posted on: Thursday, November 20, 2008

Nonprofit Crisis-A Terrible Thing to Waste
Gary Snyder

The news seems to be all bad. There is much talk about an implosion of the charitable sector. Some prognosticators believe that the heady days of the $300 billion in donations are coming to an end. Then there is the daunting data, which the New York Times cited recently:
• the Center on Philanthropy that show that households with annual income of less that $50,000 are likely to stop giving as
a result of the downturn.
• charitable funds saw contributions fall by 43%.
• with a downturn in returns on their investments, foundations payouts will drop.
• corporate donations from the largest companies will diminish.

Many want to believe that the weakening trend line is solely a result of the poor economy. Unfortunately, there has been a movement toward smaller total contributions (in absolute dollars) for several years. There are a number of reasons that have put the sector in increasing low esteem.

Study after study has indicated that the trust in the sector has been plummeting. Only about 14% of those studied believe that the sector spends its money wisely. The perception that executives are getting paid extraordinary salaries further exacerbates a poor opinion.

The explosion in the amount of embezzlements, at all sizes and types of charities, has further intensified the public’s lack of confidence. A much-touted study estimates that theft could amount to tens of billions of dollars and at a rate higher than the for-profit sector.

And the leadership, as studies have shown, has lead the lapse in ethical standards---aside from fraud---with nearly 20% of employees said that their own organization had weak ethical controls.

The nonprofit sector that has so long enjoyed a better reputation with regard to its ethics, now exhibits many of the shortcomings in its companion surveys of the public and private sectors

The good news that this is an opportunity to fix that which was gone wrong, clear up the sector’s tainted reputation and protect the charitable sector’s return to its place as a credible and transparent American institution.

Over the decades, the leadership of the charitable sector has emanated from the inner sanctum of the largest foundations and nonprofits. Many of the practices that are currently under scrutiny are an outgrowth of those carried on behind closed doors. In recent years a cloud of suspicion has grown from some close viewers, including donors, taxpayers and small and medium charities. While the elite decision makers ply their trade to protect and benefit themselves, they do so at the peril of the charity sector’s tax-exemption and oversight by the IRS and Congress.

As the culture of the charitable sector is compromised, virtually all leaders have passively sat by with no intervention. They have exercised the power of denial. Some observers believe that they don’t have a handle on what the problems are. This has been effective in contributing to the uncertainty about the future of charities. With no organization that serves the needs of the small and medium charities, there is a lack any direction in confronting the fundamental elements of needed change. Still unanswered is how or if the leadership will step up… or even if they have thought about change.

These are challenging times in all sectors. Congress has historically encouraged bad behavior. They supported the bad behavior of AIG and numerous banks, brokerage firms, and Freddie Mac and Fannie Mae. The reason for the support…they are too large to fail. Every day the line to get the government’s largess is growing.

We see a similar scenario being played out in the charitable sector. Despite ongoing fraud, poor governance and a total indifference, the Congress has given the Smithsonian and the American Red Cross in excess of $100 million. The reason for the support…they are too large to fail. Others charities that evidence poor decision-making are now holding out their hands also.

These concessions set a poor example for the medium and small agencies (or corporations) that are, in large measure acting good, but struggling.

Should the Congress be in the nonprofit bailout business? Should the cash spigot be closed until there are accountability at all levels?

There is little evidence that the government subsidization has helped. After years of tremendous scrutiny and much contrition by the American Red Cross, the eighth CEO in just twelve years showed poor judgment and was fired. This stalwart organization is still under a cloud of controversy with a court order to improve the way it collects blood handling. This has been going on for more than a decade with millions of dollars in fines. Despite a yearlong inquiry and repentance, the Smithsonian bad news continues with one former director recently reimbursing the Institution for lavish spending and more allegations of no-bid deals.

It should be the leaders that show us out of this morass. The most important task is to restore the public’s flagging confidence in our nation’s charitable sector. They need to articulate to the American people the underlying strengths of the sector. Wishful thinking needs to stop and leaders must speak to the realities on the ground. Over the past decade, charity leaders have mishandled this issue.

We should be afraid of the indecisiveness and indifference of the past. Senator Grassley and his staff should be congratulated for focusing on the weaknesses as well as the strengths of the nonprofit sector. This, however, is too important an issue for one Congressman to carry. The regulators seem to be stumbling over the for-profit sector problems and failing to give a comprehensive look at the weakness of the nonprofit sector.

Politics have hardly caused the crisis, but Congressional priorities have certainly exacerbated them. The Congressional patchwork approach has certainly not instilled confidence.

Rebuilding confidence might seem like a small matter; it is not. The denial by the charitable sector’s leadership has compromised a wonderful and magnanimous history. This country is not used to feeling bad about charities. Steering away from the current quagmire with no one steering, leaves little likelihood that it will go in the right direction. Steering the sector necessitates facing the facts and facing down the fears.

Its not just the charitable sector’s future on the line, it’s the millions of people’s lives that it serves. The objective is to have a sector that functions well for all sized charities as well as those that they serve.

Cheer up. This is a great opportunity to right the wronged ship.



Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.