In a nutshell: Grant Thornton NFP sector report
The not-for-profit sector in Aotearoa employs 145,000 people, represents $21.1bn in revenue and provides support to hundreds and thousands of people and animals each year. There is no doubt that it plays a critical role in the social fabric of our country. As we head into the third year of the pandemic, the sector is facing some major difficulties – so major that the future looks shaky.
If not-for-profits don’t act now, they’re potentially going to face legal and compliance issues, cyber-attacks, inability to operate at full capacity and chronic staff shortages. Do Good Jobs doesn’t want to see that happen, and we’re sure you don’t either!
The Grant Thornton (GT) NFP Sector Report focuses on six key areas where not-for-profits are at risk of failure. We believe that every not-for-profit and charity leader needs to read this report. If you don’t read it, at the very least read our summary below and circulate it to your team;
Six key areas that make not-for-profits vulnerable to failure:
#1. People First - not-for-profits make huge losses in the war for talent
For regular readers of Do Good Jobs’ blog and social media updates, the ever-tightening labour market and war for talent will not be a new topic.
43% of not-for-profits surveyed thought their most pressing challenge was talent retention, up from 12% in 2015.
This is a reflection of the fact that our expectations of work have completely changed. In the past, not-for-profits have relied on the heart factor, organisational culture and flexible work options to compensate for the fact that they don’t pay market salaries. Private and public sector organisations are now offering these benefits, plus more, at competitive market salaries. Many public sector jobs, or even jobs at ethical private sector companies, allow employees to make impact and service communities. With the cost of living biting, even values-driven workers now have to prioritise salary above other factors.
Do Good Jobs knows from our conversations with employers that it has taken some not-for-profit organisations a while to accept the fact that their roles are less desirable than before, and that attempting to increase salary is a necessity for attracting and retaining talent. Attracting new team members and keeping key talent on board were the biggest struggles according to Grant Thornton.
There has been a huge increase in the number of not-for-profits saying they’ve lost team members to career or life changes, up to 25% from just 4% in the last survey.
Hesitance to increase salaries for budgeting reasons can be a false economy. The cost of recruiting and onboarding new team members often far outweighs the cost of a salary increase or promotion for existing staff. The average recruiting cost for an entry-level role in New Zealand is $9,772, rising to $17,841 for a mid-level employee and going up to as much as $34,440 for an executive-level hire. There’s also the time pressure on HR and recruitment teams to consider when going out to market for a new hire.
Not-for-profits quickly need to find novel ways they can fund fair remuneration to retain key team members or attract new talent to their organisation.
#2. Funding and financial sustainability - Donors feel the cost of living squeeze
The cost of living crisis and talk of recession have donors spooked, with their discretionary income shrinking. Across the board, not-for-profits have taken a massive funding hit.
The Grant Thornton Report recommends those facing funding challenges should explore collaboration with other organisations.
Appetite for collaboration in the sector can often be low, with fears of loss of control.
#3. Governance and strategy - existing in an echo chamber?
In our pandemic era world, strategy is more important than ever. An annual plan, and regular checks ins on progress and roadblocks is the cornerstone of organisational success.
The Grant Thornton report found that an alarming 35% of Not-For-Profits don’t carry out strategic planning annually. To stay relevant with all the legislative, labour market, and political changes at the moment, a strategy needs to be a living document that can flex and adapt.
The data also indicates that engagement with wider stakeholder groups on strategy is low. This means some not-for-profits are overly insular in their decision-making and planning. Diversity of thought was missing on key ideas and decisions, which created the effect of operating in an echo chamber. Only 13% of not-for-profits engaged with funders on their strategy, leaving them open to financial issues. Governance and board members were key in this process, especially with legislative requirements for Board members increasing. This has led to remuneration for board members becoming increasingly common, with 28% now compensated financially for their time.
#4. Risk management - Preparing for ‘Black Swan’ events…like Covid-19
The report advises that the not-for-profits are carrying out too little business continuity planning. In 2022, ‘black swan’ events are becoming more common and more serious. To cut through the business lingo, a black swan event is a sudden and unexpected event that has severe negative consequences for an organisation. Examples of black swan events in recent history include the global financial crisis and, (you guessed it) Covid-19. Despite our recent experience with Covid-19.
One-quarter of not-for-profits never update their business continuity plan, over half never test the plan they do have, and 59% never circulate the plan to their employees.
#5. Legislative changes - organisations aren’t keeping up
New legislation has been introduced rapidly in the sector over the past years, and not-for-profits just aren’t keeping up with change.
Many of those surveyed for the report had failed to grasp the impact new legislation would have on their organisation, or take action.
Here’s a breakdown of everything you need to know;
The replacement of the Incorporated Societies Act
The Bill to replace the Incorporated Societies Act 1908 was signed into law on 5 April 2022. One of the ramifications of this is that nearly every incorporated society across the country will need to agree and register a new Constitution to comply with the new Act.. Grant Thornton’s data shows that only 25% have reviewed their organisation’s constitution since this change was announced.
The introduction of the Privacy Act 2020
The Privacy Act 2020 means new, stricter requirements around the disclosure and protection of personal information of stakeholders data. While 90% were aware of the new act, over a third haven’t updated their privacy policies yet.
The Charities Act Review
The Charities Act 2005 was reviewed to determine if it is still fit for purpose. A Bill to amend the Charities Act is expected to be introduced this year. Larger charities with operating expenses over $140,000 will need to disclose the reasons for accumulating large amounts of cash and assets.
Service performance reporting (SPR)
Service performance reporting was introduced in January 2022 with a requirement for larger Tier 1 and 2 charities to tell stakeholders how their goals are being met and the wider impact of their activities. The GT report indicates that only 31% of larger not-for-profits have finalised the service reporting measures for their next annual report.
#6. Technology - Cyber attacks threaten security
In a similar vein, not-for-profits have failed to invest enough in cyber security, leaving them vulnerable to malware scams, ransomware attacks and fraudulent activity. Cyber criminals can, and do, target not-for-profits as they know their systems are likely to be less robust. A cyber attack can be hugely costly and disruptive, and can even lead to a shut down of operations.
Managing their IT environment and fraud are currently low on not-for-profits’ list of concerns and only 43% of not-for-profits invested in this over the past two years. Clearly, this needs to move up the priority list, and fast.
Autonomy, but working together and sharing resources is becoming a necessity.
Share your comments on the most concerning issue you see facing the not-for-profit sector.
Read the full Grant Thornton report here.
