Restricted Grants vs. Operating Support II

One of the great joys of writing this blog is that many of my readers are highly informed, intelligent and experienced in the practice of philanthropy. My expertise is in the financial aspects of family philanthropy. My post last week about the individual donor who made a restricted grant to Yale sparked an intense debate. The conversation has a number of threads to it, many of which revolve around how “institutional” foundations (the Gates, Hewletts, and Fords of the world) should approach restricted grants and operating support. I have my opinions about these issues, but I’ll be the first to admit that I am not a grantmaking consultant and do not work with these large foundations.

So today, I’m going to highlight some of the very intelligent comments from my readers.

Peter Mello, founder Sea Fever Consulting

Many problems that nonprofit organizations face are technical challenges that can be solved by technical solutions which are sensibly funded by restricted grants. (Food for a food kitchen, books for a school, etc.) However, these solutions often can’t get to the root of the problems. The BIG ONES (poverty, climate change, cancer, diabetes, education, etc.) are adaptive challenges that require creative collaborative adaptive leadership. Since we don’t know where he solution will come from, they often don’t benefit from generous restricted grants…

Nonprofit leaders should be grateful for any and all types of support. But clearly my sleepless nights over making payroll or having enough resources to execute and report on an innovative program took away from my ability to focus necessary attention and energy on the real challenges that we faced and to which we could have contributed a solution.

Renata Rafferty, Rafferty Consulting,

In a perfect world, nonprofits would be governed and managed by wise and experienced individuals. In the real world, they are not. That is one important reason why donors and grantors of significant means SHOULD be cautious in considering unrestricted gifts. Further, the argument that “nonprofits” or even “the sector and its leaders” know best suggests that donors do not have their own personal passions or missions – often rooted in intelligent observation – that they will (and have a right to) support….

Frankly, it makes me shiver to think that we would suggest to donors that Big Brother Board knows best, and they should trust that their contributions will be exercised with more wisdom (or a “bigger picture”) than that of the donors themselves. I think we already have a mechanism for that … it’s called “taxes.” I applaud donors who give with specific intent. They are so few in number compared to the ones who “trust” that charities (and we, as the sector’s leaders) know best.

Maggie Keenan, Giving Advice

Nonprofits convey program success well through outcomes. Funders like numbers as a measure of success. So they give to successful programs. I do not think nonprofits communicate well organizational success….

… Whether it is foundations or individuals, it may be a perception that giving to general/operating is too big to get their arms around and "it’s the organizations job to see it’s operating expenses are secured." Also, I think funders like narrow (like looking outside through a window)as it’s easier for them to justify their grant (successful or not successful). They just can’t seem step outside and look around.

Phil Deely, Deely & White (and writes the blog Strategic Governance, Philanthropy and Planning)

The issue of restricted giving vs. general operating support is a very lively topic among individual donors in small independent schools. For many ‘rookie’ donors the school’s annual fund raising campaign represents their first, non-church appeal for general operating support. In a school setting, parents of enrolled students generally want to give to specific, tangible projects which will benefit their child. Sometimes groups of parents get together and spontaneously decide to purchase some piece of equipment for the classroom. This often results in ‘friendly fire’ which undercuts the school’s official annual fund campaign. Schools and other small, unsophisticated non-profits are well-advised to take their lead from public broadcasting and routinely publicize the fact that on-campus improvements of all kinds are “Made possible in part by your generous support of the Annual Fund.” Some schools have identified the ‘secret scholarship’ given to all students which is, in fact, the per student contribution made by the annual fund to general operations. When parents get this message, and can see a newly painted classroom or upgraded computer system, they begin to understand that the Annual Fund is not simply ‘the black hole of operations!’

Phil, Maggie and Peter all make arguments that I think are supportive of my statements so far, so I’ll just respond to Renta’s post. Renata isn’t someone whose point of view I can simply ignore. She has quite a resume. But here goes. I definitely believe that donors should have their own vision, their own strategic mission for how they want to affect the world through their philanthropy. I’ve suggested in the past that donors should really think through what’s important to them and then limit the number of causes they support so they can concentrate their time and money on the causes they have the most passion about. So to that end, I agree with Renata’s warning that donors should not simply give their money to any nonprofit that comes along and assume that everything will be taken care of. But if a donor has done the hard work to decide on the causes that they deeply care about. And they’ve looked at the various nonprofits that are trying to tackle those causes and decided which ones to fund. Then I think it does not make sense for the donor to try and micromanage the nonprofit by dictating what they do with their money. Donors should empower nonprofits, not control them.


  1. 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.

    Phil Buchanan
    The Center for Effective Philanthropy

  2. Janet says:

    Your programme is well success. I think that nonprofit organizations managed by wise and experienced individuals.