For more than sixty-five years, the Eugene and Agnes E. Meyer Foundation has supported small and midsize nonprofits serving the most vulnerable residents in the greater Washington, D.C., area, worked to identify visionary local nonprofit leaders, and made grants that strengthen the region's philanthropic community.
Like many other foundations, Meyer saw the value of its endowment decline by roughly 30 percent in 2008. Rather than cut its 2009 grantmaking budget proportionately, the foundation decided to make adjustments in other areas. Its grantmaking for 2009 is expected to be $7.3 million, compared to $8 million in 2008; the foundation will continue to provide its grantees with general support and grants for financial management, governance, and organizational assessment, as well as short-term cash-flow loans.
Earlier this spring, Philanthropy News Digest spoke with Julie Rogers, president of the foundation since 1986, about what nonprofits can do to weather the economic storm, the impact of the tough fundraising climate on executive turnover in the sector, and the prospects for a renewed sense of public service in the country.
Philanthropy News Digest: Will 2009 be remembered as the "Year of the Survival of the Fittest?" What are your grantees doing to stay afloat?
Julie Rogers: Savvy nonprofit leaders are protecting the core of their organizations' work by planning contingencies and helping their boards act decisively and quickly. They are communicating their actions clearly to key constituencies and staying close to funders, even those that can't fund them this year. A longtime Meyer grantee, Bread for the City, wrote an open letter about how it decided to face its own economic circumstances. It cut services fairly dramatically, for instance, and it also cut staff and salaries. The organization was courageous in the very public way in which it put the news out there to its constituents, including what percent salaries were cut. Bread for the City provides multiple services for a lot of poor people and is the kind of place that would have lines out the door every day. Still, it decided to close on Fridays because that's what it had to do.
One of the best resources we can recommend to nonprofits is the Bridgespan Group article "Managing in Tough Times: 7 Steps." While being deeply "planful" and strategic and moving expeditiously are all part of surviving in a rocky economic climate, Bridgespan points out the wisdom of being able to identify your strongest performers and rethink the way your organization is shaped and operates. It offers more than the standard advice about hunkering down.
PND: Daring to Lead 2006, a Meyer-funded study of nonprofit executive directors in eight U.S. metropolitan areas, found that three out of four executive directors of small and midsize organizations are likely to leave their jobs within the next five years because of issues like low pay, fundraising pressures, and challenging relationships with their boards. Given today's economic climate, in which the need to raise money is as great as it has ever been but funders are pulling back, should we expect to see an increasingly unhappy cohort of nonprofit leaders stuck in jobs they no longer want but can't afford to leave?
JR: The underlying factors that contribute to executive burnout and turnover — frustration with fundraising and chronic undercapitalization — are more evident now than at any time in recent memory, and we believe executive burnout and leadership turnover will continue to be a significant challenge for the sector. That said, we're hearing about some nonprofit leaders who were planning to retire or leave their jobs but no longer feel able to do so because of the decline in their retirement accounts. We're also seeing some leaders who might have stepped down but now feel obligated to stay on and steer their organizations through choppy waters. I think 2010 and 2011 will be difficult years for nonprofit leaders as the country works through its economic issues and the pressures on nonprofit revenues and service demands continue. But the leaders I know aren't looking for a safe pass for themselves out of a bad situation; they're trying to push through it and lead their organizations as best they can.
PND: Interestingly enough, Daring to Lead also found that 70 percent of the executive directors who planned to leave their posts within the next five years expected to stay in the sector. If executive turnover in the near future is a given, what do nonprofits and their boards need to know about successful leadership transitions?
JR: In successful transitions, executives give adequate notice to allow the board time to approach the search thoughtfully and deliberately, to figure out what skills they're looking for in a new leader. A search firm or transition consultant is often the key to a successful transition, since board members are volunteers with other responsibilities and limited time. Failed transitions are costly and destructive, and up-front investment in a skilled consultant can pay dividends many times over.
All leadership transitions are high-risk propositions, especially when the current leader has been in place for a long time. Sometimes boards don't make a great decision, either because they don't fully understand what the organization needs at the next stage of its development, or they concentrate too much on the skills — or deficits — of the person who's leaving and don't calibrate correctly, overemphasizing the opposite qualities in that person's replacement. And sometimes boards have invested so much energy in the selection of the next leader that they tend to relax and don't keep an early-warning system in place. Their leadership and key committees should stay in close touch with and mentor the new leader in the first year of his or her life with the organization. A board has to realize that the transition doesn't end with the new executive's first day on the job.
PND: How do you think President Obama's call to public service will affect the nonprofit sector?
JR: It's wonderful to have a president and first lady, and an Executive Branch staff, with a lot of experience serving in small and midsize nonprofits or on nonprofit boards. I think they understand and care about the sector, and my hope would be that over time the conversations about social innovation will lead to national conversations about the great value of nonprofit organizations to our society and what we can do to strengthen them. For instance, how might government money flow differently to nonprofits? Or how could giving and volunteerism be supported in ways that give fledgling organizations a real shot at becoming sustainable? It also will be important to see how the administration's proposal to cap some charitable deductions and the estate tax debate might play out.
President and Mrs. Obama's perspectives on poverty and income disparity, and their first-hand knowledge of grassroots community-building organizations, will certainly inspire more leaders to consider the sector as a viable career option. And the Edward M. Kennedy Serve America Act has the potential to more than triple the number of Americans in national service programs. Hopefully, the new emphasis on service will generate new leaders from all disciplines who are willing to lead nonprofit organizations at some point in their careers. One of the silver linings of the economic downturn might be that more people discover nonprofit work as a career option.
PND: This is probably the most challenging fundraising environment in thirty years. Can veteran nonprofit leaders apply the lessons they have learned in the past to the current environment, or is this new territory for everyone?
JR: It's new territory for everyone. Many leaders, in both the nonprofit and for-profit sectors, have had the great good fortune of managing organizations in a strong economy, when the focus was on growth and expansion. Today's environment, on the other hand, challenges leaders to rein in and even shrink the organizations that, in many cases, they have built. That's very difficult.
Another issue is the nonprofit sector has never had any great financing mechanisms or a good flow of capital into the sector. Meyer recently funded an Urban Institute study — the first of its kind — to find out if nonprofits in the metropolitan D.C. area have operating reserves. According to the findings, they don't — or if they do, their reserves and working capital are insufficient. I think the report, Washington-Area Nonprofit Operating Reserves, will generate a lot of discussion in the sector. The undercapitalization of nonprofits is an issue the Meyer Foundation has been concerned about for a long time.
PND: We look forward to reading the report. Thanks again for your time.
JR: Thank you.
— Alice Garrard and Matt Sinclair