Lessons From Leading in 2009: Part One

March 2010

LESSONS FROM LEADING IN 2009: PART ONE

By Jennifer Marie Jones

The economic instability of 2009 had far-reaching consequences, leaving very few sectors unshaken. The nonprofit industry has been particularly hard-hit.

Facing daunting fundraising challenges and the prospect of greatly reduced government support, leaders of organizations began the year looking out at a stark new financial landscape. We spoke to a number of nonprofit executives and consultants to learn what measures they took to steer their organizations through 2009 into the potentially calmer waters of 2010.

THE NEW AGE OF ANXIETY

With the national unemployment rate averaging 9.3% in 2009, the subsequent loss of income had ramifications in nearly every arena of fundraising. Individual donors were forced to reassess their ability to give, foundations posted sizeable reductions in grant amounts , companies consolidated or collapsed, and state and local governments found themselves unable to meet their budgets. With every revenue stream thus impacted, organizations were challenged to meet increased service demands with greatly reduced resources.

Even in conversations with those donors who could continue to give, fundraisers observed a spreading anxiety about the economy's outlook in years to come. Ray Happy, Senior Vice President and Managing Director of the fundraising consulting firm CCS, dealt often with donor uncertainty.

"Especially at the beginning of the year," he said, "there was an unwillingness to make multi-year commitments." Although he noted that donor confidence began to return over the course of 2009, he believes that the environment remains altered. "High-end gifts have not come back. The [top] level gifts that were there in 2008 are far fewer."

Debra LaMorte, Senior Vice President for Development and Alumni Affairs at New York University, says that she's noticed a new wariness in her major donors. In the 2008/2009 fiscal year, LaMorte was able to communicate to donors the urgency in the university's need for gifts; for example, the need to support the tuition of students whose parents had lost their jobs. In 2009, however, the volatility of the marketplace left many donors unsettled and therefore hesitant to make the four- or five-year commitments that are common to large gifts.

Sandy Cardin, President of the Charles and Lynn Schusterman Family Foundation in Tulsa, OK, agrees that donor anxiety was driven in part by the complexity of 2009's economic climate.

"There were so many variables on all different levels," he said. The resulting uncertainty elevated practical concerns into emotional ones. The economy affected donors to such a degree that "the way they perceived decisions was altered," says Cardin. "Emotions were more at the surface."

Although by May "the financial Armageddon had cleared," Cardin noticed a divide between the market's ostensible improvement and the financial realities that most people were witnessing on a day-to-day basis.

"There's a huge lag time between an upswing and the practical effects of it," he explained. This apparent discrepancy can amplify donor uncertainty rather than allay it.

Ken Kozloff, CEO of the Jewish Social Service Agency in Rockville, MD, witnessed a particular shift in the attitudes of senior donors. He calls it a "depression mentality."

"Whereas 2008 was up and down," he explains, "the 2009 impact began to worry older donors, who had previously been very philanthropic." Because of the economy's semblance to past financial downturns, older donors were reminded of even tougher times, and therefore made cutbacks based on future expectations rather than on their current ability to give.

Kozloff noted that in addition to managing increasing donor reticence, JSSA weathered a cutback of close to 30% from their largest grantor, the Jewish Federation of Greater Washington. Plans for 2009 had to be completely reassessed. Without the ability to offer salary bonuses, it became difficult to recruit at the director level. Decision-making was challenged by a lack of funds, both in terms of organizational strategies and program development.

Kozloff works with teams of clinical directors to develop programs based on current community needs. Whereas in the past, JSSA would quickly develop model analyses and pilot services, today the organization has to lengthen the program planning process, delaying implementation until staff can be recruited and funds secured.

Organizations' inability to forge ahead with programs contrasts starkly with the growing need for programs in the community. Kozloff estimates a 15-20% increase in demands for JSSA's mental health services, primarily for children aged 7 to 18 whose parents have lost their jobs. In 2009, for the first time in the organization's history, JSSA faced a waiting list of up to 300 people. Social workers responded with increased productivity, reducing the list to 180 clients, but the demand for services continues to grow.

Social service programs have especially felt the pinch of the recession, seconds Richard Altman, CEO of the Jewish Child Care Association in New York City. Because the government, as "the driving force of funding nonprofits," received fewer tax revenues, a number of JCCA's contracted programs were cut back significantly last year.

Altman calls 2009 "a perfect storm," with the impact of the economic environment not only decreasing revenue, but also creating significant new expenses. "We saw an increase in healthcare costs covering employees and their families far in excess of 2008," he said. Added to those expenses were other insurance premiums and pension costs, all of which rose in 2009.

