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Pathways to Nonprofit Excellence
By PAUL C. LIGHT
BROOKINGS INSTITUTION PRESSCopyright © 1999 Brookings Institution Press
All right reserved.
Chapter OneThe Nonprofit Present
The central challenge facing the nonprofit sector today is achieving and sustaining higher performance. Under increasing competition from private firms and faith-based organizations, and under duress for the disbursement crisis following the New York City and Washington tragedies, the sector's 1.23 million organizations and 11 million employees must answer the call for improvement. No amount of government funding, philanthropic largesse, or program innovation will matter if the sector does not make the investments needed to both achieve and sustain high performance. The key issue today is not what the sector delivers, but how it operates.
There is no lack of reform ideas, however. The sector was awash in management reform well before the tragic events of September 11, 2001, and remains so today. Hardly a month goes by without some new suggestions for improvement, whether in the area of management standards, mergers and strategic alliances, greater transparency, or measuring outcomes. There is a reform idea for those who believe the sector is too fat and those who believe it is too lean, for those who believe it is too insular and those who believe it is becoming too much like government and the privatesector, and for those who believe it is overregulated and those who believe it is underwatched.
Some of those reforms must have worked, at least according to the 500 experts interviewed for this report. Thirty percent of the respondents strongly agreed that most nonprofits are better managed today than they were five years ago, 48 percent somewhat agreed, and just 10 percent strongly or somewhat disagreed. The problem is that no one knows which reforms worked, when, and why. The sector has been so busy adopting the reform of the day that it has underinvested in basic research to measure the impact of the reforms themselves. As a result, nonprofit executives can speak a variety of reform languages but receive little help with when to use one language or another for actually improving performance. It is little wonder that reforms come and go like waves at the seashore, rarely leaving a lasting imprint on the overall performance of the sector.
The question, then, is how nonprofits can attain the organizational effectiveness needed to regain and hold the public's trust in the wake of September 11. The answer to this question lies in the lessons nonprofits have already learned about achieving and sustaining high performance. The nonprofit hardly needs to look over the border at what businesses and governments do well. It already has hundreds upon hundreds of success stories within its own midst. All it has to do is understand what those stories mean.
The Impact of September 11
September 11 altered the future of the sector dramatically. It simultaneously affirmed the public's support for civic institutions such as the Red Cross and United Way and revealed the desperate need for a better understanding of organizational effectiveness. The sector has never been so visible, yet never so vulnerable to charges that it cannot be trusted to do the right thing. The four major responses to September 11-the surge in contributions, increased confidence in civic institutions, the disbursement crisis, and the demand for accountability-all focus squarely on performance.
The Contributions Surge
Charitable giving increased markedly following September 11. By December 1, six in ten Americans had contributed a total of $1.5 billion to help victims in New York and Washington. Roughly $1 billion went to the Red Cross's Liberty Fund and the United Way's September 11 Fund, and a quarter went to the fifty funds established to help the victims. Mayor Rudy Giuliani's Twin Towers Fund reported $113 million in receipts, the New York Firefighters 9-11 Disaster Fund $90 million, the Robin Hood Relief Fund $48 million, and the Uniformed Firefighters Association Widow's and Children's Fund $29 million.
The funds came in all sizes, however. The Dean Street Heroes Fund raised roughly $300,000 in two months to help the families of the seven firefighters who died from Brooklyn's Engine Co. 219.2 "It is safe to assume that every single fire company that lost somebody has a fund of some sort," said one expert. "The size will depend on how many people were lost, how large the company is, however connected they were to their community-and how affluent that community is."
This generosity has had both positive and negative effects on the nonprofit sector. On the one hand, the September 11 funds may well have drawn off dollars that would have gone to other nonprofits. Much as Americans might want to give to both national and local charities, it is not clear that contributing is elastic, especially in an economic downturn.
September 11 hurt many smaller nonprofits, whether because they delayed annual fund-raising appeals, canceled performances, or curtailed services in anticipation of potential cutbacks. According to a survey of 413 California "safety net" nonprofits conducted in early December by a coalition of philanthropies called California Cares, contributions fell $25 million, or 5 to 10 percent, in the three months following September 11, in part because of the movement of contributions eastward, and in part because of an "anti-immigrant sentiment." "A number of charities may not make it, and many more will drastically reduce their programs, just as they're needed most," said the head of the National Committee for Responsive Philanthropy, Rick Cohen. "This could be the most challenging time ever for the nonprofit sector."
September 11 was not the most serious problem facing the sector in the third quarter of 2001, however. At most, the September 11 funds drew off no more than a fraction of the billions that went to charitable organizations in 2001. Rather, to paraphrase Bill Clinton's famous 1992 campaign slogan, the biggest problem was the economy, stupid. Not only did the recession reduce the ability of Americans to contribute, it also reduced state and local government revenues, which, in turn, reduced grants and contracts for nonprofits.
