Impact of the economic downturn on relationships between not-for-profit organisations and stakeholders
3.1 Introduction
There is a wide spectrum of relationships between NFP organisations and the various groups that partner with and support them. They range from deeply embedded, longer-term partnerships to more transactional relationships .
As part of the research for this report, survey and focus group participants were asked about the impact of the economic downturn on their relationships with the key stakeholders who provide support to their organisations.
In this section of the report the stakeholders are divided into five groups:
- business;
- philanthropic trusts/foundations;
- major donors (such as philanthropic individuals);
- governments; and
- the community.
This chapter explores the impact of the economic downturn on these relationships by assessing changes in the levels of understanding and communication, agreements and commitments, and level of interest in the NFP sector.
As indicated in
Figure 2.6, NFP organisations are spending more time managing relationships with their partners.
Practitioners consulted for this report say they are having honest conversations with partners about the impacts of the economic downturn, with the aim of understanding each other's priorities during this time. Research with Victorian NFP organisations also suggests that 'open dialogue with key stakeholders and funders' was a strategy that organisations were implementing in response to the downturn (Department of Planning and Community Development 2009a).
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3.2 Relationships with business
Relationships with businesses have been affected to varying degrees by the economic downturn. In some cases, the impact has been significant, illustrated earlier in this report by falls in corporate support and ability of some companies to support NFP partners.
Sixty-eight per cent of respondents to our survey said that the priorities of their business partners were changing. Seventy-five per cent said their business partners were re-evaluating their community partnerships as a result of the crisis.
NFP organisations with longer-term integrated partnerships, or dynamic and sophisticated relationships with businesses, report that these agreements and contracts are being renewed. However, there is concern whether these renewals will continue over the next few years.
As illustrated in
Figure 3.2, although contracts and long-term understandings and agreements are being reviewed, it does appear for the most part that contracts are being honoured. Just 4 per cent of NFP organisations surveyed say that their contracts are not being honoured.
One NFP commented:
Corporates seem to take longer in the decision making process surrounding sponsorship engagement. [There is] a sense of calculated cautiousness in the marketplace.
We note that in the Centre's report on
Impact of the economic downturn on corporate community investment (2009) that companies are, for the most part, renewing their partnership agreements.
That report focuses on the top 120 companies operating in Australia that typically have longer-term partnerships as part of their community investment.
In the survey for this report, not-for-profit organisations commented on their relationships with business, including larger companies, as well as small and medium enterprises. We expect that smaller to medium enterprises are more likely to be in the transactional or philanthropic stage of community investment, and are more likely to review their community investment relationships during the economic downturn. Companies and NFP organisations that are in the integrative stage of community investment are less likely to review their commitments. These three stages of business/NFP relationships are illustrated in
Figure 3.1.
Figure 3.1: Three Stages of Business and Community Collaboration 
Source: James Austin 2002.
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There appears to be some shift towards short-term funding, with some NFP organisations reporting that their business partners have moved from three-year contracts to shorter one-year commitments. Our consultations with business also suggests this may be the case. In our survey, 41 per cent of respondents noticed a shift towards short-term priorities and funding with their business partners.
Smaller not-for-profit organisations seem to be affected seriously more so than larger NFP organisations. One Melbourne-based NFP in consultations said:
Corporates have begun to re-think who and how they fund. Many are going back to traditional big charities rather than small ones. Big ones have cash flow - so do not need that support. Small ones need it as we are in start-up mode. We have really felt the impact of corporates walking away. We have to rethink our fundraising strategy as a result.
Not-for-profit organisations with contracts or agreements with companies report that they are in a better position than those without. That said, there is a general feeling that corporations could 'walk away' at any time.
Figure 3.2: Impact on Business Relationships 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=59.
Survey respondents report that companies are placing more demands on them, particularly requiring further explanation of the benefits of funding relationships and measurements of outcomes.
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Nearly half (47 per cent) agree that companies are more demanding (21 per cent 'agree' and 26 per cent 'strongly agree'). Sixty-two per cent of NFP organisations point to an increase in demands for measurement of outcomes as a result of the economic downturn.
As there is a general trend toward greater accountability, it is difficult to know to what extent the economic downturn is the cause of this change. However, this has greatly added to the demands on NFP practitioners' time, as they need to spend more effort on managing their relationships with businesses. Ideally, they would prefer to be spending time on increasing fundraising efforts and managing the delivery of services within an environment of resource constraints.
