Dealing with the downturn

As he reviewed the dismal investment results this week for a family charitable trust, David Rockefeller observed calmly, “This is certainly the worst market crisis since the Great Depression.  I remember that time.  And it was not a lot of fun.”  Apparently perspective and wisdom really do create a wry, philosophical stance.  The rest of us are reeling.

This downturn is shocking not only because of how far the market has plunged, but because it’s fallen so fast.  And despite dizzying commitments on the order of $700 billion and the effective public sector takeover of many investment firms, the levers of policy do not seem to be lifting the boulders of bad debt.

For philanthropy and the non-profit sector, consequences appear profound.  In the U.S., the timing could not be worse for many charities:  year-end giving brings in as much as half the annual budgets of many a charity.  A market crash in February leaves hope that by year-end an upswing has begun.  No such comfort is available this autumn. 

The US non-profits likely to be hit the hardest are small social service organisations – the real safety nets for much of society – that rely on small donations from people of relatively modest means.  As the US election results show so clearly, the middle class feels under siege.  When people with little disposable income feel insecure, they cut back on their donations.  And this is certainly an insecure time. 

Performing arts organisations are also likely to feel the impact. In many American metropolitan areas, the base of support for orchestras, operas, theatre and dance has been eroding for a decade or more.  When the economy is weak, many donors cut back on the arts in favor of other causes. 

In New York City, and probably London as well, the effects will be especially intense. Obviously, as global banking capitals, their donor bases are disproportionately linked to the financial sector. But in addition, they’re global tourism capitals.  Again, the timing couldn’t be worse:  in good years, from mid-November to early January midtown Manhattan experiences sidewalk gridlock as tourists from around the world spend their winter holidays sightseeing and shopping.  Their largesse supports many a merchant,  who in turn supports many a charity. 

What can non-profits do in the face of this fierce headwind?  Most critically, they need to make the case more clearly than ever how their work solves problems.  They’ll need to communicate what their strategy is, and why it’s effective, and how funds are being used. Presenting the need and the urgency of the problem is not enough now that there are so many non-profits in effect ‘competing’ to address the same issue.  Certainly, quite a number of non-profits will not be able to survive. Market forces will dictate some consolidation.

For donors themselves, whether individuals, companies or private foundations, it’s a time of wrenching choices.  The temptation is an across-the-board cut, which feels fair and is certainly simple to do.  Like many simple things, it’s not really very sensible or strategic.  A more thoughtful approach is to identify the organisations with which you have the deepest and most committed relationship, and keep their support constant.  Another strategy is to analyze which charities are most dependent on you, based on their size or base of support, and give them priority.  Finally, it may be time to ask the really hard question: which of the charities that I support are actually doing the best job and having the most impact? 

The horizon holds few signs about how long this downturn will last.  But a look backward actually offers some reassurance.  In the US, at least, foundation giving levelled off, but did not actually drop, during the market downturn from 2000 through 2002.  Many foundations used multi-year averaging to smooth and soften the impact.  In addition, the rate of foundation formation brought new assets into philanthropy that made up for the declines in older foundations’ endowments.  Living donors, like Oprah or Bill and Melinda Gates, continued to add to their foundations during the past downturn. 

Those countervailing forces – averaging of payouts, new foundation formation, additions to foundations – seem likely to continue during this current downturn.  They won’t insulate charities from the downturn, but they will mitigate the impact. 

Meanwhile, we here in New York invite you warmly to come over and shop.  We promise to be less surly.

Melissa A. Berman is President & CEO of Rockefeller Philanthropy Advisors.