Why were we wrong about Covid forcing a wave of nonprofit organisations needing to close. And what next?
Photo by Matt Botsford on Unsplash
One year ago civil society was hot with warnings of widespread forced organisational closures as a result of pressures of the pandemic. Yet a year on, fewer nonprofits are closing than ever before. This Stewarding Loss blog explores why this might be and what this means for nonprofits and all those who care about them — especially those of us who believe that not all organisational closures are the end of the world.
When Covid 19 arrived, communities, businesses, nonprofits and government scrambled to put in place the finance and resources needed to mitigate the pandemic’s catastrophic impact on lives and livelihoods in a society already ravaged by inequality.
In the first 6 months of the pandemic, there was an estimated 72% increase in requests for support, advice and services from nonprofits up and down the country. Trusts and foundations moved swiftly to offer up emergency funding to plug gaps in income but financial shortfalls were widely reported in organisations of all sizes. Nonprofit leaders, infrastructure groups and funders moved quickly to calculate an estimated £4 billion price taglooming over the sector as a result of the pandemic and the #NeverMoreNeeded campaign swung into action to make the case for nonprofit specific handouts to cover this. The Government responding by allocating just £750 million to the sector.
Nonprofit sector commentators warned that the pressures of the crisis could prove too much for many organisations and stark warnings were issued including that 1 in 10 nonprofits were set to close within a year. Alarm bells were sounded of an incoming ‘tidal wave of nonprofit closures’. As with all of Covid’s implications, the impact was expected to be disproportionately piled onto organisations already left behind with 9 in 10 BAME led small organisations facing deeply challenging times as a result of limited reserves and unrestricted funding.
Yet 18 months on, these apocalyptic outcomes for the sector haven’t materialised, or at least not yet. Despite the sector being allocated substantially less support that it advocated needing, the wave of closure so many feared simply hasn’t transpired.
From the energy sector to retail — the news over the past year has regularly been dominated by stories of collapse and closure in a range of sectors. Yet research by Third Sector Research Centre and the University of Stirling commissioned by the National Council of Voluntary Organisations published in the summer of 2021 revealed there were fewer nonprofit dissolutions in 2020 than previous years. Insolvencies were slightly up amongst charitable companies compared to previous years — but that was from a very low base. It’s said that the sector’s regulator has noticed an increase in trustee — executive conflicts monitored in part through Serious Incident Reports from charities which could be a telltale sign of financial distress and impending closure. But it’s simply not yet clear what the long term impacts of the pressures of Covid will be on the health of civil society.
In a time of so much pressure on civil society, what is sustaining organisations in the midst of so much existential change and challenge?
Well of course there’s the lifeline of furlough funding which along with other Government grants and loan schemes have offered thousands of organisations the chance to keep staff and money in the bank even where income streams have been dramatically reduced.
There’s also the emergency support from trusts and foundations, which has further made up for lost income for nonprofits.
There’s also the courage and resilience of civil society and its leaders with thousands of organisations pivoting staff and programmes overnight in 2020, supported often by flexible funding arrangements, and redirecting efforts in ways that have propagated new work, new impact and critical new income.
In addition there’s a chance that resource and staffing shortfalls have been made up for by staff and volunteers working unpaid to deliver much needed services and programmes. It’s hard to verify this but if true means the sector is surviving on borrowed time. This places the threat of burnout and an intensified wellbeing and mental health crisis looming when the price of this stretch catches up with people and organisations.
Across our informal conversations with funders, regulators, civil society leaders and infrastructure groups there is a resounding and consistent belief that the current state of closures is a stalling, not a reversal, of the original warnings around nonprofit closures. As the furlough scheme and other financial support to organisations come to an end, foundations move into non-emergency funding mode and the impact of the large shortfall in public spending money looms on the horizon, we have heard time and again that people are estimating a gradual mounting of financial hardship for nonprofits and a crescendoing of closures and mergers towards the end of 2021 in and into 2022. Less the cliff edge that was predicted this time last year and more a slow lapse into insolvency and closure.
This presents a number of challenges for all who care about a healthy, thriving civil society. The world is fundamentally changing and shifting — in ways we can’t yet predict and that stretch far beyond pandemics like Covid. Civil society groups and organisations must be able to adapt and augment. If we leave these endings to ‘business as usual’ we run the risk of a wave of unsupported, costly and damaging closures and a weaker civil society.
Over the past 2 years, Stewarding Loss has heard time heard time and againcivil society tends to do organisational endings pretty badly. Without thought to legacy, programmes and hard earned intelligence of organisations disappear overnight; without time for emotions, staff go out into the world and to their new organisations carrying the burden and trauma of a bad ending; without careful planning, the money and assets left are inefficiently dispensed of in the haste of a poorly designed ending; and without knowledge of the complex legalities, well-meaninged mistakes leave staff and trustees the wrong side of the law. We wrote more about the costs of bad endings in this blog here, as part of our publication of our 7 principles for better organisational endings accompanied by a toolkit.
So Stewarding Loss sees this delay in closures and likely protracted period of closure and loss as an opportunity to prepare to manage the endings when they do come as best as they can be. We see this delay as a crucial moment for civil society, particularly organisational leaders, trustees, funders, regulators and infrastructure groups, to get their ducks in a row and be prepared to support and enable better endings when the time comes and where time and money allows.
Whether you’re a funder, a nonprofit CEO, a trustee, an infrastructure body or anyone else who cares about civil society, you have a part to play in laying the foundations for better endings. Here are a few things we’re doing that you might want to dive into or get involved with:
Sensing An Ending shares our first draft of 7 principles to steward better organisational endings, with an accompanying guidebook. This was an important trajectory to take, as it is responding to the context of the present, and the impacts of Covid-19.
Staying Close to Loss is an introduction to the idea of continual enquiry in an organisations’ life span — where loss is considered within organisational strategy as ordinarily as ‘growth.’ This is explored through a series of canvases.
The Care-Full Closures Fund (from Stewarding Loss and Deeds and Words, funded by Paul Hamlyn Foundation) is open to nonprofit organisations of any size who are considering closure or merger and are wanting to explore their options carefully, intentionally and with a design-led approach. To find out more or have an initial informal confidential conversation with the Stewarding Loss and Deeds and Words team about this opportunity click here.
If you have ideas for what needs to be done now, so that organisations facing closure in the future have the support and resources they need to do so as well as possible, we’d love to hear from you.