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Madoff's Fraud Destroyed my Job and Threatens my Cause: Ongoing Network Failure.

While much of the coverage so far is focused on the investor victims of the Madoff fraud, I am interested in watching and supporting some of the other "victims". The people and organizations that are the on tail end of all those investments. The people that can say "Madoff Fraud Destroyed my job and threatens my life work and cause." I am inspired to look at the reactions these people in the Madoff fraud ecosystem as a early warning of how our broader sector may react to the looming collapse of individual donor, foundation and government revenues in 2009 - 2010. 

The Madoff case must serve as an accelerated case study for the rest of us on the edge of the economic disaster (and by "the rest of us" I mean you, the US, economy, everyone working for a nonprofit, everyone). 

I don't know all of the details but after surfing the Madoff stories, it seems the predominate reactions in charities are focused on responding to the needs of the organizations, grasping for ways to replace the revenue and selling assets.   Here are some of the examples...

  • Jewish Funders Network announced a $5 million loan fund
  • Groups raised emergency money for organizations (to pump revenue into the organizations) MoveOn, Theyeneedusnow.org OSI.
  • Each group is dropping into survival mode to respond (selling assets including art. cutting costs)

I assume there are big layoffs in the works at the dozens of charities but I couldn't find a story that pulled them together.   If it were "one big company" like Enron (linked in group 1000+) or Lehman Brothers, etc.  There would already be big collaborative network of former employee groups and groups. Staff would meet up and support each other, create spin offs, find ways to help each other cope and survive.  But in the nonprofit sector, we are traditionally fragmented, smaller shops and compeditive with each other when in the same space (ironically for the attention of donors and media).  In normal times, the staff, volunteer and work is buffered against collabortive impact by this fragmented, compeditive and redundant model.   However, times are different.  We are seeing entire "clusters" like the Madoff network getting hit at the same time. The next "cluster" will be the broader nonprofit sector.

How will the larger sector react?

In the larger ongoing nonprofit crisis  (assume 50% reduction in nonprofit revenues within 2 years) the challenge seems to that such a traditional reaction strategy will not work. Watching the reaction to Madoff fraud is not a scaleable response.

As a sector, we will not find a way to replace the massive volume of revenue (trillions in foundation endowments, grants, government grant cuts and individual donations) The money is going to disappear and no nonprofits are going to be around to buy or want a share of your 2 year old copier and the empty desk in your office. Mergers are expensive and high risk in good times. The broader sector will not be able to bakesale enough emergency funds.

The cuts are coming and all of our favorite issues are going to be facing a Madoff cluster collapse soon enough.  As hard as it is to think about, the survival strategy can not focus on the fate of each individual group survivor.

Decisions need to be made at the micro and maco-level of what can go. Groups and resources are going away and they are not going to return. People are going to retire.  Orgnaizations and brands, services and campaigns are going to collapse on a large scale.

The question is not if the "winner and looser" group choices are going to happen. They are. The question is how are those choices going to be made?

Do we want the macro level decisions made for us? Do we want government contracts, big donors and foundation program staff to restructure and plan the future of our sector, staff, friends and the redistribution of our assets? OR should we do this differently than other recessions? Should the network of people most effected by the crisis do the macro level thinking from the bottom up to the financial decision makers?  Would Enron employees wait until the collapse if they new it was coming to rethink the way they work?

What could be different?

I am not seeing the staff, boards, foundation program officers, donors and people who received the benefits of Madoff "investments" connecting to each other into open communications channels to figure out their combined response. 

In the Matoff case, I am not seeing new combination of the resources they want to save (Can the arts and museums ..host organizing parties for the human rights groups? Can the groups consolidate a central communications or fund raising campaign? Can the combined staff of the peace groups, human rights groups and  survivor networks find a way to look at the network balance sheet (across all the recipeint groups) and design a combined reaction and a better way to move resources (people, intellectual property and hard capital amongst each other) to achieve something important (rather than collapse int lots of little groups or closing shops)?  Can they establish a lend-lease program among the network of victims whose entire business and campaigns are now threatened by the destabilization of revenue?

Yes, all these are "unconventional" responses. But at the heart of todays culture is a connectivity that unlike the first depression, offers all of the individuals /groups a real chance to share data, insights and informaiton.  A real chance to collaborate on big large scale management projects, and a capacity to build trust and crate collective responses.   

I am not seeing a bottom up plan develop on how to react as a network.  I am not seeing a Madoff lay offs retraining program or ways that all the distributed groups and people impacted can network and reshape the way they react.  The best reponse answer is "there" in the network of people impacted by the fraud. The challenge is finding it quickly, bubbling it up and distributing it for collective action.

I wish them the best of luck and I hope the rest of us can learn from thier answers and solutions. They are a few months ahead of the rest of the economy.

I am currently working with others on (nonprofit reponse to the economic crisis wiki ) for a bottoms up and network based response plan. I encourage anyone that has them to post comments here or visit the wiki with links to other bottom up and peer to peer reactions to the Madoff crisis in the nonprofit sector. (or links to peer groups working on the response to the broader economic crisis for our sector.)

(this is one of the posts the I really like and got me thinking)

PHILANTHROPY 2173.

With all the bad economic news over the past months, the Madoff scandal might seem like long-ago history to some (sort of like Lehman Brothers, remember them?). To whole communities however - communities of donors, of nonprofits, and of individual activists or issues - Madoff's impact is still present and ongoing. As in natural disasters, there are both short-term and long-term needs and responses. The Madoff ripoff, a truly man-made disaster, will require the same kind of timeline and attention.

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