Philanthropy in a recession

 

Shelagh Gastrow

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In principle, philanthropy should be focusing on organisations that are involved in systemic change and government should be supporting those organisations that deal with basic human requirements. In that case, non-profits are unlikely to be greatly affected by recession.

Here we are in South Africa with junk status and a recession. For years we have been hearing about the dearth of funding for the non-profit sector and we can presume, first, that finances have become even more difficult.

Second, another assumption is that as our economy contracts, so there are more unemployed people and a greater need for assistance. This could be straightforward charitable help such as food and shelter, but often people need retraining as they are retrenched or need to have the skills for self-reliance.

This is all exacerbated by a weak education system that is producing matriculants who are not ready for the workplace. Third, we can assume that the endowments of private philanthropic foundations might be contracting and therefore they may have less money for grantmaking while individuals may find it more difficult to make donations.

In South Africa we don’t have much data on what grantmaking takes place and, in parallel, we have little idea of the size and scope of the civil society sector.

When there is publicity about cuts in funding, whether from the lotteries, government funding or private donations, we generally focus on charitable organisations dealing with, amongst others, child welfare, creches, old age homes, health projects and feeding schemes. They rely heavily on government and often find support by fundraising among individuals, with smaller amounts coming from the formalised philanthropic sector. In a recession, they would definitely feel the pinch.

However, civil society also includes other kinds of organisations such as advocacy groups, policy research entities, human rights organisations, arts and cultural organisations and various projects linked to universities. It is not clear whether they are impacted on in the same way and it is likely that there are elements in the civil society sector that are doing very well in the current political climate.

A key hedge against a recession is whether an organisation has any reserves. The basis for long-term financial sustainability is building such reserves and having the discipline to avoid temptation to pay out extra funds available for short-term benefits, but rather to save and invest them for a rainy day.

Every organisation should be able to weather a short-term drop in income. Nearly all organisations at some point in their history find themselves in a difficult financial situation. Reserves create confidence that the staff and beneficiaries can ride it out until the organisation has renewed itself.

Reserves not only provide job security, but allow the organisation to reinvent itself, seeding new programmes and enabling the appointment of people with new skills.

In South Africa we are also very dependent on international funding and support from private philanthropic foundations.

However, according to Nedbank Private Wealth’s Giving Report III, only 5% of the high net worth individuals surveyed had actually established a giving trust or foundation. That meant that the balance were giving money on an ad hoc basis.

However, the same report indicated that South African givers ‘demonstrated a long-term commitment to the causes they support. Nearly half had supported beneficiaries for longer than five years (and) 22% had been supporting them for their entire lives.’

Good fundraisers know that the reasons people give are linked to their personal history and experiences, their passions, possibly their religious convictions and their networks. Unless their own income has dropped substantially, they are likely to continue supporting organisations whose cause and values are aligned with their own.

The importance of personal relationships with donors can never be underestimated and systems of donor care should be entrenched in every organisation to ensure that relationships endure and that individual donors have meaningful experiences in their partnership with the organisation concerned. Again, the Giving Report indicated that the importance of personal networks for donors had increased from 31% in 2012 to 43% in 2016.

Ironically, according to an article in the New York Times in October 2014, ‘Between 2006 and 2012, the wealthiest Americans became less generous with charitable donations, as a share of their total income, while lower- and middle-income Americans reached farther into their pockets as they witnessed the need for charity in their communities.’ Most studies have borne out this phenomenon where the poor actually give more, as a percentage of their income, than the wealthy.

Why then do individual donors stop giving? Rather than blaming a recession, the most common reason is that they have lost confidence in an organisation.

This can frequently be linked to a lack of stewardship of donor funding and the donor relationship, as well as bad publicity around a variety of issues such as disputes in the organisation, question marks about reliability and financial management as well as a lack of governance.

There is a view that philanthropy is only for the very wealthy, and it is likely that institutionalised philanthropy, such as the establishment of endowed charitable trusts and philanthropic foundations, is undertaken by those with very significant resources.

The advantage of foundations is that in essence, the funds have been handed over to a trust or non-profit company with independent trustees/directors alongside the original donor. The donor no longer has full control over the funds and they will continue giving if he dies, emigrates or goes bankrupt.

The funds cannot be inherited by his/her children, but remain in place for the public good. Many of the sizeable philanthropic foundations that exist in South Africa today were established in that way or were established through a legacy, after the individual had passed away. In this respect, these funds are recession proof, except if the fund managers who have the responsibility to grow the endowment do not manage the funds well.

Often philanthropists are accused of wanting high-profile adulation for their giving to enhance their reputations. However, in South Africa many givers function under the radar and it is difficult to assess their contribution.

The lack of information means that there are few role models for others to emulate and the growth in formalised philanthropy is slow. What is important to understand is that philanthropic money is relatively small in the development space. The big funds should come from government and that should be recession proof if commitments are made to various organisations that are undertaking work that is the responsibility of government.

This includes child welfare, care of the aged, healthcare, and education and training. When government or the lotteries takes a view that their funding is a favour rather than a duty, the load on private philanthropy increases and there is more risk during a recession.

In principle, philanthropy should be focusing on organisations that are involved in systemic change and government should be supporting those organisations that deal with basic human requirements.

In that case, non-profits are unlikely to be greatly affected by recession. However, that does not apply in South Africa where philanthropy is being stretched to its limits by the massive needs in our society that are not being met by the state.

The choice of where limited resources can go is a hard one, but in the end donors will support those organisations that are aligned with their individual passions for specific causes and their values, combined with effective and efficient outcomes.

Shelagh Gastrow is a Director of South African philanthropy advisory service GastrowBloch Philanthropies.

This article originally appeared on the Daily Maverick on 2 August 2017. The original article can be found here.


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