In addition to the stress of managing within the strictures of current budgetary realities, many worry that, despite signs of the economy's resurgence, the worst is still to come.

Anne Sherman, Associate Director at the consultant group TCC, notes that because many philanthropic allocations are made on three-year cycles, a lag between recessions and their effect on giving often occurs. She points out that the economic effects of September 11, 2001 didn't fully impact the nonprofit industry until 2002-2003. She's concerned, she says, that the true ripples of the recession have not yet reached the industry.

HEEDING THE CALL OF MISSION

One organization that experienced a delayed impact from the recession was the United Religions Initiative, in San Francisco, CA, led by Executive Director Charles Gibbs.

"Quite counter to everything we expected, we had a remarkably strong finish to 2008," Rev. Gibbs stated. "We had expected to be in challenging shape, but had a generous gift come in that put us, ironically, in almost the best financial condition we'd been in." URI entered 2009 focused on accelerating the young organization's growth through augmenting the budget and bringing in added funding and expertise.

One part of that effort involved hiring an Associate Executive Director to lift the organization to a new level of operational sophistication and efficiency.

"We're a cutting-edge organization in terms of the work we do and the way we go about doing it," Gibbs explains. "But if we're cutting-edge, we had a lot of work to do to up our game in terms of basic operational structures." Adding Debra Bernstein as Associate Executive Director helped URI move forward into a more advanced and more disciplined way of operating, which Gibbs considers critical for thriving in the long-term.

While continuing to grow the organization, Gibbs remained cognizant of the recession's impact on other nonprofits. The challenge for URI was to continue to grow in support of their mission, promoting interfaith cooperation and peace internationally while still maintaining appropriate fiscal caution, given the state of the economy.

"Everywhere we are in the world, everything is calling for us to be more and do more," Gibbs explains. When opportunities for furthering URI's mission present themselves, Gibbs's impulse is to "muster every ounce of resourcefulness" in service to those opportunities. Still, he remained balanced and moderate in his planning throughout 2009, which proved extremely helpful at year's end.

Giving in 2009 dropped off sharply from levels in 2008, which has created implications for moving forward in 2010. Even so, Gibbs does not regret the decisions of the past year.

"Had prudence held greater sway," he said, "we might have delayed bringing on an Associate Director." While that decision might have made fiscal sense at the time, with regard to long-term consequences, "It would have been a disaster." He considers URI much better positioned for the future than it was six months ago.

"I'm glad we took that risk," he says.

Ken Kozloff's focus in leading JSSA through 2009 was similarly balanced between fiscal reality and the call of mission.

In addition to increased demand for the agency's services, JSSA saw a 25% increase in requests for emergency financial assistance. The organization's clients, Kozloff notes, now include lawyers and businessmen who have been laid off and have turned to JSSA for help. To face the growth in demand, Kozloff determined that JSSA needed simpler, more streamlined procedures in order to create a new approach for communicating with clients.

JSSA also needed the funds to help match the demand. Once a clear picture of 2009 had presented itself, Kozloff says the agency was able to quickly react.

Kozloff's first measure was to reach out to JSSA's board and staff and communicate a positive message.

"You have to be positive," he affirms, adding that organizations can only move forward effectively if they do so from a position of strength. He reminded the board and staff of the organization's longevity, and conveyed an upbeat attitude about mission that spread from staff to donors.

In order to avoid layoffs, the board was able to cut $800,000 out of the budget without affecting any individuals. JSSA also launched their first ever capital campaign, a $1M Now More Than Ever drive. Kozloff credits the campaign's current success both to its "wonderful campaign chairmen" and the infectiously positive attitude of all involved.

JSSA's staff, motivated by the organization's mission and grateful for the measures that prevented layoffs, have been able to increase productivity in the face of budget cuts.

Despite the challenges of 2009, Kozloff is grateful for the way JSSA reacted.

"Everyone feels positive at the end of the day," he says.

Anne Sherman agrees that mission must remain fundamental in decisions made during times of crisis.

"I'm a big believer in integrating understanding of values," Sherman says.

She notes that when organizations make knee-jerk decisions to cut a program without taking into account the value of the program to the organization's overall mission, the results can be devastating. During the past year, she advised her clients to look at programs that would seem like "a financial no-brainer" to cut, and to ask whether these programs could be integral to the values and culture of the organization.

In other words, at the end of the day, mission is key. Through the turbulent waters of 2009, organizations were the boats, but mission was the cargo.

In Part 2, we explore additional strategies organizations used to weather the recession, as well as thoughts on fundraising during times of crisis, and the surprising upside to 2009.