The recession also reduced peak giving among the nation's wealthiest givers. According to the Chronicle of Philanthropy's annual inventory of the ten largest charitable gifts, the top-ten gifts in 2001 totaled $4.6 billion, down 60 percent from the $11.1 billion in 2000. Whereas the 2001 top-ten list included five high-tech givers, the 2002 list included only three. Of the three, two gave substantially less in 2001 than they had the year before. Microsoft chairman Bill Gates gave $2 billion to his Bill & Melinda Gates Foundation in 2001, down from $5 billion in 2000, while Intel co-founder Gordon Moore gave $300 million to the California Institute of Technology in 2001, down from $5 billion the year before. "If you don't have the money," said Stacy Palmer, editor of the Chronicle of Philanthropy, "you can't give it away."
The recession affected more than the technology giants, however. According to an October 2001 survey by the Independent Sector, three-quarters of individual donors said they would reduce or even eliminate their giving if the recession continued. In Minnesota, for example, nonprofits were warned in late November to expect a 5 percent reduction in total United Way giving, while other nonprofits reported declines in their end-of-year giving campaigns that generate so much of their discretionary income every year. In New York, the 2002 state budget took what one observer calls "the worst hit to the state budget since the Great Depression. Nonprofits that rely on state money or provide services on behalf of the state are very vulnerable. We're anticipating that the nonprofit work force in New York state might be reduced by 10 or 15 percent in the next year."
Whether the giving glass is half full or empty depends on the ability of other, less vulnerable donors to increase their contributions to compensate for these and other shortfalls. At least according to the University of Indiana's Center on Philanthropy, the prognosis among a sample of 286 development executives and fund-raising consultants was down sharply by December. Lingering concerns about the September 11 funds and economic worries drove the center's benchmark philanthropic giving index from 91.1 on a 100-point scale in June 2001 to 83.6 in December. Unlike the Conference Board's more familiar consumer confidence index, which actually rose eight percentage points from November to December after three straight months of decline, the philanthropic giving index reached its all-time low at the same point in time. The center's present situation index, which measures the current climate for fund-raising, also hit an all-time low of 79.0, down from 89.9 in June.
Despite these negative factors, the nonprofit sector may yet benefit from what some experts believe will be a surge in 2002 contributions. According to another study by the University of Indiana's Center on Philanthropy, giving has generally risen in the year following national crises such as Pearl Harbor, the Cuban missile stand-off, the Kennedy assassination, the resignation of President Richard Nixon, the 1987 financial panic, the Gulf War, the 1993 World Trade Center bombings, and the 1995 Oklahoma City bombing. Although the stock market fell in the month immediately following each of the thirteen crises studied, it rebounded the next year in all but four cases, and charitable giving grew at a greater rate in the year following each crisis in all but three cases.
True to projections, the stock market had already returned to pre-September 11 levels by January 2002, raising hopes that charitable giving would not be far behind. Indeed, according to the Center on Philanthropy's analysis of its own philanthropic giving index, the best available evidence suggests "what intuition and anecdotal evidence indicate: that it has become more difficult to raise money, but that these difficulties are expected to be fairly short-lived."
Reaction to the United Way scandal of the early 1990s, following its president's misuse of agency funds, suggests that current controversies surrounding it and the Red Cross will have little effect on the nonprofit sector as a whole. Although donations to the United Way did fall in the wake of the scandal, the agency's own surveys suggested that the 1991-92 economic recession was to blame. Indeed, contributions to the sector actually rose 6.4 percent in 1992.
The Confidence Curve
September 11 also produced a dramatic surge in trust in government and other civic institutions. Between July and October, the number of Americans who said they trusted the federal government to do the right thing just about always or most of the time surged from just 29 percent to 57 percent and remained perched at that level well into December. According to pre- and post-September 11 surveys conducted on behalf of the Center for Public Service, many institutions gained public confidence in the wake of the New York City and Washington attacks, including both the news media and business corporations.
No institution moved as far in this regard as the federal government, largely because it had so far to go. The number of Americans who said they trusted Washington a great deal or a fair amount jumped seventeen percentage points from July to October, while the number who felt somewhat or very favorable toward it rose twenty-eight points.
Unfortunately, there is no information showing a parallel surge in trust toward the nonprofit sector immediately after September 11. Americans were asked about their confidence in just about every institution but the charitable organizations, which in itself is one indicator of the lack of investment in sector reform. By the time the Center for Public Service was able to field a survey of attitudes toward the sector in December, any short-term surge had already worn down, as it had for government institutions.
