Balancing the Mission Checkbook

This is not a breakthrough idea, but I am completely convinced that leadership will be the only determining factor for the survival and success of nonprofits throughout this recession. I see signs of it all the time. As the months of recession drag on, the effects of the presence and absence of real leadership at nonprofit organizations becomes more and more clear. A couple of really interesting recent blog posts got me thinking about these leadership voids and how to fill them.

In the post Nonprofits Will Never Be Respected Until We Start Respecting Ourselves, Rosetta Thurman confronts the self-induced damage of low wages, chip on the shoulders image of many nonprofit employees. She then builds up to this call to action:

With all of our own moaning and groaning about our sector, it’s no wonder other people emphasize the “non” in our nonprofit field. Believe me, I’ve been guilty of all of the above. But what’s happened is that in all of our “insider baseball” talk amongst ourselves about what’s wrong with our sector, we have somehow internalized it all to conclude that this is just how it is. This is just the nature of “nonprofit culture”. We forget that WE are nonprofit culture. The nonprofit “sector” is made up of individual organizations, which are made up of individual people, which means that this is all up to us. It is what we make it to be. So when are we going to be the change we say we wish to see?

Echoing the “take charge” message in An Open Letter to Arts Administrators, Adam Thurman (Two bloggers named Thurman, hmmm) describes the painful position of mid-level arts administrators who don’t feel supported, respected, or valued.

It doesn’t have to be like that.  I know you’ve probably convinced yourself that all the garbage you deal with is just the cost of being in the field.

It isn’t.  If the group you work for is being run poorly it is because people are ACTIVELY making choices that allow that to happen.  It isn’t just a matter of circumstance.  It’s an outcome of choice.

You deserve better then that.  You deserve to work at an organization that produces great art, treats people with respect and pays fairly.  No matter how much people may tell you otherwise those three goals are NOT mutual exclusive.

He then advises that these arts administrators give themselves a year to help bring about change - or to leave.  I love the simplicity and enormity of that advice.

Be a leader, or leave.

But how can you be a leader if you aren’t the CEO, Executive Director, CFO, Director of Development, Board Chair, etc, etc?  By leading, that’s how. I know of many cases where a new board member, mid-level program manager, or finance staffer stepped into the void, told the truth, and brought about important change. To be frank, there is risk and a lot of work involved.

Our new Recession Risk Assessment resource includes suggestions for actions to take based on the risk level. For organizations with high level of leadership risks, the advice is: “The organization urgently needs a leader to step forward to call attention to the challenges, even if it causes discomfort.”

Be a leader - why not you? Why not now?

I think that I’m losing my ability to be patient and finesse conversations about how nonprofits can deal with the recession. Instead, I’m becoming a blunt instrument with one recurring message - Act Now.

Unfortunately, quite a few nonprofits are in very fragile financial condition and don’t have much elbow room. In other circumstances, I like to work through the possibilities and understand the complexities and reasons behind a nonprofit’s structure and history. Now it’s all about speed.

For example, in the last two weeks I’ve made these very direct and difficult comments to leaders of three different nonprofits:

• Direct comment 1: “I think that your grant budget is unrealistic. I think that you need to create a scenario budget plan to reduce expenses by 30%.”

• Direct comment 2: “Based on your history of recurring operating deficits, you need more than a few expense reductions. You need to reconsider the entire structure of your programs.”

• Direct comment 3: “You don’t have time to research some new grants. You’ll be out of cash in one month.”

Not much finessing here. Because of this need for urgency, we developed a Recession Risk and Preparedness Assessment for nonprofits to quickly identify how urgently they need to act and where to start. These twenty questions cover financial condition, financial information, organizational change factors, and leadership. Use it to find your starting point.

In this week’s issue of The Chronicle of Philanthropy, consultant Pat Nichols described how frustrating it is to watch ineffective and slow reactions to urgent situations in the article A CEO Survival Guide for Touch Times. Because this requires a paid subscription to access, here’s an excerpt of some key points in this excellent piece:

Center all decision making on the mission. If, in facing tough choices, we are not explicit and rigorous about how the decisions we make serve the mission, we have fallen short of our responsibilities.

