There is a segment of the business community which often goes unrecognized in terms of economic impact, employment, and influence in the community – the not-for-profit sector. This month’s interview examines some of the dynamics of this important business sector through a round table discussion with three individuals heavily involved in the not-for-profit business world.

Steven Thompson is president and CEO of the Easter Seal Rehabilitation Center, a local voluntary agency delivering service to disabled people in five counties – Peoria, Woodford, Tazewell, Fulton and McLean. He has been with Easter Seals for 13 years. Steve is also an ordained minister in the Apostolic Christian Church.

Patty Shaheen, executive director of Goodwill Industries of Central Illinois, was the assistant director of the Peoria YWCA for two years prior to accepting the top job at Goodwill a year ago. Formerly a schoolteacher at Peoria’s McKinley School, she was an active community volunteer prior to her positions with the YWCA and Goodwill Industries.

Henry Holling, manager of Community and Corporate Support for Caterpillar, is involved in managing a Caterpillar Foundation portfolio of approximately 400 annual contributions which generally go to not-for-profit organizations. A Peoria native, he has been personally involved with some 20 not-for-profit organizations over the past decade, including serving as chairman of the Heartland Water Resources Council, the Urban League, and currently the Peoria Area Convention and Visitors Bureau.

The not-for-profit segment of the business community is often overlooked. Many people tend to view the for-profit sector as the “real” business community. What does the not-for-profit segment mean to the business community at large?

Steve: The Peoria Area Community Foundation recently sent our a survey to the not-for-profit sector in the Peoria area to try to assess just what impact this sector has on the local economy – such things as the number of people on payroll, total payroll expenditure, and square footage of space utilization. My guess is this survey will reveal that the not-for-profit sector is a significant player in the local business economy.

People in the not-for-profit sector are actively involved in the business community at large. There may be some misconceptions or stereotypical images about who is involved in the not-for-profit sector – such as those who can’t make it in the “real” business sector. But those of us in the not-for-profit sector face the very same issues – cash flow, strategic planning, personnel administration, and wage and salary administration – that people are faced with in the for-profit sector.

Patty: Steve hit on a key point about some people having misconceptions that people involved in not-for-profit work perhaps can’t make it in the real world. I think this was a stereotype from the ‘60s and ‘70s when many not-for-profits were failing miserably because they were not approaching their organizations as a business would be approached. During the ‘80s, the not-for-profits that have really made it have had executives and directors who have been real business leaders. Not-for-profit organizations must be approached as “businesses.” That’s what they are.

Henry: At Caterpillar we work with some 400 not-for-profit organizations nationwide, most of them in Illinois. We see a wide variety of skill levels and administrative competence within the various organizations. Patty, Steve, and people like them, do a good job of running their organizations. But there are a lot of non-profits which are well behind the curve in terms of the way they manages their operations or in their planning. When we look at an opportunity to make a contribution or lend support to organizations, we look at the board of directors, the financial records, and other evidence of good management. We want to feel that a contribution will be able to produce desired results and not just perpetuate a problem. There has been progress in the last 10 or 15 years. There is generally better leadership in the executive offices of the non-profit sector today than there used to be.

Government funding for not-for-profit agencies has contracted considerably in recent years. How has that affected not-for-profit organizations, including your own?

Patty: The diminished funding may have led to a bit more accountability on the part of not-for-profit organizations. If the money just keeps coming in each year, but suddenly a particular area is questioned, you have to stop and consider. Do we really need that money? Can we find other sources? It makes you really think, as opposed to just accepting the check when it arrives in the mail. Many sources of government funding have either changed directions or dried up.

The 181 Goodwills across the country have all taken on different personalities, although we all work in three areas – rehabilitation, retail and recycling. Goodwill Industries is in an unusual position among non-profits because of our retail source of funding. We are one of the few organizations that does have an internal source of funding through retail sales. Goodwill Industries of Central Illinois has no state or federal funding at this time.

