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Check-Up Clinic: Nonprofits Post-Pandemic

Posted: 7/10/2020

Click here to read on Stanford Social Innovation Review

Reestablishing Philanthropic Vitality After the Emergency

by Maximilion Martin

The COVID-19 pandemic is forcing nonprofits to reinvent their intervention and business models at lightning speed, and many foundations are rising to the challenge and supporting them ad-hoc. But when the dust settles, the social sector will need to take strategic steps to restore its philanthropic vitality and contribute to a post-COVID social contract.

The onset of the COVID-19 pandemic in the first quarter of 2020 put an end to a decade of global economic recovery. Governments have stepped in to help stabilize things; in the United States alone, the monetary and fiscal stimulus stands at more than $6 trillion and counting. But we entered the COVID-19 crisis with global debt over 322 percent of gross domestic product (GDP)—that's 40 percent, or $87 trillion, higher than at the onset of the 2008 financial crisis—and we'll need to return to sustainable spending eventually.

Meanwhile, the full extent of the pandemic's tragic human impact isn't yet known, but we can already see dramatic implications, particularly for low-income communities. In the social sector, the public eye is mostly on the nonprofits that support emergency health response and offer services to the many populations that fall through the cracks of standard public services—including elderly people and minorities; people experiencing poverty, unemployment, or homelessness; and asylum-seekers.

Amid these economic, human, and institutional pressures, the need for philanthropy has increased, but it's plain to see the crisis is shaking the sector. From March to May 2020, US nonprofits cut 1.6 million jobs—that's 13 percent of all nonprofit jobs in America. Funders are trying to ease the blow; the Ford Foundation's call to action during the pandemic, for example, exemplifies the type of grantor commitment every philanthropic foundation should aspire to, and foundations like the ones I serve have worked quickly to establish a dialogue with grantees on current and future needs, relaxed restrictions on current grants, reduced reporting burdens, and designed a dedicated COVID-19 initiative to make targeted new grants. But not all nonprofits have this kind of support. What's more, established fundraising channels such as events aren't currently viable, and donors are harder to mobilize—and will continue to be until the economy recovers. By managing their liquidity, cutting costs and non-core programs, appealing to important donors, and accessing lines of credit, many nonprofits will succeed in leaning against the wind. But the unfortunate fact is that many others won't.

When the dust settles, the social sector will need to take strategic steps to restore its capacity and strength, and to effectively contribute to a post-COVID-19 social contract.

The Reckoning Ahead

When the sector eventually turns its attention to rebuilding, an important part of the way forward will be revisiting how to create systems change. When foundations review how COVID-19 has affected grantees' operating models, as well as their ability to deliver impact, liquidity, and solvency, it will become clearer than ever that viewing social change from a single-organization perspective is insufficient. To create change will require that foundations fund a set of organizations that act on different levers, including direct service, research into new solutions, capacity building, and advocacy. Indeed, starting now, funders and nonprofits need to begin thinking about what a vibrant, post-COVID-19 civil society could look like; which actions are conducive to (re)building it; and how to finance its different elements, including research and development, capital investment in nonprofit upgrading, and operating support. The role of civil society and science in forging the 2015 Paris Agreement on climate offers an example from which to learn.

The sector will also need to revisit its legitimacy. Already before the pandemic, "big philanthropy"—which Stanford professor Rob Reich has defined as "an exercise of power by the wealthy that is unaccountable, non-transparent, donor-directed, perpetual, and tax-subsidized"—was beginning to come under pressure. Indeed, voices that accuse philanthropy of being secretive, undemocratic, and often unable to show its value are multiplying. While these voices are finding less of an audience during the pandemic, they are sure to come back with a vengeance once the emergency need for stimulus gives way to concern for balancing budgets. At some point, philanthropy will need to more clearly demonstrate its value to society, show greater inclusivity and transparency, and prove that it's using scarce resources effectively. Emerging narratives questioning the value of philanthropy will be compounded by major economic-institutional collapse, but there are multiple paths forward. One leads to a philanthropic sector diminished by the crisis, and one to a sector with the necessary legitimacy, resources, and freedom needed to drive social change.