Many NFP organisations consulted in focus groups were concerned with retaining their relationships with business, even if funding was reduced significantly. Most were taking the long-term view that it was important to retain contacts with key partners so that after the crisis, they would have the benefit of the partnership.
There was some sense of confidence in this regard - a belief that in a few years they would be able to resume their strong relationships with business.
NFP organisations also express understanding of the challenges that their business partners face (see
Figure 3.3). Conversely, one quarter of the NFP organisations surveyed for this report said business partners do not understand
their challenges. Fifty-nine per cent 'agree', however, that businesses do understand their challenges.
Figure 3.3 illustrates other impacts of the downturn on NFP-business relationships, including:
- 46 per cent of NFP organisations believe companies are more focused on achievement of societal outcomes and the longer-term impacts of the programs and activities;
- 55 per cent of NFPs report there are more constraints on use of funding for overhead and administration costs (31 per cent 'strongly agree');
- 55 per cent of NFPs say there is more communication with business partners. However, interestingly, there has been no major decline in the level of trust in the relationships - only 9 per cent of those surveyed think there is less trust;
- 61 per cent believe overall that there are more partnership issues to be dealt with as a result of the economic downturn; and
- there are mixed results in terms of working with business partners to manage uncertainties: nearly a quarter are working closely with business; another quarter say they are not working closely with their business partners to manage uncertainties.
Figure 3.3: Impact on Business Relationships 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=59.
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Many NFP organisations are pursuing new business partners to ensure more diversity in their funding base, and to establish relationships that can develop in the future. Forty per cent of survey respondents say they have lost some important business contacts, while 47 per cent report less interest from potential business partners.
Other NFP organisations note they are more proactive about their relationships. For example, some were actively pursuing new ways to interact with business partners. They were also asking current partners to introduce them to other potential new supporters.
There is recognition that NFPs and businesses needed to be more frank with each other. One NFP reported it was beginning to have more 'honest conversations' with its business partners, and working together wherever possible to help its business partner meet sales/service targets.
Several NFPs indicated in consultations that they were spending more time executing marketing and brand management on behalf of their business partners. They said that it was commonplace now for them to undertake marketing and promotion that benefited their business partners.
In consultations, one NFP organisation said it was under marketing pressure:
We have to show bang for buck, and this is illustrated through our ability to get them a profile. What ends up happening is that we get diverted from our core business because we end up doing marketing and communications for a major corporate, and hoping this will be enough.
However, this appears to be an exception. Most NFPs report that they are adhering to core business.
Changes in corporate support
There are some interesting changes in the nature of corporate support as a result of the economic downturn. Around a third of NFP organisations report an increase in community activity support, marketing-related sponsorships and availability of corporate volunteers. Just over a quarter have seen an increase in cause-related marketing.
The major area of decline in corporate support has been untied cash donations. Forty-nine per cent of NFP organisations reported a decrease or significant decrease. Twenty-two per cent report a decline in marketing sponsorship, and 23 per cent point to a decline in workplace giving and payroll deductions.
Figure 3.4: Change in Corporate Support - This Financial Year (2008/09) Compared with Last Financial Year 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=56.
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These results vary according to sectors. As noted earlier, it appears that the arts and sports sectors have more business support withdrawn compared to other sectors.
NFP organisations in the environment sector observe that businesses appear to be more committed to their cause and to longer-term relationships, and are unlikely to cut ties at this critical time.
Employee engagement is also a likely driver of continuing relationships with environment focused NFP organisations.
One environment NFP commented:
We don't see cuts happening where there are specific programs that involve staff or have very specific outcomes.
As we have noted earlier also, there is some shift away from monetary support of NFPs to provision of in-kind support. Some companies are looking for more innovative ways to support their community partners. According to one NFP:
More companies are looking to fundraise for us rather than investing up-front.
Some events such as charity balls, which have struggled to sell tickets to corporate and major donors over the past year, are struggling to find support. Some NFP organisations are changing their focus for such events, while others have cancelled their fundraising balls for this year.
One NFP commented:
Corporations can't be seen to be involved in these things. Taking a table at a ball is not a favourable thing to do.
NFPs anticipate that in the forthcoming financial year (2009-2010), cause-related marketing (linking corporate brand to cause or brand) will increase, along with marketing related sponsorships. Corporate provision of untied cash is expected to continue to decline over the next year. Expectations for corporate support in the next financial year is illustrated in
Figure 3.5.
One NFP commented:
The challenge for the next year is whether the economic downturn will have hit corporates more over the next year. We expect a few not to renew next year.
