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A Fresh Start

By Thomas McLaughlin - December 2, 2013

It’s time; time for change, that is. The old cliché that change is constant is still accurate. The changes seem to be coming at a faster pace than usual. Some of the biggest changes have already begun in many parts of the nonprofit sector and promise to continue for the better part of the next decade. Much of it is structural in nature — which makes it easier to predict — while at the same time the initial slow pace makes it easier to deny.

What follows is not exactly a wallet-size card, but rather a handy guide to recognizing and capitalizing on some of the bigger changes happening now — and ones that seem ready to expand rapidly in the coming years.

 

The big fade

The Baby Boomer generation is beginning to relax its grip on the levers of nonprofit power, a trend that will accelerate during the next decade. This will have a particularly large impact on some of the leading organizations in most fields that got started — or embarked on a steep growth trajectory — during the 1970s when the 20-something boomers first got involved after a stint with the Peace Corps. It gained momentum when the rest of the outsized boomer cohort began taking over the CEO chairs on schedule during the 1980s and 1990s.

The Great Recession delayed this transition for some boomer executives while they rehabbed their retirement portfolio and this is likely to extend the transition period even further. The growing quaintness of the traditional retirement plan (see below) has also motivated many Boomers to stick around. The pace of vacancies will inevitably pick up in the coming 10 years. This will lead to mergers for some groups. For other groups, it will put individuals with a different sensibility and a new energy level in charge. Either way, it will be a time of quickening leadership and cultural change that will eventually bring tectonic organizational shifts.

 

The ACA effects

The passage of the Affordable Care Act will have an unanticipated effect on nonprofits that today are not necessarily labeled health care organizations. The most visible aspect of this change in the nonprofit sector will be that health care will be recognized as a commercial enterprise, not a charitable mission. Already in large swaths of the country for-profit hospital chains have grown substantially as marginal nonprofit hospitals have folded. The new money in hospital care is in the formerly uninsured or underinsured at the bottom of the pyramid. That should be good news for community hospitals — but most of them went out of business during the past 20 years. The for-profit chains will see most of this action.

There is good news for certain types of nonprofits in the wake of the ACA. Primary care providers are beginning to recognize what they call “social determinants of health.” This is a fancy way of acknowledging that health care is about more than lab tests. Specialty organizations such as behavioral health providers will play an enhanced role in traditional medical care. This mash-up could be culturally messy at first, but both parties will eventually realize that they stand to gain more through collaboration than through competition.

YMCAs should benefit considerably from this transition. Imagine the mutual bounce that a primary care health clinic and a health-conscious YMCA should enjoy by partnering 50/50 on the construction of a new jointly owned building. The local pitch would be compelling — go to the Y regularly for exercise and health education, and occasionally go in the other door for a health checkup and associated tests.

If the ACA’s emphasis on prevention works as designed, the biggest problem the two equal partners will face is when the clinic shrinks and the Y grows. That 50/50 split might one day become 75/25 in favor of the Y.

 

You’re on your own for benefits

Speaking of the ACA, a little-noticed trend in benefits that is on the verge of coalescing into an accepted practice is the end of the employer-based benefits model. As a society we have been rehearsing for this change for many years without acknowledging it. For instance, traditional corporate defined benefit retirement plans were replaced by 401(k)s, IRAs, and flexible spending accounts (FSAs) a long time ago. That experience will be seen as a dress rehearsal for the highly individualized placement of health insurance that the ACA has facilitated through the new health insurance exchanges.

In the future, the employee will chose the benefits, not the employer. The big question will be what happens to the money employers used to spend on health insurance for employees.

 

Someone else’s building

Charter schools are helping reduce the last great monopoly in the U.S. — public education — and many of them are doing so using the old stand-by, Someone Else’s Building. Boys and Girls Clubs used the technique a decade ago when they sited new clubs in schools, public housing, and military bases. Many of those have closed now, but that does not lessen the appeal of using Someone Else’s Building because it is likely to be cheaper, more flexible, and offers an early out. One of the reasons there are only about three handfuls of full time symphony orchestras around the country is because the fixed cost of a symphonic-grade concert hall is no longer sustainable by a single arts group.

This happens because nonprofits find it more difficult to raise capital than their for-profit counterparts, which is also one of the reasons why residential human service programming of all kinds has begun to decline precipitously in recent years while in-home alternatives have grown. A part of higher education has already accommodated this trend by going online with Massive Open Online Courses (MOOCs) and other forms of online education. This approach avoids the whole real estate question. Many nonprofits that succeed in innovation and execution in the coming decades will do so because they learned how to acquire and use Someone Else’s Building — or how to avoid buildings altogether.

 

Philanthropy goes corporate

Two and three decades ago the most reliable sources of local contributions and volunteer time were the local bank and the local insurance agency. We didn’t fully appreciate it at the time, but a 1938 law known as the Glass-Steagall Act set the stage for watertight bulkheads between banking, investment banking, and insurance. A by-product was relatively local philanthropy, as financial folks set about to curry favor with other local players, including community-based nonprofits.

When Glass-Steagall was repealed in 1999 it gave industry free reign to blend banks, insurance companies, and investment groups for the first time in 60 years. The result is that what used to be local and somewhat informal philanthropic entities have morphed into regional philanthropic powerhouses run by and on behalf of large corporations. Nonprofits that manage this change will find ways to operate on a broader geographic scale than was common decades ago.

 

The New Normal

Streetsmart nonprofit managers who figure out their own version of what the legendary financier Bill Gross first called “the new normal” will emerge as wise leaders. Most parts of the nonprofit sector will see an unusual number of large changes in the coming years. With these kinds of structural alterations affecting so many different types of nonprofits the same question will inevitably arise: Why? Why do we need to change? The answer will itself become inevitable . . . because it’s time.  NPT

Thomas A. McLaughlin is the founder of the consulting firm McLaughlin & Associates and a faculty member at the Heller School for Social Policy and Management at Brandeis University. He is the author of Nonprofit Strategic Positioning, published by Wiley & Sons. His email address is [email protected]

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