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CLOSING AN ENVIRONMENTAL NONPROFIT WELL:

The Case History of the Safe Energy Communication Council

In 2003, in the midst of the foundation funding decline, Scott Denman was faced with a task that nonprofit leaders dread -- closing down his organization. Although thousands of people have done this, neither Scott nor the Institute nor the Environmental Support Center was able to find a written description of the steps along the way. His experience unearthed many "best practices" applicable not just to environmental and conservation groups in trouble, but also to all well-managed organizations.

From the original by Scott Denman
Condensed by Baird Straughan.
Click here to view the 28-page unabridged version (169KB PDF).

The fallout from the 2001 stock decline hit home on September 18th of 2002.   The stock market’s downturn had effectively eviscerated one of the Safe Energy Communication Council’s (SECC), largest potential sources for 2002/2003 funding.   Our organization was dependent upon foundation grants and large donors for about 80% of its half-million dollar budget.    Now, a program officer who had encouraged us to submit a proposal was calling to tell me the grant would never happen – the foundation was now laying off staff.   Two other current foundations had or would soon announce similar cutbacks.   In the span of two weeks, nearly half of our planned 2003 budget had evaporated.

Unfortunately, we also faced the consequences of the Bush Administration’s ascendancy, and the general political veer to the right.   In 2002, our group’s work was needed more than ever, as the oil, coal and nuclear power interests essentially wrote the Bush/Cheney energy plan.   Given that some of our efforts to promote renewable energy and energy efficiency had been funded by the U.S. Department of Energy, further funding from that arena was a political pipedream.   Therefore, another 15% of SECC’s budget disappeared.

Over the next six months, our staff and board grappled with the new budget reality.   We fought to keep alive an organization with 22 years of productive history behind it, one which had battled for an energy future that America’s families could afford and our children could live with.   We had significantly improved energy policy, curbed dangerous reliance on nuclear power, and helped protect sustainable energy programs.   Our publicity experience had translated into trainings for over 6,000 activists.   Our programs were the tools for other safe energy activists, and in the coming years we could see that they would be needed even more.  

Ultimately, we decided to close the doors – but in such a way that much of the good work could carry on under other the auspices of other organizations.   The decision was a difficult one, but in retrospect, the best of a number of bad alternatives.

Along the way, we searched for materials on closing down an organization, and found almost nothing.   Unlike successes, organizational closures are apparently painful enough that the people who go through them rarely share what they learn.   My colleagues at the Environmental Support Center and the Institute for Conservation Leadership encouraged me to put together a brief history of the process, and the Munson Foundation generously provided some funding.   It is my hope that what is captured here and in the longer version will help other environmental leaders who may some day face some of the same challenges.

Assess the Financial Situation Thoroughly and Map Out Options

Shortly after receiving that first call, we put together four pieces of financial information:

• A list of prospective foundation grants and donors;
• A monthly cash-flow budget showing in- and outflow, one of the fundamental management tools for organizations;
• Scenarios for different degrees of cost-cutting, and the impact that they could have; and
• A list of our major obligations, both financial and legal (for example, we had a contract with the U.S. Department of Energy to produce two publications).

Scenario One: Full Staffing, Best Case Funding

We scrutinized the files of past grants and lists of prospective donors to decide which planned or potential income might materialize.   That data was fed into the cash-flow budgets, which became our central planning documents.   Cash-flow budgets were generated to reflect different possible futures.   One scenario assumed that all staff would continue, and the most likely grants would come in.   Others assumed that the staff was moved to 80% or 60% time, or dropped in number to three, or two, or that several of the different prospective grants and donations did not materialize.

Our major legal obligations, included one $100,000 contract with the U.S. Department of Energy to produce two books on energy efficiency successes, which were about 65% complete.   Additionally, the office lease ran through 2006, legally obligating us for nearly $200,000 in rent.