Be open and engage everyone. Everyone will find this period and the process unsettling. No one, at the outset, can guarantee an outcome. What we can do, though, is find creative means to discuss what is happening and encourage participation from all quarters.

Move quickly but systematically. When uncertainty reigns, people draw comfort from knowing that, though there is no resolution at present, there is rapid and systematic movement toward a resolution.

Be hopeful in style and rigorous in analysis. This balancing act is, perhaps, the toughest of these principles to observe. As leaders, our colleagues depend on us to set a tone, and to convey hope. However, it is also crucial that we ask the tough questions and discount our desire to believe the best.

Live with ambiguity, acknowledge uncertainty. We must act on incomplete and imperfect information; we must make assumptions and decisions that will prove to be wrong. This requires that we acknowledge what we don’t know and be prepared to adjust when we are mistaken.

The time to act is now - for all of us.

For years I’ve wished that the programs of the Small Business Administration (SBA) were available to nonprofit organizations. The SBA is all about strengthening the country’s economy, and as a business banker the SBA was at the top of my list of resources for entrepreneurs as they started and grew their businesses. When I made the change to work exclusively with nonprofit organizations I was disappointed to lose access to those programs. Nonprofits are businesses, after all, with a significant role in employing people and generating economic activity. Minnesota Council of Nonprofit’s Minnesota Nonprofit Economy Report for 2008 reports that nonprofit employees represent about 10% of the states’ workforce, paying $12 billion in wages.

What I’ve missed most were the Small Business Development Centers that offer workshops and one on one help and the SBA loan programs that provide crucial growth funding. In a way, Nonprofits Assistance Fund and other capacity building organizations have filled this role for nonprofits.

Potential Nonprofit Resources

I’m very glad to know that the beginnings of some new resources for growing strong nonprofits are contained within the Serve America Act, passed in the last week in both a Senate version and House version. The President is expected to sign it next week. The amendment that creates a new program for nonprofit capacity building is summarized here by Independent Sector.

Housed within the Corporation for National and Community Service, the bill authorizes $25 million over five years to provide organizational development assistance to small and mid-size nonprofit organizations, in particular to “strengthen small charities around our country, especially where resources are scarce.”

I’m hopeful that we can get these resources out in the community soon, focused on building strong community organizations that know how to balance mission and management. I’ll keep waiting for an SBA loan program for nonprofit businesses. In the meantime, if you are in Minnesota and need working capital or a line of credit, Nonprofits Assistance Fund’s loan fund is here.

Earlier this year, I proposed Accountability Lesson Number 1: Questions Must Be Asked to encourage directors of nonprofits to overcome their hesitancy to ask questions. In particular, when financial or governance issues are unclear or incomplete, they should continue to pose questions until they get answers. In some ways, asking questions is one of a board member’s primary jobs. What comes next, though, after the questions are answered?

Next lesson: Action must be taken. One of the most interesting dynamics in nonprofits is the relationship and shared authority of executive directors/CEOs and their board of directors. We could debate infinitely the question of who is really in charge. In day to day life, most nonprofits find a way to make it work if they have assembled and hired the right people, agree on roles, and know how to share and use information. There are times, though, when the board needs to assert its real and legitimate authority to make a big decision - to take action in the face of urgent needs for the nonprofit and its mission. In Lesson Number 1, I said that asking questions is one of the board member’s most important roles. I will state here that I think the primary role for board members, especially board chairs, is to know when they need to take action, and then to do it. I think this is an urgent issue right now because I have often seen the sometime dire consequences of reluctant, slow decisions. Too often, board members who have been expected to be good supporters and cheerleaders can’t seem to change gears and be the leaders they need to be. If the board’s practice has been to ask for more information and then defer decisions to the next meeting, and then the next, then real problems can grow while the options shrink.

The need to step up and take action is always applicable, but it seems to be more urgent right now. If income sources are less reliable, or costs are harder to identify and match with impact, then boards simply must ask questions and then follow up with real decisions - and real governance.

