Phil Buchanan, president of The Center for Effective Philanthropy and co-author of In Search of Impact, the report I quoted from during our debate on restricted grants vs. operating support, left the following comment today:
The debate on restricted versus unrestricted grants often gets over-simplified. Sean has it right that the real question is, what is the donor really trying to achieve? Often, this leads to a realization that achieving the donor’s goals means helping the organizations actually doing the work to become stronger organizations, particularly when there is good alignment between the donor’s goals and the organization’s goals. (Paul Brest of Hewlett, which supports CEP, has written thoughtfully on this topic.) When that’s the case, the question becomes, who’s in the best position to figure our how to allocate organizational resources to achieve organizational goals? Typically, it’s not the donor.
Our research suggests that nonprofits need large, long-term, unrestricted grants to thrive — and to feel that donors are really having a positive impact on their organizations. I’d suggest we spend less time debating type of support and more discussing the question of why so many large foundations continue to make small, short-term grants – with high transaction costs all around. An example: the median grant size of the Ford Foundation is a mere $116,000, according to an article in the New York Times earlier this year. It is hard to imagine that making thousands of individual grants is the way for the second-largest foundation in the U.S. to maximize its impact. Perhaps part of the problem is that too few foundations have really clearly articulated what they are trying to achieve and their strategy for getting there. In the absence of that focus, small, short-term grants proliferate.
4 Comments
Phil writes: I’d suggest we spend less time debating type of support and more discussing the question of why so many large foundations continue to make small, short-term grants –
Maggie’s Take: I still assume that “giving a little to a lot” is how most foundations make grants. It’s definitely my experience with companies.
I am also think there is room for improvement in the area of experience of individuals on foundation distribution committees.
While I don’t have research to support my statement here, “Depth is better than breadth when it comes to impact.” It’s merely my professional perspective in our field of philanthropy.
From my experience with foundations, including some large ones, the relationship between the nonprofit and the foundation often times seems more like vendor / vendee than partnership between 2 organizations collaborating to solve a problem. Maybe my circumstances were unique, but it always felt like working with a commercial bank rather than a venture capitalist. It just never appeared that the foundation was interested in forming a “partnership.”
This may be a subtle distinction but I believe it is an important one. I also believe that it supports Maggie’s comment that “depth is better than breadth when it comes to impact.”
As I mentioned in my earlier comment these are the adaptive challenges of the sector. They are complex, multifaceted problems that will require collaborative and innovative solutions. This will only happen if industry leaders can properly frame the challenges, raise awareness of them and organize the community to confront them head on.
Idealistic? Absolutely.
Optimistic? Probably.
Realistic? Hopefully!
Just a thought– but in the field of philanthropy there are conferences right. The ones for nonprofit leaders and then there’s the ones for corporate foundations, family foundations held through membership organizations or rags. Hmmm- I may be wrong but I’ve been of the mind that foundation type conferences preach to the choir. Real learning can’t take place until we’re all at the same table.
Phil’s comment leads to a topic that I find interestingly absent in the operating vs. programmatic support debate: risk.
However much foundations like to portray themselves as purveyors of social “venture” capital, often foundations and their program officers are in the business of removing as much risk as possible. Very few foundations in my experience take a systematic approach to risk, where they explicitly create a portfolio with certain percentages for high-risk, potential high-reward investments; medium risk w/a decent chance at spurring a new innovation; and low risk, stable, you know what you’re going to get investments (i.e., the blue chips).
Pyschologically, this means that most people tend to make grants only when they feel there’s an optimum chance for success (and an optimum chance for affirming their logic to make the grant in the first place) or they sort of create their own risk portfolio. It doesn’t mean that they will be totally risk averse, nor that they won’t point out relative levels of risk of different grants. But they are likely unclear as to the space they have to make big bets (and possibly fail) because it’s not explicitly integrated as part of the foundation’s overall strategy.
Pyschologically, program grants seem easier to “control” and reduce their risk than operating grants. Smaller grants also “waste” less money if they don’t work out as intended. And if a foundation overall makes significantly fewer but larger grants, as Phil suggests of Ford, it places more eggs in one basket and increases the risk of ending up with the proverbial egg on its face. (One unintended consequence is that larger grants over time would tend toward more “stable” but less creative organizations, undermining the frission of innovation.)
This is not simply an abstract notion nor a personal “CYA” exercise for program officers. As William Damon points out in the foreward to “Taking Philanthropy Seriously,” philanthropy is a serious intervention with potentially negative as well as positive consequences. Increasing the resources increases the potential risk for harm as well as good. And in this age of accountability, making lots of large bets that don’t pay off could put the foundation under a spotlight.
I mean to point out the pyschological trap and its effects, rather than suggest there’s no way out. Good strategy – the discussion that Phil and CEP have gone a long way toward promoting – can take this into account, and risk would preferably be a topic that boards address with much greater frequency and understanding. Good feedback loops and transparency help. But these tensions are inherent in the grantmaking process, and to my mind it helps for them to be explicitly and directly addressed.