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 istock.com)
(This was first posted on Justmeans.com and appears here with permission)