-office services, or even merging, with other nonprofits.

And instead of focusing on perpetuating their own wealth and power, foundations should think about pooling their assets with those of other funders, or finding innovative ways to put their assets to more productive use, such as making loans to nonprofits that help them equip themselves to stand on their own feet.

Before they can fix the world, nonprofits and foundations must fix themselves.


  • At 12:32 PM, Anonymous Anonymous said…

    I applaud your post and sentiment about foundations. Some are stepping up to the plate but unfortunately, too few.

  • At 7:27 AM, Anonymous Lori said…

    You are absolutely on the mark here. The current economic conditions are indeed forcing change to some degree, but nonprofits and grant-making foundations need to proceed with thoughtful change instead of reactionary due to crisis. This will provide lasting benefits and ensure sustainability of efforts.


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