Giving in Challenging Times

This brief guide is designed to serve both emerging and established donors looking at important questions and issues faced when giving in challenging times.

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Introduction

In times of economic crisis, the urge to act precipitously is understandable. But such an approach may not help donors reach their intended goals.

A financial downturn affects both the supply and demand sides of philanthropy. Money available for giving often shrinks just as public need rises sharply, driven by hardships like high unemployment and ebbing government resources. In the recent recession, private foundations and donor-advised funds saw double-digit investment losses. Some donors felt they had to retrench; some vowed to maintain their normal levels of giving.

Huge economic change may seem to call for a dramatic change in giving strategy. But thoughtful philanthropists rarely panic. In fact, they often see changing circumstances as a chance to take a fresh look at their approach—reviewing their giving; recalibrating their priorities and methods; and recommitting to a long-term giving strategy (if appropriate).

This brief guide is designed to serve both emerging and established donors. Part of the Philanthropy Roadmap series, it looks at important questions faced by those who give in challenging times:

Review

Are the values that inform your giving still appropriate and inspiring?

Recalibrate

Does a fresh look at your motivations, your goals and your giving vehicles indicate areas for change or consolidation?

Recommit

Will you make adjustments to your giving strategy so that you are better positioned to support the causes you care about over the long-term?

In prosperity, caution; in adversity, patience. - Dutch Proverb

Review

Reviewing giving

Philanthropy can’t address the problems of humanity if it fails to keep pace with the people and communities it seeks to serve. That’s why many donors find it wise to build regular reviews into any giving strategy.

When dire economic conditions present a new reality and new choices about giving priorities, reassessment takes on a particular urgency.

Naturally, compassion for those affected by financial hardship will guide the process, but so will the rational push for improving philanthropy’s impact. In the end, both heart and head are required to respond to an evolving situation with both relevance and effectiveness.

Here are some key aspects of giving which donors may find worthy of review in economically challenging times:

Method

In hard times, donors can re-evaluate how they give. Whether they make direct personal gifts, use a donor-advised fund, or run a private foundation, it’s fair for them to ask if another giving vehicle might better serve their needs. For instance, down markets often cause donors to take a closer look at how spending requirements may impact the long-term financial health of their family’s philanthropy. Donors who give independently or through a donor-advised fund generally do not have the same annual payout requirements that private foundations have. Due to the many complex issues connected with these different charitable vehicles, seeking out advisors with expertise in philanthropy as well as tax and financial planning can be advantageous.

Motivation

Many donors see the volatile economic climate as an opportunity to think about their reasons for giving: the why of philanthropy. What are the values that inform your giving? What are the causes that are most meaningful? What issues resonate through a given donor’s background, family, culture and values? Donors may have already identified causes to support—the what of philanthropy—but may want to re-consider their top priorities in how to allocate resources. The results of this internal review process could lead to a deeper commitment to the philanthropic work they’ve been doing. Or, on the other hand, the process may provide the incentive needed to make small or even radical changes to the causes they support or the way they support them.

Impact

When endowments shrink even as the demand grows for the services they fund, each philanthropic dollar becomes a more valuable resource. To help decide among organizations that have different approaches, donors should carefully consider the impact that each organization has in their field. By gaining access to reports on an organization’s work, donors can compare the outcomes that each organization produces to the impact their giving seeks to achieve.

Communication

One of the best ways to re-assess giving is to gather new information about organizations you support. And one of the best ways to gather that new information is simply to ask your nonprofit partners how they have experienced the downturn. Have they seen increased demand for their services? Have their priorities changed due to fresh needs arising in the populations 8 9 they serve? Have they seen a decrease in funding from public and private sources? What kind of support would be most useful given current circumstances? An open, honest dialogue often produces the best strategy and outcome for both the donor and recipient organization. By considering yourself to be in partnership with an organization to produce a particular outcome, it becomes easier to share your views and interests with them. You may even find there are non-financial contributions that you or people within your network can make that will be particularly helpful.

Peers

How are other philanthropists responding to the new economic reality? Donors may want to pay particular attention to foundations that work in similar areas of interest. In the for-profit world, companies are often loath to share tactics and techniques for success. In civil society, the general rule is one of cooperation rather than competition. So it can be straightforward for one funder to find out how other funders deal with endowment and investment issues as well as how they programmatically face up to new social challenges. Such research also can ensure that philanthropists who decide to change their giving strategy can be complementary, rather than redundant, in regard to the giving of other individuals and institutions.

Process

Donors should factor in their own cost- and time-efficiencies when making decisions about approach, giving vehicles, etc. For example, in challenging times, donors might want to consider ways to streamline their application or review processes to get dollars out in a timely manner and to reduce the burden on an already stretched grantee.

The only constant in life is change. - Greek Philosopher Heraclitus

Recalibrate & Recommit

Recalibrating and recommitting to your giving strategy

Armed with new information, an updated perspective, and fresh input from philanthropic partners, donors can move to the next step—adjusting both their strategy and their tactics.

