Trends in the Nonprofit Sector: A Fresh Call for Change

The Independent Sector (IS) (2015), a national umbrella service organization for nonprofit entities, recently released Threads: Insights from the charitable community, a publication highlighting the opportunities and challenges identified by its stakeholders—nonprofit executives, board members, corporate and government leaders—during a series of conversations it hosted throughout the United States. First and foremost, this effort aimed to identify the critical issues facing the nonprofit sector, as well as “bright spots” of innovation, change and resilience that could provide insight into best practices and alternative ways of catalyzing community change in light of current social and economic conditions. The report offers a number of trends, challenges, solutions and perspectives, many of which are not new.  They represent calls for change that have yet to be addressed effectively despite the sector’s exceptional growth in recent decades and the continuing high demand for its organizations’ services and programs.

A Historical Review

The nonprofit sector has experienced shifts—periods of growth and decline—that have mirrored changes in the global marketplace and social fabric of communities, including a period of unprecedented growth beginning in the 1970s (Cornforth, 2014).  This recent period also marked a time of change in the sector’s relationship with government entities. This growth continued into the 21st century with a reported 25 percent increase in the number of nonprofit organizations chartered in the United States between 2001 and 2011, bringing the total number of such institutions to 1,574,674 at the close of 2012 (Roeger & Blackwood, 2012).  During this period of expansion, the growth rate of the sector surpassed that of business and government alike, and it contributed products and services in excess of $779 billion, or 5.4 percent of the nation’s Gross Domestic Product, while employing more than 14 million people (approximately 11 percent of the American workforce) (Roeger & Blackwood, 2012).

The global financial crisis interrupted this trajectory, resulting in a simultaneous decrease in charitable donations (frequency and dollar value), an increase in citizen and community needs and substantial reductions in federal, state and local budgets, which reduced public support for nonprofit direct services provision (Bridgeland, McNaught, Reed, & Dunkelman, 2009). Bridgeland et al. (2009) labeled this turn the “quiet crisis.” It meant nonprofits had limited financial reserves to confront a steady increase in demand for their services.  These conditions left many nonprofits ill equipped to do more than react to swiftly changing conditions. Brothers and Sherman (2012) have painted a vivid picture of this period of large-scale change:

Change is the one constant. … Has this ever been truer than during the present time, as we enter the second decade of the twenty-first century?  Technology, globalization, a devastating economic recession that most would agree has put tremendous strain on nonprofits in the United States—these are just a few of the seismic shifts that have increased the pace of change in our sector. (p. 2)

In 2013, more than 80 percent of nonprofits responding to a national survey confirmed this portrait by reporting an increase in demand for their services for the sixth straight year while 56 percent of responding organizations reported they were unable fully to meet the needs of their clients and communities (Nonprofit Finance Fund, 2014).

As the sector began to experience greater demand for programs and services, questions of accountability and changes in regulatory reporting surfaced as donors and funders sought confirmation of the impact of their contributions.  Simultaneously, reports of fraud and embezzlement in both the business and nonprofit sectors raised concerns regarding appropriate internal controls, resulting in calls for changes in management processes and board oversight practices. Indeed, funder, regulatory agency and watchdog organization questions regarding the adequacy of board governance efforts to ensure nonprofit organizations are accountable for their actions, remain effective in their delivery of programs and/or services and retain their independence continue to challenge the sector today (Cornforth, 2014).  Additionally, nonprofit institution leaders face complex and ever-changing internal tensions that result from their dual responsibility to achieve mission-related goals while also remaining fiscally sound and well governed (Carroll & Stater, 2008).

Threads:  Challenges Facing the Charitable Sector 

The results of IS’s conversations are not surprising in light of the reach, character and complexity of the sector in the United States today. Nine themes or continuing imperatives emerged from the Independent Sector national dialogue with nonprofit organization leaders and stakeholders:

  • Vision and Strategy
  • Funding-Related Practices and Relationships
  • Operations, Capacity, and Governance
  • How Organizations Relate to Each Other
  • Sector Workforce and Talent
  • Diversity and Inclusion
  • Engagement with Stakeholders
  • Communication and Branding
  • Cross-Sector Concerns (Independent Sector, 2015, p. 12)

These concerns represent the key challenges facing the sector, according to Threads participants.  Specifically, those involved offered the following list of challenges facing the sector based on their experience:

  • Strained relationships between funders and nonprofits (Independent Sector, 2015, p. 14)
  • Pitfalls in impact measurement (Independent Sector, 2015, p. 13)
  • Lack of organizational capacity (Independent Sector, 2015, p. 15)
  • Ineffective board governance (Independent Sector, 2015, p. 15)
  • Behind the curve on technology (Independent Sector, 2015, p. 15)
  • Lack of collaboration among sector organizations (Independent Sector, 2015, p. 16)
  • Concerns for small nonprofits (Independent Sector, 2015, p. 16)
  • Need to better support and develop leaders (Independent Sector, 2015, p. 17)
  • Negative impact of low compensation (Independent Sector, 2015, p. 17)
  • Transactional and reactive relationship with government (Independent Sector, 2015, p. 19).

