Threats and opportunities loom large for NFPs

The not-for-profit (NFP) sector is facing one of the biggest periods of change in its history, with government funding cutbacks, potential tax reform and new funding models among the challenges keeping directors up at night.

In the 2015 NFP Governance and Performance Study, released in November by the AICD, financial sustainability issues were the major concern for most of the 2,976 directors surveyed. Top priorities for organisational health included building and maintaining income, diversifying income sources, increasing own source income, and managing costs.

“It’s no surprise that financial sustainability is the largest concern of NFP directors, given the scale of recent cutbacks and the potential for more,” says Phil Butler, AICD NFP sector leader. “Many NFPs are struggling to find new funding sources as demand for their services grows.”

UNLOCKING OPPORTUNITIES

Despite the threats that NFPs face, according to Butler, it is also a time of significant opportunity. “We shouldn’t lose sight of the tremendous potential for NFPs either. In the long term, the world is about to embark on the biggest transfer of intergenerational wealth ever seen, which could drive higher rates of philanthropy.”

Greg d’Arville FAICD, a director of the not-for-profit St Martins Youth Arts Centre, agrees that it is a time of great promise, but suggests that NFPs need to innovate to stay in the game.

“There is great potential in the sector, and the challenges that we face are also opportunities to find new ways of doing things,” says d’Arville.

“We’re on the threshold of a very promising era, but that’s not to say that those organisations standing today will be here to enjoy the fruits of that era. There’s a need for adaptability, flexibility and innovation – if you can tick those boxes you are well on your road to seizing the opportunities that are very much before us.”

So what can directors do to adapt and innovate in this challenging environment?

“Directors need to do what they have always done: take that broader view to work their networks, conduct higher level environmental scanning that their operationally focused management teams don’t necessarily do. And, in the NFP sector specifically, to understand that their contribution goes beyond just showing up at meetings,” says D’Arville.

“There’s a need to thoroughly commit to the organisation and its objectives, and that might mean getting your hands dirty in such areas as fundraising. But there’s also a need to rise above that and continually challenge management to come up with new approaches that respond to the opportunity-rich, but also threat-rich, environment that they operate in.”

“GIVE, GET OR GET OFF”

According to d’Arville, the issue that seems to cause the most angst for NFP directors, particularly in the arts sector, is the unpredictability and volatility of government funding.

“That affects different organisations in different ways, and as the study reflects, most of us are starting to move towards a philosophy of ‘give, get or get off’. That in turn puts boards of arts companies, of all sizes, in a bit of a quandary – to what extent should we require our directors to make a contribution and what might they expect to get for that contribution?”

This year the AICD’s NFP Governance and Performance Study included in-depth research into culture and arts NFPs, finding that the expectations of directors’ contribution to culture and arts organisations were significantly different to most other industries. There was a much greater expectation that directors would volunteer their skills, donate, and raise donations from their contacts.

The study found that 64 per cent of directors in the arts sub-sector made a donation to their organisation, compared with 39 per cent of all NFP directors. The amount donated varied from $100 to $50,000 and the median donation was $1,000.

“The ‘give, get or get off’ philosophy does lead to some governance challenges. For example, it may limit the diversity of potential board members. If it was as simple as that, then everybody would be doing it,” says d’Arville.

“To be frank, we don’t really have a well-entrenched culture of giving in Australia generally. So to simply say we will replace what were previously government funds with philanthropic funds, donations and corporate sponsorships is easy to say, but it’s a fair journey to get there, and that’s the key challenge for financial sustainability in the sector.

“On the upside, there are clever models such as crowd funding that provide a whole lot more opportunities which management can exploit, and directors need to be conscious of.”

For more information, read the 2015 NFP Governance and Performance Study.