The Rundown - May 20, 2022
The latest news and notes from the nonprofit and philanthropic sectors.
Something a Little Different Edition - May 20, 2022
It was one year ago this week, that my wife and I discovered, this place, Trunk Bay, St. John’s, United States Virgin Islands. In many ways, this newsletter is a digital homage to that place. A small side-hustle designed to save up enough scratch to make another trip to this tropical paradise. I share this picture not so much as it being a great way to see tranquility in a photo, but as a reminder of me to encourage me to keep on going.
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Usually in “The Rundown”, I take a look at a few noteworthy articles that hit the nonprofit and philanthropic fields the last couple of weeks. This week is a little different, I found this one article in Non Profit Quarterly and it gave me a ton to think about. So much so, I am devoting the entire newsletter to this single piece.
Non Profit Quarterly Thinks About the Future of Philanthropy
Devon Kearney wrote this interesting piece in Nonprofit Quarterly that definitely caught my eye and should be a topic of discussion for nonprofit and philanthropic leaders. You can find the article here.
In his article, Kearny makes the point that the number of nonprofit organizations that exist in the country and the measure of income inequality have both risen exponentially since the end of World War II. According to Kearney, this is not just a mere coincidence. To note, the relative ease to start an operate nonprofit organization has improve greatly over the last seventy years as well as the dawn of the interne, weren’t brought up in this comparison. I would argue that the transformation to the digital age was more of a growth of both income inequality and the rise of nonprofits, but I digress.
Kearny seems to believe that both the rise of income equality and the increase of nonprofits (especially large nonprofits) is borne out of a strange development in which nonprofits are disproportionately supported by few (and rich) donors. Kearny writes:
It is a fundraising truism that 80 percent of income comes from 20 percent of an organization’s donors. Indeed, some claim that the ratio is closer to 90:10. Whatever the exact numbers, the overwhelming bulk of nonprofit funding comes from individuals capable of making large gifts.
Looking at these concurrent trends and the role of major gifts in the nonprofit revenue budget, it is no stretch to think that the expansion of the nonprofit sector has been fueled by the rise in wealth inequality
Kearny’s point is well taken, but I believe his diagnosis is inaccurate. One of the points I try to tell nonprofit directors is that the Pareto Principle is alive and well everywhere we look. Take a look at any baseball team of 25 players; roughly half the team’s hits will come from 5 players. And it doesn’t matter the team’s records; both the good teams and the bad teams will have this statistic. Take a look at the radio ratings for any given market. If there are 36 stations in a market; half the listeners are listening to the top 6, regardless if you are talking about New York City or Butte, Montana.
The Pareto Principle states that half the output of any given team or group will be made by the square root of participants. Many argue it’s an off-shoot of the Matthew Principle in the Bible:
“For to everyone who has, more will be given, and he will have abundance; but from him who does not have, even what he has will be taken away. Matthew 13:12
Nonprofit and philanthropy professionals need to stop thinking that donor pyramids that are top heavy are somehow a structural failure that can be overcome. It can’t. It’s nature. It’s like the sun coming up from the east and setting in the west. No amount of effort to change income inequality is going to change the fact that large dollar donors are still going to give to causes that are nearest and dearest to their heart. Give people an opportunity to make a choice and those choices are not going to be uniform. We need to understand this truism.
Kearney doubles down on his thoughts that any adjustments to income inequality will end up causing havoc in the nonprofit sector. He continues in his article:
“A more equitable future could well be a death knell for the sector that helped us get there. Given the revenue models in use today, fairer income distribution will require a radical overhaul of how nonprofits seek funding. Disposable philanthropic income will be more diffuse and will be available in smaller chunks. More effort will be required per dollar raised, less money will be available, and fewer organizations will have the infrastructure to compete for this funding.”
How does one know that disposable philanthropic income will become more diffuse and will be available in smaller chunks? Even if we accept that income inequality is a structural problem that can be solved (I am doubtful), there will still be more individuals that have more resources than others and those individuals will make philanthropic choices.
For example, I have a donor advised fund and I make philanthropic choices with where my donations go. I don’t give to every cause and I certainly don’t give the same amount to each cause. I have the ability to make choices on how my donations are made in terms of time, amount and cause. Wouldn’t those same parameters exist after a “fix” to income inequality are made?
Furthermore, many of the “fixes” to income inequality end up being solutions that look something to the effect of the wealthy paying more taxes. If more taxes are collected, what exactly will those additional revenues go for? No doubt, there will be a large chorus of voices making the claim that nonprofit organizations be the beneficiaries of this government’s largess.
Furthermore, Kearny sees a nonprofit world where organizations will fade away and new inequalities will rise up from the ashes.
