Why is it important to focus on organizational effectiveness? Nonprofits cannot have impact unless they have well trained, capable staff, strong management and a committed, accountable board of directors. Grantmakers have the power to increase the impact of their grantees by giving grants that encourage them to build well managed structures that support their mission-based work, and measure performance to inform the work and make the mid-course corrections necessary to succeed.
Recently GEO released a reported titled Is Grantmaking Getting Smarter? The study found that there is a “persistent gap between nonprofit needs and grantmaker practices.” Given that most foundations are interested in “buying program execution” from nonprofits rather than investing in nonprofits, it shouldn’t be surprising that the gap exists. After all, as a customer who is buying something from an organization, you don’t really care about the organization, you just want what you paid for. But investing is different. As an investor, you are attempting to provide the capital needed for the organization to grow and prosper. Investors are partners (literally) of the organizations they support, while customers are simply engaging in a mutually beneficial transaction.
So since few funders see themselves as investors or are willing to truly invest in nonprofits, it is no wonder that the nonprofit field as a whole is undercapitalized and constantly struggling.
Does the model I’m discussing favor nonprofits? No. I’m not arguing that foundations “should” treat nonprofits better. I’m not arguing in favor of nonprofits. I’m saying that the field of philanthropy can achieve more impact through a capital market model. It could be tempting for someone to read the GEO report and take away the idea that there is a David and Goliath story at work. That those big mean foundations are not being nice enough to nonprofits and that they should do thing like give general operating support because it is the nice thing to do.
Investors and investees are on the same side of the table. Buyers and sellers are on opposite sides of the table. I’m arguing for a capital market approach to philanthropy that would align the interests of foundations and nonprofits. People in philanthropy love to talk about partnerships. But when nonprofits become chameleons in order to obtain funding, they are not partnering with the funder.
If a foundation is interested in their own program results, they will structure grants to achieve their own aims. If foundations care about building outstanding nonprofit organizations who achieve their own program impact, they will structure grants that serve the needs of the nonprofit.
GEO says their credo is “grantmakers are successful only to the extent that their grantees achieve meaningful results.” Their tag line is Smarter Grantmaking. Stronger Nonprofits. Better Results.
I like it.