About a year ago, the New York nonprofit world hit an unhappy trifecta: FEGS, the largest social service nonprofit in the city, declared bankruptcy. The agency provided job services to people with disabilities and poor people. It was “praised by corporate titans and community leaders alike,” according to the New York Times. The news came on the heels of the New York City Opera’s collapse and financial turmoil at Cooper Union, the esteemed art and architecture school. All three were once-lauded nonprofits that fell on hard times.
Some important lessons have come out of that carnage, however, and they apply to Minnesota nonprofits. Prompted by the FEGS failure, Oliver Wyman, a management consulting firm, and SeaChange Capital Partners released a discussion paper, Risk Management for Nonprofits, earlier this year. The paper is a thorough introduction to a neglected topic and offers important advice that’s relevant to any nonprofit, of any scale and in any sector.
The paper’s premise is that hard times rarely come in one fell swoop. Problems develop over time and can be more or less successfully mitigated based on a nonprofit’s ability to analyze and deal with risk on a continuous basis. Further, the paper says we ought to care—a lot—about risk in nonprofits. Our social safety net, our medical care, our cultural assets, our educational system and our community development activities, to name a few, rely on healthy nonprofits that function at a high level and deliver on their missions on behalf of all of us.
The core of the report analyzes the performance of New York City nonprofits against the three core resilience factors that the authors urge nonprofit boards to monitor. These are:
Further, about 40 percent had virtually no margin of error, with cash and reserves totaling less than two months of operating expenses. Data further showed that the larger human services nonprofits overwhelmingly relied on government funding sources, which can be fickle and/or subject to changes in regulations; and, while most nonprofits are small, the large ones provide the vast majority of services.
The report details eight best practices—and puts responsibility squarely on trustees’ shoulders for implementation and monitoring:
The report concludes with themes that emerged from research, summarized as avoidable “worst practices.” If you volunteer, contribute to or work in a nonprofit, see whether any of these sound familiar—and if they do, consider changes. These conditions made facing a crisis that much more difficult:
Which of Minnesota’s important nonprofits is operating too close to the edge? With thousands of people depending on our nonprofits to provide essential services, it’s critical that trustees and leaders face the possible scenarios that could disrupt continuity in operations or put them out of business entirely. Oliver Wyman does a service to the nonprofit sector by publishing its analysis and findings, and suggesting risk mitigation behaviors and practices. It’s a great, succinct read. It would be helpful to have a comparable analysis for our cherished and vital nonprofit sector in Minnesota, and to know that trustees and staff at nonprofits are aiming for the best, but preparing for the worst.
Sarah Lutman is a St. Paul-based independent consultant and writer for clients in the cultural, media and philanthropic sectors.