How far we have come

I’ve written before about the lack of awareness of the role and scope of the nonprofit sector at all levels of government in the US.

Amazingly now, given the severe fiscal challenges of State governments, the sector is being attacked on new fronts. State and municipal administrations are even seeking to impose additional fees and taxes on nonprofits to boost revenue, in spite of these being the very same organisations that are already massively subsidising the delivery of essential services.

A report by the National Council of Nonprofit Associations shows these trends starkly. Tim Delaney, their CEO, described to me the scale of the problem. The vast majority of the sector’s interaction with government takes place at the State level of below, yet 48 of the 50 states are in serious financial difficulty. In Arizona they have sold the state building and the government is leasing it back just to bring in some short term cash. This fiscal crisis is leading on to three broad trends which are hurting nonprofits and those who use their services.

Firstly, many programmes are being slashed or simply stopped all together, and these include the programmes which are providing essential support to those most affected by the recession.

Secondly, government is getting worse and worse at contracting with the sector, with agreements signed sometimes a year after work began. In New York over 75% of contracts with the sector are signed late. California owes the sector more than $2bn and was paying some organisations with IOUs at the end of the last budget cycle.

Thirdly, and most shockingly, governments are seeking ways to bypass tax exemptions and create new taxes and fees for nonprofits to pay. Examples include taxes in Minnesota on streetlamps outside your office, taxes on sick-bed occupancy in Cleveland, and taxes on any students you may be teaching in Pittsburgh. Remember that it is almost unheard of for a nonprofit to recover the full cost of service delivery from the government here in the US (hence there is so much interest in our work on full cost recovery). Nonprofits are already massively subsidising the delivery of essential services, and yet their tax exempt status has made them a prime target for additional fees.

Tim believes the worst may yet be to come. He argues that because of the lag time in the recovery (first the market has to recover, then business have to recovery, then government has to refill its coffers and finally the sector will be funded again) it may take until the end of the decade for things to get back to how they were before the crisis.

There is huge synergy between the work of NCNA and ACEVO and I am really excited about building the partnership – we have a lot to share. The situation here is completely unsustainable and NCNA are working on their own version of the “Big Offer” to break the cycle, presenting to government the reasons why they need the sector now more than ever to fix the expensive social problems. But they have a tough job ahead as much of the architecture that we take for granted in the UK (such as the Office of the Third Sector, the Compact, Capacitybuilders and the Social Investment Business) simply does not exist here. Tim’s first job is to get a seat at the table, and for his members to have seats at the tables of government in each State. It’s a humbling reminder of how far we have come in the UK over the last decade.

US and UK leaders share optimism

The Nonprofit Finance Fund’s state of the sector survey was published in March. Over 1,300 nonprofits across the US responded. The headlines show that:

• Only 18% expect to operate above break-even in 2010
• 80% expect more demand for their services in the same period
• 89% expect 2010 to be as difficult of more difficult than 2009.

In terms of income predictions, 59% expect income from government to fall. However predictions for individual giving and earned income are more optimistic with a majority saying that both will increase or stay the same.

61% have less than three months cash available but the fund also reports that nonprofits are strengthening their financial management and 52% have collaborated on the delivery of a programme with another nonprofit.

Looking particularly at those organisations which describe themselves as “lifeline” organisations, offering critical services to people in need, 56% expect to find 2010 harder than 2009 for their organisations and 64% don’t think they will be able to keep up with demand.

In spite of this picture, nonprofit leaders remain optimistic. The Fund reports how leaders have redesigned the delivery of services to create efficiencies and actively planned for future scenarios.

A very similar pattern emerged from the 2009 ACEVO pay survey (Press release here). Leaders showed that although they were finding the environment tough, and they expected worse to come, they remained optimistic about the long term future, and remained passionate about their jobs, with 90% saying they were happy in their role and 96% saying they would recommend working in the sector to others. The survey is now being sent to all ACEVO members and their chairs to complete for 2010.

Board Behaviour

The similarities in governance structures between the sector in the US and the UK are striking.

On Friday afternoon I had a great meeting with Bill Ryan, research fellow at the Kennedy School of Government at Harvard. He is a leading thinker on board effectiveness and runs an online programme for chief executives supporting them to develop the performance of their boards. We discussed how this programme could be made available to chief executives in the UK.