This recalibration can involve new grantees or new giving priorities. It can support new work within an established philanthropic area of interest or even an investment in social enterprise. The potential for change is vast and the options far too many to name here.

When updating a giving strategy in light of difficult economic times, donors may find it worthwhile to consider ways of giving that present new opportunities.

Here are some of them:

General Operating Support

In challenging times, nonprofits increasingly rely on general operating support to keep them going (literally, to keep the lights on and staff paid.) This support allows organizations the budget flexibility to react to changing needs and to sustain their most important initiatives. In a fluid economic environment and at a time of reduced governmental involvement, grantee needs and projects may rapidly change. Allowing grantees added latitude with general operating support enables them to adapt to unpredictable and quickly changing needs and emerge stronger. Current grants or multiple-year commitments that are restricted exclusively to a particular program or project can be contractually released, allowing a nonprofit to use the funds for general operating support. “An ounce of application is worth a ton of abstraction.”

Loans and Access to Credit

Many organizations that depend on regular payments from public funding sources or fundraising events may experience cash flow disruptions during a recession. If an organization has not already established a reserve fund for such contingencies, it may be difficult or impossible to obtain credit. For donors who give privately or through a donor-advised fund, making a grant to an intermediary nonprofit organization that in turn makes loans to other nonprofits or social entrepreneurs can leverage the gift. The invested funds are recycled as borrowers repay loans and the capital is re-loaned to other organizations.

Program-related Investments

Foundation trustees might consider expanding traditional grantmaking activities to include making program-related investments. These investments further a foundation’s charitable purposes and do not seek a commercial return as a significant reason for the investment. Examples of program-related investments include: low interest or interest-free loans to needy students; high-risk equity investments in businesses in deteriorated areas; and low-interest loans to small businesses owned by members of economically disadvantaged groups. Tax and legal counsel should be consulted to explore the full extent of options.

Impact Investing

This approach seeks to align the investments of a foundation with its grantmaking priorities. For example, in 2010, the KL Felicitas Foundation had 65 percent of its endowment invested in socially responsible enterprises. These businesses are often paired with its grants and/or program-related investments. During difficult economic times, such diversification of investments offers trustees the opportunity to direct “patient capital” toward building the economy in sustainable ways.

Direct Services

Organizations that provide direct services see needs rise in lean economic times. Broadly defined, direct services act as society’s safety net: supplying those most vulnerable with basic aid such as food pantries, free health clinics, and after-school programs. Providing new funding to direct services is a potential way to have immediate impact.

Co-funding

When foundation or donor colleagues join forces in giving, they often learn from each other, developing more effective and innovative grantmaking strategies. Such cooperation can increase the impact of contributions, especially in a difficult economy.

Matching Gifts and Challenge Grants

Creating or supporting a matching gift campaign can also provide opportunities for donors to leverage their giving. Matching gifts and challenge grants are donations conditional on the recipient organization raising a corresponding amount of additional money (matching) or some stated amount (challenge). These gifts are often used as a promotional tool, to “challenge” an organization’s group of supporters to meet certain fundraising goals. By issuing a matching gift challenge, you encourage an organization’s development and fundraising team to build its capacity. By giving to an organization in the midst of a matching gift campaign, you ensure that your gift will leverage additional funds, and help position the organization to survive a protracted downturn.

Recruit New Supporters

Loyal donors are often the best advocates for organizations dealing with dire economic conditions. Donors can be powerful advocates, catalyzing additional support for their most valued organizations. Whether you serve on a nonprofit board where fundraising is expected, or act as an informal supporter and believe that an organization deserves to survive and prosper, your backing can help determine an organization’s future.

 

The capacity to respond to others in need is a defining characteristic of being human. - Professor Robert L. Payton, Indiana University, Center on Philanthropy

Moving Forward

Moving Forward

Philanthropy is often driven by compassion, but that compassion becomes all the more powerful when it expresses itself through patience and planning.

A financial crisis can spin Wall Street into a frenzy, but thoughtful donors usually do not take hasty action. Instead, as we have laid out in this guide, they take time to review their giving, recalibrate their strategy and then, if appropriate, re-commit to their values and their philanthropic goals.

It’s also worth remembering, however, that even bear markets can turn positive. Many donors and foundations not only review their current strategy, but take time to plan ahead so they can be well-positioned in their giving when the economy rebounds.

Ideas Worthy of Consideration

Continue to develop funding strategies that reflect your interests, history, and legacy.

Keep up-to-date on innovations in philanthropy and the latest discussions on impact-focused giving.

Maintain communications and relationships with nonprofit partners and fellow donors who share your interests.

Encourage and support long-term organizational planning— from creating reserve funds to preparing for the next economic downturn.

Remember that effective philanthropy usually becomes more meaningful as donors become more engaged in their giving.