In order to have a clearer view of SECC’s net financial position, should it shut down, I shifted SECC from accrual accounting to cash basis.   This provided bi-monthly projections of current and likely expenditures, subtracted from current and likely funds, over 6, 12 and 24 months.   We were fortunate that most of our restricted grants were completed and those remaining were broad enough in their scope to allow the funds to be reallocated, with the donor’s permission, for virtually any organizational expenditures.

Inform the Board Early and Consult it Often

Two weeks after the September 18th call, I conducted an emergency meeting of the Board of Director’s Executive Committee, and laid out the situation and options.   The three member Committee immediately agreed with initial cost-cutting measures, including laying off two junior staff, suspending contributions to retirement funds, and eliminating other non-essential monthly expenses (newspaper subscriptions, etc).   It further agreed to explore spinning off one program, and exploring possible exit strategies from the monthly lease.   (The full Board later considered reducing staff time to 80%, but decided against it as the potential savings were not significant enough and would further restrict our productivity and thus our ability to deal with the funding crisis.)

The Executive Committee quickly concluded that “we essentially faced two options,” as our Board president Andrew Jay Schwartzmann put it.   “We could bet on future fundraising and scale back to a skeleton operation with two or three staff people; or phase out and spin off SECC’s programs so that SECC’s mission would live on.   By mid-October or so, based on the best available evidence, we believed that the prospects for the first option were slim at best but sought to ensure all stones were turned before concluding that new or renewed funding wasn’t viable.”

At an October 24th emergency Board meeting, the Executive Committee and I presented the financial picture and three scenarios:

• Maintain SECC spending at the current level with the existing 6.5 full time equivalent employees (FTE).   We would exhaust all current and projected funding by June 2003;
• Reduce to two FTEs by January 1, 2003; and
• Reduce to three FTE by January 1, 2003.

Either of the reduction scenarios would provide some relief, but both depended on key staff to stay and upon our remaining stalwart funders to re-up.   They had already supported SECC’s work for more than a decade.

The Board was composed of experienced leaders and senior staff from the environmental community.   The Executive Committee members had been with SECC since its inception; their experience and wisdom paid off in spades during this crisis.   It’s vital to have key people on the Board well before hard times may hit, because when they do, it is likely to be too late to start recruiting.

After thoughtful deliberations, the Board authorized me to:  

1. Lay off the Program Coordinator and the Communications Associate immediately;
2. Spin off or finish the two energy efficiency success story books under contract with the U.S. Department of Energy;
3. Phase out our state-based program;
4. Negotiate a release from the office lease; and,
5. Take all other appropriate steps to slash costs and raise money.

The full Board was intensely sympathetic, since most were leaders from national organizations that were experiencing the same financial squeeze.   SECC’s Board had been created with a policy focus and no fundraising responsibility.   Many of the Board members were responsible for raising money for their organizations.   Consequently, we had to look elsewhere for fundraising help.

Assessing SECC’s Options

Throughout the final six months, we also benefited from dispassionate thinkers, both from inside or outside of SECC.   We relied heavily on advice from outside mentors and nonprofit experts, which proved invaluable.  

And we attempted to avoid burn out.   In fact in 2000, the Board had granted me a six-month “sabbatical,” during which it dawned on me that it was time to stretch in a new way and take the chance to re-discover myself outside my SECC role.   This decision had been brewing for some time.   In late October, I informed the Board that when the crisis was over, I intended to make a career change.

This left SECC with essentially three options: (a) conduct a search and hire a new executive director, (b) promote someone from within the organization; or (c) preserve the core programs by merging or spinning the programs off to Board member groups and other appropriate organizations.   It became quickly evident that our financial condition made option “a” a non-starter.   On the other hand, our Communications Director had the energy and interest to take over the reins of a dramatically downsized and re-formulated SECC.   Option “b” emerged as the most favored outcome.

