Monday, February 15, 2010

Are 'Charities' Becoming Obsolete?

People have been asking for a while now whether there are too many charities—either too many focused on accomplishing the same things, or too few able to prove social impact.

But now, as the nonprofit charity sector enters its third year of steep declines in donor dollars, a new question is dominating the conversation: are traditional, middleman charities—whose purpose has been to raise money for various causes and spend it as their boards see fit—becoming obsolete?

To be sure, Establishment charities aren't just struggling for new dollars in this recession. They're also scrambling to regain credibility amid years of chronic waste, fraud and abuse dogging the sector. Traditional charities also are being pushed hard, to reinvent themselves amid new competition from Web-spurred advocacy networks and the rise of new "sector-agnostic" mass activism initiatives, including new social enterprises. For some time now, philanthropy thought leaders have predicted that unless traditional charities fundamentally reinvent themselves as aggregators and issues experts—and retool their funding models—they could die trying.

The signs of a massive charity shakeout are already under way. Donor trust continues to slide, according to recent survey data, and donations are down, government funding is falling and traditional nonprofits—from arts councils to food banks—are locked in painful restructuring, including mergers, acquisitions, collaborations, cutbacks, and closings. Industry estimates suggest a 30 percent rise in merger activity among nonprofits since this time a year ago, and rising.

But it's not just about the money. Indeed, today's nonprofit charity squeeze is being driven by multiple factors, not the least being the Web. Many charities still are hard-pressed to innovate using the Web, and it continues to spur wide-scale disintermediation; roles are being redefined, like it or not, in a world where it is now possible (and preferable in many cases) for supporters to "give direct"—with or without charities to guide them.

Today's charity squeeze also is a wake-up call around today's ever-more urgent need to prove impact. According to New York University public service professor Paul Light, "there have been very many niche nonprofits devoted to small slices of a problem and they have needed to be merged." Light has, for years, suggested that chronic waste and fraud has done much to weaken donor trust, and says that much of today's new thinking around the need for cross-sector approaches to social change is really an effort to "clean the slate and start over."

Also fueling the death of traditional middleman charities? The rise of social enterprises, and the rivalry they pose for some charities competing for donor mindshare and private dollars. New corporate forms and models that recognize social businesses (such as L3Cs and B Corporations); new calls for tax credits to social businesses, and new types of mission-related investing models and impact investing initiatives also are end-running traditional charities in the rush for innovation and impact.

Some sector leaders, including consultant Lucy Bernholz, are calling for the creation of industry-wise alliances to coordinate the efforts of social change efforts across the board; Bernholz and others have been expressing renewed concern about the viability of the traditional nonprofit charity model in an era where giving silos between businesses, nonprofits, and other social-change advocates are rapidly disintegrating.

What do you think? Is the traditional charity dead or dying? Is the fragmentation of the giving sector a good or bad thing for those in need of limited resources? Will current economic and technology trends force the demise of the financially weakest charities, regardless of what they do or do not offer to society? Let us hear from you.

—Marcia Stepanek

(Illustration by
(This was first posted on and appears here with permission)

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Anonymous Mirm Kriegel said...

Hi Marcia,

Excellent post. We at BBMG have been asking the very same question and have offered up some ideas on how traditional charities (what we call legacy brands) can reimagine and reinvent themselves to stay relevant in this marketplace. In case any of your readers are interested, here's a link to our (free) white paper on the topic: From Legacy to Leadership: Is Philanthropy Ready for the New Consumer?

Thanks again for such a thought-provoking post!


February 16, 2010 at 1:25 PM  
Blogger Jenny said...

I don't believe the traditional charity is dead or dying. The outpouring of support for Haiti - $698 million so far, by some counts (most of which has been directed to "traditional charities" like the Red Cross and CARE) - shows a continued public willingness to donate to worthy causes and trustworthy charities. I do agree the recession needs to be an impetus for organizations to retool and innovate, to harness the power of social media and to diversify their funding streams so they can emerge stronger and better, with more supporters and greater impact. I don't think the rise of social media and social enterprise should be seen as threats to traditional charities; rather, I believe they are a testament to people's increasing desire to be involved in a community, and traditional charities have much to gain if they can tap into that. Traditional charities may have to change the way they operate to survive this economy, but that doesn't mean they'll become obsolete. They may have a different funding model and different marketing tools, but what they are at their core will remain the same - a group of people dedicated to bettering the world around them. And that heart, that mission, doesn't look any different from a traditional charity.

February 19, 2010 at 11:55 AM  
Blogger Marcia Stepanek said...

Good post, Jenny. Yes, the one-offs like Haiti-aid and text-aid show that philanthropy is very much alive and well, but the traditional charity structures are struggling under the pressures of rapid change, diminishing resources, and new pressures for measurable results.

I'm not saying charity is dead. I'm saying that traditional charities are finding themselves getting rapidly disintermediated (or forced into new roles) by newer, online models that engage new donors to participate in giving more directly and experientially. Traditional charities haven't been doing that, for the most part. Sure, there is change and some terrific new social media mavens at the Red Cross and Web and marketing whizzes at CARE that have helped to reinvent that organization from the ground up.

But those organizations are examples of nonprofits that have been able to reinvent themselves in the face of change. Many "traditional" nonprofits, however, are still afraid to harness the Web and social media over fears about transparency and don't see any need in today's environment to reinvent themselves at all.

Rather than learn how to use the tools, there are many charities that don't want to make the journey.

The point here is that reinvention is inevitable; those who fail to embrace change will be trampled by it.

February 19, 2010 at 4:00 PM  

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