Before the Next Recession, Philanthropy Needs to Redefine Efficiency

Stanford Social Innovation Review (SSIR), December 17, 2019.

In a crisis, short-term efficiency can be a shock amplifier. Long-term efficiency comes from building resilient institutions.

There will be another recession. Some economic indicators are already pointing in that direction, like the U.S. Treasury Bond yield curve. It may be mild or severe, and it may be sooner or later. But while we can’t predict the timing or severity, we can be certain that it’s coming. And so, we should be ready.

As president of a network of Jewish philanthropists, I know how badly our community suffered during the last economic recession: According to one estimate, Jewish nonprofits suffered a $1 billion loss between 2007 and 2012. For us, it was a double whammy: The recession hit right when many Jewish philanthropic funds and nonprofits were reeling from the fallout of the Madoff scam. But in every sector of the nonprofit economy, recessions set off spirals of negative consequences: Individual donors struggle, nonprofits raise less money, and foundations’ endowments decrease, all at the same time that more people need services and support.

Have we learned the lessons of the last recession? Are we ready for the next one?

We’ve learned certain lessons well. A Madoff-style scam is more unlikely today, both because people remember the trauma and because organizations have enacted policies to prevent the same thing happening. In other ways, however, the American Jewish philanthropic field is insufficiently prepared. We need to manage endowments more conservatively; in bullish markets, it’s tempting to lean hard into volatile investments on their way up, in order to maximize returns. But when volatility turns sharply down, we realize the value of more stable assets, which trade volatile rewards for protection from volatile losses. Relatedly, we need more viewpoint diversity in our executive teams and boardrooms so that institutions don’t succumb to groupthink. It wasn’t popular in the booming 2007 market to suggest investing conservatively or getting out of the bubble before it bursts. A culture that welcomes dissent will be better prepared for a crisis.

But here’s the most important point: If we want to be prepared for the next recession, we need a new definition of efficiency.

During and after the Great Recession, organizations became more “efficient,” doing more with less money and staffing. But if that kind of efficiency saves money, it comes with its own price. According to Leading Edge’s 2018 Employee Experience Survey, only 37 percent of Jewish communal professionals feel that “there are enough people to do the work we need to do.” Many report burnout among the factors driving them to want to leave the field. This puts Jewish organizations at risk of sizeable turnover costs, loss of institutional memory and top skills, and productivity costs spawned by low morale.

Another risk of idolizing efficiency is that it leaves no “fat” to trim from budgets in a crisis...

Read full article at SSIR >>