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Digital Transformation for Nonprofits: It’s not just about online fundraising events.

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Quick show of hands: how many of you had never used Zoom or GoToMeeting before the Covid-19 pandemic?

Now, how many of you have come to rely on virtual meetings to connect with friends, family or colleagues weekly?

Virtual meetings are so easy and inexpensive to attend and have become so second-nature that many of us will continue to rely on them for years to come, long after the coronavirus pandemic is far behind us.

Right now, businesses – profit and nonprofit alike – are undergoing dramatic digital transformations and many of those changes (e.g. virtual board meetings) will most likely become new operational norms. At Spokes, we know our nonprofit members are feeling pressure to quickly to find new ways to raise funds online, work remotely, safely train volunteers and check in on their clients virtually. So, we’d like to offer a few tips to help guide your process.

Classy.org, a company that offers an online fundraising software for nonprofits, recently published a very helpful blog article on this subject titled “3 Secrets to a Successful Nonprofit Digital Transformation”. Below are a few other questions to ask your staff and board as you decide how and where to start your nonprofit’s digital transformation:

What’s not working?

What basic operations in your organization need to be re-worked in light of social distancing requirements? What activities or programs are stalled but must continue and, therefore, become digitized? What are similar nonprofits doing well digitally that your organization is not doing?

What has worked well in the past?

Take an inventory of all the meetings, events or programs your organization has conducted digitally to date. Which were most successful? Who participated? Are there common denominators among your successful digital events? If so, focus on building on those commonalities and successes first.

What is your primary audience? How does that audience use technology?

Your nonprofit organization may have more than one key audience and each audience may have different comfort levels with technology – both what tools it likes to use and for which activities. Be careful not to build a digital strategy that leaves your most committed or important stakeholders behind.

What is your nonprofit’s long-term vision?

Things will get better. There will be a Covid-19 vaccine someday. Don’t waste time and energy trying to solve short-term problems when defining your larger digital strategy. Focus on creating digital systems and solutions that will consistently move your organization towards your long-term goals. For example, instead of creating a new virtual fundraising event, put more energy into finding new ways to consistently and meaningfully connect with donors through technology. Event attendees come and go, but strong donor relationships will help to carry your organization’s mission year after year. How can you use technology to enhance your donor stewardship efforts?

One Step at a Time

Your nonprofit’s digital transformation will require both internal and external behavioral changes. To be successful, you will need a considered and well-defined plan and lots patience for the people you are asking to make the changes required. Contact Spokes if you need consulting or other resources to help you in your process and remember to measure your success in progress, not perfection. You may even eventually find yourself wondering why you ever bothered to drive and attend a board meeting in person.

To Merge or Not to Merge?

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The Covid-19 pandemic is impacting nonprofits in one of two very different ways: some nonprofits are experiencing a dramatic increase in donor support and demand for services while the other half have watched their programs and funding come to a grinding halt because of issues related to social distancing. On each end of the spectrum, nonprofits are re-considering their plans for the future and what partners will be needed to realize them. Some organizations will consider mergers and, as they do, we hope this article will serve as a guide for their process.

Is a Merger Right for You?

David LaPiana, a nationally recognized nonprofit merger consultant and author of The Nonprofit Mergers Workbook, Part 1 & II, stresses that successful mergers will be driven by one or more of the following long-term strategic goals:

  • Better market positioning;
  • A larger market share;
  • A higher public profile;
  • Greater political influence;
  • More strategic fundraising;
  • A larger staff, allowing greater specialization of functions and the provision of more service;
  • The creation of a continuum of services under unified control; and/or
  • Better economies of scale.

If your nonprofit is considering a merger out of a desire to immediately start saving money, be forewarned: mergers are expensive. Mergers done well will require additional resources that will increase your current operating budget. Any overhead or payroll savings will most likely not be realized for a couple of years.