Inform Your Funders

Understandably, I felt some reluctance to share the bad news with funders.   They might decide that the situation was too dicey and withdraw their support.   Nevertheless, I chose to stay close to the funders who had supported us in the past and to honor the relationships our organization had built.   My first call was to a program officer who had been one of SECC’s most loyal supporters.   This individual listened attentively and then immediately volunteered to switch a forthcoming program grant to a one-time, emergency core support grant.   I called a second, from whom we expected the second installment of a previous grant – a vital $120,000.   It was clear to me that before this foundation made a final decision to release the second installment, I had to explain that our circumstances were getting less certain rather than more.   The foundation officer thanked me for my honesty, and said that he’d already authorized the payment.   It was a tremendous relief.

I also worked to move funding from originally restricted grants into the general, unrestricted fund.   Two foundations and one major donor agreed.   Thus with the exception of the U.S. Department of Energy contract, by late fall, SECC was on a cash basis and without significant specific program obligations to funders.

Inform the Staff

To the extent possible, I strove to keep the staff informed of the escalating financial concerns during the weekly staff meetings and in individual conversations.    Specifically, I told staff of the response of each foundation or funder as it occurred and that our financial condition was increasingly shaky.   By mid October, I let the senior staff know that layoffs were likely, though only for junior staff at that point.   To the extent possible, staff members were also being enlisted for outreach efforts to new or potential funders.  

As one can imagine, there was an initial attitude that “this too shall pass.”   One staff member remarked: “Well, SECC has been around for a long time and always pulls through.”   Not wanting to damage morale by spreading a negative pall through the staff, I assumed a generally positive attitude.   However, the frequent closed-door meetings and cumulative bad news on the funding front inevitably began to wear.   The staff became edgier and the normally high office energy level began to droop.

Further Investigate Your Possibilities

As 2002 ended, our renewed fundraising efforts had garnered little success.   Many foundations were reeling from the stock market’s tailspin.   The Executive Committee was open to, but skeptical of, the idea that anyone could find the resources necessary to continue.   The Communications Director shared that concern as projections narrowed with each unsuccessful pitch call to potential donors.   Consequently, she spent considerable time designing and re-designing a plan to carry on with a barebones budget and one or two FTEs as of April 1, 2003.   One option seemed to evaporate almost immediately: merger.   SECC simply did not have the assets to make the merger attractive to another group in this financially rough time.

In order to live on, SECC had to: (1) secure the Communications Director’s commitment and the Board’s acceptance of her plan to re-shape and re-name SECC; (2) find cheap office space or other low-cost ways to work without significant overhead; and (3) solve the immediate short-term budget needs by securing “bridge” support for about a year or so.    But it was not clear that members who had been on the Board since 1980 would remain if the organization changed its mission or name. The idea of transitioning to a “new” SECC quickly devolved into a question of whether the Communications Director had enough confidence in the situation to make a go at finding funding and charting a new course.

Set a Date to Make a Final Decision While You Still Have Options

The regular bi-annual December board meeting was a watershed moment.   The fundraising effort had only secured the two existing grants mentioned earlier, one of which had been shifted to general support.   The Board methodically reviewed each option and reached consensus to close SECC as it currently existed.   If the Communications Director remained committed to leading the core program in a new direction, the Board was open to that option and would consider it in January.   On December 13th, the Communications Director informed the staff that she had reluctantly decided not to pursue the option.

The Board and I selected March 31st, 2003 as the most appropriate time to close.   Till then, we would still have some staff, be able to complete the books contract, terminate our lease at the earliest moment, and not risk running out of funds.   On January 15th, the staff, in concert with the Board, issued an upbeat “swan song” to the press, announcing that SECC would close on March 31st.   Just before releasing it we made a round of phone calls and e-mails to alert our key allies, funders, friends and supporters – people who we didn’t want to be caught by surprise.   Universally, they expressed acknowledgement and appreciation of our legacy of work.

