Coronavirus is by no means the first global crisis, but it has the possibility of being prolonged and deep. Whilst the immediate concern is for public health, we are already seeing major knock-on effects in the financial markets and the real economy.
Whilst it will be the job of governments to consider the big policy decisions with direct impact on the lives of millions if not hundreds of millions of people, there are other key parts of the economy and civil society that will be negatively affected, but that can also play a positive role. To varying degrees in different countries, the third sector plays a vital role, often supporting the most vulnerable individuals and groups living among us. In addition, there are many NGO’s involved in crucial civil society work.
We are heading into the third major economic and financial crisis during my working life, and we can learn from the previous occasions to consider what foundations and private philanthropists can do as the situation deteriorates. The experiences of the bursting of the Internet bubble, 9/11 and its aftermath and the financial meltdown of 2008 produced similar results.
The first important thing to consider is that even mega-wealthy donors or foundations are financially and psychologically affected at times of financial stress.
Most donors are reliant on the profits generated in the global stock markets (equities, bonds etc) and other asset classes such as real estate, hedge funds and private equity. As the value of these assets drop, everyone considers their investment position and the immediate and longer-term ability to support the beneficiary organisations as previously planned and committed. Even well managed endowment and foundation investment portfolios come under stress during times such as these, and therefore a moment of reflection is rational and even sensible. Of course, if the portfolio is too levered with debt or overly exposed to a particular geography or sector then the stress can turn into distress, a major headache and potentially a crisis for the foundation management and board. (A large number of foundations were completely destroyed or permanently damaged by the Madoff fraud).
There are also meaningful psychological factors. All managers and people in responsibility have a tortoise response when there is potential risk afoot. The first instinct is to clench and take a defensive position, consider the risks (whether real or perceived) and then gradually peak out from under the shell or shelter. This is both natural and expected, even if the reaction is sometimes out of proportion to the perceived danger or risk.
In combination, these two reactions lead to a reduction in liquidity from philanthropic foundations and private donors, either because they really have less funds than they need to proceed, or the perceived financial risk moves them into a more defensive mode.
How does this affect the NGO’s in the field? Most even well-managed charities and field organisations are run without enormous financial cushions (British understatement) and as such are very sensitive to negative volatility on the part of the funding community. To adapt an expression from global economics, “When the foundations sneeze, the NGO’s catch life threatening pneumonia.”
This is exactly what happened 12 years ago in the wake of the financial crisis and after 9/11 and the market downturn at the beginning of the century.
What then can be done to ease the impending crisis for charities, many of whom perform such a crucial role in routines times and particularly in times of crisis?
My first recommendations are to the managers and trustees of the charities and NGO’s.
- Recognise early that we are heading into an uncertain period, and be clear to assume that this may be an extended period of volatility. You are at risk of receiving reduced future commitments (2021 could be the point of greatest risk), and also foundations who defer or even cancel commitments for this current year.
- For Israeli organisations this comes at a particularly difficult time. With a provisional government in place since the end of 2018, with the likelihood of continued political turmoil (complicated further by the crisis management and movement of funding due to Coronavirus) they are already on the back foot and planning has become difficult.
- Those organisations that recognize reality early will be best positioned to cope. Changing budget forecasts, even for the current year, and definitely for next year are more impactful, and actually less painful in the long-run if made early. For some this may mean a decision not to implement growth plans, and for others it may mean a reduction in non-core activities. They key is the sooner the better.
My second set of recommendations or perhaps requests are to the principals and managers of philanthropic foundations and private donors.
- Contact your beneficiary organisations. Build and amend expectations quickly according to your specific situation so that the NGO has maximum time to consider the impact on them. In a period of uncertainty, clear communication and expectations management is a key tool to mitigate the stress. Regular updates are required as the crisis is dynamic.
- Having understood that we are in a crisis consider that however much stress this is bringing to you as a funder, it is vastly compounded at the cutting edge in the field. Your financial position is always more stable than your beneficiary and the pain of seeing assets and income reducing in value is incomparable to the concern of having enough funds to pay wages. This is often the difference between the impact of financial crisis for funders vs NGO’s.
If after the initial period of reflection it is possible, there are some practical steps to be considered to assist your beneficiaries.
- Unless you are under significant financial stress, confirm your existing commitments (at least for 2020, and if possible 2021).
- Consider greater flexibility on some of the restrictions placed on donations. Where they are specific directed grants, make them flexible; if you don’t normally consider funding overhead, add 5%-10% to cover them. This is always the hardest part of the budget to fund.
- Things that in normal time are reasonable may become burdensome during times of uncertainty. Discuss with the NGO managers reporting requirements, evaluation and measurement etc. Deferral of these matters can release crucial management time for protecting the core activity.
- Finally, if your NGO partners have staff and programs that can directly impact the crisis itself, consider one-off grants that can empower them to take part in the civic efforts alongside governmental moves. In difficult times managers and employees of your NGO’s will be highly motivated if they are actively assisting the greater effort to mitigate the impact of, in our specific case, the Corona crisis, which aside from the direct health and economic impacts will drag many social difficulties.
All the stakeholders in the third sector are involved because the good they can achieve, no matter whether funders, activists, employees or managers. The natural instinct in a time of crisis and uncertainty is to take a defensive stance. Whilst smart management is called for, deepening the partnerships we have and even seeking unique ways to impact in spite of the crisis, can actually generate huge satisfaction, at a time when heads can easily drop. We are all part of the greater efforts to get through this multi-layered crisis, and as such we have the responsibility and opportunity to make an outsized contribution.
For additional reading and ideas, please see (thanks to the Forum of Foundations in Israel that sent this around):
Philanthropy NY is hosting a webinar on March 12 re COVID-19 response: https://philanthropynewyork.org/event-calendar/preparing-covid-19-philanthropys-response-times-crisis-webinar
So is Northern California Grantmakers: https://ncg.org/events/how-philanthropy-can-support-and-enhance-government-response-covid-19
Antony Bugg-Levine of Nonprofit Finance Fund has written a great article on how philanthropy can support nonprofits during this time: https://www.philanthropy.com/article/Coronavirus-6-Steps-for-Grant/248202
Amplifier Giving partnered with Repair the World to produce this excellent one-pager on caring for each other in times of crisis: https://werepair.org/people-responsible-one-another/