We've been tracking two fast-breaking stories since the weekend: the philanthropic response to Hurricane Ike and the financial meltdown on Wall Street. Earlier today, we spoke with Melissa Berman, president and CEO of Rockefeller Philanthropy Advisors, to get her views on how the current financial downturn is likely to affect nonprofits in New York City and beyond.
Philanthropy News Digest: I'm old enough to remember Black Monday, that scary day in October 1987 when stock markets around the world lost 20-25 percent of their value in a single session. That was an equity event whereas the current turmoil on Wall Street is credit driven. Is the difference between the two a cause for concern?
Melissa Berman: The crisis in 1987 was much more of a challenge for Wall Street and for people with significant stock portfolios. The current crisis, because it affects the entire credit environment, affects lots of people whether or not they have stock holdings; it makes it harder for people with good credit to get mortgages, for people to get small business loans, for people to add value to their homes through an addition or renovation. The credit crisis has much broader implications.
PND: This crisis began last July with the collapse of two hedge funds at Bear Stearns. Here we are fourteen months later, and things in the credit markets and on Wall Street seem to be getting worse. Are we nearing the end of the crisis? Or are we just getting close to the end of the beginning?
MB: I wish I knew. [Laughter.]
PND: No predictions as to how long the credit crisis might last?
MB: Nope. I'm a folklore and mythology major, and though I'm happy to make a prediction, it would be based on tea leaves or something. [Laughs.] I'm not the person to ask, sorry.
PND: Bear Stearns disappeared in a merger with JP Morgan Chase earlier this year. Yesterday, Lehman Brothers declared bankruptcy, while Merrill Lynch agreed to be acquired by Bank of America. And by the end of the day we could see American Insurance Group, the largest insurance company in the world, declare bankruptcy. Philanthropically speaking, how important are those four firms?
MB: For New York City, in particular, most of them are very important; they're major corporate citizens that happen to be based here. Unfortunately, when two companies merge, the combined philanthropy of the merged entity is generally less than the sum of its constituent parts. That's part of the efficiencies that companies are looking for when they merge, especially when they find themselves in a difficult economic environment and are forced to downsize. In this case, the disappearance of Bear, Lehman, Merrill, and maybe AIG -- with who knows how many more to follow -- is going to have a big impact on philanthropy in New York City and the tri-state area.
PND: Do you think the impact will be worse for the nonprofit sector then what it experienced after the dot-com meltdown in 2000 and the recession that followed the attacks of September 11?
MB: During the dot-com meltdown many of the companies that crashed and burned were so new that they didn't have the internal resources to be serious about philanthropy. I think the current situation will have much more of an impact than the dot-com meltdown. We also seem to be looking at a much broader-based downturn than the one we experienced in 1987. It's just not clear yet how deeply the downturn will affect other parts of the economy that so far seem to be doing reasonably well.
In terms of New York City, the large number of people employed by these firms that have lost their jobs or will be losing them soon is also going to have an impact. Lehman, in particular, had a very generous corporate culture -- the management there really encouraged its employees to be generous. The challenge now, as was the case after the 9/11 attacks, is that the current meltdown is happening at the beginning of the most important giving season for nonprofits. November and December is when many nonprofits raise as much as half, if not more, of their annual income.
PND: So, is this a moment for individual donors and private foundations to step up and give more than they might in more normal circumstances?
MB: I think for many donors and foundations the smart thing to do is to wait a bit, say, a month or so, and see how things settle out. At that point, in what is likely to be a very difficult environment for a lot of people, they'll have more clarity and information to help them decide whether they want to do some allocations to things like basic human services.
PND: And that's what you're telling your clients?
PND: What can nonprofits here in New York City do to weather the storm?
MB: In times of turmoil and economic uncertainty it is especially important for nonprofits to be able to reassure donors that they are well positioned to make good, effective use of those resources. Donors have to make a lot of tough choices, and they want to be sure that when they give money, they're giving it to the right place.
PND: And what would you say to nonprofits looking for an all-clear, time-to-get-back in the water signal?
MB: Again, there's no crystal ball for a situation like the one we find ourselves in. The consensus forecast seems to be that things are going to continue to be difficult well into 2009. I think that, like everybody else, nonprofits should keep pay close attention to what the economists are saying and take it seriously.
-- Mitch Nauffts