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THE
METROPOLITAN CLUB
One East 60th Street
New York, New York 10022
Distinguished Speakers Lunch
Anthony Knerr
Managing Director, Anthony Knerr & Associates
"Winners & Losers: When Money is Tight,
Which Nonprofit Groups Survive?"
Although we usually don’t recognize it, nonprofits
are a big business. Overall, the nonprofit sector
constitutes some 10% of America’s Gross National
Product. The total nonprofit workforce of paid and
voluntary workers is some 17.5 million, 50% more than
construction and finance, insurance and real estate
sectors combined and close to that of the entire US
manufacturing sector. One out of every four New Yorkers
is employed by a nonprofit. These are staggering numbers.
Each of us is touched by a nonprofit organization
every day. Our kids are in a boys or girls club; our
spouse is taking courses at a public university; we
visit a friend at a hospital; our cousin plays basketball
at the Y or a settlement house; our parents go to
a museum, attend a concert or watch a play.
I believe the central challenges for nonprofits over
the next decade are threefold: to think more clearly
and boldly; to ensure superb governance; and
to enhance public trust. Those nonprofits that
meet these challenges will survive and some will thrive;
those that do not will whither or collapse.
I would like to speak to each of these in turn.
Thinking More Clearly and Boldly
My
colleagues and I often observe that every nonprofit
organization has a major strategic issue. How can
this university become global in perspective and influence?
What is the program focus of this foundation? How
does this orchestra attract a younger audience? How
should this community organization align itself with
other providers of social services?
Unfortunately, it is the uncommon nonprofit that can
clearly and cogently state its purpose, mission and
vision. Sure, there is usually a mission statement.
But the typical mission statement is not the same
thing as a crisp statement of essential purpose.
Habitat for Humanity’s
Ambitious Goal
Habitat for Humanity seeks to eliminate housing poverty
worldwide. In that one sentence, the vaulting ambition
and extraordinary goal of the organization is evident.
Nine words convey what the organization is all about
– but one could talk about those nine words all
afternoon: How does Habitat for Humanity seek to eliminate
housing poverty worldwide? What countries is it working
in? What success has it had? Does it have one model
for every country or different models for different
countries? And so on…
It is no wonder that Habitat for Humanity’s greatest
current problem is how to control growth and maintain
quality. Founded less than 30 years ago, it now has
already built over 100,000 units, housing more than
half a million people.
One of our clients, a world-renowned scientist, noticed
over time a woman who appeared at her presentations
and speeches in different countries and regions. Sometime
later, the woman identified herself as being with
the Gates Foundation and invited her to submit a multi-million
dollar proposal to identify ways to reduce the high
maternal mortality in the developing world, a problem
that leaves a mother dead at childbirth once every
fifteen minutes. Our client submitted the proposal
and was awarded a significant grant.
The Clarity of the Gates
Foundation
The Bill and Melinda Gates Foundation has been unusually
strategic in its approach to philanthropy. Starting
off with modest infrastructure – initially just
Bill Gates’ father – it has, over time,
identified a set of needs where it believes it could
make a decisive difference – such as eradicating
malaria worldwide. And it has typically sought out
its grant recipients, rather than reacting to proposals
submitted in accordance to guidelines.
There are a host of other nonprofits that have transformed
themselves by thinking strategically and boldly. The
Girl Scouts of America turned itself into a highly
relevant and important organization for today’s
young girls and volunteer women, and has the largest
number of scouts and volunteers in its history; the
Brooklyn Academy of Music, known as BAM, has become
a world-renowned center of innovative performing arts
– in Brooklyn, of all places; the New Jersey
Performing Arts Center sought from its inception to
help to transform riot-torn Newark and now has the
highest audience diversity of any major U.S. performing
arts center; the Kennedy Center aims to be "the
nation’s performing arts center in the nation’s
capital" and is embarking upon a new entranceway
that will connect it with the City, graced with two
new buildings for which it has already raised over
$100 million.
United Way’s Problems
On the other hand, the United Way of America –
one of the best known and largest nonprofits in the
country – recently had the twin problem of a
major scandal and a losing strategic approach. Failing
to take account of changing donor patterns, it suffered
significant declines in its traditional model of generating
support. Only after it rethought its whole approach,
and decided to become community impact organizations
at the local level – convening, collaborating,
advocating rather just than raising money for other
organizations – did it begin to regain its footing.
And it still has a long way to go to implement this
new strategy.
Likewise, the National Boy Scouts and National YWCA
have failed to think through their mission, purpose
and goals in ways that are in tune with contemporary
social mores, community needs and individual values.