There is no doubt, however, that September 11 boosted confidence in other institutions, as well as the public's trust in fellow citizens. According to a University of Chicago National Opinion Research Center (NORC) survey of more than 2,100 Americans taken in the two weeks following the tragedies, almost half of the respondents made contributions to charities in this period, and a quarter donated or tried to donate blood. The vast majority also said "special prayers," while substantial percentages reported greater faith in their fellow citizens. Two-thirds said that most people are helpful, up twenty-one percentage points from 1996 NORC surveys, while three-fifths said most people in general are fair, up 12 percent. "Bowling Alone" Harvard scholar Robert Putnam found similar results in his own post-September 11 survey: "Whites trust blacks more, Asians trust Latinos more, and so on, than these very same people did a year ago," he wrote. "Evidence of enhanced trust across ethnic and other social divisions is especially striking and gratifying."
This general rise in social trust tracks a broad increasee in all forms of civic engagement following September 11. By the weekend of October 5-8, when a Wirthlin Worldwide survey of 1,009 Americans was conducted, 58 percent of Americans had made a charitable contribution, up nine percentage points from the NORC survey completed two weeks earlier. All totaled, seven out of ten Americans gave money, time, or blood in direct response to September 11.
It is important to note that trust in charitable organizations was already remarkably high before September 11, thereby limiting the potential surge associated with the tragedies. According to a July 2001 survey conducted on behalf of the Independent Sector, 90 percent of Americans said they had a lot or some confidence in the nation's charitable organizations, and 85 percent said the same of federated appeals such as the United Way and March of Dimes. Unlike confidence in the federal government, in President George W. Bush, Vice President Dick Cheney, and presidential appointees, which had substantial room to rise after the attacks, trust in the nonprofit sector had little room to go.
Trust in the government and the nonprofit sector are not necessarily linked, however. Independent Sector surveys have shown steady confidence in the sector's ability to deliver goods and services on the public's behalf. Between 1994 and 1999, for example, Independent Sector's Giving and Volunteering in the United States surveys showed relative stability in the number of Americans who believe that nonprofit organizations play a major role in their communities.
In 1994, 73 percent said charitable organizations play a major role in making our communities better places to live, compared with 71 percent in 1996 and 76 percent in 1999. Somewhat smaller majorities also said that charitable organizations are honest and ethical in their use of donated funds, play an important role in speaking out on important issues, and are more effective in providing services than they were five years ago. Although there are some troubling signs in the data, including a slight decline in the number of Americans who said the need for charitable organizations is greater now than five years ago (down from 82 percent in 1994 to 74 percent in 1999), most of the trend lines are in the right direction and show little of the characteristic distrust that Americans feel toward government.
Nevertheless, a January 2002 survey by ABC News suggests that the surge in confidence is restricted almost entirely to the war on terrorism. Whereas 68 percent of Americans trusted the federal government almost always or most of the time on matters concerning national security, only 38 percent felt the same about the federal government on social issues such as the economy, health care, Social Security, and education.
The Disbursement Crisis
September 11 also cast an ominous shadow over the nonprofit sector, raising questions about the ability of its flagship organizations to spend money wisely. Like the United Way scandal of the early 1990s, September 11 may yet be remembered by nonprofits more for the scathing scrutiny it has produced than for the resulting surge in confidence in government and its civic partners.
Much of the scrutiny was driven by Bill O'Reilly, the pugnacious anchor of Fox News Channel's The O'Reilly Factor. O'Reilly was the first to exploit the sluggish disbursement of the Red Cross Liberty Fund, the largest of the September 11 funds. The Red Cross was guilty not just of bureaucratic sloth, O'Reilly charged, but of diverting at least some of the Liberty Fund to administrative needs.
In a sense, the Red Cross became a victim of the public's generosity because the outpouring revealed the weaknesses in the organization's infrastructure. It did not have the refrigerators to store all the blood that had been donated and desperately needed new telecommunications and information systems to distribute the money quickly and wisely. In addition, internal policies designed to protect the privacy of beneficiaries prohibited the Red Cross from participating in developing a master list of victims that could be shared by the hundreds of other relief agencies engaged in the legitimate effort to help the families of the 3,000 victims of the disaster.
Unlike many private corporations, which would have moved quickly to address the charges, the Red Cross decided to stand behind legalese. Led by its fiery president, former U.S. surgeon general Bernadine Healy, the Red Cross noted that all of its calls for donations had contained fine print clearly stating that the Liberty Fund was to be used "for this tragedy and emerging needs from this event." "Together we can save a life," each of the public service advertisements ended.
Excerpted from Pathways to Nonprofit Excellence by PAUL C. LIGHT Copyright © 1999 by Brookings Institution Press
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.