Commentary: Retrenchment and reconstruction as nonprofits prepare for the worst

Many nonprofit leaders privately acknowledge that we are on the brink of a wholesale nonprofit “crash” that will be characterized by widespread contraction, consolidation, and closure. This will be a profound and disorienting shock for a sector where, despite the daily challenges, the overall environment has long been quite benign.

In the face of this crisis, forward-looking nonprofits are combining elements of risk management with a variation of the “hunker down” strategy employed at the beginning of the COVID crisis. They are understanding their exposures, committing to mission-based retrenchment, planning for uncertainty, stockpiling flexibility, and preparing for the worst (including creating living wills). Their leaders are being honest about their personal interests and values. 

Even if individual nonprofits do everything right, large-scale, mission-driven retrenchment will still require a robust enabling infrastructure. During other crashes – the savings and loan crisis of the 1980s, the 1990s, the Dot Com bubble of the early 2000s, the credit meltdown of 2008, and COVID-19 – policymakers took steps to provide this infrastructure, as did profit-seeking agents attracted by opportunities to profit from the distress. In this crisis, the enabling infrastructure will need to be philanthropically organized and funded. 

Based on our experience in 25+ restructuring situations, we believe a robust infrastructure would include a stable of experienced, non-profit savvy chief restructuring officers; legal advice in multiple domains; specialized funding (grants and loans) to address restructuring needs; special purpose vehicles to absorb (perhaps temporarily) and steward charitable assets and run-off programs; real estate and communications expertise, and expedited decision making processes to reduce the negative impact on programs and charitable assets that come from unnecessary delays. (For more information, see our new report, “Retrenchment and Reconstruction: Strategies for a Sector on the Brink” – and register here  for our upcoming webinar on the same issues.)

We will also need new norms so that boards, nonprofit leaders, and funders can act in creative, tough-minded, empathetic, and mission-driven ways without facing the stigma of “failure” that is too often associated with restructurings and winddowns - a stigma that can encourage delay, denial, and magical thinking.

After every period of widespread distress comes the reconstruction. It is impossible to say what the reconstruction will look like, when it will begin, or how different a newly reconstructed nonprofit sector will be from the one we have today. However, we should be able to build back better given the $2.4 trillion spent on social services; the widely acknowledged siloes, inefficiencies and duplicated efforts in government funding, nonprofit programs and funder behavior; and the recent advances in technology. 

Whether we realize the opportunity to rebuild a better sector depends on what policymakers, funders, and nonprofit leaders do after this crisis is over and the reconstruction has begun. It also depends on what we do now to preserve the best of what we have and to search, despite the challenging times, for opportunities to make breakthroughs in how the sector is organized, funded, and delivers services. 

These are terrible times, but the future is worth fighting for.