Bill described how the narrative around nonprofit governance over the last decade in the US has focused increasingly on the control and audit aspects of boards, with the sector seeming to want to fit into an agenda of post-Enron corporate governance structural reform. Nonprofits adopted the onerous Sarbanes-Oxley regulation even though it did not automatically apply to them. Committees, audit trails and regulation proliferated, and yet governance did not necessarily improve.

Bill cited the example of the Smithsonian in Washington, an organisation which could not have had better governing structures on paper if it tried. It’s chair is the chief justice of the US supreme court. However scandal broke in 2007 where amongst other things the Chief Executive’s remuneration got out of hand (even by ACEVO standards!). The issue according to Bill was that the board had neglected the behavioural aspects of governance, the way in which people on the board actually related to each other and made decisions, and focused instead on structures.

This is pretty common. It is after all a good deal easier to talk about structures than it is to talk about behaviours. And it’s an important lesson as we work on revising the code of good governance in the UK. The right structures, with all the text-book checks and balances, are necessary for good governance but not sufficient. People need to behave in the right way, relationships must be cultivated and nurtured. Egos must be kept in check. This is of course equally true on both sides of the Atlantic and is why it is so important that tools like ACEVO’s governance review service look at both structures and behaviours.

The comparison between the UK and US structures therefore is very helpful. More diverse are the systems of governance across Europe. With partners across the continent Euclid Network is leading on the creation of a set of Europe-wide governance principles. In Paris last December representatives from across the UK and France began work in defining principles common to the two countries, and in spite of varying structures being described, those common principles of accountability, of collective responsibility, and of board leadership shone through. In the summer this will be expanded to Scandinavia with an event in Oslo.

ACEVO passionately believes in the importance of providing an international perspective to third sector leadership, and it is clear that in observing how topics such as governance develop around the world we can all learn from each other. Long may that continue.

Creative Disruption

The GEO Conference has also showcased some outstanding practice of foundations developing leaders as a core part of the support they can offer to the sector.

At a packed session this morning an overwhelming majority of the foundations polled said that they were already investing in leaders and almost everyone else said that they would like to start. It was acknowledged that there are many strategies for offering such support (and the value of these approaches are demonstrated in various of GEO’s publications), but the two we focused on were executive coaching and skills development.

Linda Wood from the Evelyn and Walter Haas, Jr. Fund talked about how the foundation considered the sector’s leaders to be its most significant asset. She showed a series of interviews with leaders who had received support for coaching from the foundation and it was clear that the experience had been transformational. One stood out, a founding leader of a nonprofit in California who had led the organisation for 30 years described how he was overwhelmed with fear at the thought of expanding to a new city and effectively starting again. The honesty and self awareness of his story was startling and effective coaching, with support aligned to the organisation’s mission, allowed the expansion to be a success.

Linda also reflected on the question of how you evaluate the impact and return on investment of such interventions and concluded that trying to turn such intangibles into quantitative data was pointless. The stories speak for themselves. Indeed in the private sector this kind of investment in leaders is considered a no-brainer, a duty even. Such investment must be core to how the sector is developed.

Also on the panel was Steve Fitzgerald from the Bank of America Charitable Foundation which runs the pioneering Neighbourhood Excellence Initiative (which is also run in London with support from ACEVO). The programme provides two year unrestricted grants for community organisations based in 45 cities where the bank has a big presence, and provides a bespoke leadership development programme, run by the Centre for Leadership Innovation, for the leader and a next generation leader in the organisation.

Steve spoke about how it has been a significant culture change for the bank to run with a programme which does not provide the kind of hard data on outcomes to which his colleagues are used. Instead they listened to the organisations they want to support and changed the programme to reflect their needs. An example which many other foundations could follow.

Most impressive of all though was a session yesterday on sabbaticals. The Durfee Foundation in LA provides support for non-profit leaders to take 3-4 month sabbaticals where they are not allowed to do anything work related at all.

An evaluation report written by Third Sector New England and CompassPoint (Creative Disruption) shows how such an investment can have amazing results for the leader and for the organisation as a whole, and more far-reaching results than almost any other form of capacity building.