# # #

Jennifer Marie Jones has been invovled with nonprofit executive search at DRG since 2001



	March 2010 LESSONS FROM LEADING IN 2009: PART ONE By Jennifer Marie Jones The economic instability of 2009 had far-reaching consequences, leaving very few sectors unshaken. The nonprofit industry has been particularly hard-hit. Facing daunting fundraising challenges and the prospect of greatly reduced government support, leaders of organizations began the year looking out at a stark new financial landscape. We spoke to a number of nonprofit executives and consultants to learn what measures they took to steer their organizations through 2009 into the potentially calmer waters of 2010. THE NEW AGE OF ANXIETY With the national unemployment rate averaging 9.3% in 2009, the subsequent loss of income had ramifications in nearly every arena of fundraising. Individual donors were forced to reassess their ability to give, foundations posted sizeable reductions in grant amounts , companies consolidated or collapsed, and state and local governments found themselves unable to meet their budgets. With every revenue stream thus impacted, organizations were challenged to meet increased service demands with greatly reduced resources. Even in conversations with those donors who could continue to give, fundraisers observed a spreading anxiety about the economy's outlook in years to come. Ray Happy, Senior Vice President and Managing Director of the fundraising consulting firm CCS, dealt often with donor uncertainty. "Especially at the beginning of the year," he said, "there was an unwillingness to make multi-year commitments." Although he noted that donor confidence began to return over the course of 2009, he believes that the environment remains altered. "High-end gifts have not come back. The [top] level gifts that were there in 2008 are far fewer." Debra LaMorte, Senior Vice President for Development and Alumni Affairs at New York University, says that she's noticed a new wariness in her major donors. In the 2008/2009 fiscal year, LaMorte was able to communicate to donors the urgency in the university's need for gifts; for example, the need to support the tuition of students whose parents had lost their jobs. In 2009, however, the volatility of the marketplace left many donors unsettled and therefore hesitant to make the four- or five-year commitments that are common to large gifts. Sandy Cardin, President of the Charles and Lynn Schusterman Family Foundation in Tulsa, OK, agrees that donor anxiety was driven in part by the complexity of 2009's economic climate. "There were so many variables on all different levels," he said. The resulting uncertainty elevated practical concerns into emotional ones. The economy affected donors to such a degree that "the way they perceived decisions was altered," says Cardin. "Emotions were more at the surface." Although by May "the financial Armageddon had cleared," Cardin noticed a divide between the market's ostensible improvement and the financial realities that most people were witnessing on a day-to-day basis. "There's a huge lag time between an upswing and the practical effects of it," he explained. This apparent discrepancy can amplify donor uncertainty rather than allay it. Ken Kozloff, CEO of the Jewish Social Service Agency in Rockville, MD, witnessed a particular shift in the attitudes of senior donors. He calls it a "depression mentality." "Whereas 2008 was up and down," he explains, "the 2009 impact began to worry older donors, who had previously been very philanthropic." Because of the economy's semblance to past financial downturns, older donors were reminded of even tougher times, and therefore made cutbacks based on future expectations rather than on their current ability to give. Kozloff noted that in addition to managing increasing donor reticence, JSSA weathered a cutback of close to 30% from their largest grantor, the Jewish Federation of Greater Washington. Plans for 2009 had to be completely reassessed. Without the ability to offer salary bonuses, it became difficult to recruit at the director level. Decision-making was challenged by a lack of funds, both in terms of organizational strategies and program development. Kozloff works with teams of clinical directors to develop programs based on current community needs. Whereas in the past, JSSA would quickly develop model analyses and pilot services, today the organization has to lengthen the program planning process, delaying implementation until staff can be recruited and funds secured. Organizations' inability to forge ahead with programs contrasts starkly with the growing need for programs in the community. Kozloff estimates a 15-20% increase in demands for JSSA's mental health services, primarily for children aged 7 to 18 whose parents have lost their jobs. In 2009, for the first time in the organization's history, JSSA faced a waiting list of up to 300 people. Social workers responded with increased productivity, reducing the list to 180 clients, but the demand for services continues to grow. Social service programs have especially felt the pinch of the recession, seconds Richard Altman, CEO of the Jewish Child Care Association in New York City. Because the government, as "the driving force of funding nonprofits," received fewer tax revenues, a number of JCCA's contracted programs were cut back significantly last year. Altman calls 2009 "a perfect storm," with the impact of the economic environment not only decreasing revenue, but also creating significant new expenses. "We saw an increase in healthcare costs covering employees and their families far in excess of 2008," he said. Added to those expenses were other insurance premiums and pension costs, all of which rose in 2009. In addition to the stress of