Steve: Those not-for-profits that have a more diverse mix of funding are the ones that have grown and prospered. One of the things we’ve been careful about at Easter Seals is not to become over-reliant upon any single source of funding. Government funding is one funding source that is obviously very unpredictable. As government funding fluctuates, it is not uncommon for agencies in an overly reliant position regarding government funding to find themselves really scrambling when those funding streams dry up. A diverse funding mix is one of the keys to enhancing business sense in a not-for-profit. At Easter Seals, our government funding sources are less than ten percent, and that has stayed flat.

Patty: The diversification of funding that Steve mentions is one of the keys for our Goodwill to stabilize over the next two or three years. Right now we are working on stabilizing our main source of funding, which is our retail operation. Once we do that, we have to develop a better balance and more diversity so we don’t rely exclusively on our retail operation. There is a misconception about Goodwill Industries. Many people think we just sell used clothing. The idea is to use the retail operation to fund the rehabilitation work that we do. Our mission is not only to assist people with disabilities, but to help disadvantaged people.

How should government funding be viewed by the not-for-profit sector?

Steve: Many times government funds are designed to initiate a model program or do something innovative, and were never intended to be ongoing. One of the things that has to be validated up front is an organization’s ability to continue a service after the kickoff, when government funding might be withdrawn. It’s seed money; if it is truly valuable and meets the needs of the community, then grass-roots volunteerism and local support is necessary to make it continue. I agree with that philosophy. The idea of just funding something forever doesn’t create enough accountability.

Patty: But there are organizations which have just looked at that funding as a continuous stream, and have become sloppy because of it. Then it becomes “sour grapes” when the funding is discontinued.

Are certain not-for-profit sectors particularly feeling the pinch of diminished funding?

Henry: We tend to break not-for-profits into categories: health and human services, education, culture and arts, and civic and community. The area in which we have seen the biggest funding squeeze is in culture and arts. As funding diminishes, there is an effort made to try to protect essential human services. Unfortunately, it comes out of what some people perceive as luxury areas – culture and arts. That’s not particularly fair, but that’s the way it is. Higher education had has some changes, but most institutes of higher education are able to compete for funding and hold their own with a good program. Locally, if you look at the not-for-profit organizations under particular stress, you will find more in culture and arts than in the other areas. It’s partly due to lack of federal funding and partly due to a reshuffling of priorities on the part of givers.

Are not-for-profits doing more local fundraising activities because of shrinking government dollars? Is there more competition for contributed income in the community today? 

Steve: I can’t really quantify that, but my perception is that there are more and more not-for-profits striking our on their own in fundraising activities. It seems that there are more fundraising events and competition for contributed income.

Henry: I think part of it is that many local not-for-profits are of the same generation, and eventually their physical plants wear out. They have to go to the community and raise funds to replace, renovate or expand their physical plants.

I am chairman of the board of two organizations which rely heavily on government funds for projects: the Heartland Water Resources Council and the Peoria Area Convention and Visitors Bureau. The Visitors Bureau relies on local public funding for a large part of its budget. With that comes a great deal of flexibility in directing the funds. Federal and state funding, on the other hand, comes with increasing guidelines, regulations, and requirements. The more an organization relies on government funding, the more its management and priorities are shaped in ways that may not necessarily be in the long-term best interests of the agency. Organizations should seek, in the long term, to maximize as much local support at possible so that essential operations and services can move ahead with or without state or federal dollars.

Patty: I think a wake-up message is being received by many agencies who have depended on outside sources of funding. Our own United Way has sent out the message that they may be at a stage of unpredictability as far as growth, and that we may have to look at other sources. The time is past when you can simply go to state, federal and United Way sources of funding.

What do corporate donors look for in contributing to not-for-profit groups?

Henry: We probably receive 12-15 requests a day for corporate support. We have to decide from that volume which are the most worthy. We look for organizations and issues that serve a broad constituency and maximize the good of the community. We look for good management on the part of the board, and fiscal integrity. We ask for a financial statement; we like to see who’s on the board of directors; we look for long-range planning and projections on constituents served. We want any assistance we provide to help an organization improve its level of service and help solve a problem in the community, as opposed to just keeping something going simply because if has been going for 30 or 40 years. Hit-and-miss projects or issues that come and go aren’t the best investment for the dollars that we contribute to these organizations.