It will take them considerable time to be back in
the ball game and again have the kind of impact, influence
and regard they have historically had.
The most serious strategic failures among nonprofits
are not thinking clearly and not thinking boldly.
Too many nonprofits do not imagine their futures in
sufficiently big terms to realize the kind of possibilities
that are in front of them, the opportunity costs of
which are incalculable. Because they are too involved
with the day-to-day, lack confidence or cannot conceive
of other possibilities, they often do not think about
the possibility, let alone the benefit, of moving
the fulcrum.
But moving the fulcrum allows an organization to shed
yesterday’s skin and move to a far more interesting
place. Moving the fulcrum also yields a new perspective
– one that must be true, of course, to the culture
and history of the organization, but one that takes
account of how the world in general and its world
in particular has changed – and is likely to
evolve even more rapidly over the coming years.
NYU’s Remarkable Transformation
Almost thirty-five years ago, New York University
decided that it wanted to be the equal of an Ivy League
university. What an idea! NYU in 1970 was a safety
school, largely for commuters; it housed virtually
none of its student body. It was faced with the onslaught
of Open Admissions at City University of New York;
it had just come through excruciating budgeting pressures
that led to the sale of its Bronx campus; its future
was uncertain, to say the least. But with inspired
and visionary leadership over three decades, NYU did
move the fulcrum.
It is now a nationally ranked institution of the first
order, an academic powerhouse with several schools
and departments that are second to none. It raised
more than $2 billion along the way, now houses the
majority of its undergraduates, has more international
students than any other U.S. university, has campuses
around the world and is on its way to becoming one
of a handful of institutions that are the beacons
of the future of higher education worldwide. And NYU
is just getting started…
The litmus test for any nonprofit is successful fundraising.
Successful fundraising – whether it be annual
development efforts or major capital campaigns –
means that the nonprofit has a compelling story to
tell and knows how to tell that story to the right
people at the right time and in the right way. If
an organization cannot raise money – even in
today’s difficult economic circumstances –
I believe that it means that it has not done its strategic
thinking – or done it properly.
Even with recent market constrictions, there is still
an extraordinarily deep pool of resources available
for philanthropic support: the inter-generational
wealth transfer is presently estimated at some $41
trillion and the present total private annual giving
from individuals is around $170 billion. Even with
intense competition, this is a lot of money!
The Scarce Commodity:
Smart Thinking, Not Philanthropic Funding
The scarce commodity is smart thinking, not philanthropic
funding. Those organizations that have undertaken
the rigorous work of thinking strategically tend to
be well prepared – and successful – at the
tactical steps of raising money. These organizations
know who they are, are clear about their ambitions,
have thought through what they are seeking to accomplish
– and why – and can provide hard evidence
of the effectiveness of their programs and activities.
Ensuring Superb Governance
Unfortunately,
there have been too many recent cases of nonprofits
that have failed their ethical obligations. For years,
the Roman Catholic Church did not sufficiently recognize
the poisonous issues of sexual abuse and preferred
covering-up to full disclosure. The American Red Cross
suffered embarrassing disclosures that it had reserved
a portion of funds for itself rather than ensuring
every dollar went to the families of the victims of
9/11. Boston University has incurred a major set-back
in firing its new president before he took office
and giving him $1.8 million not to come. A host of
private foundations have been vehicles for self-enrichment
by their trustees.
What happened? They all had lousy governance.
What is Superb Governance?
Superb governance means the organization’s Board
is strong, effective, thoughtful and policy oriented.
Such a Board thinks strategically; believes wholeheartedly
in the mission; has the relevant talents, interests
and capabilities among its membership; looks to its
CEO for effective realization of mission and programs;
and insists that its CEO and his/her staff are "best
of league."
Such a Board evaluates itself each year: it takes
stock of what it has done well, what it has overlooked,
how it has served the organization and how it has
carried out the work of governance. It likewise annually
evaluates each of its members – whether the Board
member faithfully attends meetings, understands the
mission, is proud of the organization, endorses it
to friends and colleagues, is watching out for it
and makes a serious annual financial contribution
– and acts thoughtfully and sensitively, but
tough-mindedly, about retaining only those Board members
who pass the evaluation with flying colors.
Further, such a Board makes certain it has an effective
nominating process that continually refreshes the
governance of the organization. My own belief is that
a nonprofit should aim to have something like 10%
of its Board turn over each year – to provide
fresh thinking and new perspectives while maintaining
continuity.
Building a Well-Matched Team
The Board of a thriving organization also recognizes
that while governance and management play different,
though complementary roles, both governance and management
must be well-matched in strength, vigor and energy.
