Op-Ed
The Chronicle of Philanthropy
(Washington, DC)
Published in Washington, DCAug. 19, 2004
How Foundations Hurt Charities
By Jessie C. GrumanDuring the past decade, blaring headlines about institutional misconduct and the sharp drop in assets at many foundations caused by the burst of the dot-com bubble have heightened public concern and Congressional scrutiny of charitable and philanthropic organizations. As a result, foundations have made accountability and transparency their watchwords. Trustees and staff members have overhauled governance and grant-making processes, re-examined their missions, made detailed strategic plans that can be monitored and evaluated, and identified specific goals they will use to measure their progress in fulfilling their missions.
For charities that depend on foundation money, the resulting cascade of changes is most welcome. Increased public trust in philanthropy will reflect positively on all nonprofit organizations. As foundations make their goals clearer, nonprofit groups gain a better understanding of what kinds of support they can count on from grant makers and that will make their fund raising more efficient.
But over the past several years, grant recipients have grown increasingly concerned that the desire for accountability and transparency has harmed the relationship between some foundations and the nonprofit organizations through which they achieve their societal goals. As they search for ways to be more accountable, a growing number of foundations, including some of the nation's most prominent, have concluded that only they know how to mount successful programs.
They have increasingly decided to ask nonprofit organizations to conduct specific projects — to be directed by the foundations — to make measurable progress toward their stated institutional goals. The trend of issuing contracts to nonprofit groups (or making grants that are written like contracts) to develop or administer elements of a foundation's strategic plan marks a significant departure from the traditional relationship between foundations and the nonprofit organizations that deliver services, conduct research, create new works of art, educate the public, and advocate for change. My own organization, the Center for the Advancement of Health, would have had a hard time achieving success in this new environment. We owe our existence to the leaders of foundations that gave us the freedom to pursue new approaches by giving us unrestricted funds: the John D. and Catherine T. MacArthur Foundation, the Nathan Cummings Foundation and the Annenberg Foundation.
As the balance of power has tipped toward philanthropic institutions, the potential for harm to nonprofit groups can be seen in multiple ways:
Erosion of mission. Nonprofit organizations have missions and strategic plans that reflect a nuanced understanding of the problems they are trying to solve. Until recently, raising money from foundations depended largely on the ability to persuade foundation executives and trustees that an organization can effectively deliver results that further its mission, and therefore helps the grant maker reach its own.
The current fashion among foundations to support specific projects that originate internally and serve only their own specific strategic aims, however, puts nonprofit groups in a bind: They can either modify their missions to accommodate shifts in a foundation's interests by taking on work that is not directly related — or even relevant — to their missions or they can find another source of support. The scarcity of grant makers that provide money to groups working in particular areas, however, almost regardless of the field of interest, means that it often not an option to simply seek out another donor. Serving as a contractor to perform tasks and deliver programs that foundations identify and define takes attention and time away from developing new strategies in pursuit of the missions of nonprofit organizations.
Loss of credibility and effectiveness. The power of the nonprofit world lies in the diversity of approaches that organizations take to solving different aspects of the same problem at the local or state level, nationally or internationally. Each organization is responding to emerging events and evidence. Each has different strengths, whether it is in analyzing public policies, organizing advocacy campaigns, delivering services, or working with the news media. Most of the people who direct nonprofit organizations owe their positions to their expertise. It is their responsibility to continue to refine and deepen the understanding of their missions and the methods they use to reach it. After all, the reputations of their organizations are hard-won over years of trying to connect with their constituencies in productive ways.
But an organization's success depends on being able to develop and execute a coherent set of program activities that will serve its constituents. To conduct these activities, support is needed that doesn't require the organization to cede credit or tightly control how they use funds. To the extent that foundations originate and claim as theirs the methods, the intellectual property, and often the actual products of work that organizations conduct with foundation resources, nonprofit groups lose. Their authority and credibility among constituents suffers, and their potential value to other grant makers is reduced.
Diminishing the capacity of organizations. The practice of giving money mainly to projects that have strict time limits wreaks havoc with nonprofit groups' ability to attract and retain employees and to train young people over time. Nonprofit organizations cannot offer job security and continuity when grant makers provide money in unpredictable bursts on a project-by-project basis. The low overhead rates and lack of general program support give nonprofit groups little flexibility to develop and diversify the skills of their staff members. Making grants that are, in reality, contracts for specific products that are defined and carefully supervised by foundation staff members disrupts lines of authority within nonprofit organizations and leaves staff members frustrated at the diversion from their own aims.
