by Bernie Niemeier
Community service has been emphasized in the words and actions of our new governor, Bob McDonnell. This is the right thing to do and also very much needed by the nonprofit sector of Virginia’s economy.
In early February, a page-one article in the Wall Street Journal carried the headline “Once-Robust Charity Sector Faces Mergers and Closings.”
The Journal went on to say that the number of nonprofits registered with the Internal Revenue service has doubled over the past 15 years, now employing 12 million people, roughly 10 percent of America’s work force.
Many nonprofits receive direct government support and all are indirectly subsidized by their tax-free status.
According to the National Center for Charitable Statistics, the number of public charities in Virginia grew by 72 percent from 1998 to 2008. The good news is that during the same period the number of private grant-making foundations rose by 70 percent. Unfortunately, there are still far fewer grants available than needed by charitable organizations, and the competition for funding is intense.
In addition to foundation grants, nonprofits have several potential sources of income, including government funds, corporate donations and individual philanthropy. All of these have been hurt by the recent recession.
Nonprofits with large, individual-based funding drives are perhaps best positioned to succeed, but joblessness and corporate closures have still led to dramatically lower support.
So what’s the result? According to the Journal, nonprofits are undergoing “painful restructuring, including mergers, acquisitions, cutbacks and closings.”
Community involvement is good business. Providing employees with opportunities to donate time and money to nonprofit organizations builds morale, self-worth and connects companies to their customer communities in ways that lead to improved brand recognition and higher sales.
If your company is not involved with community-based fund raising, such as the United Way, corporate grant-making or volunteerism programs, it should be. While the benefits may seem less tangible than the costs, community involvement is widely recognized as a good business practice.
I have served on a number of nonprofit boards over the years, where I often heard that “nonprofits are different.” Other than their tax-exempt status, I don’t really find this to be true.
Solid business principles like building strong relationships or partnerships, fostering an energetic, collaborative and customer-focused culture, as well as financial fundamentals like having adequate reserves and proactively adjusting expenses to reflect changes in revenue are all indicators of a well-managed organization, regardless of tax status.
When industries are undergoing consolidation, the smart investor has an opportunity to pick winners.
Whether you are being asked to invest time or money in a nonprofit, here are a few good questions to ask yourself:
• Do I understand what this organization does and do I have a passion for it?
• Does the board of directors include peers, customers or others who make sense for my business?
• Does the organization have a strong cadre of volunteers and positive relationships with other affiliated organizations?
• Is the leadership, both the executive director and the board chair, capable of raising funds and successfully managing the organization?
• Are there adequate reserves, and are financial matters fully transparent to both the board and donors?
If the answer to any of these questions turns out to be “No,” reconsider your commitment. Do you really have the time and resources that will be necessary to improve results?
Furthermore, keep in mind that ongoing changes in accountability and corporate governance apply equally to for-profit and nonprofit organizations.
In the post Sarbanes-Oxley world, it is exceedingly unwise to accept board membership without being willing to accept legal responsibility for operational and financial results. Ask about directors and officers liability insurance.
With a shrinking state budget, declining corporate philanthropy and lower returns on foundation investments, Virginia’s nonprofits need the support of the business community more than ever.
Just remember to pick the winners.
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