Quality of life begins at home. We target our giving locally, particularly where we have a large presence as a company. You can have more impact that way. So you will see Caterpillar be supportive of a capital campaign for Goodwill, which we were a few years ago; and help provide leadership, through chairman Don Fites, for the Easter Seals capital campaign last year. We seek to build long-term relationships, not to just come in and help an organization on a one-shot basis. Caterpillar is a corporate citizen; our people work, live, and play in the Peoria area (or Aurora, Decatur, Joliet and other plant communities).

Patty: When I started at the YWCA four years ago, I could see that a big transition was taking place. In the ‘70s and ‘80s, many times when you solicited funding, there weren’t a lot of questions asked. There was a mentality of just knocking on the doors about 10 or 15 area companies and assuming they would give you something. All at one justifying the dollars became very important. I think that’s good.

Steve: There is some misguided thinking that companies will only fund organizations that really need the money desperately or are going broke. As Henry has pointed out, however, these corporate contributions are an investment in the future of the community. If an organization hasn’t exhibited a good track record, it’s probably not a wise investment.

From a corporate solicitation perspective, companies get involved in giving for many different reasons. Some get involved on a cause-related or social responsibility marketing bases where they are actually trying to meet some of their own marketing objectives: “For every particular product sold, we’re going to donate five cents to Easter Seals,” for example. That whole cause-related marketing concept got started back when American Express employed it in helping the Statue of Liberty renovation: “Use your American Express card and we’ll make a donation to the Statue of Liberty renovation.”

Is there a fine line being walked in many such marketing strategies, which connect social responsibility issues with corporate efforts to boost sales?

Steve: The most common example currently is the affinity card program s for Visa and MasterCard. Most any organization can issue you a credit card with affinity for an organization, that will return some benefit to the organization; it’s very common among institutions of higher learning. The theory is, people are going to use credit cards anyways; why not use one which will return something to your alma mater? Taken to its logical extreme, the risk is that companies will no longer make “gifts,” but simply devise a marketing strategy to enhance the corporate bottom line. At some point that begins to violate the spirit of philanthropy.

Are not-for-profit organizations held to a higher standard than for-profits, particularly ethically?

Henry: Certainly, when there is a lapse of good judgment in the non-profit sector, you are more likely to read about it in a prominent location because there is a sense that these leaders have a public trust. That comes with dealing with health and human services. Because contributed funds are being used, there is more visibility.

Patty: I agree. Initially the public takes a much more negative perception. This does come with the idea that you are helping humanity.

Henry: The encouraging news about why people give if they really want to make a difference in the life of someone else. There is some sense of stewardship, that the not-for-profit should take a gift and do what they have promised they will do with it. In that regard, they are held to a higher standard of conduct because there is that responsibility that has been entrusted by the donor to be a good steward of the gift.

Steve: Today, donors are more sophisticated than they used to be. They are more attuned to looking at administrative and fundraising costs. They want to know that an organization is effective and efficient. Because there are so many available avenues into which people can funnel their resources, they want to know they are putting their money where it will do the most good.

Patty: Maybe the source of funding is the key – the fact that not-for-profits are accountable for dollars given to them to meet the needs of humanity. Humanity is attached to every dollar we have.

Are there too many not-for-profit agencies in this area trying to accomplish similar goals? Could benefits be derived from fewer, stronger agencies?

Henry: I think there is a perception that there is duplication between some organizations. When you really look at what agencies do – including the geographic territory and the clientele served – I don’t think there is as much duplication as is perceived. Organizations come into being to deal with a problem or an issue. Sometimes they solve it, and they go out of business. It’s my hope that Heartland Water Resources Council can someday go out of business. It’s going to be awhile before that happens.