According to the Chicago Nonprofit Merger Research Project, a partnership between Northwestern University’s Kellogg School of Management, Mission + Strategy Consulting, and eight Chicago foundation funders, published in 2017, the most common denominators among successful nonprofit mergers include:

  • A prior relationship or collaboration existed between the organizations that merged.
  • Third-party consultants or facilitators were hired to navigate the often-lengthy merger process. (Median merger negotiation outcome took 15 months.)
  • The board chair or a board member from one of the organizations emerged as the chief merger advocate. (Meaning that the merger process was championed at the board level and was not staff-led.)
  • Motivations for the merger were spurred by a desire to enhance the competitive position of both organizations in response to external forces: competitors, shifts in government practices and policies, and the need for greater financial stability.

If you recognize your nonprofit’s merger intentions and capabilities among the benefits and critical requirements listed above, read on to understand how to proceed through the three primary phases of a nonprofit merger: Negotiation, Implementation, and Integration.

Negotiation Phase

Once two nonprofits commit to exploring a potential partnership, the Negotiation Phase officially begins. Key steps of this phase include:

  • Instating a “Negotiations Committee” or “Exploratory Committee” consisting of an equal number of board members from each of the potential merger partners. Nominations of non-board members who may have specific skills or experience beneficial to the discussion may be allowed as long as those nominations are unanimously supported. However, once the committee is inaugurated, no new members should be allowed to join.
  • All Negotiations Committee members must sign an agreed upon Confidentiality Agreement. This exploratory phase will require both organizations to be fully transparent and divulge all aspects of their operations – including those aspects that may be embarrassing. If, ultimately, the merger is not pursued, all committee members must be held accountable for not divulging any information shared in negotiations with outside parties.
  • Minutes must be carefully recorded at each Negotiation Committee meeting.
  • Due diligence is conducted as both organizations present and jointly review the following documents:
    • Organizational – Articles of Incorporation, Bylaws, Organizational Charts, etc.
    • Tax – IRS and State exemption letters, 990 filings, state tax filings, etc.
    • Insurance – General Liability policy, Directors & Officers policy, Workers Compensation policy, etc.
    • Personnel – all employee job descriptions and compensation, personnel policies, employment contracts, benefits programs, volunteer policies, etc.
    • Financial – audited financial statements, current income and balance statements, current budgets, copies of loans or other debt financing arrangements, etc.
    • Real Estate – deeds, leases, mortgages, etc.
    • Legal – statements describing any current or threatened litigations, copies of licenses and permits, list of commitments that would cancel as a result of a merger, etc.

At the end of the Negotiation Phase, if a merger is still desired, the Negotiations Committee will document a merger proposal to present to the respective boards of each of the merging organizations. The merger proposal will summarize the outcomes of the exploratory conversations and identify which specific merger structure will be pursued. (Parent-subsidiary, one organization acquiring/absorbing the other, or dissolution of both organizations and the incorporation of a third new entity are just a few of the potential options for consideration.) Each organization’s board must approve the merger proposal presented per their respective bylaws in order to move into the Implementation Phase.

Implementation Phase

The Implementation Phase is often the shortest of the merger phases, depending on how the new merger will be structured; which is a good thing as it is critical to hire an attorney experienced in nonprofit mergers to guide this phase. Essentially, the only goal of this phase is to legally merge and incorporate the two nonprofits to become one entity. Unlike mergers conducted in the for-profit world where attorneys are hired to represent each organization in this process, nonprofit mergers should involve only one lawyer who serves as a mediator to create mutual success for the merging organizations.

Integration Phase

Usually, as organizations reach this phase, there is a sense that the majority of the work has been done. But, that’s not true. In fact, the Integration phase is the hardest and longest phase of the merger process. There are always unanticipated “hiccups” that arise as new boards, staffing structures, donor systems, financial records and organizational cultures are blended together. This phase requires significant behavioral change throughout both organizations and can be quite emotionally challenging. Make sure all members of your leadership team understand the full scope of the merger process and are fully committed to the work and patience required to successfully complete the Integration Phase. Integration is not easy, but it is the most rewarding of all the merger phases, as the organization’s new identity – and each person’s role within it – is defined resulting in a shared sense of empowerment and long-awaited forward progress.

