Reductions in corporate giving are more than a math problem

Published in the April 10, 2009 edition of Columbus Business First

In the current economy, your company may be experiencing unprecedented declines in sales and access to capital markets.  As you look for ways to preserve cash it is understandable that you are re-examining your corporate support for nonprofits.

Some companies are consolidating their giving programs by dropping some nonprofits altogether while maintaining their historic level of support for each retained nonprofit organization. 

Others are continuing to support the same number of nonprofits but at a uniformly reduced level.  And some companies are making no changes to their corporate giving, while other companies are dropping entire categories of nonprofits from their programs.

It is critical that reductions in corporate giving not be approached as a mathematical budget exercise. 

Rather, reductions should be considered in the context of the strategy that prompted your company to begin a giving program. 

Was the program created for corporate visibility or public relations purposes?  Is it part of your marketing program?  Is it an extension of employee philanthropic preferences?  Is it designed to enhance the appeal of the community to potential job candidates? 

Communicate

If your nonprofit strategy (as opposed to your budget strategy) has not been clearly articulated, it is important to do so before making any changes in your giving.

Strategy is important because the first decision in revising your giving program must be to decide if the changes are temporary in response to immediate financial pressures or if they are permanent and represent a change in your giving strategy.  This distinction is critical in determining the best ways to determine how you reduce your giving. 

Temporary changes should be designed to mitigate the disruption to the nonprofits which you support. 

The worst outcome would be for temporary changes to your program to create lasting effects that will compromise your ability to restore the program to what it is today.  Examples of lasting effects would be the cancellation of a service program, the elimination of entire categories of funding recipients, or the failure of a nonprofit you would otherwise continue to support. 

Permanent changes should be designed to establish a new strategy that will form the basis for future giving once your financial situation improves. 

Examples of changes in strategy would be changes in which nonprofits you support and changes in how you provide support, such as general operating support, program grants, cost reimbursement contracts, matching grants, or start-up funds. 

This new strategy should be clearly articulated so that nonprofits who will remain part of your strategy can plan appropriately, and nonprofits who will not remain in your program will remove expectations of future support from their planning. 

Temporary Cutbacks

It is most likely that you are changing your giving program in response to current business conditions, which will eventually turn around.  In this case, your changes are temporary. 

You should carefully design changes that respond to your current financial circumstances with the least impact on nonprofits’ ability to sustain themselves and their mission.  If these changes are temporary for you, the nonprofits you support will be best off if they can find responses that also are temporary.  For them to have the best chance of doing this, they will need to have as much time and flexibility as possible to develop responses. 

Here are five interrelated principles to guide your reduction decisions.

Don’t delay decisions.  Nonprofits need time to assemble responses.  The more time you take to make your decisions, the less time they have to react. 

It is a false expectation that taking more time for your decisions will result in a better outcome for the nonprofits.  Responsible nonprofits will have to interpret your delay in deciding what you will give as a decision to give nothing.  Any other response would be reckless. 

It is obvious that your financial situation will improve; however, you cannot predict when that will occur.  So make your decisions now on the basis on what you know now.

Be explicit whether this is a temporary or a permanent change in your giving program.  It may be obvious to you whether your reductions in nonprofit support are temporary or permanent, but it is not obvious to the nonprofits you have been supporting. 

Nonprofits survive based on optimism, so they are inclined to treat your reduction as temporary.  A misunderstanding on this point could prove fatal to a nonprofit. 

Also, if you believe this is a temporary reduction, make sure your senior management concurs and, if possible, get it in writing with some understanding of what circumstances will allow this temporary reduction to be reversed.

Don’t create false hope.  Community relations staff invest a lot of time and effort in creating good relations with nonprofits. 

Giving out news of reductions in support is no different than giving out layoff notices.  It is vital that you communicate your reductions frankly and not hedge. 

Don’t speculate about the possibility of more support later in the year; it may make you feel better, but it may mislead the nonprofits enough for them to craft responses that will lead to dire circumstances if your aid increase does not materialize. 

Be mindful of the implications on nonprofit fiscal year results. 

Nonprofits are under enormous pressure to show budget balance in their fiscal year results. 

Regardless of your views on this, too many grantors evaluate the quality of nonprofit management based on balancing the budget.  If the nonprofits you support are on a June 30 fiscal year, providing your support before June 30 has substantially more value than providing it later. 

Even though you are decreasing the amount of your support, if your nonprofit giving program has flexibility in the timing of payments, writing your check earlier will mitigate the impact of the reduction.  If you are unsure of their fiscal year situations, ask them.

Know the cashflow implications of how you provide support. 

Nonprofits generally have weak balance sheets so that cash is very tight and making payroll is a constant challenge.  You can mitigate the impact of your reduction in support by changing the criteria for support. 

Now is a good time to reconsider match requirements, which make your support unavailable unless and until the nonprofit can come up with matching cash. 

In this environment, requiring a match substantially reduces and may jeopardize the ability of a nonprofit to use your support. 

Similarly, if you provide support through reimbursement, you are writing your check after the nonprofit has already had to come up with the cash.  By giving them your check before they incur the related expenses you will help their cashflow and partially offset the impact of your reduced support. 

Better yet, make your gift unrestricted so that they can keep your support even if they decide their best response to reduced giving must be to suspend the program you have been supporting. 

Reducing your support of nonprofits is unfortunate but sometimes necessary when the economy weakens.  Prompt decision-making, explicit communication, and enhancing flexibility in the timing and usefulness of your giving may be a silver lining in this otherwise cloudy outlook.

Allen J. Proctor was formerly chief financial officer of Harvard University and is the author of Linking Mission to Money® Finance for Nonprofit Board Members. Subscribe to his free newsletter at www.proctorconsulting.org.

Copyright 2009. Reprinted with permission, Business First of Columbus Inc.