Many of the leaders who qualified for the programme had been in post for a long time and faced burn out. The time off allowed them to focus on themselves and do something they had always wanted to do, from travelling the world to cultivating their gardens. When they came back those leaders were more likely to stay but also had time to separate the wood from the trees, and often came back to make significant improvements to the way the organisation was running.

The organisation also benefitted significantly with the next tier of leaders placed into a leadership role, helping with succession planning and emphasising the need for the organisation to nurture its talent. 60% of participants reported that governance was strengthened as the organisation build structures around the departure and return of the CEO. And funders benefit with new trusting relationship fostered and leaders able to better understanding the needs of their communities.

The report makes for fascinating reading and I can’t wait for ACEVO members to see it. Great potential for new methods of investing in leaders is out there, let’s hope the sector in the UK can realise that potential too.

Big is Beautiful

I’m at the conference of Grantmakers for Effective Organisations (GEO) in Pittsburgh. There are over 500 leaders from the most progressive foundations in the States discussing how to better support nonprofits to deliver better outcomes.

GEO is an impressive outfit, and provides a space for timely conversations about how foundations should behave; including providing unrestricted core funding, getting smarter at reporting and evaluation, and treating nonprofits as partners not poor relations. Crucially they bring the voices of nonprofits into those conversations in order to have an honest dialogue.

I am running a session on how ACEVO’s work on Full Cost Recovery has changed funder behaviours and third sector capacity in the UK and we are working closely with GEO on how a similar campaign can be developed in the US.

GEO are also closely involved in the White House’s Social Innovation Fund and everyone is excited about a big announcement by President Obama expected in the coming weeks to kick the fund off.

This morning’s plenary session was one of those moments when you remind yourself how inspiring working in the third sector can be. The theme was “The possibilities and perils of scale”, but there certainly seemed much more in the way of possibilities than perils for the two speakers as they refuted the misguided notion that small is always beautiful.

Bill Strickland runs the Manchester Bidwell Corporation which began here in Pittsburgh, working to train people from disadvantaged communities in areas such as catering, pharmaceuticals, art, horticulture, design and many more. Bill spoke passionately about the recipe for his success, which included how the very high quality of the buildings and environments matters in order to raise people’s aspirations. The centre works because, as Bill says, it proves to the wider community that these poor people who have been considered a liability, are in fact an asset. “The only thing wrong with poor people is that they don’t have any money”, says Bill. In areas where fewer than 50% get a high school diploma, 95% of those who have been trained by the corporation graduate and then many work for the corporation’s various enterprises generating resources to expand the work.

Once the model was proven in Pittsburgh, and with the help of Jeff Skoll, Bill has set up centres across the country and has a goal for 100 in the US and 100 more around the world. “We’re not in the miracle business”, he says; “we’re in the hard work business”. Bill spoke at length about the leadership qualities needed to bring about this kind of scale. The expansion was not driven by a franchise model but rather by an affiliate model so investing in supporting the local leaders of the centres was crucial, and building local partnerships made all the difference.

Angelica Salas runs the Coalition for Humane Immigrant Rights of Los Angeles and showed what scale means in advocacy. The task of fighting for better rights for immigrant communities in the US is huge, there are over 4m undocumented young people let alone all those of working age, but the achievements of Angelica and her colleagues are impressive. Mass protests were coordinated across the country in 2006. In 2008 they registered over half a million new voters. In March this year thousands of immigrants marched in DC to encourage Obama to live up to his promises on immigration reform and now a new $10m fund will support immigrant integration.

For mobilising immigrant communities you need both national impact and reach into what may be disparate immigrant communities. Coordination is what makes this happen and Angelica reports how every Tuesday she holds meetings with colleagues from groups across the country to discuss what needs to happen next. “For us to be successful we must be coordinated in LA, at the state level and across the country”, she says.

The conversation showed how scale is achieved in different ways in both delivery and advocacy organisations, but that scale – put simply – made things happen that couldn’t otherwise have happened.

For Bill the vision is that there are so many successful centres that public policy begins to change as a result because the evidence of success is overwhelming. Service delivery can only impact on policy on this way when it reaches scale, and this is just one of the things which is lost when we are blinded by the misplaced quasi-romantic notion that small is beautiful and big is bad.

Scale is a good thing in our sector. Let’s take the lessons from groups like Bill’s and Angelica’s and stop being afraid of it.