Philanthropic Vitality: A Useful Measure

Before devising ambitious plans for how to build a better philanthropic sector, it's worth taking stock of the factors that influence it and identifying strategic opportunities to enhance its dynamism. A useful concept here is "philanthropic vitality," or what makes the sector efficient, impact-focused, and trustworthy. Gauging the philanthropic sector in any given region by its vitality can help us identify what's working and what's not, and then create a strategy for achieving vitality.

My colleagues and I defined the sector's core vitality dimensions in a recent pilot study as including adequate financial capital, a robust regulatory context and accountability practices, talent and human capital development, and high levels of public trust. We believe good collaboration practices, as well as a well-developed network of intermediaries that connects funders with nonprofits and provides professional services, also enhance vitality.

Based on this, the pilot study set out to assess the vitality of the philanthropic sector in Switzerland's Lake Geneva region—home to more than 2,500 public utility foundations, and 450 international organizations and NGOs. The region's philanthropic sector showed strong vitality in its core dimensions, including a robust regulatory context and significant financial capital. In addition, foundations in the region benefitted from high levels of public trust, ahead of government, business, and the media.

But while there was a healthy intermediary sector, we found that public utility foundations need to make more progress on factors such as human capital development and diversity, accountability practices and transparency, and local collaboration to increase their value to society. To systematically improve these conditions and, thus, the sector's ability to drive change, we recommended that the sector establish a coalition of funders interested in promoting the region's philanthropic vitality, and align local and regional government best practices and procedures.

Developing a Vitality Action Plan

As explained above, when the emergency stage of COVID-19 has passed, the sector will face massive additional social need, depleted government coffers, a reduction in total donations, and additional uncertainty in financial markets. It will also likely face greater need for systems-level work, and renewed scrutiny over its legitimacy and effectiveness. However, the rebuilding phase also offers four opportunities that—if approached holistically and strategically—can enhance the vitality of philanthropy and civil society. These opportunities include rethinking fiscal incentives, improving transparency, investing in technology, and taking collaboration to the next level.

First, the sector needs to draw in more philanthropic capital through well-targeted fiscal incentives and tax exemptions of philanthropic foundations. This will motivate institutions to invest in social impact. Some philanthropic foundations may even choose to pay taxes in exchange for greater freedom to select who they invest in and how (via grants or for-profit investments). In cases where a foundation already co-finances projects with the public sector, providing direct support to government is another motivation.

As one example, Geneva's largest foundation—the Fondation Hans Wilsdorf, whose primary asset is ownership of the luxury watch brand Rolex—recently shared its philanthropic footprint for the first time publicly. It pays out 250 million Swiss francs per year (approximately $260 million), exclusively dedicated to public interest projects in the Canton of Geneva. The foundation also announced that as of fiscal year 2020, it would give up its charitable tax exemption and pay an estimated additional 30 million Swiss francs ($31 million) per year in taxes. (Rolex already pays company taxes.)

Second, the sector needs to improve transparency about what works. Using data to ground decision making has become foundational to strategy and operations in most industries. The social sector similarly needs easily available, high-quality, machine-readable data so that it can quantify issues and understand what drives outcomes—at reasonable cost.

For example, the Inter-university Consortium for Political and Social Research, an international consortium of nearly 800 institutions, runs the Measures of Effective Teaching (MET) project with 3,000 teacher volunteers and independent research teams. It builds and tests effective teaching methods to help teachers develop their practice and thereby improve student success. Though some consider a methodology that assesses teacher effectiveness through the lens of student test scores too narrow, the consortium nevertheless believes test scores codetermine students' life prospects. Systematically identifying—and sharing—how teaching can improve them across a variety of subjects offers a way forward. Offering free access to published findings and reports, as well as researcher access to data sets, democratizes insight and enables testing alternative research assumptions.

Third, the sector needs to invest in technology. COVID-19 is accelerating the transformation of nonprofits into digital knowledge organizations that collect and process valuable information about projects, funding, and partners. Nonprofits need to promote data gathering on social issues and projects, as well as be ready to use the data and handle it according to cybersecurity and privacy requirements.

