It's the ED, stupid!

The Big Bad Recession

In the 1992 presidential election, Democratic political strategist James Carville put up a famous sign in Clinton’s campaign offices. It read, “It’s the economy, stupid.” The country was in the midst of a recession then, and Carville wanted electors to be feeling that pain when they were evaluating the leadership of Bush Sr.

Almost 20 years later, I was reminded of that sign when I read a recently released large scale study on nonprofit executive directors (EDs). The report, called Daring to Lead, is based on a survey of 3,000 EDs conducted by CompassPoint.  It covers a wide range of territory including  the emotional life of EDs and average pay scales (hey ED’s, if you want to compare your pay with peers, you can do that here.) This report also reiterates a fact that was highlighted in previous reports: we are on the verge of a generational transition in EDs, with 2/3 of all EDs planning to leave their positions in the next five years.

However, in my reading, overarching all those details is the same sign that Carville hung up almost 20 years ago. The current recession looms large in the average ED’s minds and words. 84% of executives reported negative financial impact from the recession and 65% reported “significant recession related anxiety.” The report narrates these findings sympathetically, and reinforces the picture of EDs struggling financially because they are doing everything they can to fight against the overwhelming economic headwind.  This is the picture familiar to anyone who has read the most recent donor appeal letter from an ED explaining why his organization faces a budget shortfall and needs “every bit of help from you.” 

In other words, “It’s the economy, stupid.”

Or is it?

My firm, Consulting Within Reach (CWR) works with numerous nonprofit executive directors. I routinely have a window into their complex life and considerable challenges.   Towards my clients specifically and to the average ED more generally, I feel a lot of admiration and sympathy. But I believe the average ED who points to the current economic crisis to explain financial shortcoming facing her agency is probably missing the real reason – and thus the real solution. And in collectively scapegoating The Recession, our sector may miss a golden opportunity to address the chronic financial challenges facing many nonprofits.


The Recession as Scapegoat

Let’s step away from the EDs’ self-reported sentiments and ask more objectively the question, “How much can we attribute the reported financial difficulty to the recession?”  Here are the major sources of revenue for most nonprofits:

1.    Corporate
2.    Foundation
3.    Government 
4.    Individual
1. Corporate

If the recession were the major culprit for poor fundraising performance, one would expect major declines in corporate giving, since it is the type of philanthropy which is historically tied to business cycles. But just this month, survey findings by the Committee Encouraging Corporate Philanthropy (CECP) show that 65% of companies gave more in 2010 than they did in 2009, with 40% of companies increasing giving by 10% or more. In fact, 53% of all companies are actually giving more in 2010 than they did before the recession started in 2007. So, the recession-related pain felt by the ED isn’t emanating from here.


2. Foundations

Past Daring to Lead surveys (especially the 2006 one) featured many comments by EDs about how hard it was to work with some foundations. Many complained about the unreliability of funder commitment. That may be true of any individual foundation of course, but from a big picture perspective, what has been amazing (and unexpected) for me is how stalwart foundations have been collectively. 

According to a Foundation Center report just released in April 2011, the country's more than 76,000 grantmaking foundations gave an estimated $45.7 billion in 2010. This amount is basically unchanged from recent years. In fact, the report notes that “2010 giving remained just 2.1 percent below the record high of $46.8 billion awarded by foundations in 2008, despite the fact that foundation assets were still close to 10 percent below their 2007 peak.” In other words, the average foundation has dug deep into its own pockets – its capital base -- to minimize pain to EDs.


3. Government

There’s no doubt that the social sector (especially those of us working in that “failed state” known as California) is in for a day of reckoning here. Massive budget deficits will require drastic cuts in government funding. But what is striking is that many of those cuts haven’t happened yet, or at least did not happen during the period that the EDs were taking the Daring to Lead survey and reporting all this recession-related distress. The survey took place amidst The Stimulus and this is probably the biggest reason why in the survey, more than one-third of the respondents actually reported that their organization’s budget was larger than it was in past years.  

Perhaps many of these EDs are feeling their high levels of “recession-related anxiety” because they know The Stimulus is running out. Indeed, the long term structural nature of government deficits means that any cuts in funding should not be attached just to this particular recession but will endure well beyond it. In other words, most government funding related pain for nonprofits is not caused by this recession and won’t be solved by any economic recovery.

So where will nonprofits have to go to make up this difference?


4. Individuals

From a historical perspective, individual donors are the most loyal and consistent type of donor. Up until the recent recession, this type of donor has collectively maintained or sometimes actually increased giving through every economic downturn.   Their impact dwarfs any government cutback and indeed all other giving sources combined, as they represent over 80% of total philanthropic contributions

There’s something of a controversy in academic circles over what is happening during this downturn, but the data suggests that this recession is indeed different in that it is driving giving down. So our attention should be focused on explaining the reasons for this particular downturn.

How does the average ED explain the weakness in individual fundraising during this recession?


Are weak boards the real culprit?

In my experience, the first reason given by most EDs is a lament that their boards are terrible at fundraising. The Daring to Lead report of this year and 2006 follows this pattern to a T, with a whopping 73% of EDs expressing dissatisfaction with their board’s fundraising performance. No other area of board responsibility got higher than 9% dissatisfaction.

The implication is fairly consistent: “Yes, our agency is awful at individual fundraising but it’s the board of directors, stupid.”

There are some major problems with that sentiment. In the vast majority of cases historically and presently, effective fundraising boards do not just blossom naturally. Rather, they require painstaking and skilled cultivation by the executive director. The EDs must dedicate time to the matter.

Are EDs doing this?