If You Close Down, Spin Off Your Best Programs

Focus shifted toward ensuring that the liabilities were resolved and that the programs continued under the auspices of other existing organizations.    As part of the active programs, we owned two trademarks, Power Boosters and MYTHBusters.   We had copywritten all of our books and reports.   We had a major communications training program, a website, a domain name, and volumes of research and historical material on timely and topical subjects.   The intellectual property represented the heart of our work, and its dispersal would determine whether the mission and programs would live on beyond the physical termination of the organization.

With two months of time left, the staff researched and began to identify homes for each of the programs.   Eventually, these were adopted by the American Council for an Energy Efficient Economy (ACEEE), Public Citizen, and Nuclear Information & Resource Service, although time will tell whether they can raise the necessary funding to make these programs effective.   With the encouragement and support of the Board, I assumed responsibility for the media training component, and continue to deliver communications workshops and consulting services to environmental advocates and progressive nonprofits around the country.

Take Care of Your People

The economic downturn which ended SECC also created a very tough job market, which all of the staff then faced. At SECC’s cost, I instituted a job-counseling program for those who wanted to take advantage of it. This included specific training, career coaching, resume reviews and other pertinent assistance.

The Board discussed the issue of severance pay, often a contentious matter for mission-oriented nonprofits.   Some board members felt that funds should simply be turned over to an organization with a similar mission.   But most thought that the staffers who stuck it out and actually closed down the organization should be helped in some way, and the remaining full-time staffers each received some form of modest severance.

For the Board, SECC purchased “tail” insurance, a continuation of SECC’s Officers and Directors liability insurance to provide two years of legal protection after the organization closed.   SECC had always maintained such insurance to help prepare us from possible “slap suits” from the nuclear industry or others.

Close Out the Books Carefully

During February and early March, SECC sent its final publications to funders along with a copy of the closure announcement and a personalized letter.   We finalized plans and transferred funds to a Board member organization for handling the expected bills that would come in after the closing and pre-paid for a final accounting.   A final cash flow projection and detailed budget assumptions were created in preparation for a final board meeting on March 19, 2003.

Nevertheless, despite tight controls and a financial report which the Board and I received, there was one outstanding bill that did not get paid; I ultimately dipped into my own pocket to cover it.   In hindsight, I would recommend putting a significant amount into an escrow account for six months or so after a group closes.   A plan should be established by the Board before closing for dispensing such a contingency fund, if it is not needed to cover unexpected bills.

Donate Your Property

After so much work, we on the staff faced a final set of interminable headaches as we resolved the lease and disposed of the physical possessions – the copier, computers, furniture from an office of eight, dozens of boxes of archived materials, and a veritable mountain of paper and “stuff” accumulated over more than two decades.   After much angst, the copier ended up in an elementary school, the computers went to the Blue Ridge Center for a nominal sum, much of the furniture moved upstairs to Friends of the Earth, and most of the historical organizational and program materials were accepted by the Temple University archiving program.

Conclusion

More than a year has passed since SECC closed.   The good news is that most of the program staff are continuing to be engaged in some of the same work they did while at SECC.   The body of knowledge and expertise that we developed over two decades has been sustained to various degrees; that was as good an outcome as could have been hoped for.

Yet something of significance was also lost.   At a time when energy policy is being written by an environmentally-challenged Administration, SECC is no longer there to focus resources and expertise on the battle for public opinion.   There is one less voice for a sustainable, just and equitable national energy strategy.

Energy advocates need timely, credible and reliable data and services of the type we provided.   Now they must cover even more ground, while managing their own financial problems.   My hope is that the larger, better financed environmental organizations will begin to understand the intrinsic value of smaller issue-centered groups and begin to lend them a hand.   In light of the larger groups’ capacity for administration and fundraising, they might provide financial, administrative or technical assistance.   Whatever the solution, it is imperative that the community as a whole begin to address this serious challenge as hard times continue to loom over the environmental, safe energy and progressive policy movements.