This catalogue of challenges is not unique to today’s sector leaders.  In 2002, for example, Salamon published the following broadly defined issues facing the sector:

  • The fiscal challenge: access to sustainable, diverse financial resources to meet program and service needs, especially government funding
  • The competition challenge:  increased competition from for-profit firms, creating a competitive disadvantage
  • The effectiveness challenge:  increased pressure to demonstrate effectiveness in an “accountability environment”
  • The technology challenge:  inability to obtain and maintain the latest technologies, especially for small organizations
  • The human resource challenge: concerns regarding low wages, high-turnover rates, and leadership across the sector in recruiting new talent  (p. 2).

Participants in the Threads (Independent Sector, 2015) dialogue also offered possible ways of addressing the concerns they identified:

  1. Develop new norms: organizations must define the cultures and skills needed to succeed today.
  2. Create open dialogue: enhance opportunities for dialogue to transcend all stakeholders within the sector—between organizations, grant makers, community leaders, businesses, and government entities.
  3. Right-size and co-design solutions: noting the complexity of the challenges facing communities and individuals, collaboration among nonprofit organizations, to include a long-term strategic plan, is needed.
  4. Share insights and lessons:  insights into successes, as well as failures is desired to enhance the sector’s overall effectiveness.
  5. Build systems to support the sector: pooling resources may provide opportunities to engage in activities and services that individual organizations may not be able to achieve alone.
  6. Advocate for policy change: through better educated boards, staff, donors, and communities, sector leaders desire a better understanding of how policy change is implemented and strategies to engage in this effort.
  7. Communicate the value of the sector:  by increasing awareness and improving the brand of the sector, businesses, government entities, and communities will better understand the impact of the work done by the sector (p. 21).

These paths forward are surely empirically appropriate.  They reflect the work of scholars and practitioners during the past two decades and they represent the insights of nonprofit leaders from a vast sample of the sector.  However, these recommendations beg a set of overarching questions: What steps are needed to catalyze effective, long-term change within the sector?  How will the sector, collectively, move past the challenges these conversations highlighted?  Is it possible for the sector to evolve and transform, becoming something altogether different, in an effort to address these concerns more effectively?  If so, can such occur on a collective, national, or multi-national scale, or should sector leaders strive for smaller-scale, local and regional alignment around specific alternatives? Put differently, the IS Threads effort, as helpful as it surely was, raises the issue of: When will our common steps toward sector-wide change match our shared effort to name problems and anticipate solutions?

Threads (Independent Sector, 2015) offered a comprehensive assessment of the state of the U.S. nonprofit sector today.  My aim here is not to provide a plan or remedy for all of the issues the IS initiative highlighted. Rather, I seek in a small way to inspire new questions that may help sector leaders move beyond rhetoric to hope-filled actions that can realize the scale of change now perceived by so many such individuals as necessary if nonprofits are to realize the promise their stakeholders are now demanding.

References

Bridgeland, J. M., McNaught, M., Reed, B., & Dunkelman, M. (2009). “The Quiet Crisis: The Impact of the Economic Downturn on the Nonprofit Sector.” Civic Enterprises.

Brothers, J., & Sherman, A. (2011). Building Nonprofit Capacity: A Guide to Managing Change through Organizational Lifecycles. John Wiley & Sons.

Carroll, D. A., & Stater, K. J. (2008). Revenue diversification in nonprofit organizations:  Does it lead to financial stability? Journal of Public Administration Research and Theory, 19, 947–966.

Cornforth, C. (2014). Nonprofit governance research: The need for innovation perspectives and approaches. In C. Cornforth & W. A. Brown (Eds.), Nonprofit governance: innovative perspectives and approaches (pp.1-14). New York, NY: Routledge.

Independent Sector. (2015). Threads:  Insights from the charitable community. Retrieved from http://www.independentsector.org/uploads/ThreadsReport.pdf?_cldee=c2FoYW5rc0B2dC5lZHU%3d ,October 31, 2015.

Nonprofit Finance Fund (2014). State of the nonprofit sector survey. Retrieved from http://nonprofitfinancefund.org/announcements/2014/state-of-the-nonprofit-sector-survey ,November 1, 2015.

Roeger, K. L., Blackwood, A., & Pettijohn, S. L. (2012). The Nonprofit Almanac 2012. Washington, DC: Urban Institute Press.

Salamon, L. A. (2002). The Resilient Sector:  The State of Nonprofit America. Snapshots, 25, 1-5.

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Sarah HanksSarah Hanks is a Ph.D. candidate in Agricultural, Leadership & Community Education, and is a Graduate Assistant in the Office of Outreach and International Affairs. Her academic and research interests include leadership studies, problem solving, and nonprofit management and governance.  Prior to returning to graduate school, Sarah spent eight years as an executive within the YMCA, serving communities in Washington and Virginia. In addition to her academic pursuits, Sarah serves as the Interim Executive Director of the Virginia FFA Foundation, a member of the Community Voices team and is active in several professional organizations.

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