A superficial interpretation of the ongoing crisis and its impact upon foundations has focused on asset value and returns shrinkage. The Foundation Center estimates that the market value of the combined assets of all US foundations has dropped from around $670 billion in 2007 to $561 billion by the end of 2008 – a 16 per cent decline – and some argue that when the actual data are in, the decline will prove to be closer to 25 per cent. However, an obsession with their own losses is leading foundations to ignore a greater threat – that retrenchment and neglect of their beneficiaries at a time of crisis will lead to the public perception that they are self-interested and irrelevant to public life.
The reaction of many foundations has been to put an unprecedented focus upon efficiency, and to review all programmes and projects, cutting many of them and abandoning others. Those philanthropic institutions that did not have exit strategies before the crisis, or a clear idea of where they want to be the day after, will most probably make mistakes in this ‘efficiency fever’. Most frequent mistakes? Across-the-board, uniform cuts in different programmes, projects and expenditure items; personnel cuts based on who is easier to lay off rather than who will add more value when the crisis is over; cuts in high-risk projects that would deliver long-term results in favour of short-term, low-risk initiatives; and, generally speaking, making any cut that is not based on thorough organizational performance and social impact evaluation.
This situation basically means that at a moment when foundations should be playing a countercyclical role, they are doing precisely the opposite: acting as pro-cyclical agents, contributing to the downward spiral of demand, with lower investment, lower consumption and lower expenditures on initiatives for the public good all contributing to growing unemployment and social exclusion in a damaging feedback loop.
What are the new opportunities?
I do not believe a crisis is an opportunity per se. It requires lots of preparation, and also some doses of serendipity, to turn a crisis into an opportunity. There is little doubt that the present crisis is so profound that a significant portion of current economic and social players will not survive it. The wealth destruction process means more than asset decline; it also means firms closing, workers becoming long-term unemployed, and non-profits and their programmes going out of business, abandoning beneficiaries and other stakeholders. Some of these organizations and workers will be able to get back into the market when the crisis stops or slows down, but a significant portion of them risks not being part of the system again. They will have a hard time becoming active again either as workers, consumers or citizens; or succeeding as new businesses or non-profits. From the institutional point of view, the knowledge, processes and products created by those organizations which just disappear will most probably be lost forever.
This acute, non-reversible wealth destruction and social exclusion process will be combined with the emergence of new models of production and new ways of working and networking in every walk of life. Only those people and organizations that are prepared to surf the tsunami will survive and succeed. To put it in Charles Darwin’s words, ‘it is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.’ Or, as an anonymous posting I came across at a Harvard Square cafe chalkboard a couple of days ago put it, ‘change can happen to you, or change can happen through you’.
There are several attitudes you can adopt when facing a tsunami. The first consists of denying that there is a huge wall of water approaching. This attitude, which was prevalent in many organizations not so long ago, making them lose valuable time in taking action, is residual today. The second consists of fiercely fighting against the tsunami. Chances are that you first become exhausted and then you drown! The third attitude consists of trying to just float along, letting yourself go wherever the tsunami takes you. The downside of this is that you will reach an unknown shore, forcing you to start from scratch to survive this terra incognita. The fourth attitude, which I strongly recommend, consists of surfing the tsunami: seeing it coming, trying to catch the wave, and using it to reach the shore you really wanted to get to.
The only way, I believe, that foundations can turn this crisis into an opportunity is by having a post-crisis strategy and implementing it effectively. This requires not only carefully identifying each organization’s tangible and intangible assets and managing them in a truly efficient way, but also responding to the tough question of what and where does the organization want to be when the tsunami is over.
The main threat to foundations from the crisis comes from not being able to respond to this tough question the day after: where were foundations when we needed them the most? There is a risk that foundations will be perceived as selfish and paralysed entities, socially irrelevant organizations that were worried mostly about their own immediate survival rather than the problems of the stakeholders they were supposed to serve.
Maybe the time has come for foundations to take risks. By risks, I mean being willing to borrow money if that is necessary to keep current expenditures and programmes; adopting spend-down schemes to respond to urgent poverty and exclusion affecting their stakeholders; acting as convenors to facilitate sharp and public debates on ways out of the crisis beyond political correctness and mainstream media; partnering more proactively with other non-profits, firms and government whenever the whole outcome may turn out to be greater than the sum of the parts; and/or making bets on high-uncertainty, creative, long-term initiatives that neither firms nor public administrations support when more urgent matters engross their attention and resources.
Will foundations be able to overcome their embedded conservatism and take a step further towards being perceived as socially relevant agents in the generation of solutions to this crisis? Here lies, in my humble opinion, the main opportunity arising from the crisis for foundations.
1 Craig, John E (2009) New Financial Realities: The response of private foundations Commonwealth Fund 2008 Annual Report.
Marta Rey is Associate Professor of the University of A Coruña. Email firstname.lastname@example.org