I don’t think there is as much overlap, duplication or fragmentation, as might be perceived. The question gets raised because there is a competition for funding. Concerning proposals that come across my desk, we do not like to fund things that duplicate what others do. But I can’t think of a strong example where there is duplication. These organizations have their niche and they do a pretty good job of serving it. Those that don’t do a good job eventually wither and go away. The market largely dictates what happens. If a group doesn’t do a good job or managing, the resources won’t be there.

Steve: We are also seeing more interagency collaboration today. Agencies have a particular niche – something they do very well – and area working together to provide comprehensive services with different agencies providing a piece of that service. For example, about a year ago the Illinois Board of Education wanted to expand and improve services to infants and toddlers with disabilities. Any one of seven or eight agencies in the Tri-County could have submitted a funding application. Instead, seven agencies got together and submitted one funding proposal, with Easter Seals being the fiduciary agent for the proposal. What that has done is create a very clear continuum of care for infants and toddlers.

On the other hand, there is a place for mergers and acquisitions in the not-for-profit sector, even though those are terms typically associated with corporate America. In fact, in some parts of the country, Goodwills and Easter Seals have merged. The market will dictate explorations of where there is commonality and opportunity for mergers.

How important is it for businesses and their employees to volunteer in community organizations and projects?

Patty: I think it’s very important. The Peoria are is very fortunate to have Caterpillar and smaller companies like them, as well as several foundations, who are very community-conscious and who are looking at the long-term picture in Peoria.

Henry: At Caterpillar, our support for the community is a direct demonstration of our long-term commitment to the community. Year in and year out we provide a tremendous amount of funding and support for good community activities. For example, when the Civic Center was built, Caterpillar made a half-million-dollar contribution. It’s a long-term statement of our permanence in the community. We believe a corporate citizen should exercise the rights of citizenship and the obligations of citizenship, one of which is to give back to the community.

Another way we try to contribute is by encouraging our people to become involved in volunteer activities and on the boards of community organizations. I can’t begin to estimate the number of hours that Caterpillar lets employees used to be on board of directors, or committees, or study groups, or to serve not-for-profit organizations in some way. In fact, if you could put a dollar value on those hours, it would far exceed the actually financial contributions we make.

Steve: Some corporations view employees’ involvement in not-for-profit organizations as another reason to become involved at the corporate level. It’s one thing to cut a check our of the corporate coffer and give it to an organization – and we certainly appreciate that. Another scenario is when company employees get personally involved in a project on a mass scale. Just a few weeks ago, for example, we did a “two million pennies” campaign for Easter Seals. We put a disc jockey on top of a billboard and kept him there until the money was raised. SuperX drugstores wanted to get involved with that, and they wanted their employees to get involved because they felt it would promote a sense of camaraderie among employees. So their employees stayed at the base of the billboard in a trailer 24 hours a day collecting pennies, and really got involved. SuperX saw it as a tremendous opportunity for team-building among its employees.

Henry: I have a steady stream of employees who are on boards on non-profits who come into my office to talk about how enthused they are about their organizations and ways in which the company might be able to help them. One of the obligations we have in the Public Affairs department is to encourage employees to get involved. Many times, organizations will call us asking for someone from Caterpillar to serve on a board or a task force. We then try to match the interests expressed by employers with the various organizations.

Steve: Because corporations are inundated with requests from the not-for-profit sector, we are seeing companies gauge their financial participation in an organization by the commitment of their employees. Companies are going to be interested in supporting those organizations that their employees are interested in. Many times we will see a group of employees get behind a particular project and then go to their employers and ask them to match their giving. Given the number of requests for funds employers receive, it’s a pretty east decision to give to the causes their employees are excited about.

How do you gauge the value of having Bob Gallagher, the comptroller of Caterpillar, on your finance committee at Easter Seals? We can’t afford a Bob Gallagher, but we have the benefit of his expertise on the committee. How do you quantify the value of having Don Paris, chief economist for Caterpillar for many years, as chairman of your board? You can’t begin to measure the perspective and leadership that brings to the not-for-profit sector. The synergy that can exist between paid staff in the not-for-profit sector and volunteers from the profit sector and volunteers from the profit sector is unmatched by either sector alone. Some phenomenal things can happen. IBI