Debt Crisis: a Crossroads for Nonprofits

by Todd Cohen

The “new normal” prophesied for the charitable marketplace in the wake of the implosion of the U.S. economy nearly three years ago merely hinted at the pain nonprofits and philanthropy can expect, along with the fundamental changes they will need to make, as a result of the U.S. debt crisis.

Nonprofits and philanthropy still are running on the creaky frame of the charitable business model designed a century ago and tweaked in the past decade or so through hands-on venture philanthropy and nonprofits’ retooling their operations to meet funders’ growing demand for metrics, accountability and impact.

While the economic collapse in 2008 sounded alarms about structural flaws in the way nonprofits and philanthropy operate, the debt crisis, while temporarily averted, reflects congenital economic and social problems and should trigger fear and trembling among nonprofits and their supporters, opening their eyes to the need to reinvent the way they work.

As an integral part of a global marketplace transformed by technology and by sweeping changes in the structure and movement of capital and labor, the U.S. economy and workforce are undergoing radical upheaval.

That up-ending of our marketplace and culture will put enormous pressure on nonprofits to overhaul the way they operate as businesses and serve clients and donors.

And that will require that they focus on how best to learn, lead and grow, taking a brutally honest look at their own organizations, adapting to a marketplace in which change is continual, rapid, overwhelming and unsettling.

So they need to focus on what really matters, and step away from whatever diverts them from their mission.

Philanthropy is about community, and nonprofits are in business serve people and places in need.

To be effective in their job of healing, repairing and improving their communities, nonprofits must create a culture of philanthropy that engages their employees, boards, donors, volunteers and partners in the vision of making their communities better places to live and work.

So a nonprofit truly must know its community and itself, and must work continually to work with its internal and external “family” to improve its programs, operations and support.

A nonprofit must know and build on its strengths, and recognize and address its weaknesses.

A nonprofit must know its supporters and help them understand critical community problems and see how investing their time, money and know-how will help fix those problems.

A nonprofit also must recognize that its employees are people, not interchangeable parts, and represent a core organizational asset as valuable and worthy of attention, investment and cultivation as are donors.

So nonprofits must create a business model that values employees’ contribution, invests in their professional development, can adapt to their need for flexibility in balancing work and life in a complicated and often-unpredictable marketplace, and can help them see how the purpose of their work is to address community problems that affect the lives not only of the organization’s clients, but those of employees as well.

Talk about change and leadership is cheap, and it flows freely among nonprofit consultants and “experts.”

But generating change and providing leadership are complex, ongoing jobs, and any nonprofit that wants to better serve its community first must be willing to change the way it does business.

If nonprofits truly want to fulfill their mission, they need to treat the debt crisis and the firestorm it will unleash in our economy and culture as an opportunity to get their own shops in order so they can help our communities climb out of the seemingly bottomless hole America has dug for itself.

Todd Cohen is editor and publisher of Philanthropy Journal; reprinted with permission.