In the aftermath of the Global Financial Crisis (GFC) more than a decade ago, dozens of not for profit organisations, charities and foundations confronted challenging questions about their future: what kind of organisation did they want to be? How could they fireproof their operations from a similar event in the years ahead? What would it take to come out the other side, stronger, and more resilient?
Now, those same organisations that emerged from that crisis are once again asking similar questions, grappling with a global health emergency that has such widespread and profound impacts that it makes the GFC seem like only a mild shock in comparison.
Already, the impact of the COVID-19 crisis on Australian philanthropy is forecast to be significant, with the biggest impact not this year but next when total giving is expected to drop back to 2012 levels.
Philanthropy Australia (PA) board member John McLeod, and author of JBWere’s Where to from here? The outlook for philanthropy during COVID-19, estimates total giving will fall around 7.1 per cent this year and a further 11.9 per cent in 2021.
“The GFC was essentially a financial issue, when we were dealing with things that we weren’t familiar with, like solvency, the banking system and the economic health and confidence of sovereign countries,’’ John McLeod says. “This is quite different. Here we can see the way out: it’s just the uncertainty of timing plus we don’t know what tomorrow looks like in terms of more permanent changes to lifestyles and work practices.’’
The impact of this crisis on Australian giving is potentially more profound because of our extensive generosity to the bushfire emergency earlier in the year. Since then, many Australians have become casualties of the COVID-19 lockdown, losing their jobs or working fewer hours, and shifting from likely donors to charities to potential recipients of their support.
While those circumstances point to a dramatic impact on mass-market philanthropy, there are still some organisations that took the lessons of the GFC and made changes that may help mitigate some of the COVID-19 effects.
The Centre for Corporate Public Affairs report to the Federal government on Australia’s Not-for-Profits immediately after the GFC identified several positive impacts, which included an increased focus on good governance and management of risks and reserves. There were also more opportunities for increased engagement with boards on financial management and strategy planning.
The centre’s executive director, Wayne Burns, says boards diversified their experience and skillset after the financial crisis. “What happened after the GFC, a lot of boards became a fair bit more professionalized, and you got a lot of people not just from business but others who had come from successful NFPs or who had worked in…government,’’ he says. “There were efforts by boards to extend the breadth of experience and that’s been fairly well embedded so the boards …the governance is stronger [now].’’
Natasha Kronouer, investment advisor to the Lord Mayor’s Charitable Foundation in Melbourne, says that at times of economic crisis, the need for a robust governance framework is paramount. Several years ago the Foundation undertook a review of its risk appetite to better reflect its risk budget and the need to maximize returns within a controlled risk framework. “On a regular basis we stress test the portfolio to understand how it might behave under a range of scenarios, including extreme shocks, such as the GFC, the 1987 stock market crash, and the technology bust,’’ she says. “It’s a valuable tool and has ensured that the Foundation is in a strong position through this crisis. It also emphasizes the need for a robust governance framework to withstand these kind of market shocks.’’ The Foundation has also introduced “spending rules’ that smooth out granting to reduce any volatility to those who need it. The rules provide stability and certainty, reassuring potential granters in difficult times.
Funders understand that the grants they disburse during this crisis are likely to have greater impact, and there is a determination to maintain granting levels. Once the recovery starts, funders can begin to replenish what they have spent.
The GFC aftermath shows that the crisis also provided opportunities for organisations to adapt, innovate, and emerge stronger on the other side. But there were also mergers, alliances and closures, which is also expected this time around. Wayne Burns believes if NFPs are going to adapt, it is far better they do it during the crisis, rather than try to do it when the recovery is underway. “The organisations that are thinking about that now and can adapt in the next five or six months are the ones who’ll come out far stronger than those waiting for the recovery,’’ he says. And for those who opt to go into hibernation, he urges them to think carefully about their future. “They’re going to need quite a big budget to come out of hibernation. Arrangements like the JobKeeper payment is not going to sustain a lot of them unless they’ve got reserves and those reserves are big enough to relaunch themselves,’’ he says.
John McLeod Senior Consultant, JBWere Philanthropic Services and Philanthropy Australia Board member.
Many charities, however, find themselves struggling to cope at just the time when their services are in most demand. As John McLeod points out, many charities work physically close to those they help, and in times of isolation, the way they operate is inevitably impacted. And 50 per cent of charities’ total cost goes on wage, a significantly higher percentage than wages in the for-profit sector. Paying staff and keeping staff while trying to preserve the mission to help the vulnerable becomes a tough ask, especially when the vital support of volunteers is also likely to be compromised.
There is widespread agreement that at least in the short to medium term, volunteering will drop off, partly because of isolation, partly because of the economic impact of the virus that reduces volunteers’ capacity to help. Some observers believe that in the months to come, many of those who have lost their jobs or had an epiphany during their isolation will embrace volunteering as a way of finding new meaning in their life. But it is too soon to be certain of that.
At such times, governments can increase their exposure to the sector. The recent Good Friday Appeal for Melbourne’s Royal Children’s Hospital has been a fixture on the Victorian calendar since 1932. This year, because of isolation and lockdown, many of the fund-raising initiatives, and its unique telethon, were either cancelled or cut short. With the final amount well short of last year’s total, the Victorian government stepped in to make up the difference. The decision illustrates an emerging trend, John McLeod says, for governments to increase their support for charities, particularly by outsourcing some functions to the charity sector. Wayne Burns says the crisis provides government, at all levels, with the chance to build on that contact so they get closer to the NFP sector. “This is an opportunity for government to re-think the sector – not just how it can regulate the sector but how it can spark innovation, support place-based efforts and help with competitive funding and with increasing support around education and training,’’ he says.
Wayne Burns can see some grounds for optimism. “There’s a lot of corporate memory in some of the larger NFPs, and if they’ve come through the GFC, they might have been battered but they survived and in a far better position because they have needed to adapt previously,’’ he says. John McLeod is more measured about the timeframes. “When the country’s open again, people will be generous. There will be a rebound, but we just don’t know when,’’ he says.
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