Forecast for 2017 Not-for-Profit boards

Domini Stuart outlines the five key challenges not-for-profit boards anticipate for 2017 and beyond.

Not-for-profit (NFP) organisations must operate as effectively as their for-profit counterparts with fewer resources, a less predictable income and a workforce that, in many cases, relies on a large number of volunteers. Inevitably, NFP boards will continue to face a raft of challenges in the coming year – some specific to particular causes, others destined to put pressure on the sector as a whole.

1. Political uncertainty

In Australia, the Turnbull Government holds a very narrow majority and both the opposition and cross-benchers can be unpredictable in their responses. Some of the world’s largest economies are in the throes of political upheaval. Elections in the US, France and Germany are putting future economic policy in doubt and there is still a massive question mark hanging over how Brexit will play out.

This is not good news for the NFP sector. “Political uncertainty leads to economic uncertainty and lack of confidence, making it one of the biggest challenges for NFP boards,” says Professor Graeme Samuel AC, chairman of the National Institute for Dementia Research and president of the national board of Alzheimer’s Australia. “It is very difficult to manage resources efficiently and plan for the longer term against a backdrop of instability.”

Environmental organisations must also face the possibility that their deductible gift recipient (DGR) status will be revoked. “The Federal Government has been questioning this for some time,” says Mary Latham GAICD, a director of the Australian Conservation Foundation (ACF) and ChildFund Australia. “Losing our DGR status would have a significant effect on the ACF’s fundraising revenue, and this action could be seen as a direct attack on the ability of organisations to advocate for their causes.”

Uncertainty can also make it difficult to commit to a long-term cost.

“The Australian Chamber Orchestra (ACO) is planning to move to Pier 2/3 on the Wharf in Sydney in 2019 and while the board has had time to take a very considered approach to this, it has still created a number of important challenges,” says ACO director Peter Yates AM FAICD, who also chairs the Royal Institution of Australia, the Australian Science Media Centre and the Royal Children’s Hospital Foundation. “Before you can commit to a lease in perpetuity, you have try to predict how successful you’re going to be in the capital campaign and decide what proportion of current resources you can afford to allocate.”

In theory, Australia is keen to promote its culture to the rest of the world. However, the government cannot decide whether it should fund Australian artists to perform overseas, which although good for the artists and Australia’s cultural reputation, has no return for taxpayers, or whether to fund overseas artists to perform here, which is good for the audience but does nothing for our performing arts sector.

“At the moment there is no cohesive strategy,” says Yates. “The ACO’s overseas tours are underwritten by private donations with minimal federal government support but others can be much less sure about future performances.”

2. Digital disruption

Technology is pervading organisations in every sector, however financial constraints can prevent NFPs from exploiting its full potential. “Many NFPs have business models that were established 40 or 50 years ago but lack the capacity to rewrite the platforms,” says Yates.

Online donations, crowdfunding, sponsored events and collective giving are all creating new opportunities for fundraising but, again, they come at a cost.

“We receive a significant proportion of our revenue from public fundraising and we’re always open to new ideas,” says Latham. “But new ideas need to be tested, and that spreads our resources even more thinly.”

Various social media platforms provide more cost-effective communication, but they have also opened the door to more competition. “We’re facing an ongoing struggle to stand out in a very crowded marketplace where we’re competing with many other worthy causes,” says Latham. “It’s not easy to attract and engage supporters who are being bombarded with so much information every day.”

For mutuals in the financial sector, technology can be a barrier to competition. “The Australian banking sector is an oligopoly where the major players have over 90 per cent of the market,” says Andrew Crawford FAICD, deputy chairman of CPA Australia’s NFP Committee and a director of Primary & Community Care Services. “They’re investing hundreds of millions of dollars in technology such as cybersecurity, which is making it harder and harder for the mutual sector to compete.”

3. Other forms of disruption

Mission Australia’s chairman Ken Dean FAICD is anticipating continuing disruption from a number of sources. “A major one for us is the shift from block and grant funding from governments to fee for service under individualised service packaging, like the model we are seeing in National Disability Insurance Scheme (NDIS),” he says. “NFPs must now compete with for-profit providers for government services and there has been a shift in government procurement of services towards commissioning for outcomes. There is also an associated requirement that providers demonstrate the outcomes they’re delivering for their service users through impact measurement and service evaluations.”

This disruption is flowing through to the community. “The changes associated with the introduction of the NDIS, for example, are very significant and I don’t think the impact they have on individuals has been taken into account,” says Samuel.

“Change needs to be managed with proper structural adjustment but governments aren’t good at that. As a result, some vulnerable people are feeling disenfranchised, and this is putting extra pressure on the charities that work with people who are in need of support and care, such as Alzheimer’s Australia.”

4. Doing more with less

Lower returns on investment funds, tightening government and corporate budgets and competition for philanthropic support are likely to remain part of the NFP landscape in 2017 and beyond.

“Many people in the sector rely on significant support from government and philanthropists, and that support is currently quite fragile,” says Samuel.

In 2017, Mission Australia’s board will remain focused on maintaining financial sustainability. “This will include continuous improvement of Mission Australia’s operational efficiency and ensuring structures and support systems are fit for purpose,” says Dean. “In a fiscally-restrained environment we will continue the diversification of our funding sources by exploring social impact investment opportunities. We will focus on a judicious but courageous use of our advocacy, research and evidence base to enable us to respond to emerging social need in innovative ways.”

Some boards are considering consolidation. “You have to keep questioning whether there are ways of doing things more efficiently, so the possibility of a merger or other restructure is bound to come up every now and then,” says Latham. “This is particularly true for smaller players like ChildFund. So far, our approach has been to partner with other organisations in situations where we can add value, but there’s always a chance that a partnership could lead to a merger in the future.”

5. Growing complexity

Operating a business, for profit or NFP, is consistently becoming more complex. “Changes in the rules of engagement, reporting lines and risk management are all good and well-intentioned, but at the end of the day, they add enormous complexity to what tend to be relatively small and straightforward organisations,” says Yates.

“Impose the headwinds of digital disruption and distribution, regulatory complexity and funding challenges and it’s not surprising that the NFP space is under pressure.”

In tough times, good people are critical to an organisation’s success. “I believe that attracting, developing and retaining the right people from volunteers right up to the board will continue as a key challenge,” says Crawford.

“How can we do this in an environment where wages tend to be below average and many workers, including the majority of directors, are not paid at all?”