Otherwise there will be misunderstandings, confusions,
inefficiencies and compromises. So while the wise
Board trusts the staff, it also is skeptical of them.
It continually asks questions, is probing and inquiring
in order to satisfy itself that the organization is
truly delivering on its mission.
Further, the Board of a thriving organization insists
on high transparency in all transactions; actively
supports the organization by 100% annual trustee contributions;
demands the highest ethical standards; does not tolerate
conflicts of interest by Board or staff members; requires
full accountability of the effectiveness of the organization’s
programs and activities; and looks for regular independent
external validation of the relevance, quality and
effectiveness of programs and initiatives.
The Role of the Chair of the Board
Perhaps most of all, the thriving organization will
have a superb Board Chair – someone who has the
understanding, confidence and interest to lead the
organization; someone who takes responsibility for
what I often call the "orchestration of governance",
or the care and feeding of the Board; someone who
is a true, well-matched partner of the CEO, who can
glide across the dance floor with the CEO with neither
stepping on the other’s feet.
Enhancing Public Trust
Enhancing
public trust goes far beyond simply ensuring –
or trying to ensure – the highest ethical behavior.
In a world of instant information, remarkable electronic
search engines and pressing competition, nonprofits
need to be far more transparent and accountable than
they presently are. I think we are on the cusp of
a sea-change in public interest in, and demand for,
information about nonprofits. The public, the media,
government and donors increasingly want to know how
nonprofits stack up against each other, how they are
fulfilling their missions, why they are worthy of
support.
There are surely going to be more US News &
World Report annual rankings of colleges, more
Business Week summaries of the efficiency of
charities, more scrutiny of nonprofit tax returns
over the coming years. I think this is, on balance,
a good thing. For such public scrutiny will force
improvements in performance, cleaner focus of mission
and improved efficiencies.
Anticipating External
Inquiry
Not all nonprofits will welcome such increasing analytic
attention with open arms. I can hear the squeals of
alarm and discomfort: It’s too complicated! How
can we accurately measure what we’re doing? We
have a special situation or face unique problems!
Nonsense. The world is demanding transparency and
it will get transparency.
Those nonprofits that anticipate such external inquiry
and believe in full transparency will benefit handsomely
by legitimate comparisons and pointed questions. They
will understand that "Good Housekeeping"
seals of approval, "Morningstar" rankings,
affiliation standards and other kinds of scorecards
will help them to explain their purposes, their programs
and their needs better because of third-party certification.
Throw Away the Tin Cup
Many nonprofits approach fundraising as if they deserve
to be funded. How many of us have gotten the telephone
call or the letter exclaiming that the arts group
or the public television station needs our contribution
because they have a serious deficit? That’s yesterday’s
appeal. That’s thinking of the nonprofit as a
charity, not an institution that is clear about its
purposes, clear about the reasons for support, clear
about its impact. The tin cup needs to be thrown out.
If I were running a nonprofit, I would not wait to
be asked, "How do you know your efforts are effective?"
or "How efficient is your fund-raising?"
or "What are your real admissions criteria?"
I would be anticipating such queries by already knowing
the answers and making them readily and widely available
in ways that are analytically secure and altogether
reliable. I would place them on the Web site; include
them in the annual report; feature them in solicitation
efforts and proposal letters. And then I would push
hard to get even better metrics.
We have a new client, a medical research institute,
which is only two months old but already has firm
pledges of over $2.5 million and is seeking to raise
another $2.5 million in 2004. I know it will be successful
because it already has its metrics in place: it knows
precisely how it will use this funding, the impact
of funding and the leveraging effect of this funding
on the three other institutions with which it is strategically
aligned.
Is It Effective?
If I were the CEO of a foundation, I would insist
on rigorous demonstration of the effectiveness of
the grants – in ways that help the recipient
build an analytic platform, rather than simply filling
out meaningless forms. The CEO of a small Chicago-based
nonprofit told me recently that of the last 30 foundation
grants he has received, not one asked for evidence
of effectiveness. Amazing!
I do not want to minimize the difficulties, expense
and complications of building a transparent analytic
framework. But I know that there is a sea change ahead
and this sea change can mightily bolster public trust
in nonprofits or can erode it.
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As
you can tell, I am quite bullish on the nonprofit
sector. If there were a publicly traded index for
the sector, I would suggest "buy and hold."
The best is yet to come.
A host of individual nonprofits will so shine over
the next decade that we will look back and marvel
at what they have achieved. They will do so because
they have thought clearly and boldly, exemplify superb
governance and been highly transparent and accountable.
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