National, Local Leaders Discuss Nonprofit Challenges

By Jennifer Johnson Backer

Nonprofits need multifaceted ways to inform their stakeholders in a world that has grown more volatile, uncertain and complex, Jacob Herold, the president and CEO of GuideStar, told a sold-out audience at the annual Alliance for Nonprofit Excellence conference Wednesday, May 1.

Local and national nonprofit leaders gathered at Temple Israel for the conference, The Gatekeepers of Philanthropy, to discuss challenges faced by the nonprofit sector, developing a nonprofit policy agenda for the Mid-South, how donors are being advised, new ways of informing donors and giving, and increased collaboration.

Herald told the audience the nonprofit sector needs to build “an information scaffolding for social change,” in a complex world. “We’ve made some real progress, but we have a long way to go,” he said.

GuideStar has traditionally provided information about nonprofits using millions of Form 990s filed with the Internal Revenue Service. The forms provide the public with financial information about nonprofits to prevent abuse of their tax-exempt status. They are widely used by donors as a tool for evaluating a nonprofit’s performance.

But Herold, who became CEO in October, wants to move donors and GuideStar away from relying solely on financial metrics to measure a nonprofit’s performance. Donors need information about which interventions work, where nonprofit resources are located and which nonprofits are the most effective, in addition to their financial performance, he said.

That often means measuring multiple bottom lines in an effort to be transparent to stakeholders, Herold said.

“What really matters are the results that nonprofits create,” Herold told The Daily News in an earlier interview. “We’ve been really shifting our attention to gather more data about a nonprofit’s programs, their communities, and about their beneficiaries.”

Mid-South nonprofit leaders told Herold they would welcome GuideStar’s efforts to provide a more robust picture of a nonprofit’s performance, including a GuideStar letter they could give donors that warns against the dangers of solely relaying on metrics like an organization’s overhead ratio to measure effectiveness.

“GuideStar bears some of the blame for the focus on the overhead ratio,” Herold said, adding that the company is now focusing on more effectively measuring outcomes, rather than financials.

Alliance speaker Eileen Heisman, president and CEO of the National Philanthropic Trust, spoke about the growth of donor-advised funds, a type of charity savings account for donors. The funds are owned by the charity, and not the donor, but donors get to advise on how the funds are invested and where they are given.

Heisman told the audience donor-advised funds have exploded since she began working in the sector in the late-1980s. Today, more than 1,800 charities sponsor donor-advised funds and they account for 3 percent of all charitable contributions made.

Local nonprofit leaders also discussed developing a policy agenda for the Mid-South with Rick Cohen, national correspondent with The Nonprofit Quarterly.

Cohen discussed the impact federal sequestration cuts will have on nonprofits in Memphis, and elsewhere in the nation., a nonprofit advocacy group, estimates every nonprofit with a federally-funded contract or grant (including pass-through dollars to states and localities) will lose about 9 percent of its federal funding for the federal government’s fiscal year 2013. The government’s fiscal year begins on Oct. 1.

Local nonprofit leaders told Cohen they face increased mandates for federal contracts, with dwindling financial resources. Many local nonprofits also face issues with cash flow and late federal reimbursements.

“These are cuts upon cuts, upon cuts,” Cohen said. “There are many cuts that have affected many areas.”

Cohen told the group the federal government is increasingly focusing on tax credits, versus direct expenditures. That can make it very challenging for nonprofits without adequate cash flow and capital.

“To play at the federal level, there is increasingly pressure to come to the table with money, and that’s not a reality for many organizations,” he said. “Some nonprofits won’t be able to function; funding is being chipped away.”