Technology and Accountability Will Shape the Future of Philanthropy

From his office at Arizona State University, in Tempe, Robert Ashcraft has a window on the non-profit world in the 21st century.

Mr. Ashcraft, director of a university program that trains students to work at social-services charities, has seen enrollment triple to 80 students in the past four years, and that growth spurt is probably just in its early stages.

As non-profit organizations grow into increasingly complex, competitive, corporate-style organizations that are likely to hold trillions of dollars in assets by mid-century, the explosion in demand for skilled employees will be unparalleled in the history of philanthropy.

Unlike the past century, when people who worked at non-profit organizations often climbed the ladder based on their talents and passion, tomorrow’s non-profit executives will be required to have plenty of professional management expertise, technology savvy, and a global view of how to bring about change.

“It’s going to be much harder to come up through the ranks and obtain a leadership position in one of the larger, more successful, prominent kinds of non-profits,” predicts Emmett D. Carson, president of the Minneapolis Foundation.

Chief executives, fund raisers, program administrators and many other non-profit workers will see their work transformed — in large part in response to the increasingly rigorous standards to which they will be held by grant makers, regulators, watchdog groups, and the press.

Charity leaders will also face more competition than ever before — both from for-profit companies seeking to grab a share of the money being pumped into charitable enterprises and from new non-profit organizations hoping to create new ways to solve social problems.

More intense than any other pressures facing the non-profit executive of the new century, however, will be those placed on charities by donors. As the baby boomers age, they are expected to give billions of dollars — from their inheritances and their earnings in the prosperous economy of the 1990s — to charity. With their gifts becoming bigger than those of earlier donors, baby boomers will seek far more control than in the past over how charities allocate and spend their contributions, observers say.

“Donors increasingly want to get their hands dirty in the work of charities,” says Mr. Ashcraft, who directs Arizona State University’s American Humanics program, a course of study for undergraduate students who hope someday to work at human-services charities like the American Red Cross and Boys & Girls Clubs. In the future, he says, more and more charities will be asking not only how donors can meet the needs of the non-profit world, but also how the non-profit world can meet the personal desires of donors.

Many of the demands from donors will come through the Internet, which is already revolutionizing the interaction of charities and their supporters and will pose a major management challenge for non-profit organizations in the next decade.

Jimmie R. Alford, a non-profit consultant and immediate past chairman of the American Association of Fund-Raising Counsel, believes that in 10 years, half of all financial transactions between donors and charities will be handled on line. Meanwhile, he says, traditional fund-raising tools such as direct mail and telemarketing will decline in influence. And increasingly, charities will use print and broadcast messages not so much to explain their missions or to solicit contributions directly, he says, but rather to steer people to their World-Wide Web sites for information and the tools to donate money.

As the Internet grows in importance, many observers say, non-profit executives will be under new pressure to make their operations — especially their fund-raising and spending practices — far more transparent.

“Somebody’s going to be able to dial in to see how your money is being spent, what your annual reports look like, what kinds of programs are being offered, and how effective those services are,” says Mr. Alford.

The Internet also will recast the relationship between grant makers and charities, predicts David Eisner, vice-president of the AOL Foundation, the non-profit arm of America Online. The AOL Foundation recently started a Web site, Helping.org, that offers information for donors, volunteers, and charities and facilitates charitable-giving transactions.

Mr. Eisner says that technology will increasingly make the interaction between grant makers and grant recipients more open than in the past, with information on a foundation’s resources, its types of grants, and the level of support it provides to grant recipients more accessible than ever.

Such transparency, Mr. Eisner says, will put foundations and grant recipients “on an information par” and foster a closer, more equal relationship than the two sides have had in the past through the traditional arm’s-length grant-application system.

“For big foundations to be relevant and at the forefront of philanthropy as it moves into this new, information-rich age, they are going to have all the incentives to become more open and to think of themselves more as partners with their grantees,” Mr. Eisner says.