Collaboration is the heart of nonprofit work and mergers are the ultimate manifestation of collaboration. Many of our most valued local nonprofits grew out of two smaller programs or organizations uniting and leveraging their combined resources to create a greater good. We understand that the process is complex and want to remind you that Spokes is here to help. If you need a sample Confidentiality Agreement, sample merger worksheets, consultant referrals or an introduction to nonprofit leaders who have led successful mergers, contact us! In the meantime, here are a few other resources that may be helpful for you as you consider if a merger is right for your nonprofit.

From Stanford Social Innovation Review, “Nonprofit Mergers that Work”.

From the Council of Nonprofits, “Mergers, Collaborations and Strategic Alliances”.

From Nonprofit Quarterly, “Nonprofit Mergers: New Study Sees Strategy and Success”.

New Rules for Covid-19-related Workers Compensation Claims

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On May 6, 2020, Governor Gavin Newsom signed an executive order N-62-20 extending workers’ compensation benefits to employees who contract COVID-19 while working outside of their homes during California’s stay-at-home order. The order is retroactive to March 19, 2020 and extends through July 5, 2020.

For nonprofits and for-profit businesses alike, this executive order has caused considerable confusion around which Covid-19-related claims will and will not be covered by workers compensation insurance. How can an employer determine if an employee contracted Covid-19 from a customer or employee peer or a family member? If an employee tests positive, how can an employer know when the employee contracted the virus and if the transmission occurred while working outside of the home?

Workers Compensation issues are especially challenging for nonprofits organizations because a large portion of their employee workforce consists of volunteers who may or may not be covered by the organization’s workers compensation policy.

In this article, we’ll try to demystify how workers compensation works, explain how claims effect your organization, and offer resources to help you comply with this newest executive order while keeping your employees and volunteers safe.

What is Workers Compensation?

Workers’ compensation is legally required for any California business – for profit or nonprofit – that has at least one paid employee. Specifically, workers compensation insurance pays for occupational injury and illness that an employee suffers while functioning as an employee and is often a small organization’s single most expensive line of insurance coverage. How much a business pays for its workers compensation depends on its “experience rating”.

Experience rating is an evaluation method in which an organization’s workers compensation policy premium is adjusted up or down to reflect previous loss (or claims) experience. Essentially, the experience rating assumes that the number of claims made against your workers compensation policy is a predictor of future claims. In order for insurance companies to remain financially solvent, insurers must charge sufficient premiums to pay anticipated claims. Therefore, if your organization has a few workers compensation claims and, thus, a higher experience rating, your policy premiums will be increased in anticipation of more claims.

How does will a workers compensation claim affect my nonprofit?

The higher the payroll and the fewer dollars paid out for workers compensation’s claims, the lower the policy’s experience modification – and premiums –  will be. The lower the payroll and the greater dollars paid out for claims, the higher the policy’s experience modification – and premiums – will be.

Generally, workers’ compensation claims can have less of an effect on large organizations than they do on smaller organizations. The reason for this is that larger organizations have higher payrolls and pay proportionately less of that payroll in claims. Larger companies also tend to have a well-enforced safety programs and policies and designated employees who oversee safety and claims management.

Conversely, smaller nonprofits often have far fewer paid employees and much smaller payrolls while relying heavily on volunteers. Therefore, a single workers compensation claim can dramatically impact an organization’s experience modification. Reliance on volunteers adds an added risk as some workers compensation claims protect volunteers and some don’t. When a volunteer is hurt while working in service to the nonprofit and volunteers are not sufficiently covered in the workers compensation policies, lawsuits have been filed. (Example: a volunteer is helping to serve at an outdoor fundraising event and trips and breaks his/her leg.) What many nonprofits fail to understand is that insurers are legally allowed to sue any parties considered at-fault for a claim to recoup expenses – without the permission of the injured party. Meaning that, yes, your volunteers don’t want to sue your nonprofit, but the insurance company that is paying his/her medical bills can do it anyway if the insurance company considers your organization responsible for the accident.

Protecting your nonprofit, employees and volunteers.

  • If your board of directors hasn’t reviewed your organization’s workers compensation policy lately, agenda a review for your next board meeting.

