[apparently there were some technical glitches in this article when previously posted. Here it is re-posted. Apologies.]
Recently I have been contacted by several reporters asking about how the predicted recession is going to influence philanthropy. Will donors stop giving? What now?
Foundation leaders and independent funders are asking me, “what should I do now?”
This is the not the first time we have faced economically challenging times. Fortunately or not, we have learned some things from the past. Here is my advice to funders about how to navigate in a time of shrinking resources.
First, some general observations:
Philanthropy typically trails the economy by 1-2 years. Funders typically make their commitments prospectively. Thus, when their resources are growing, they promise to give more in the upcoming period. When resources are shrinking, they will commit to fewer and smaller donations. [See exceptions below] Psychology plays a significant role in how a funder views his or her resources, so it often takes longer to turn giving to the upside, even after it is evident that an economic recovery is on the way.
Economic downturns force funders to focus. When more money is available, it is easy to give more dollars, and to give to more causes. When there are fewer dollars to dispense, marginal commitments fall away and even long term commitments may be reviewed for their consistency with the “mission” of the donor or foundation.
When the economy is down, funders receive more requests to support basic human services. And, objectively, there is a lot more need for these services. Unemployment, at-risk families, homelessness, hunger, and health needs all increase during tough times and there are fewer governmental dollars available to meet them. Funders who typically focus on other causes are forced to consider whether meeting basic needs is now more important. We know that immediate crises and tragedies [e.g., Katrina] bring out significant compassion giving, but funders do not always respond to large scale economic readjustment and dislocation.
Funders who usually give to or through umbrella or re-granting charities will find that these charities are responding to the human needs arising out of the economic downturn. They can feel comfortable that their dollars are meeting these emergent needs. Funders who usually give on a project basis, or to particular recipient organizations, will be challenged to rethink their priorities.
Next, some recommendations for funders:
REFOCUS: Re-examine your giving. Take a look at whether or not your giving is aligned with your mission. Sometimes it takes a financial shake-up or possible cutbacks to focus the mind and your budget.
EXIT STRATEGIES: Think carefully about how cutting back your giving during an economic downturn will effect the organizations you care about. As a funder, you do not have a legal obligation to continue to fund an organization unless you have made a multi year or project related commitment. But in some circumstances, there is a moral/ethical responsibility to continue to fund an organization or a project.
If your gift is incidental or incremental to a recipient organization’s budget, you can, in perfectly good conscience, discontinue funding immediately after any current commitments are paid off. Your $1000 annual gift to your alma mater is hardly going to jeopardize the existence of that university if discontinued. But if your contribution or grant represents long term core support, and the organization depends on your support for its basic budget, you need to think about the effect that reducing your contribution may have.
Although no funder MUST fund any organization indefinitely, you should think about how to curtail your support. Consider a gradual phase out. And give the recipient organization early notice about your plan. Some long term funders who choose to discontinue their annual core support contribute an exit lump sum toward an endowment. In any case, the responsible funder is aware of the impact of their giving on recipient organizations, and takes the time to think through their role in that relationship. [Of course, it is my view that every gift should have an exit strategy in mind from the very beginning.]
COMPASSION FUNDING: Some funders believe that in times of economic challenge, when resources are shrinking, philanthropists should rise to the occasion and maintain their level of giving from the good times. After all, they argue, now is the time when the non profit sector needs support more than ever. Thus, some foundations argue that the 5% may be a fine base for normal years, but during hard times, they should maintain their previous giving level even though they will far exceed the 5% minimum. And individuals, especially high net worth individuals, will often dig deeper to support causes and institutions to which they have devoted themselves, knowing that marginal giving from less devoted supporters will most assuredly diminish.
ADVOCACY FUNDING: My readers know that I believe strongly that funders should not shrink from funding advocacy. Charitable giving, driven by compassion, can never take the place of government support for people at risk. The size and complexity of our society is simply too great. But government spending is also influenced by economic downturns. If government income is down, the government will have to prioritize and decide how to allocate scarce resources. If we believe that the hungry should be guaranteed a meal, who should have the ultimate responsibility to provide the safety net? Whatever my personal view of the answer to this question, in tough times the funding community should be willing to support organizations that address the policies which provide for basic human needs.
NON FINANCIAL SUPPORT FOR THE NON PROFIT SECTOR: In a time of cutbacks organizations need all kinds of help. As contributions diminish, income from fees may fall, and volunteers may be too busy earning a living to help out in the office or in the tutoring program. As someone who cares about the cause, consider giving your time as well as your money to help the organizations you care about survive until the next bull market.
A concluding thought:
Both philanthropy and public policy are reflections of the values and vision of a society. America has a well deserved reputation for its private generosity and philanthropic institutions. America also has a well deserved reputation for public insensitivity to its most at-risk populations. Perhaps at no point in the past have these two tendencies been more in tension with one another. How we respond to the coming difficult times will tell us something about the American character in this decade.
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