As Covid-19 made big gatherings impossible, the Cornerstone Family Programs & Morristown Neighborhood House in New Jersey had to cancel its spring gala, its biggest fundraising event of the year, which usually brings in $330,000 in general operating support. It also had to close its community center and senior centers, which meant it had to devise new ways to get food to its clients and check in on them remotely. Patrice Picard, the CEO, was afraid she would soon need to start laying off some of the 120 employees.
So when Congress passed the Paycheck Protection Act Program, she thought it would be a lifeline. The new law provides loans to organizations that would be forgiven if groups keep all staff members on the payroll for a certain period of time. (The Chronicle of Higher Education, the organization that publishes the Chronicle of Philanthropy, has received a loan under the Paycheck Protection Program.)
“We are desperately trying to keep paying them,” says Picard, the group’s CEO. The social-services organization submitted an application for a loan to its longtime bank the day the program started. But like many other nonprofits, her group ran into problems. It took her bank more than a week to request additional information, and by then, the underfunded program had run out of money. She had to furlough some employees and reduce the hours of others.
The group has another chance to get aid because Congress has added more funds. But Picard remains frustrated. “We have been supporting our community for 207 years,” she says. “It is unconscionable that we were not a higher priority.”
Nonprofit leaders across the country are facing the same kind of tough decisions. Many have had to lay off workers and make other painful cuts. Many are scrambling to obtain lines of credit and emergency grants while trying to retool their fundraising and operations for an era of social distancing. While some groups are getting lots of help from their boards, some trustees, who may have never been particularly engaged or who are bogged down with their own personal and professional challenges, are offering sparse counsel and little in the way of donations.
The need for swift action is clear: Twelve percent of nonprofits have less than two weeks of cash on hand, according to an analysis by Michael Jones, executive director of Kautz-Uible Economics Institute at the University of Cincinnati, that examined 155,000 nonprofits with budgets over $50,000. On average, the groups had just three months’ worth of cash reserves. (Schools, colleges, and hospitals were excluded from the analysis.)
Worries About Next Year
Oregon-based Goodwill Industries of the Columbia Willamette was among the organizations that found itself forced to take quick action after the state’s governor closed all nonessential businesses at the end of March.
The organization has 53 retail stores and 39 donation sites. It relies on sales of donated goods for about 85 percent of its revenue. With no money coming in and a payroll of about $100 million a year — mostly staff at its stores, who could no longer work — the group had to act. It laid off about 2,600 employees the first week of April.
“We’re just not in a financial position to carry 2,600 people that were not working at all,” says Bob Barsocchini, the group’s human-resources director and general counsel.
In addition to payroll expenses, the group leases about nine sites and has commercial tenants at the locations it owns, many of whom are asking to suspend lease payments. It has to continue to pay security guards to look after its sites and truck drivers to haul away donations that people continue to leave even though the group has asked the public to stop dropping off goods. The organization has retained roughly 170 employees, including those in human resources and finance.
It has enough cash on hand to maintain its operations at this new, scaled-back level until the end of the year, but Barsocchini remains concerned for the future. “The longer this goes on, the less likely it will be that we emerge with an organization that looks like the one that was closed down on March 23,” he says. “Our mission is to provide vocational opportunities. We want to get back to serving that mission.”
Alternatives to Layoffs
While every organization’s situation is different, the first step nonprofits need to take in this crisis is to get a clear-eyed picture of their finances, says Curtis Klotz, director of nonprofit innovation at the professional services firm CLA (CliftonLarsenAllen). Leaders may find it valuable to consider what they want their organization to look like after the crisis — how it will emerge and how it could be different. “That becomes a launching pad for what they’re doing next,” says Klotz.
After the crisis subsides, groups will need to be both financially viable and able to carry out their missions. It’s unlikely that things will return to normal right away, so Klotz says groups may want to plan for a phased recovery. For example, it may be some time before large numbers of people go to museums. Some revenue may return quickly, but some will be delayed or lost forever.
Layoffs are the most extreme tool groups have for managing their financial situation. But they are not the only way to bring down payroll expenses.
Before considering layoffs, groups can freeze hiring and salary increases. They can also halt benefits such as 401(k) matches, says Lisa Wright Ponce, a senior human-resources business partner at Nonprofit HR.
If reductions in salary costs are required, there are still alternatives to layoffs. Groups can move employees into part-time roles with accompanying pay cuts. Nonprofits can do what Klotz of CLA calls progressive salary cuts, in which pay cuts are deeper the more a worker makes. Groups can even do something called salary leveling, with everyone earning the same amount — usually closer to the lowest-paid employee’s salary. These measures can save as much as 50 percent of payroll costs without laying off anyone.