Invite your insurance agent or broker to participate in this discussion. At the very least, designate someone to thoroughly review the policy with your agent or broker prior to the board meeting and prepare a report for board discussion. Does your policy cover volunteers, too? In which capacities? At events? While working in your offices only? While driving their own cars to pick up supplies for your programs? What about volunteers who are fulfilling office roles remotely?

  • Review and change relevant policies to minimize safety risks, as well as potential claims or lawsuits.

Remember to review all policies that protect both employees and volunteers. Will your workers compensation policy cover employees and volunteers who are suddenly working at home? Does your organization have a telecommuting policy in place that requires employees (and volunteers) to have a designate safe workspaces in their home with proper egress in case of fire and no tripping hazards? (Spokes has one to share!) Do you need to limit who is allowed to drive his/her personal vehicles in service to the organization? Do you have clear protocols outlined in your employee handbook about when and how to report an accident that may result in injury?

  • Make sure your organization is up-to-date with all federal, state and local guidelines for Covid-19 safety procedures – and carefully and consistently adhering to them! Here are a few websites with helpful resources and links.
  • When an Covid-19-related workers compensation claim is brought to your attention, use this helpful “Covid Presumption Flowchart” published by the Cal Chamber’s HR Watchdog program and the Law Offices of Mullen & Filippi to determine if the illness or injury falls within the guidelines of Executive Order N-62-20 and how to proceed.

The Covid-19 pandemic is forcing all business to carefully re-examine the way they work. It’s a challenging and sometimes painful process, however, it presents us all with an opportunity to ensure that we are doing our good work responsibly, efficiently and effectively.

As always, please contact Spokes if you have any questions or need additional guidance around the recommendations made in this article. We are also including a couple of helpful links to additional information that may be of interest to you:

Worker’s Compensation Coverage for Volunteers

COVID-19 Wokers’ Comp Claim Presumption Flowchart

Take Control of Your Nonprofit’s Future: A Strategic Planning Primer

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Our recent article, Rethinking Your Nonprofit’s Future in the Face of COVID-19, highlighted the importance of following a strategic plan while navigating the ever-changing landscape of the COVID-19 world. In this article, we’ll dive a little deeper into the “how” of creating a strategic plan to help those nonprofits with outdated or no plans get started.

For many nonprofit leaders, the idea of creating a strategic plan feels daunting because of four common mistakes:

  1. Trying to plan too far in the future;
  2. Treating strategic planning as an event;
  3. Being stymied by perfection; and
  4. Insisting on a plan. (Confused? Stick with us.)

Start with Two (2) Years

Futurists have predicted that identified generations will soon be divided by as little as a four-year span. Meaning: two siblings from the same family who are 5 years apart in age will have such different formative sociological, economic and technological experiences that they will fall into different generations. That’s an incredibly fast rate of change. And, really, it’s not entirely surprising when we consider how quickly our lives have changed since 2020 started and how different they will be post-COVID 19.

Where it was once commonplace to define a 10-year strategic plan, trying to define a 5-year plan has now become futile. Your nonprofit’s strategic vision must be long-term because it will take decades to create it. However, your strategic goals and objectives to achieve that vision should focus no more than 3 years in the future. Keep it simple and focus on what you want to achieve in the next two years. When the world inevitably changes in ways you never anticipated over those two years, you’ll have a chance to define new, more relevant strategic goals for the next two.

Strategic Planning is a Discipline, Not a Single Event

Too many nonprofit leaders believe that a strategic plan is a final product created from a one-time board weekend board retreat where a consultant presents a plan in a new shiny binder that its placed on a shelf never to be seen again. Strategic planning done well is an active, consistent process that is woven into the daily work of the organization. Ideally:

  • every board meeting will include an agenda item to review and evaluate the organization’s progress toward it’s strategic goals.
  • every employee will understand his/her responsibility in helping to achieve the organization’s strategic goals and annual performance reviews will discuss individual contributions to the organization’s strategic process; and
  • every grant application, grant report and annual report will highlight the organization’s strategic goals and progress towards them.

Think of a strategic plan as a living plant. It will die without regularly evaluating its health and taking the necessary steps to keep it growing and thriving.

