Why coronavirus could devastate charities even more than the Great Recession did

As Appeared in MarketWatch

Watch an interview with the authors discussing what inspired them to write this article and why it is important to continue supporting organizations with critical missions.

The coronavirus pandemic is taking a tremendous human and an economic toll, and it’s also impacting charitable organizations in the U.S. that provide essential services and assistance for causes that are not adequately supported by the public or private sectors. These critical organizations and their crucial missions may be among those that the coronavirus hits hardest.

Think about that. We’re talking about organizations of all sizes that support people who are hungry, who face challenges beyond our comprehension, and who may be sick or dying. These organizations in the health care arena that provide essential support services and assist in accelerating research for those with serious conditions (such as epilepsy or cancer). Other groups are on the front lines of issues such as human rights, social justice, poverty, the environment, and animal rights.

According to a 2012 report, “Charitable Giving and the Great Recession,” by Rob Reich and Christopher Wimer of Stanford University, the Great Recession of 2008 reduced total charitable giving by 7.0% in 2008 and 6.2% in 2009.  The authors report that giving did increase slightly in 2010, but only by 1.3%, followed by an increase in 2011 of just 0.9% — hardly an adequate recovery.

Declines of this magnitude may seem small to some, but in the world of nonprofits they are not.  An unexpected giving shortfall of 7% can be fatal to a nonprofit organization that runs its budget as aggressively as it can to advance its cause but as conservatively as it can to manage its payroll and other expenses. There is often no buffer, no cushion, and no room for error.

For charitable organizations, the coronavirus crisis could be even more catastrophic than the Great Recession was. Here’s why. First: While we don’t yet know how much economic damage COVID-19 will cause, the rapidity of the decline so far has people understandably concerned about the potential hit to their businesses and personal finances. In turn, they are likely to forego charitable contributions as a way of cutting expenses and preserving capital.

Second: While most people believe it is just a matter of time before we emerge from this crisis, it’s probably safe to say that most people are also expecting the future to look different.  Global economic prosperity could be challenged like never before. Already, millions of people have lost their jobs, and many companies will not see the other side of this crisis.

Again, people may respond with a defensive urge to cut back on their philanthropy. Businesses, too, are likely to cut back on giving. How does a business choose between supporting an important cause and laying off its workers?

Third: Social distancing, while necessity to mitigate the health crisis, has already caused massive disruptions to those charitable organizations that rely on events to raise critical funding, including walks, bike rides, races, open houses, and galas. Out of desperation, many of these organizations have turned to “virtual” events, but given the above dynamics, they cannot expect to escape without their budgets being severely hurt.

Fourth: The massive amount of monetary and fiscal stimulus that has been offered by U.S. policymakers and their counterparts around the world may be the key to saving both the U.S. economy and that of the entire world. Yet these measures are sure to pressure governments even more, especially as they search for ways to pay for them and unwind them. It’s highly likely that organizations which have received government support in the past will see bleaker prospects.

Due to the coronavirus pandemic, most nonprofits can expect to suffer a significant setback for quite some time and some potentially will face organizational failure. While board leaders, benefactors, and other supporters of these nonprofits may be able to step up, they alone cannot fully mitigate COVID-19’s impact on their organizations. In this unprecedented time, we all need to make sure that economic contraction and social distancing do not disconnect these vital organizations from the society they support.  Now, like never before, nonprofits need others to “lean in.”

(We do want to acknowledge how people have risen to the occasion in supporting relief efforts for the current crisis.  We applaud these efforts, which undoubtedly will help turn the tide. Our focus for now is on the many organizations that are not directly involved in that fight. We also wish to acknowledge that the fiscal stimulus package passed by the federal government may offer some temporary relief. We applaud that too, but it will not be nearly enough to sustain the nonprofit sector.)

While people and companies may be and are financially impaired, any donation that can be provided to a nonprofit at this time is needed now more than ever.  Furthermore, nonprofits need as many of their donors as possible to make all of their planned annual donations now — as opposed to waiting until the end of the year.  They need money now to plan for and continue their operations.  After all, people do not stop needing help from nonprofits during times like this; rather, their need is even more acute.

Regardless of finances, just about everyone has the ability to help a nonprofit in some meaningful way. You can donate time and professional skills if financial contributions are impossible. Key skills in demand now include legal, medical, management, real estate, and financial expertise. People with social media, marketing, and public-relations skills are also needed. All of these skill sets can mitigate the impact to nonprofits.

The significant number of Americans working from home now have more free time. Why not use this time to help others?  Make calls to friends and colleagues, asking for support for a needy nonprofit. Post on social media about the good things a nonprofit does, or how a nonprofit has helped you or your family. Join a nonprofit board, committee, or task force. If not you, then who? If not now, when?

How we all react during this crisis not only will show what we are made of, but also has the potential to influence the future.  We all have the opportunity to use this unique moment to make our world a better place and ensure that vital nonprofit organizations remain viable.  And remember this: Our children are watching us closely during this difficult time. How we act during times of adversity will surely shape their views and conduct in the future.

This crisis need not — must not — lead to the loss of our humanity.  In the words of Albert Einstein, “In the midst of every crisis, lies great opportunity.” Yes, and in the midst of every crisis lies great responsibility. The coronavirus crisis can bring out the best in us and inspires us to help the world by helping others.

Michael J. Nathanson is the former chairman of the National Brain Tumor Society, Cure GBM, and Pediatric Cancer Cure. He is the chairman and CEO of The Colony Group. Bradley P. Boyer is the board chair of the Epilepsy Foundation. He is a Partner at Kutak Rock, LLP.