As inequality gradually shrinks, there will likely be an incremental drain on philanthropic resources. Nonprofits will find themselves dipping into a leaky old bucket, even as it drains. Organizations will weaken and fail, and new inequities will emerge in who gets what is left.
I am not convinced that nonprofits are going to find themselves dipping into an old leaky bucket, which is described as traditional philanthropic giving. Again, individuals will be called to give according to their own individual choices; as much as certain segments of society may want to equalize income, there has been no conversation on equalizing philanthropic donations. Data has always shown that if the S&P 500 rises in any given year, philanthropic donations rise by almost the same amount. As long as our economy is growing, it is a safe assumption to say that philanthropic giving will grow as well.
As long as individuals have domain over the amounts they give, how often they give and who they give to, there will always be some sense of inequality in the dollars given to different nonprofit organizations.
And I will be the first to say, I am not sad to see some nonprofits become weak and fail; nonprofits must have some degree of sustainability to the work that they are doing. I have never seen it written that a nonprofit once established, must always continue to exist. Nonprofits must be agile, adaptable and provide some sense of value to their supporters, stakeholders and volunteers. Those nonprofits that fail to do that will go away; just like the way some of our private sector brethren close up shop every day.
Another point Kearny tries to make is that even in a world with more income equality, nonprofits must be run more like a…..business. Motives such as generating revenue and providing products that the market wants must be top of mind for future nonprofit and philanthropic leaders. Kearny makes the point this way:
In short, if we envision a more just world, we must begin to create a nonprofit sector that will be sustainable in a more economically equitable society. Such sustainability is likely to be the product of an amalgam of models suited to different contexts and lines of work. Some see a place for hybrid social ventures that generate revenue and turn profits into advocacy. Online fundraising and campaigning have much in common with the old model of nonprofit sustainability.
And Kearny is dead-on right. Much of what are the old bread and butter techniques of raising funds of building personal relationships and campaigning for dollars is not going away soon and it will require hard work to pull these efforts off, much like it always has.
Kearny’s article gave me a lot to digest and a lot to think about. In the end, I still believe that nonprofit organizations will always operate in an environment where some organizations will have more resources than others; that is just the natural flow of how these market-based systems tend to work. Any intervention to those systems run the risk of damaging our sector and doing more harm than good.
Let’s be careful when proposing solutions when the cure can be worse than the disease.
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Ready to Learn Something New?
Spring is a wonderful time to visit Indianapolis and it opens a perfect opportunity to sharpen your skills and meet new professionals in the field. I would encourage you to look at some of the offerings of The Fund Raising School at the Lilly School of Philanthropy at Indiana University’s campus in Indianapolis. The professional development school has great programming both on-line and in-person both in Indianapolis and at other sites across the country. Take a look at their course offerings here!
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Thanks for the thoughtful discussion of my article. I am not completely certain we disagree where you think we do, though we probably don't completely see eye to eye.
I am especially intrigued by the challenge you pose with regard to the Pareto Principle, where I suspect I'm fairly out of my depth. The point I was making in my article was that recent years seem to show that an increasing portion of our revenue is provided by a shrinking number of donors, and that if 80 percent of philanthropic dollars come from just 20 percent of donors, that is an indication that there is a strong connection between growth in inequality and in the nonprofit sector - nonprofits were a lot poorer back when wealth was spread more equally (the years of the "Great Compression"), and in recent years as much of the wealth in our country has shifted upwards, nonprofit numbers, salaries and the sector's significance to the economy has also risen.
If I understand your point, you are saying that another way to think of this correlation is that the Pareto Principle us simply a part of how the world is structured. Many disparate phenomena exhibit the 80-20 rule, and nonprofit revenue bases are no exception.
That is probably at best half a gloss on your point, but it is enough that I am intrigued. But, in reply, even if the Pareto Principle is on display in most things, each instance surely has its own cause. All I am saying is that in this case, the cause is the fact that wealth is pooled, and when some people have vastly more than they need to survive, more of this money is available for charitable giving.
It's a conundrum, for justice minded nonprofits. I don't think inequality will be changed ssignificantly in the near future (and I do NOT think nonprofits should be run like businesses). But a sudden new great compression would, likely, put a large number of us out of business. My real point in writing is that I think we need to keep this tension in mind, so that the question of where our bread is buttered does not adversely influence how (and how well) we pursue our missions.
I agree with his sentiment, "Social justice nonprofits work for a more just society even as they are entwined with and dependent on an increasingly unjust economic system." A nonprofit should work towards equality for those they serve. Granted, such equality could put them out of business, but I would think that be the ultimate, if unreachable given a less-than-perfect-world, goal in some cases?