Building Equity into Nonprofit Finance
The recent murder of George Floyd has rightly set off another round of soul searching in our communities and our institutions about race, racism, and racial justice. This reaction is not newly birthed. Diverse voices have spoken out against racism on myriad occasions before and the nation has risen in protest against racial injustice multiple times across the generations. While I would like to believe the outcry is qualitatively different this time, as a finance person I am watching carefully to see where governments, communities, businesses, and nonprofit organizations invest their resources to effect real and lasting change.
One place to look for tangible evidence of any individual’s or group’s priorities and values is to look at where they spend their money. This is true of nonprofits as well. If you pick up any nonprofit organization’s financial statements, you will get a glimpse of what resources the group thinks are most important to accomplishing its mission. A more revealing view is found in a program-by-program breakout of revenue and expenses. Each line item tells you the specific kinds of resources the organization makes use of; the amount spent in each program tells you what priority that particular activity has for the organization.
Your values are evident in your financial statements
If you are looking to see if a nonprofit is truly committed to racial justice and equity, ask to see what percentage of its expenses are invested in this work and in what way. For those organizations that have been, continue to be, or are just now beginning to invest in racial equity, you may have to look in multiple places to find the evidence. For some nonprofits, an investment in racial equity could look as obvious as paying to have skilled facilitators lead their staff through anti-racism, equity, and inclusion training. Other nonprofits might offer financial support to employee resource groups convened to provide black, indigenous, and people of color (BIPOC) safe harbors for mutual encouragement and empathetic peer support.
Investments in racial equity can also include less obvious measures. You could not immediately tell by looking at an organization’s financial statements whether it outsources its high-end printing projects to the outlet of a large national chain or if it contracts with a local printing shop owned and operated by a person of color. Vendor selection policies are a way for nonprofits to express their values through their accounts payable process. Where we spend our money matters.
For those nonprofits that have significant financial reserves, the choice of where to invest those funds also exemplifies your values where it concerns racial equity. More and more, nonprofits and foundations have begun to examine and shift where they invest their reserves. Conventional thinking would argue that nonprofits should invest with an eye towards healthy returns and capital preservation. Ironically, this sort of standard investment practice may run counter to the goals the organization is trying to achieve in its mission work. If a nonprofit invests its portfolio primarily in the stock market, bond market, and traditional banking institutions, even relatively higher returns on those investments might not be enough. There may be no amount of investment earnings adequate to counteract the negative effects those same large financial institutions are having on the very communities the organization is committed to helping. An alternative is for nonprofits and foundations to invest their reserves predominantly in businesses, banks, and organizations founded from within and embedded in communities of color. While the financial return on the investment might not match what could be earned in conventional markets, the effect of large-scale investment in communities of color, indigenous communities, and emerging immigrant communities could be transformative.
Fairness, equity, and reparations in personnel matters
Matters of hiring, pay, and benefits are other areas where a nonprofit expresses its values tangibly. In the immediate wake of such public brutality like George Floyd endured and the world witnessed, some nonprofits have offered their BIPOC staff the option to take restorative leave. Granting leave of any kind has financial implications – in this case demonstrating a commitment to racial equity and personal well being.
Because of cultural and professional conventions where it concerns pay and privacy, the choices an organization makes around how it pays its staff are seldom transparent. Yet personnel decisions put any espoused racial equity principles to the test. A nonprofit must first wrestle with its understanding of and preference for principles like fairness, equity, and reparation in designing its compensation policy.
Basing hiring and compensation decisions on presumably objective measures – work history, merit, education – puts trust in the dubious principle of fairness. Centuries of oppression and systemic injustice have shaped how BIPOC candidates are judged based on a system of fairness. Fairness is difficult to achieve when it does not take into account the long, debilitating and degrading course of history where it concerns race and injustice.
An event like George Floyd’s death may stir many organizations to seek a principle other than fairness to guide their employment processes and decisions. Equity is an alternative to fairness, but few organizations are crafting policies that truly put the essence of equity into action. If nonprofits value and uphold a diverse workforce, inclusivity, belonging, and shared power, then organizations should invest in the people whose presence is required to realize those goals.
What would it look like to design compensation policies that incent BIPOC candidates to join a nonprofit, while validating their important place in transforming the organization into a more effective, relevant workplace for the future? Some initial steps in that direction include publishing salary ranges with each new job posting, removing policies that prohibit employees from discussing pay, and ending the practice of asking candidates for salary histories. Each of these changes would help to counteract bias in the salary setting process by making comparative salary information more accessible. Discrimination in pay is harder to sustain when it is no longer secret.
If an organization’s values urge it beyond equity towards the principle of reparations, then it might consider pay differentials designed to counter historical racial disparities in the accumulation of wealth. However, in the current environment, setting pay scales that favor BIPOC employees would face difficult political, legal, and regulatory barriers. Nonetheless, an act as horrific and public as George Floyd’s murder has created an opening to discuss whether it is now time to purposefully redirect the flow of financial resources towards communities of color in order to restore some part of the wealth that was created by and drained from those communities over the past several centuries.
Who makes financial decisions matters
Because where we spend our money matters, financial decisions carry significant weight in an organization. Having BIPOC leaders in key financial positions would be a step towards equity in the power wielded over financial decision making. However, in the nonprofit sector in Minnesota at least, financial leadership is even more disproportionately white dominated than the leadership of the sector as a whole. Changing the demographics of financial leadership is a long-term goal that requires a more significant investment than any one nonprofit can make. Over this past year, CLA supported a group of ten BIPOC leaders from nonprofit, business, and education organizations to come together to envision what a Succession Plan for the Sector would look like where it concerns financial leadership. The group identified a continuum of interventions needed to advance BIPOC finance professionals into senior leadership positions.
Whether evidenced in efforts to educate your staff on issues of race equity, creating policies that drive your vendor selection towards BIPOC-owned businesses, investing your reserves in communities of color, or beginning challenging conversations about compensation policies, your organization has the opportunity to let its commitment to racial justice show up in your financials. It is each of our responsibility to voice the questions and challenge the assumptions that have quietly guided financial decisions in the past. We can honor the life of George Floyd by consciously expressing our commitment to racial justice and holding our organizations accountable by demonstrating it in our financial decisions. We’re all in this together.
Curtis Klotz is a CPA serving as director of nonprofit innovation at CLA. His writing is inspired by his work in CLA’s nonprofit consulting and business operations practice and more than 30 years of industry experience. Before joining CLA, Curtis was vice president of finance and CFO at Propel Nonprofits, where he was a frequent online contributor to Nonprofit Quarterly and other blogs. He was named Minneapolis/St. Paul Business Journal’s Nonprofit CFO of the Year in 2017, and is past chairperson of the Montana Nonprofit Association. Curtis graduated summa cum laude from St. Olaf College with majors in women’s studies and religion.
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