managing within the strictures of current budgetary realities, many worry that, despite signs of the economy's resurgence, the worst is still to come. Anne Sherman, Associate Director at the consultant group TCC, notes that because many philanthropic allocations are made on three-year cycles, a lag between recessions and their effect on giving often occurs. She points out that the economic effects of September 11, 2001 didn't fully impact the nonprofit industry until 2002-2003. She's concerned, she says, that the true ripples of the recession have not yet reached the industry. HEEDING THE CALL OF MISSION One organization that experienced a delayed impact from the recession was the United Religions Initiative, in San Francisco, CA, led by Executive Director Charles Gibbs. "Quite counter to everything we expected, we had a remarkably strong finish to 2008," Rev. Gibbs stated. "We had expected to be in challenging shape, but had a generous gift come in that put us, ironically, in almost the best financial condition we'd been in." URI entered 2009 focused on accelerating the young organization's growth through augmenting the budget and bringing in added funding and expertise. One part of that effort involved hiring an Associate Executive Director to lift the organization to a new level of operational sophistication and efficiency. "We're a cutting-edge organization in terms of the work we do and the way we go about doing it," Gibbs explains. "But if we're cutting-edge, we had a lot of work to do to up our game in terms of basic operational structures." Adding Debra Bernstein as Associate Executive Director helped URI move forward into a more advanced and more disciplined way of operating, which Gibbs considers critical for thriving in the long-term. While continuing to grow the organization, Gibbs remained cognizant of the recession's impact on other nonprofits. The challenge for URI was to continue to grow in support of their mission, promoting interfaith cooperation and peace internationally while still maintaining appropriate fiscal caution, given the state of the economy. "Everywhere we are in the world, everything is calling for us to be more and do more," Gibbs explains. When opportunities for furthering URI's mission present themselves, Gibbs's impulse is to "muster every ounce of resourcefulness" in service to those opportunities. Still, he remained balanced and moderate in his planning throughout 2009, which proved extremely helpful at year's end. Giving in 2009 dropped off sharply from levels in 2008, which has created implications for moving forward in 2010. Even so, Gibbs does not regret the decisions of the past year. "Had prudence held greater sway," he said, "we might have delayed bringing on an Associate Director." While that decision might have made fiscal sense at the time, with regard to long-term consequences, "It would have been a disaster." He considers URI much better positioned for the future than it was six months ago. "I'm glad we took that risk," he says. Ken Kozloff's focus in leading JSSA through 2009 was similarly balanced between fiscal reality and the call of mission. In addition to increased demand for the agency's services, JSSA saw a 25% increase in requests for emergency financial assistance. The organization's clients, Kozloff notes, now include lawyers and businessmen who have been laid off and have turned to JSSA for help. To face the growth in demand, Kozloff determined that JSSA needed simpler, more streamlined procedures in order to create a new approach for communicating with clients. JSSA also needed the funds to help match the demand. Once a clear picture of 2009 had presented itself, Kozloff says the agency was able to quickly react. Kozloff's first measure was to reach out to JSSA's board and staff and communicate a positive message. "You have to be positive," he affirms, adding that organizations can only move forward effectively if they do so from a position of strength. He reminded the board and staff of the organization's longevity, and conveyed an upbeat attitude about mission that spread from staff to donors. In order to avoid layoffs, the board was able to cut $800,000 out of the budget without affecting any individuals. JSSA also launched their first ever capital campaign, a $1M Now More Than Ever drive. Kozloff credits the campaign's current success both to its "wonderful campaign chairmen" and the infectiously positive attitude of all involved. JSSA's staff, motivated by the organization's mission and grateful for the measures that prevented layoffs, have been able to increase productivity in the face of budget cuts. Despite the challenges of 2009, Kozloff is grateful for the way JSSA reacted. "Everyone feels positive at the end of the day," he says. Anne Sherman agrees that mission must remain fundamental in decisions made during times of crisis. "I'm a big believer in integrating understanding of values," Sherman says. She notes that when organizations make knee-jerk decisions to cut a program without taking into account the value of the program to the organization's overall mission, the results can be devastating. During the past year, she advised her clients to look at programs that would seem like "a financial no-brainer" to cut, and to ask whether these programs could be integral to the values and culture of the organization. In other words, at the end of the day, mission is key. Through the turbulent waters of 2009, organizations were the boats, but mission was the cargo. In Part 2, we explore additional strategies organizations used to weather the recession, as well as thoughts on fundraising during times of crisis, and the surprising upside to 2009. # # # Jennifer Marie Jones has been invovled with nonprofit executive search at DRG since 2001