In addition, the longstanding practice by some foundations of asking a nonprofit group to dole out grants to other organizations is similarly disruptive to the grantee's ability to manage its staff. Such programs are usually tightly controlled by their donors, thus saddling nonprofit leadership with employees who ostensibly report to the executive director but who have been hired by the foundation and who functionally take orders from the foundation staff. Pensions, insurance, disciplinary actions, and collegial relations become even trickier than usual when the employees are not really theirs to supervise, evaluate, hire, and fire.
Blurring identities. Some foundations have sought to equate public visibility of their name and mission with accountability, while failing to provide similar opportunities to highlight the contributions of their grantees. In this connection, the branding of the work of grantees with a foundation's name and requirements that foundations receive top billing in appreciation of support has unintended negative consequences. It undermines, in the public's eye, the independence of nonprofit institutions and their credibility and thus their influence.
Those unintended consequences of philanthropic accountability are producing changes in the nonprofit world that parallel those of commercial interests, wherein a few strong, highly visible corporations (foundations) dominate in a streamlined and standardized market, while the independent diners and drugstores (nonprofit groups) choose between buying a franchise or going out of business. The nonprofit groups may make innovative proposals but they had better be about Big Macs or Krispy Kreme doughnuts if they hope to survive.
How can foundations find new ways to meet the demand for accountability without damaging nonprofit institutions and undermining the potential of philanthropy to use its resources for the maximum good? Some key steps:
- Openly discuss the foundation's relationship to the nonprofit world. As with many longstanding relationships, the assumptions on which those between nonprofit groups and foundations are based are rarely identified or modified to meet new demands. The pressure for increased fiscal and programmatic accountability of philanthropy signals that it is time to re-examine assumptions. What will it take for nonprofit groups working in a particular field to be able to build and sustain the goals a foundation has outlined in its mission statement? In most nonprofit fields, organizations must be visible and their contributions recognized by constituents and other grant makers. They must have the flexibility to respond to changing needs and to experiment with new approaches. They must be able to work over time to generate significant changes. Those and other requirements have implications for how foundations position themselves publicly, regulate the use of funds, pace grant-making, and measure results.
- Be explicit with staff, board members, and the public about the kind of relationships foundations hope to have with grant recipients. Nonprofit leaders tend to favor partnerships in which both parties have equal voice and stakes in how they will work to benefit society, in the belief that both sides bring particular strengths and needs to the challenge at hand. Regardless of what approach a foundation takes, however, making it clear how a foundation views the role of grantees will help nonprofit groups plan and manage their own long-term expectations when seeking funds.
- Include discussion of the roles and capacities of nonprofit groups when training foundation staff members. Too few foundations train their staff members about how philanthropy optimally operates. New program officers hired for their expertise in education or the arts or other fields often chafe at the inefficiency of working through other organizations to carry out goals. Veteran staff members often become bored and impatient with incremental changes that accrue from their grant making. Both responses are heightened when the call for increased accountability means that staff members are responsible for showing that their grants result in measurable change. The relationship of the foundation to the nonprofit world is a legitimate topic for training, grant making, and performance evaluation.
- Maintain the strength of grant recipients. Foundations have a responsibility to sustain the long-term welfare and missions of nonprofit groups. Of course, grantees must take their share of responsibility. Truth in packaging, open and honest execution of the promises made in grant agreements, and proper accountability not only for money but also for results are necessary to retain the good faith of foundations in the trust accorded to nonprofit groups. This relationship is a joint venture on behalf of the common good and should not be based on exploitation or constitute unearned entitlement. Each partner has to be mindful of the essential rule: Do no harm.
In this age of globalization, it is true indeed that McDonald's has increased accountability in the fast-food industry by standardizing procedures and practices, but at what cost? The result is a highly restricted diet of increasingly questionable value. Foundations will best uphold the proud legacy of American philanthropy by defying the impulse to offer comparable fare to their beneficiaries.
Jessie C. Gruman is founding president of the Center for the Advancement of Health, a Washington nonprofit organization that seeks to ensure that scientific findings are used to develop effective policies and practices to improve health and health care.