“Striving to maintain the staff can actually boost morale at a time when everybody is sharing in the burden of reducing salaries, reducing benefits, and reducing their own livelihoods,” Klotz says.
If groups do need to let people go, they should consider how that may affect their diversity efforts. At some organizations, employees of color may have been the last hired. That does not mean they should be the first let go. “That could decimate any gains they have had hiring a more diverse work force,” Klotz says.
Organizations often try to preserve people who work on programs over finance, human-resources, or other operational positions, he says, because these are the people with the skills required to help the group get back on its feet after the crisis.
Another consideration, says Ponce, is to focus on the qualities that employees bring to their work. “Who are the people who have incredible skills, who are motivational leaders and visionary leaders that the staff will rally around? Those are the managers who will strengthen your employer brand when all of this is over,” she says. “They will also keep the wheels on the bus.”
Disengaged Board Members
In a crisis like this, executives should work closely with board members to better understand how the changing situation will affect their groups and the options available to stabilize finances, says Anne Wallestad, CEO of BoardSource, an organization that works to improve the effectiveness of boards. She says it is important for leaders to be clear with board members about what’s at stake for finances and programs and to ask for input from board members based on their areas of expertise. She says boards should be informed about financial plans, including any staffing changes.
“Hopefully, the executive worked hard to build a board that includes important expertise,” says Wallestad. “Now is definitely a moment to use that.”
However, not all nonprofit leaders can count on their board of directors.
As the coronavirus outbreak began to spread, Allison (who asked that we not use her real name or identify her group so she could talk openly) hoped that her board would support her efforts to keep the group afloat.
There was a lot to be done. All of its operations needed to move online — a first for the group. Some services had to stop completely. And, most important, it needed to raise funds in the midst of a global economic collapse.
She hoped that the board would step up to help. “It’s about fundraising, and that can take many forms, even if it is just supporting you in fundraising or rallying as a group of board members to say, ‘What can we do to help the organization together?’ without having to be instructed or told,” she says. “It’s about being leaders, really taking leadership.”
Unfortunately, none of that happened. She says the board has shirked its responsibilities. No board members have donated or raised money in response to the pandemic They have failed to offer even the most basic managerial or moral support as she scrambles to raise money, get highly competitive government loans, and manage a group that is shifting its operations online in a deeply uncertain time.
“The organization is in one of the most terrible moments ever, and I have to do emergency treatment,” she says. “I can’t do that and come up with fun, creative ways for board members to engage. They have to take ownership and leadership to step up and help where they can.”
Members of the group’s board have expertise in relevant fields, including finance. The board has an executive committee and others focused on finance and programs. But when the crisis came, little of that mattered.
Even in the best of times, some groups struggle with disengaged board members, Wallestad says. But now the frustration can be much higher because the stakes are so much higher in this crisis.
She suggests approaching individual board members with specific tasks, like making introductions to help with fundraising or finding organizations to collaborate with.
“Make a really specific ask about what you need them to do,” she says. “It’s not a silver bullet. It’s not going to solve all the problems. But it will help you, as the executive, bring more focus to the ask that you’re making.”
Many groups may be confronting similar issues to one degree or another.
Allison thought she was alone until she found a Facebook group where other nonprofit leaders described the same kinds of problems she was experiencing with her board.
Leaders are more likely to notice these shortcomings in a situation like the Covid-19 pandemic, Wallestad says.
“A crisis reveals the underlying challenges an organization or a board has been facing,” she says. “The unfortunate reality is that typically a crisis is not the best time to solve those challenges.”
For Allison, this experience may well drive her away. She feels like she has no support and has lost respect for the members of her board. “It makes me feel that there is no future here.”
Values as a Guidepost
The stakes are undeniably high. But the crisis can still be an opportunity for organizations to let their values and mission guide the path forward, even when there are few good options. It’s important to value staff members even as the group is trying to conserve its resources, Klotz says.
“The staff really are the key elements to who and what a group wants to be at the end of all of this,” he says. “These are difficult, if not impossible, choices to make, yet they do have a chance to express their values and their principles.”
Even amid massive layoffs, Goodwill Industries of the Columbia Willamette took steps to lessen the blow for its employees, Barsocchini says.
Instead of laying people off in March, it held off until April 2 so employees could keep their health insurance another month. It also paid the employees’ portion of the health-insurance premium, which cost the organization about $1 million. In addition to paying all accrued sick leave and vacation time, it is also giving each employee an extra $300, a move that will cost roughly $750,000.
“We recognize it’s a really difficult situation,” Barsocchini says. “At the same time, we have to operate with the idea that we will resume business. We have to be in a position where we’re marshaling assets so that we have some ability to open responsibly when the time comes.”
