“The Moment That Defines Leadership.” Grappling with Layoffs in the Age of COVID-19

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There’s a scene in “Titanic” where Rose, the movie’s protagonist, tells Thomas Andrews, the ship’s builder, “Mr. Andrews, I did the sum in my head, and with the number of lifeboats times the capacity you mentioned... forgive me, but it seems that there are not enough for everyone aboard.”

The analogy is perhaps a bit bleak, but it speaks to a reality facing development directors right now, as economists warn that the unemployment rate could hit 20% sometime in May. If they’ve yet to do so, they’re going to have to make some very difficult decisions in the weeks and months ahead.

There are not enough lifeboats for every fundraiser aboard.

Compounding matters is that the uncertainty of this crisis limits our ability to plan for the future. “Generally, there’s panic, and after 17 months, it subsides and optimism returns,” said Jeffrey Wolfman, Fitchburg State University vice president for institutional advancement. Having been in higher ed fundraising since 1990 and in fundraising since the 1970s, he’s seen a lot of tough times. “But this crisis, I think, will last longer because of the extent of the unemployment disruption to the service sector. We’ve never had a recession with a health crisis overlaid on top.”

Karen Brooks Hopkins, president emerita of Brooklyn Academy of Music, agreed. “This crisis is worse than the Great Recession,” she told me.

As a result, directors must contend with a series of fraught questions. How will layoffs and furloughs affect development teams at a time when an organization’s existence hinges on its ability to raise money? Can directors evade the hatchets of cost-cutting CFOs? And if not, how can directors navigate difficult conversations with affected staff?

I asked experienced fundraisers and executives how their peers should tackle these questions. Here’s what they had to say.

“No Assets, Only Liabilities”

Management’s first inclination during economic downturn is often to lay off staff because that’s where the money is. But layoffs can have unforeseen downstream consequences for smaller development teams lacking a deep bench staff.

Most immediately, the remaining overworked fundraisers will see their donor lists grow, and in many cases, their effectiveness deteriorate—a common manifestation of what HR professionals call the “survivor syndrome.” Directors will have trouble preserving or accessing a laid-off fundraiser’s deep reservoir of seemingly mundane but critical unstructured donor data, like children’s names or favorite vacation spots. They may also come to regret laying off fundraisers who were adept at managing generous but particularly high-maintenance donors.

If fundraisers walk out the door and these relationships go south, directors will have difficulty reconstructing them at a time in which one in five donors say they won’t be giving to charity until the economy is back up and running.

On the other hand, as Hopkins noted, larger development offices enjoy larger donor databases with millionaires and billionaires on speed dial. In this scenario, a single mega-gift can make more of an organization’s COVID-19-related problems disappear. For the time being, however, mega-donors tend to bypass organizations that aren’t on the front lines of COVID-19 response. All the while, losses will keep piling up, since larger organizations must contend with disproportionately larger fixed costs—rent, utilities, loan payments—that CFOs simply can’t wave away.

A CFO can, however, wave away perceived dead weight strewn across a sprawling development team. I recently spoke with a director of development who, in a previous life, worked at a private university whose advancement and alumni boasted 26 full-time employees, plus two full-time “stewardship gurus.” It’s unlikely the school’s ax-wielding administrators will deem all staff essential at a time when universities are facing an existential crisis.

The director now works at a public university with a team of seven full-time employees. “In terms of economies of scale, this small cohort wears a lot of hats,” he said. “Are we essential? I’d like to think so.” But during this fraught moment, CFOs get paid to refute this idea. They “see how much money we raise and compare it to an exponentially larger operating budget,” he said. “That’s their job. And they decide ‘there are no assets, only liabilities. Let the furloughing begin.’”

Thoughtful, Humane and Relentless

As a former chief executive, Hopkins acknowledged that “expenses have to be cut to the bone. You must be thoughtful and humane, but also relentless.” This requires leaders to envision the organization’s needs under scenarios ranging from the optimistic to the dire. “You back into the numbers, personnel and projects accordingly,” Hopkins said.

To put her comment in perspective, a March survey of 428 nonprofit leaders conducted by the Nonprofit Institute at the University of San Diego found that only 35% of respondents expressed confidence that their organizations would be able to pay staff by the middle of May.

There’s no sugar coating this stuff. Many development directors will have to lay off staff, and so the big question, Hopkins said is, “how, as a leader, do you treat people? Are you communicating with them? Are you laying out the numbers to them?” She suggests leaders write a personal letter to laid-off staff and offer to provide references. “People shouldn’t feel as if they’ve been crossed off a list.”

In a similar vein, now clearly isn’t the time to tell a laid-off employee that their firing was due to poor performance, salary or seniority. Rather, directors should point to the organization’s desperate financial state and the unprecedented nature of the COVID-19 crisis.

Directors must express themselves with “authority and compassion,” Hopkins said, “and go forward to inspire as much confidence as possible. This is the moment that defines leadership.”

“Build Enough Lifeboats for Everyone”

Of course, executives looking to keep morale high and layoffs low can draw from a playbook of cost-saving alternatives, including salary reductions or freezes, temporarily discontinuing the employer match to pension funders, and enacting voluntary pay cuts for executives.

Maureen O’Brien, senior vice president for institutional advancement at Miami’s New World Symphony, told MCW Projects’ Melissa Cowley Wolf that since some team members “may be less busy by virtue of the nature of their jobs,” her organization is “taking an audit of who in the organization has capacity and who has needs, and matching those up. The silver lining could be opportunities to leverage skills that team members may have outside of their core job function and/or to give people opportunity to gain skills in areas they are interested in.”

Longtime fundraiser Kathy LeMay pushed back on managements’ impulse to lay off employees in the first place. “What if we were to reframe the question from ‘who gets a lifeboat?’ to ‘how can we build enough lifeboats for everyone?’” she said. “We get the outcomes we plan for. We get the outputs we co-design. If a project or organization is visionary, compelling and future-thinking, the funding will follow, even in the worst of times.”

“My advice is for nonprofits to get ahead of the potential future impact of this virus,” she told me. “If you know of another leader working on a similar issue, get on the phone with one another. Start asking: Can we join forces? Should we join forces? What would it look like? What would be difficult? What could it open up? This is the time to think about getting ahead of the virus’ impacts before the impacts get ahead of your organization’s important work.”

When Sacrifices Aren’t Shared

Zooming out beyond the purview of the development directors, many nonprofits have bought themselves some time thanks to the CARES Act’s Paycheck Protection Program (PPP), which can provide a nonprofit with up to 2.5 times its monthly payroll costs.

That said, developments out of San Francisco illustrate what can happen when leadership fails to heed LeMay’s advice to build enough lifeboats for everyone.

In late March, faced with a projected revenue loss of $8 million through June 30, the San Francisco Museum of Modern Art (SFMOMA) laid off 131 contracted or freelance employees and announced plans to furlough around 200 regular staffers by May 1.

A month later, the museum received $6.2 million in federal funding through the PPP, allowing it to lift its staff furlough and keep regular staff employed and receiving benefits through June 30. In response, a group of furloughed staff wrote an open letter laying out a series of demands to management. The letter asked management to retain staff, enforce larger leadership pay cuts, de-accession artwork, and asked trustees to generate the sum necessary to cover salaries. The letter also asks director Neal Benezra, who earned nearly $1 million in 2018, to draw a salary of zero for the duration of the fiscal year.

“The federal Paycheck Protection Program is stepping in where our leadership and board have not,” they wrote. The letter called SFMOMA’s moratorium on furloughs through the end of June a “temporary reprieve” that only “kicks the can down the road.”