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Optimism prevails in NFP sector facing rapid change and huge uncertainty

Barry Baker Barry Baker

The not for profit (NFP) sector is changing rapidly – traditional models of funding and patterns of risk are evolving, replaced by new rules, shifting demographics and fresh challenges. Aotearoa’s NFPs face an evolving landscape of uncertainty and opportunity.

We recently published Here For Good?, our not-for-profit sector report, and shared the findings at industry panel events in Auckland, Wellington and Christchurch. Our team spoke to hundreds of people working in the sector; they told us about their challenges and concerns, and we heard about their successes and their optimism for the future. The events provided many fascinating sector insights and we wanted to share some of the biggest talking points from the three centres.

Relying heavily on one income stream is extremely risky

Funding is always top of mind for our NFPs. In 2020 and 2021, the Government loosened its purse strings, with many organisations enjoying unprecedented funding certainty and reduced reporting obligations.

Those strings are tightening up again, with the Government reinstating reporting conditions and dialling back their spending. The feeling among our event attendees was that NFPs shouldn’t expect any significant or widespread funding increases from the Government for the next five years.

It is more critical than ever that organisations avoid being reliant on a single source of revenue, whether this is Government funding, street appeals or lottery grants. No single funding stream is necessarily safe or guaranteed. Michelle Sharp, CEO of Unicef New Zealand, emphasised how important revenue diversification had been for her organisation. Unicef’s impressive range of income sources included not only traditional funding streams but also non-traditional investment opportunities. Some come with a certain amount of risk, but having more funding streams is also a risk-reduction strategy, so with the right management this can be an outstanding approach to success.

Gen X, Millennials and Gen Z now outnumber baby boomers – so NFPs need to adapt

Every NFP needs to think about how it appeals to younger Kiwis – both as volunteers, employees and donors as they tend to have different priorities. One NFP leader told us that she’s seen a ‘flight of donations’ away from causes like historical buildings and archives, and toward causes associated with sustainability and social equality.

There has also been a social shift toward total wellbeing among younger generations. Traditionally, those in the NFP sector have put their energy into caring for other people and sometimes neglected to care for themselves. This isn’t sustainable. Volunteers and workers who find themselves burned out will not come back. Two-way communication is important – NFPs not only need to tell volunteers what is required, but also listen to what volunteers need.

In the war for talent, NFPs are losing ground

Staff shortages were a theme across all our events. What we heard in all three centres reflected the results of our survey, which found talent retention is a significant issue for 43% of NFPs, a big jump from 12% in 2015.

Because the corporate sector is also struggling with a tight labour market, it’s been using lifestyle factors to attract and retain workers, like flexibility, community and an enjoyable workplace culture. Those were traditionally a point of difference for NFPs, which helped the sector attract workers. Now, with the corporate sector offering all that plus higher pay, NFPs need to find new selling points.

The staff shortage has also been exacerbated by the Government’s freeze on pay. At first glance, you’d think a public sector pay freeze would make NFPs more attractive. However, the public sector is offering high rates for new roles, leading to frequent job changes as people look for an alternative way to get a pay rise. Pay rates for advertised public sector roles are spiralling upwards, raising the stakes even further for NFPs.

If you haven’t been hit by a cyberattack, it’s only a matter of time

Our survey found only 43% of NFPs have invested in cyber security over the past two years, and only 27% plan to invest in it before 2024. This is a worry. Phishing, ransomware and fraud attacks are rampant, and if your organisation hasn’t been targeted yet, it’s only a matter of time.

Justine Thorpe, CEO at Tu Ora Health, told our Wellington crowd about a major cyber breach at her organisation. The financial and reputational risks were substantial, but she and her team successfully managed the issue and emerged with a greater commitment to invest in data security. Her message was this: “You cannot contract out your responsibility to keep the information you hold – it’s the responsibility of your board and your management.”

Legislative change brings opportunities as well as costs

There have been some massive legislative changes for NFPs. Our survey found some are well understood, and some organisations are prepared, but the levels were much lower than we’d like to see. We covered this in some detail in our report, but a theme from the events was these major changes provide an opportunity to future-proof your organisation.

One of the major upcoming challenges was the new Incorporated Societies Act , that will require all societies to review their founding documents or rules – and given the sheer number of incorporated societies – this will create a high level of demand for legal advisors with relevant experience in this area.

Lawyers with this type of speciality knowledge are in short supply, so the few we have are going to be extremely busy over the next few years.

Excitement for upcoming projects outweighs concerns

Yes, there are plenty of challenges ahead for NFPs, and a long list of concerns. But overall, the mood at our events was uplifting and optimistic. Many organisations have had two or three consecutive years of excellent income, so they feel well prepared for the next round of delivery.

It was wonderful to hear so many people telling us about the exciting projects they have on the go – like Wellington City Mission’s $34 million Whakamaru building. This development will give the Mission a unique new way to serve the community, with a social supermarket, community café, showers and laundry facilities, and a conference centre.

This incredible project showcases the magnitude of the positive impact that our NFP sector can have; it’s a great reminder of why we work and volunteer in these fantastic organisations.

Be sure to download your copy of our NFP sector report, Here for good?