Focus on Progress, Not Perfection

Because the rate of change is so rapid and there are so many individuals and variables involved in implementing every strategic effort, it’s overwhelming to attempt to define a “perfect” plan. In fact, IT’S IMPOSSIBLE. Don’t let a desire for perfection stymy your ability to help your organization progress. No plan has ever been perfect and yours will be no exception. The unexpected will happen, and your plan will need to be changed or adjusted. If you are regularly practicing strategic planning (as mentioned above) you’ll be able to respond quickly, make changes needed, re-focus and continue advancing toward your mission. Baby steps can add up to big success.

Variations on a Plan

At Spokes, we have a tried and true strategic planning process that works for us and we use that process to help our members in defining their strategic plan. However, your nonprofit may be facing extraordinary circumstances that make a more traditional, full-scale planning process challenging – a leadership change, unexpected financial issue, a rapidly-emerging client/community need, lack of human resources to staff a planning committee, etc. That’s OK. In those situations, it may be more feasible and beneficial to define a strategic framework with a 2-3 key metric to track and discuss at regular board and employee meetings.

Whether you define a comprehensive plan or a basic framework, your variation needs to address the following questions:

  1. Vision
    1. What world/reality do you want to create? What will be true 20 (or 50) years from now because of the work your nonprofit is doing today?
  2. Mission
    1. What specific types of activities will the nonprofit do every day to achieve that vision?
  3. Values
    1. When faced with an unprecedented situation, what core beliefs or values will guide your nonprofit in finding the right solution? What are the “rules of engagement” governing every interaction between an employee, volunteer, client or other stakeholder?
  4. SWOT Analysis
    1. What are the CURRENT strengths, weaknesses, opportunities and threats that contribute or detract from your nonprofit’s ability to perform its mission well and move closer to its vision? (Strengths and weaknesses focus on internal variables like staff, volunteers, equipment and facilities. Opportunities and threats are external variables like donor relationships, community trends, and new legislation.)
  5. Goals
    1. What do we want to be true in 2 years from now? (or whatever timeframe you choose.) e.g. Significantly grow our base of annual donors.
  6. SMART Objectives
    1. What specific, achievable, measurable, relevant, time-based actions will you take to help achieve your goals? e.g. Double the number of $100 donors by December 31, 2020.
  7. Action Plan
    1. Who is responsible for doing what by when? Every task needs to be assigned to an owner who is accountable to a deadline.
  8. Budget
    1. Do we have enough financial and human resources to achieve the goals and objectives we’ve set? Do we need to reallocate resources? Are we budgeting the “right” resources to ensure our success?
  9. Evaluation
    1. What metrics will we track and data will we collect to quantify/qualify our progress toward our strategic goals and objectives? How often will we collect and report the data?

We hope this article gives you some actionable ideas on how to start weaving a strategic planning discipline into your nonprofit’s operations to guarantee greater mission success. Spokes is always happy to offer personalized strategic planning consulting services for its members and, for those who prefer a DIY approach, we’re pleased to provide the following strategic planning resources to help you on your way.

Rethinking Your Nonprofit’s Future in the Face of Covid-19

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The Covid-19 pandemic has rocked the nonprofit sector and nonprofit leaders throughout the United States are now grappling with one or more of the following questions:

  • Can we redesign our annual fundraising event to meet our budgeted revenue goals?
  • If we can only host 25%-50% of our clients in our programs, can we reduce our operating expenses proportionately to avoid incurring too much debt or creating an imbalance in our administrative:program expense ratio?
  • Will our donors and business sponsors need to reduce their philanthropic giving? And, if so, for how long?
  • If many folks are paying significantly less income and sales taxes, will federal, state and county budgets, and, specifically, our government contracts and grants, be significantly reduced?
  • Do we have the right people able to lead our redesign efforts?
  • Will our community consider our mission and programs relevant to the post-Covid world?

All the answers to these questions will require significant operational changes. For some nonprofits, those changes may be so insurmountable that they may choose to cease their operations altogether. If you are leading one of these nonprofits, we want to offer you some ideas for your board to discuss before you choose to dissolve your organization.