Technology will, for example, encourage a foundation’s grant recipients to maintain closer communications with one another as well as with the program officer who handles a particular subject area, Mr. Eisner says. That close communication, he adds, will improve the quality of many philanthropic programs.

“Clearly, foundations are going to have a greater interest in having their grantees working with each other, building synergies, and more effectively addressing the issue,” Mr. Eisner says. “And that ends up creating much more of a partnership atmosphere, with much less focus on grant making and more emphasis on problem solving.”

Donors’ changing expectations, and the way in which they relate to fund raisers at non-profit organizations, also will have a major impact on philanthropy in the future.

Kathleen S. Kelly, a professor at the University of Louisiana at Lafayette and the author of two books on fund raising, believes, for example, that many large charities will decentralize their fund-raising programs, in part to build closer ties to donors. Instead of being grouped together at charities’ headquarters, for example, many fund raisers will be placed strategically in divisional offices of the charities, she predicts. The work of the fund raisers will focus on the discrete needs of those divisions, Ms. Kelly says. Instead of reporting to the charity’s chief executive, she adds, the fund raisers will report to the people who manage those divisions.

“Fund raisers are going to get closer to the actual mission and to the donors who are interested in that aspect of the mission,” Ms. Kelly says.

As the relationship between donors and fund raisers evolves, so, too, will the need for charity managers to think globally, not just locally. Coming years will see the growth of international philanthropy, which will include cross-border fund-raising efforts, overseas humanitarian programs paid for by American foundations, and the sharing of ideas and resources across borders by charities and community foundations, experts say.

“We’re going to see more and more philanthropic activity and advocacy work — all those things we mean by civil society — happening globally,” says Dennis R. Young, a professor at Case Western Reserve University, in Cleveland, and president of the Association for Research on Nonprofit Organizations. “National borders are going to be less important as to where people give their time and resources.”

Still, some experts worry whether new generations of wealthy Americans will pay enough attention to the needs of the world’s poor, especially people in developing nations who are left behind by global business expansion. “I just hope that some of those wealthy people look internationally and globally, and not simply at the United States and its problems,” says Robert L. Payton, professor emeritus of philanthropic studies at the Indiana University Center on Philanthropy.

As charities struggle with the implications of economic globalization, they also will be compelled to deal with powerful economic forces closer to home.

The greatest of those pressures, many experts say, will be the need to compete for revenue. Government subsidies for social services are expected to be tight, causing increased need for charities to raise private funds to take care of the needy. At the same time, many organizations will have to contend with the encroachment of for-profit businesses onto the traditional turf of non-profit groups, fluctuations in private giving, and a rapid rise in the number of new charities vying for donors’ money.

As competition heats up, observers say, an increasing number of non-profit groups will seek to supplement their incomes by starting ancillary business ventures, some of them only loosely related, if at all, to the charities’ core missions. Increasingly common, for example, will be enterprises like commercial fitness centers run by non-profit hospitals and on-line retail operations run by museums, observers say.

Critics say the prospect of more and more commercial activity in the non-profit world is troubling. Many of those ventures rely largely on consumer spending and other unpredictable economic forces, they note, and a downturn in the economy or the stock market would put a huge dent in charities’ bottom lines.

“What happens when the next recession comes?” Mr. Alford asks. “The pressure is going to be huge.”

Not only that, but critics also argue that commercialization may confuse donors about a charity’s true purpose or, worse, induce some non-profit organizations to abdicate their charitable missions for the allure of potential profits.

“It’s a dangerous trend,” says Dwight Burlingame, associate executive director of the Indiana University Center on Philanthropy, in Indianapolis. “If you’re going to look like a for-profit, walk like a for-profit, and talk like a for-profit, it’s going to be only a matter of time and you are one.”