According to the survey: “Executive time invested in working with boards of directors was notably low. Sixteen percent (16%) of executives reported spending fewer than five hours per month on board-related activity, yet nearly half of these executives described themselves as spending the right amount of time. The largest group of executives (39%) spend between five and 10 hours per month—just 6% of their time overall—and half of these executives said this was the right amount of time.”

In other words, the average ED think boards should be able to successfully execute their responsibilities – such as fundraising -- with a minimal investment of leadership from herself. 

Yet as the report suggests, this is unrealistic, and it is especially unrealistic in fundraising. When an ED complains to me about her board’s failure to fundraise, behind 9 out of 10 those instances is some combination of the ED’s failure to recruit members motivated in this area, to articulate and culturally reinforce expectations in this area, to provide the board with a clear and reviewable plan, and to offer training to board members.

Board members rarely have the time to do all the major legwork needed to build an entire individual donor base by themselves. They can get called in for a meeting here or there, they can share some networks (that will only comprise a fraction of what the average agency needs), they can host a party. But it needs to be the ED (and the staff led by the ED) who are doing the vast majority of the fundraising work. 

All of this takes time, certainly more than 5-10 hours a month.

ED time management

When it comes to fundraising overall, here's another of the report's finding in terms of ED's budgeting of time: "The three areas that executives were most likely to report not spending enough of their time are communications and public relations (54%), fundraising (53%), and netorking and partnership (52%)."

The ED may not be able to control how much comes in as a result of his effort or whether that amount will be enough to meet the structural constraints of his business model.  But every ED can determine - if he really tried - how much time is spent on building public awareness, meeting new potential donors, making asks and upgrade requests, building new networks, etc.

I feel the pain of many EDs who protest that they have a 1,000 things to do and not enough time. But the reality is 999 of those things can’t happen if they don’t bring in the money. It is his responsibility to prioritize fundraising and make the painful choices in time reallocation.

Indeed, this is one area where boards may bear most direct responsibility for fundraising. If they place unrealistic expectations on the ED or fail to provide enough support, the ED may very well be fighting so many fires that the one most pressing fire rages on unattended.

EDs need their boards to support and encourage them to devote time on fundraising. Left completely alone in this area, the average ED will tend to spend even less time on fundraising than she thinks she is (which is already low, as the survey found). In individual fundraising workshops I lead, I routinely ask EDs to estimate the percentage of time they spend on the area. Typical answers will come in at 25-40%. Keep in mind that this self-reported answer means an ED thinks he is spending on average more than a full day of the work week on fundraising. I then ask them how many actual in person meetings with a potential donor they have had in the last fiscal quarter. The average answer is one or less (with an alarming number of the answers being zero). 

The hard truth is that no one can be spending one entire day of the week on individual fundraising and average less than one “ask” every three months.   Based on my firm’s work in the sector, my best guess is that the average ED spends well under 5% of her time on individual fundraising. 

No time, no money

This failure to invest time has a direct effect on giving. A study by The Center of Philanthropy at Indiana University revealed that 60% of high net worth donors who stop giving to an organization did so not because of changing financial fortunes, but because they felt a loss of connection with the organization.  Another comprehensive study (sponsored by some of largest foundations in the country) called individual donors “Philanthropy’s Forgotten Resource” and called for much greater investment in donor engagement.

In addition to the data and my professional experience, I encounter this shortcoming personally. My wife and I give regularly to a number of local organizations. We have to date never received from an ED an invitation to have a site tour, or have a chat over coffee, or even a phone call. We have agreed for years that if we ever got such an invitation, we would almost automatically increase our giving, simply because of the demonstrated effort (to all other EDs, please, please do not Google my phone number). 

It is certainly true that the recession is making us individual donors more careful about our giving. But that doesn’t mean we have stopped giving. It does mean we are going to pay more attention to organizations that pay attention to us, and we’re going to ignore those that seem to be ignoring us. 

Put differently, individual donations have suffered more than other kinds of giving because this type of giving is the most sensitive to time – time that nonprofits spend in cultivation. And that sensitivity is greatest during a recession. In good economic times or bad, the average corporation, foundation, and local government still has someone paid to read grant applications, and it takes the same amount of time for the ED to write that application. But an individual who is worried about losing his job is going to be a lot more distracted and unlikely to just click a Donate Now Button embedded in yet another e-mail blast. The ED has to reach out in a more personal manner to evoke a response.

Why don’t EDs spend the time required in paying attention to us individual donors? Is it that other parts of the job are too demanding? Is it that it’s quicker to write one corporate, foundation, or government grant application then getting out there to network with prospects? Is there a lack of training and infrastructure for individual fundraising? Yes, yes, and yes (especially the last one).

But there is also a more straightforward reason. 

In the 2006 version of Daring to Lead, the survey reported that about half of all EDs simply dislike fundraising.  Note this is about the same percentage as those who are self-reporting poor time allocation on this core activity.

To raise money, you need to really like to meet new people, understand their motivations, communicate your passion, make the ask, want to chat about their dog, and the various other activities that go into fundraising. And as anyone of us who is reasonably self-aware should know, we all somehow find time to do the things we really like to do.

Conversely, as any parent who has tried to get a child to eat vegetables or do homework will tell you, the power of a human being to avoid doing what he doesn’t like to do is one of the great forces in the universe. Certainly more powerful than a recession.

A simple idea

For all the fancy talk in our sector of sexy new ideas like “new social capital markets” and “venture philanthropy” to improve the bottom line of the nonprofit sector, I propose that we should start with something more basic. 2/3 of all ED positions are opening up in the next five years. For the current EDs, board members, major donors, and anyone else who will influence the selection of the next generation of leaders, let’s start with the real “make it or break it” trait. Let’s install a generation of executive directors who truly like to fundraise, and are willing to spend time on it.

If that seems too simplistic, well, then call me stupid.

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