What do you think about these Accountability Lessons?  Do you have an example where asking tough questions and then taking action led to positive change? Or do you have lessons learned that may be helpful to others?  I invite you to share your experiences in the comments section.

I’ve been looking for something positive to write about following last week’s downer message about the economy. The best I can offer today is the suggestion that you consider approaching the current uncertain environment as if your nonprofit were in a turnaround mode. Turnarounds make great case stories after the fact - when the organization is revitalized and builds a new reputation for connections with the community, strong leadership, and financial health.  Who wouldn’t want all that? So why wait until things are bad?

Brandeis University Press has just published The Art of the Turnaround: Creating and Maintaining Healthy Arts Organizations by Michael Kaiser, president of the John F. Kennedy Center for the Performing Arts in Washington DC. While the book’s title and cases are from the arts, the advice and lessons are relevant to nonprofits in social services, community development, or any other field.

A short excerpt from the book is available from The Chronicle of Philanthropy. Kaiser offers ten basic rules for every turnaround:

1. Someone must lead
2. The leader must have a plan
3. You cannot save your way to health
4. Focus on today and tomorrow, not yesterday
5. Extend your programming planning calendar
6. Marketing is more than brochures and advertisements
7. There must be only one spokesperson, and the message must be positive
8. Fundraising must focus on the larger donor, but don’t aim too high
9. The board must allow itself to be restructured
10. The organization must have the discipline to follow each of these rules

Read this excerpt and find out which turnaround steps can help your organization through this difficult and uncertain period. We’ll call it preemptive turnaround.

My first blog entry this year, What about the economy?, posted on January 10, 2008, began with this comment:

“Reading the headlines reflecting concerns and jitters about the direction of the economy is causing leaders of nonprofits to ask how it will affect their organizations. For some people, a state of worry has set in.”

We can now say with certainty that all nonprofit leaders share a deep concern about the rest of this year and the prospects for the next couple of years. In that same blog post I encouraged organizations to understand their income mix and focus on what they could learn about the trends affecting their dominant income sources. Different income sources typically have different triggers and cycles. Foundation grantmaking, for example, changes at a slower pace than individual contributions because foundations calculate their endowment “payout” based on average balances over two years or more, while individuals make giving choices partially based on how confident they feel right now.

A lot has been written, and will be written, about the impact of the economy on nonprofits. Some hopeful news comes from the Philanthropy Journal’s article Past sheds light on recession giving, which notes that overall giving doesn’t drop as much as you might fear. Other stories, however, add to the worry, such as A gloomy giving outlook about corporate giving. I sympathize with the reporters who are writing these stories, though, because the real answer to questions about how the current economic environment is affecting nonprofits is “We don’t know yet.” Every week brings more questions and we all hope that the direction for the future will start to be clearer after the election.

On top of everything else, now is the time for all nonprofits to pay attention to developments that will impact the state budget next year. The forecast doesn’t look good according to the Minnesota Budget Bites blog. State funding dominates for human services, education, and many health care organizations, and it is important for many other nonprofits. This is the time and place to prepare for policy discussions, and you need to be a part of them. It’s easy to stay up to date through the blog and other information and meetings sponsored by the Minnesota Council of Nonprofits.

Because of this uncertainty, and the fact that all the indicators look weak, what had been concern has risen to the point of anxiety.  Emily Saunoi-Sandgren, who blogs at the Humphrey Institute’s new pubTalk blog, wrote Much ado about the economy last week looking for signs that these challenges might lead to some bigger ideas and discussions. Yes, it is time for some big discussions (such as the conversation around public policy and the state budget). Unfortunately, the reality for many nonprofits is that they need to be very cautious and careful.

I’m being blunt here, and it makes me feel like a depressing economics professor, but I have a lot of conversations with nonprofits that don’t have a lot of reserves and so their options are limited. So what’s a nonprofit to do?  Here are some fundamental steps you can take:

• Dig in to analyze what income is reliable and what is not.
• Understand the costs of delivering programs and services.
• Keep close track of increases in demand for services and how much of that increase is driven by the same economic factors.
• Scrutinize any plans for expansion carefully until you are confident that the funding is available to fully support the expansion.
• Double check every assumption.