In the health-care arena, dozens of non-profit hospitals and health-insurance companies already have converted to for-profit status. Non-profit assets from such conversions have been shifted to newly formed foundations that have been set up to make grants to charities that serve the poor. According to Grantmakers In Health, a Washington group that represents foundations, 134 so-called conversion foundations with combined assets of more than $15-billion have been created. Consumers Union, a watchdog group, says in a 1999 report that it remains unclear “whether grant-making foundations are adequate substitutes for non-profits that actually provide services.”

As the boundary lines between for-profit and non-profit entities blur in the health-care arena, they also will grow increasingly fuzzy in the domain of planned giving. In recent years, some for-profit legal and financial advisers have promoted highly controversial giving techniques that have invited scrutiny — and sometimes stiff regulatory action — from government agencies and legislators.

Many observers expect that pattern to intensify in coming years as billions of dollars flow into philanthropy from the baby-boom generation.

Recently, researchers at Boston College estimated that charities could gain $6-trillion to $25-trillion in bequests over the next 50 years as a result of the so-called intergenerational transfer of wealth.

Regulatory oversight of that windfall will be crucial, but most states currently do little to monitor non-profit organizations, preferring to leave the job to Congress and the Internal Revenue Service. In coming years, many observers say, it is likely that every state attorney general’s office will, in some way, actively monitor the actions of charities, foundations, and planned-giving advisers because of the huge amount of money at stake in the non-profit world.

While the coming climate of competition raises concerns, many experts believe that it also carries potential opportunities for charities. Competition, they say, will induce charities to cut administrative costs, improve efficiency, expand services, and form productive collaborations with other organizations.

Those are points that Volunteers of America, a 104-year-old social-services charity, already has taken to heart. The charity recently underwent a lengthy strategic-planning process that will guide its nationwide operations in the early years of the 21st century. One key conclusion of the plan: Volunteers of America will need to consider acquiring other charities as a way of broadening its program offerings and remaining vital.

“In order to grow and to answer the call for our organization, it probably will be necessary for us to consider mergers as a very important part of what we do,” says Pam Olson, the national charity’s vice-president for planning and professional development. “And probably most of those mergers would be at the local community level.”

Already, the Minnesota affiliate of Volunteers of America has acquired two social-service charities, and another acquisition is being considered, says Michael Weber, the affiliate’s chief executive. In the biggest of the transactions, Volunteers of America acquired Senior Resources Incorporated, a 50-year-old non-profit organization that provided services to the elderly. By bringing Senior Resources into the fold, the Volunteers of America affiliate expanded its own stable of programs for the elderly and began saving money on administration, Mr. Weber says.

Charity mergers and acquisitions will be increasingly prevalent in the future, Mr. Weber believes. “The groups that fund non-profits — foundations and government — have been urging it,” he says. “They say, ‘There are so many of you, and you do the same thing.’ Those of us in the field can say, No, no, we don’t. But to an outsider, it looks like an inefficient system — and frankly, it is.”

Whether tomorrow’s non-profit leaders look for efficiencies by merging or through some other means, many observers say that to qualify for government grants or meet the expectations of private donors, charities will be under increasing pressure to provide detailed documentation of the results of their work.

Some of that pressure will come from grant makers. Cole Wilbur, a trustee and former president of the David and Lucile Packard Foundation, says that foundations will place far greater emphasis than in the past on whether grant recipients demonstrate “organizational effectiveness.” In a growing number of instances, he says, grant makers will make modest-size grants to non-profit organizations to help the groups strengthen their boards of directors, conduct long-range planning, and, in cases where a chief executive has left, help the organization bring in a new leader.

“It makes more sense to provide a modest-sized grant to improve the planning and operations of a charity, and do that first, than to provide a larger grant to an organization that is being run in a mediocre way,” Mr. Wilbur says.

Indeed, improving the management of non-profit organizations may stand as the paramount challenge of the 21st century. It’s a challenge that people like Mr. Ashcraft at Arizona State says will only grow more important as philanthropy rises in prominence in coming decades.

“This is a growth industry,” he says. “I don’t think that’s going to end in the foreseeable future.”