Going Out of Business is the Goal

It’s strange to hear, but, really, the goal of every nonprofit is to resolve a societal issue or fill a need so well that there is no need for that nonprofit to continue to operate. Unfortunately, most of the problems that nonprofits address are complex and cannot be solved within a single lifetime. However, no nonprofit should continue to exist simply because it does exist. Every nonprofit leader has an ethical obligation to continually examine the relevancy of the organization’s mission and evaluate its impact. The crisis of Covid-19 is forcing all types of organizations to rethink why they exist and work the way they do. Competition and comparison among similar organizations has become much more pronounced. Nonprofits are no exception and there is no reason to be ashamed of having these types of conversations at the board table. Arguably, when a nonprofit’s effectiveness or relevance is waning, choosing not to compete for limited resources is one of the most socially responsible decisions a board can make.

Be Strategic

Whether your goal is to stay in business or dissolve, you will need a strategic plan to guide you. Continuing organizations will most likely need a plan to help them restructure or redesign operations in response to this strange new landscape. Goals and objectives that once felt relevant and achievable at the start of the year may no longer be so. It may not be possible to start a new capital campaign or hire staff to launch a program when facing a shortfall in operating revenues. Likewise, demand for a new program may increase and make it necessary to let go of other programs due to limited resources.

Organizations that are choosing to dissolve will need strategic plans – even if they’re short term – to direct how to responsibly care for employees and clients and redirect assets.

Whatever is changing for your organization, you need a clearly defined plan that is understood and implemented by all members of your team. There are several variations to the strategic planning process, however, every successful plan will include the following components at a minimum:

  1. Vision
  2. Mission
  3. Values
  4. SWOT Analysis
  5. Goals
  6. Objectives
  7. Action Plan
  8. Budget

Trying to lead your organization through the next several months without a strategic plan is like starting a cross-country roadtrip without a map.

Watch for a future blog article with more strategic planning guidance and tips.

Find a Partner

Most nonprofit leaders are well-versed in the art of collaboration with other entities including schools, government agencies, donors or fellow nonprofits. But, have you taken a moment to identify what new collaboration opportunities may exist post Covid-19? What nonprofits have specific donor or client information you need? What information do you have that might be helpful to other nonprofits? Are there products or equipment that can be jointly purchased and shared? What about room or performance space rentals? Can furloughed staff with unique skills and training be shared with another organization? Can programs working with the same audience or on relevant issues be delivered in shared spaces? How can economies of scale be created to deliver more services with less resources?

Consider Merger Variations

Sometimes the best option for creating more operational efficiency is through a form of merger including joint ventures, parent-subsidiary structures or a full-scale merger. Maybe your nonprofit no longer needs to operate as a stand-alone agency? Maybe your organization has a signature program that is aligned with another nonprofit that could “adopt” it? The key to any merger variation is to identify a partner who shares the same organizational values and strategic vision as your organization. Humility is also necessary. There can only be one board and one Executive Director/CEO. Some folks will need to step down from their leadership roles when two organizations choose to operate as one entity. For these reasons, organizations that are about to experience a leadership turnover are better positioned to pursue a merger option.

Spokes will explore the nuances of merger variations in upcoming blog postings.

Try “Hibernating”

When a partnership or merger is not possible because of your nonprofit’s remote location or very unique mission-focus, but it’s too challenging to continue operating efficiently and effectively while implementing social distancing guidelines, it might be time to consider “hibernating.” Nonprofits must legally conduct one board meeting per fiscal year, submit their annual 990 tax filing and ensure that there is an appointed President, Treasurer and Secretary (with no President simultaneously serving as Treasurer). And, that’s it. All else is negotiable. If your stakeholders understand and support your need to temporarily reduce staff and programming until a future date when the organization can expand and rebuild, then try hibernating instead of formally dissolving your nonprofit. Continue board meetings and stakeholder communications and keep your incorporation status in good standing until you’re ready to ramp up again.

Nothing is Forever

Remember, you can change your organization now – and change it again, later.

Make the best decisions you can with the information you have at this moment and take one strategic step at a time. If you gain more information and realize a different decision is needed, you always have the privilege to re-launch old programs, end joint ventures, reorganize or start a new nonprofit! Always act in the best interest of your clients and communities and you will never make a poor decision.

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