A 2016 survey of nonprofits in Los Angeles, California, found that 95 percent of the organizations were aware that technology was important to their work and future. Notwithstanding, 60 percent did not have the staff in place to support their technology needs. Moreover, 54 percent believed their staff were not trained well enough to use technology effectively in their day-to-day work. The "big five" tech companies—Alphabet, Amazon, Apple, Facebook, and Microsoft—already run pro-bono programs to help nonprofits integrate digital technology and data-driven decision-making. Funders have the opportunity to use their money and influence to secure in-kind and pro bono support (including product license donations, platform development, and staff training) for nonprofits, enabling them to digitize and automate business processes, use digital platforms, and leverage data and analytics in new ways that enhance their efficiency and social impact.

Finally, the sector needs to approach collaboration with a new level of ambition. Take the issues of habitat loss, wildlife trade, clean air, agriculture, sustainable food systems, and climate change. In thinking of them altogether, it becomes clear that health and the environment are interdependent, and that we need to tackle all of them at the same time. Collaboration pools knowledge and resources in an otherwise fragmented philanthropic landscape, enabling greater impact. And again here, it's important to develop strong, explicit incentives to working together.

For example, few programs that address violence against women in the Global South have formed partnerships to transfer the most effective intervention models. To help stimulate the spread of high-impact approaches and adapt them to new local contexts, the Womanity Foundation created an award to encourage collaboration between an "innovation partner" (a nonprofit that has developed a successful program) with a "scale-up partner" (a nonprofit that contextualizes, adapts, and rolls out the approach in a new location). By providing funding, capacity building, and access to networks, the award provides an incentive to replicate proven intervention models in new geographies. The partners of the award's most recent edition, My Safetipin in India and Soul City Institute for Social Justice in South Africa are working on making a free application that provides geospatial data and information to make public spaces safer, more accessible, and more relevant to women in South Africa.

What Funders Can Do Now

Although the sector is still responding to the emergency, it behooves us all to start preparing to rebuild. Here are eight things funders can do now to lay the groundwork for future philanthropic vitality.

  1. Decide your post-COVID-19 objectives with systemic change in mind. For example, closing the racial and ethnic inequality gap in education in your target area might require that you support nonprofits across a range of issue areas, including nutrition programs, transportation, and technology. Assess which nonprofits can work together to achieve holistic change. Earmark an allocation for rebuilding as part of your grant portfolio and help these strategic nonprofits get through the crisis.
  2. Tackle legitimacy proactively by being ambitious about accountability practices, including transparency about results and a commitment to keep improving. Also take into consideration different stakeholder views when you define your strategy.
  3. Understand which vitality factors you can influence and act accordingly. For example, the Ford Foundation and the Bill and Melinda Gates Foundation have the clout to inform public policy and the public's perception. For a less well-known foundation that primarily has clout among its grantees, it makes sense to instead focus on vitality enablers at grantee-level, such as accountability and collaboration practices, or human capital and talent.
  4. Consider what funding instruments you will need. For example, if you need more flexibility because you want to use market mechanisms and social business to achieve bigger change faster, ask yourself if you need to create hybrid for-profit structures alongside your charitable venture.
  5. Play an active role in bringing the power of data and analytics to bear on the issues you care about. Create or join consortia such as the Inter-university Consortium for Political and Social Research.
  6. Build out your own digital competencies and fund digital upgrading among grantees. Starting points to build a case for digital transformation include resources at Tech Impact, a nonprofit that helps nonprofits better use technology, and the NetHope consortium solutions center, which focuses on information technology use in the humanitarian sector.
  7. Build collaborations and partnerships that enhance your insight and voice. Contribute your expertise to the emerging narrative on what a post-COVID-19 world should look like. Create incentives for the organizations in your portfolio to collaborate as well.
  8. Finally, keep an open mind for moonshots. Philanthropists and nonprofits were instrumental in establishing public libraries, ending apartheid, and virtually eradicating polio. At historical junctures, non-linear, transformational change is possible, provided it is imagined, ideated, backed, and executed. COVID-19 is no exception.

There will be no one-size-fits-all solution, but collectively, philanthropy will be judged not only on the contribution it makes now to solving the COVID-19 crisis, but also on how it rebuilds itself after the emergency and whether it can ultimately create systemic change. By measuring and optimizing the conditions that contribute to philanthropic vitality and by taking advantage of the opportunities that lie ahead, forward-thinking funders and nonprofit leaders can meaningfully improve the sector's ability to drive change.


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