Figure 3.5: Expected Change in Corporate Support for Next Financial Year (2009-2010) 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=56.
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3.3 Relationships with philanthropic trusts, foundations and major donors
As with corporate partners, NFP organisations report that there are more issues with their relationships with major donors, philanthropic trusts and foundations. Priorities are often changing and many donors and partners are reviewing their relationships.
There is concern that NFPs will continue to struggle to attract new funding from their partners. The Australian Government is planning to review requirements for prescribed private funds, which may impact funding and major donors.
Philanthropic trusts and foundations
About 42 per cent of respondents to our survey indicated that funding from philanthropic trusts and foundations had decreased in the last year. This suggests a significant change in support from the philanthropic trusts and foundations sector.
Thirty-eight per cent said their priorities were changing, and 61 per cent of NFP organisations surveyed said their philanthropic trust and foundation partners were reviewing their funding. Just over one quarter indicated there was a shift to short-term priorities and funding.
Respondents to the survey underpinning this report say that as a result of the economic downturn, there is more uncertainty in dealings with philanthropic trusts and foundations. Not-for-profit organisations also report that they are losing some important contacts with philanthropic trusts and foundations, and that there is less interest from potential partners.
Figure 3.6: Relationships with Philanthropic Trusts and Foundations 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=58.
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During consultations, some not-for-profit organisations reported that they had lost more funding from overseas foundations with which they had long-term relationships. This appears to be the case with US-based foundations rather than Australian foundations. There are also other foundations that are scaling back commitments, and focusing on longer-term relationships, rather than other discretionary and one-off grants (Department of Planning and Community Development 2009a).
Major donors
As with philanthropic trusts and foundations, not-for-profit organisations are concerned that the priorities of their major donors are changing, and that these primary donors are reviewing their funding. They also note that there were more issues with which to deal, more uncertainty in their relationships with donors, and more demand for measurement and reporting.
Figure 3.7: Relationships with Major donors 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=66.
Several NFPs noted that support from philanthropic individuals had remained strong, despite the economic downturn, and some donors were considered to be very reliable given their personal attachment to organisations that they had supported over the long term.
There are some instances of major donors increasing their funding commitments as they recognise that needs are greater during economic downturns. There was a general view that individuals were more reliable supporters than companies, if the NFP organisation can establish a personal connection to a cause.
Some NFPs mentioned that any delay in funding from major donors was temporary, rather than a long-term shift. One NFP commented:
We also have philanthropic individuals who support us well and they are tending to stay. One or two walked away but the majority have stuck with us. A few who were sniffing around the edges have put it on the back burner. Individuals are postponing their giving but not ruling us out.
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3.4 Relationships with governments
Not-for-profit organisations report that they have increased the level of communication with government, including through increased reporting, more regular meetings and building stronger alliances with similar agencies to ensure their voice is heard.
One large not-for-profit noted that the Federal Government had met most of its demands for additional support because of the economic crisis. In its view, the Government was cognisant of the need to spread its stimulus spending in the community sector, as well as through other parts of the economy.
Another NFP suggested Federal Government bonus payments in its two stimulus packages had resulted in some donors directly passing their individual stimulus contribution to NFP organisations.
As noted in the section on funding, some NFP organisations have applied for additional emergency government funding, and are awaiting the results of this funding round.
The Federal Government's responsiveness was expressed by one NFP as follows:
We put the argument to the Prime Minister late last year...that the sector needed a great deal of money to ride out the downturn. They made a provision very close to this.
Research with Victorian NFPs also highlights the role of government in ensuring sustainability of the sector, with 80 per cent of those surveyed indicating they were seeking further government support to maintain sustainability (Department of Planning and Community Development 2009a).
In our survey, the majority of respondents agreed that the priorities of governments are changing - 49 per cent 'agree' with the statement and 29 per cent 'strongly agree'.
In particular, respondents noted that there was more focus on reporting and monitoring of agreements, program reviews and on outcomes of collaboration. Sixty-one percent felt there was more 'bureaucracy' as a result of the economic downturn. Thirty-eight per cent of NFP organisations also feel that governments do not understand the challenges they face.
Figure 3.8: Relationships with Government 
Source: Centre for Corporate Public Affairs, Survey of NFP organisations 2009. N=63.
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3.5 Relationships with the community
Most NFPs had not experienced a significant downturn in community giving as a result of the global financial crisis. Of the survey respondents, 43 per cent believe there had been no change to fundraising through membership fees, online donations, regular giving and event fundraising in the past financial year. Thirty-two per cent note that giving had decreased, and 25 per cent say it has increased (see
Figure 2.1).
