The world looks different today than it did a few years ago. Businesses have adjusted to changes in the workplace we have seen since the pandemic, including the Great Resignation and ongoing flexibility around working from home. Communities are suffering due to inflation and mental health issues, and many individuals and organizations are still finding their way forward.

The nonprofit sector is no exception. Nonprofit board members leading their organizations through these difficult times can consult the following strategies for effective board governance models in periods of uncertainty.

Fiscal Management

Shoring up an organization’s financial position is often top of mind among the board’s responsibilities and requires sound fiscal management by the board of directors. Many nonprofit boards have established practices intended to protect the organization in the event of an eventual downturn.

Established operating nonprofit organizations often maintain an operating reserve, which is intended to cover three or six months, or more, of operating expenses in the event of a disruption. Even organizations that have planned ahead may have insufficient operating reserves for a prolonged disruption, especially in the face of decreased charitable contributions and potential losses to their portfolios.

Private foundations and other grantmaking organizations often have spending policies that maintain purchasing power, are intended to be sustainable over a long period of time, and are integrated with the investment allocation. Because the annual spending level is based on historic market values, a sudden drop in asset value may result in spending levels that exceed the spending rate in a given year, further depleting assets. Private foundations may be facing portfolio losses even as they recognize great need in the community.

Both private foundations and operating nonprofits might need to consider the impact of a prolonged disruption. Increasingly, sophisticated organizations are running stress tests, whereby they model various scenarios to analyze the potential range of results over a period of time.

The results of these stress tests can help an organization determine the impact of spending and can inform annual budget decisions. If spending is necessary to sustain the organization, members of the board might think creatively about meeting spending needs, including through strategies such as traditional loans or bond issuance.

Strategic Planning and Adaptive Thinking

If a board has adopted a multiyear strategic plan to achieve its organization’s mission, it may need to revisit and revise the plan. Components may need to be reprioritized, giving top priority to those that are deemed essential for the operation of the organization or the delivery of essential programming in the current environment. Other parts of the plan – such as capital projects or campaigns – may need to be delayed or put on hold.

A great board might utilize an adaptive thinking model:

1. Take a high-level view of the circumstances
2. Consider possible solutions
3. Select and implement the most favorable option
4. Review the outcomes and iterate

The adaptive thinking model assumes that mistakes will be made and embraces mistakes as a necessary part of the process to arrive at the best solution. It is important to identify mistakes quickly in order to make changes and try out new solutions. In reviewing the outcomes and in an effort to get to the next iteration as quickly as possible, organizations should reflect on how to shorten the feedback loop. Strategies for doing so include:

• Seeking feedback during the implementation phase (instead of waiting until the end)
• Asking for specific instead of general feedback
• Creating a distinction between those who contribute feedback and those who make decisions

Collaboration and Best Practices

Even for nonprofit organizations that have faced difficult circumstances in the past, new challenges may require a fresh approach. The need to adapt affects operating organizations and grantmaking organizations.

Operating organizations may need to modify their approach in order to provide programs and services to their constituents that are appropriate in the current environment. Consider, for example, an organization focused on providing outdoor skills and leadership development for youth, which includes overnight camping experiences. In the current environment, in which conversations around gender fluidity have become increasingly common, the organization might think about adjusting the ways it offers experiences. Solutions may include reconfiguring sleeping configurations or restroom facilities, and modifying language in training, orientation, and program materials.

Organizations looking for solutions will recognize that they are not alone in their need to adapt and may consider collaborating with others in the development of best practices or forming task forces to do so. The board and staff of many organizations are having regular meetings with peer groups to facilitate these discussions. It is also important to recognize that established best practices may need to be refined regularly.

Grantmaking organizations may wish to adapt their spending policy or strategy to meet current needs. Consider, for example, a private foundation that is interested in solutions to affordable housing and makes grants to organizations that seek to expand the number of affordable housing units in its geographic area. Recognizing the impact of inflation on those experiencing difficulty affording their rent, the foundation may consider adapting its strategy and expanding its funding to include rental subsidies, which provide immediate relief. The foundation may consider collaborating with other grantmakers to identify effective relief programs; the foundation may also consider collaborating with its existing grantees to discuss relief-based solutions.

Establishing Strong Nonprofit Board Governance

During tumultuous times, board members are reflecting on effective governance. In our Philanthropic Advisory practice, we work with endowments and foundations to help manage assets and advise on spending policies, philanthropy, management of operating entities, fundraising, and governance.

If you would like to discuss any of these topics, we would welcome the conversation.