According to one NFP:
Donations are down...we have not had any big donations over the last six months.
There appears to be some shift in donor ability to donate, for example, by retirees, who have seen declines in their superannuation and investment income.
Some NFPs consulted in the focus groups felt the crisis had increased giving because some Australian families were relatively better off. It was perceived that Australians who remained employed through the downturn were now enjoying very low interest rates, and many have also received two Government stimulus payments. These two factors enabled some families to give more than they did last year. There was also an awareness that many others were not doing as well, thus Australians were feeling more inclined to give.
One NFP commented:
On the general donation front, our experience from previous recessions is that the number of donations drop, but the average dollar value of donations goes up.
During consultations, several NFPs noted that giving for the Victorian bushfire relief efforts had increased total giving. It has been noted in other research that one-off giving often led to increased patterns of giving, as with levels of giving following the December 2004 tsunami (McGregor-Lowndes and Newton 2009; Pro Bono Australia 2005).
Some NFP organisations believe there could be a similar trend following the surge of giving for Victorian bushfire relief initiatives. These large, emotive relief efforts often introduce community members to the concept of giving, and in many cases, people commit to ongoing giving.
Not-for-profit organisations appear confident that funds raised through the community were unlikely to fall dramatically in next financial year. Of the survey respondents, 41 per cent anticipated no change in funding from membership fees, online donations, regular giving, and event fundraising, 34 per cent anticipated an increase and only 25 per cent anticipated a decrease (see
Figure 2.3).
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3.6 Characteristics of sustainable relationships
The preceding section describes the impact of the economic downturn on not-for-profit relationships with key partners.
As we noted, some NFP organisations appear to be more heavily impacted by the downturn than others. Some have experienced a significant erosion in the nature of their relationships, and in some cases, a loss of corporate or philanthropic partners.
Others reported that the downturn has had no impact on their relationships or funding, and even offered additional opportunities to strengthen partnerships and funding relationships.
Understanding the characteristics of sustainable relationships will assist not-for-profit organisations better weather this downturn, and future economic downturns.
Our survey results and focus groups offered four key insights (outlined in
Box 3.1) into what makes relationships and partnerships more durable, particularly in difficult economic times.
Box 3.1
- Not-for-profit organisations that communicated frequently with partners and had strong relationships were more likely to retain partnerships, even if funding commitments diminished for several years. The depth and number of contacts with the partner organisations also builds 'stickiness' and ensures relationships continue even if key contacts leave.
- Not-for-profit organisations with formal contracts with corporations, philanthropic trusts, and individuals appeared to fare better in the downturn, as it was less likely a formal contract would be broken relative to an informal agreement. These contracts or agreements typically cover mutually agreed goals, governance arrangements, joint decision-making, open communication and other elements of importance to the partnership.
- Not-for-profit organisations with more diverse relationships and partnerships were better off, because they were able to continue providing services if one partner broke ties. Reliance on one or a few major partners is a risk as a change in priorities can have a sudden impact on the funding for the NFP and therefore the ongoing provision of services.
- Not-for-profit organisations that have deep connections in communities and are willing to collaborate with other organisations in order to deliver services also appear to fare better during economic downturns. A willingness to be flexible in delivering services with other peer organisations with similar values ensures some sustainability with programs. Deep connections to the community also resonates with many corporations that look to support their local communities, particularly during economic downturns.
- Not-for-profit organisations with a majority of government funding appear to be better off as governments are less likely to cut funding, and could potentially increase funding in response to any increased need. However, reliance on government funding is also a risk, as this funding is not always ongoing and government priorities also change. NFP organisations that aim for a diverse range of partners and funding arrangements, including with government, appear to fare better during a downturn. [In the Centre's report Relationship Matters, we indicated that NFP organisations often seek partnerships with corporations to secure a more reliable funding source. It appears that the economic downturn has temporarily placed government ahead of corporations as a preferred source of funding given that government funding appears less likely to be cut during a downturn.]
Source: Centre for Corporate Public Affairs, survey and focus group summary.
These align with many of the same characteristics of successful partnerships that the Centre for Corporate Public Affairs (2008) identified in its research on not-for-profit operations. These include:
- open communication - establishing mutual trust, as well as anticipating and preventing problems;
- commitment - of time and funding; and
- ongoing learning, adaptability and flexibility - allowing programs to evolve and the partnership to grow organically.