SEPTEMBER 13, 2016 | BY ELSPETH REVERE
reprinted from the Chronicle of Philanthropy, philanthropy.com

Too often in America discussions about philanthropy disproportionately focus on donors and foundations rather than on the organizations that receive the money. In recent years, we seem to have forgotten that philanthropy succeeds only when foundations and nonprofits have strong partnerships that recognize the complexity of the problems we seek to solve and the need for solid, sophisticated, and sustainable nonprofit institutions to envision a better future and carry out the work.

As I look back at the quarter of a century I spent in an extraordinary job at the MacArthur Foundation, I worry about trends in the philanthropic world—and I urge us all to focus on how grant makers can better support and sustain essential nonprofit organizations over the long term.

The grantees I encountered in my foundation role are visionaries and public intellectuals, tackling important and difficult challenges facing society. They are also leaders and managers of nonprofit organizations, responsible for overseeing all the functions of a mission-based “business” (planning, evaluation, hiring, and managing the staff; financial management; board development). And they are responsible for raising the money to keep their important work moving forward. Because they rely so much on philanthropy, they are keenly aware of ways that it helps them and ways that it makes their jobs harder. “It’s a slog,” says one experienced leader. “It’s harder and harder to piece together the annual budget.”

Among the reasons grantees are right to feel things are getting harder:

Fewer grants are made for general operating support. Most nonprofits need general operating support for a broad set of needs that make any organization work, from staff development to strategic planning. Yet nonprofits report receiving fewer and fewer general operating grants.

Everyone believes in innovation, but the resources to support it are few. Large, intractable problems call for innovation to solve them. The nonprofit world is a particularly fertile ground for new ideas. But most nonprofits do not have “innovation” budgets.

One of the most innovative funding approaches in nonprofit journalism came from the Sandler Foundation when it started ProPublica with a very substantial commitment of up to $10 million per year for the first three years. That large infusion of funds allowed ProPublica to begin its work with a robust, highly experienced staff that was ready to make plans for the future, commit resources to topical beats, take on multiyear projects, test innovative approaches, and quickly show success. Instead of an investment in a small start-up staff that would increase if heroic efforts created success (the normal model), the Sandler investment was large at the outset, decreasing as a percentage of the budget over time as ProPublica was able to create a track record and attract other supporters.

Nonprofits are fertile ground for new ideas, but most groups don’t have “innovation” budgets.

Some grant makers are experimenting with other ways to build organizations in addition to general operating support. Many foundations provide money for purposes like strategic planning, evaluation, management training, board development, or succession planning; the MacArthur Foundation developed an “institutional grants” program, which became the MacArthur Awards for Creative & Effective Institutions. Through this program, MacArthur provides a one-time grant for institution building in addition to continuing its support of a project or general operations. The grant is most often used for less glamorous but highly useful purposes like establishing or increasing a cash-flow reserve, replacing outdated technology, or making a strategic plan.

Everyone believes in innovation, but the resources to support it are few. Large, intractable problems call for innovation to solve them. The nonprofit world is a particularly fertile ground for new ideas. But most nonprofits do not have “innovation” budgets. If they want to test a new idea, they must draw on the funds that are not allocated to a specific purpose.

General operating support is the main resource for innovation, supplemented by earned income, funds from special events, and gifts from individuals and small family foundations (which are less likely to be tied to a specific project). A new partnership, a distribution strategy, an internship program, or a new use of technology might need testing before funds can be specifically sought for that purpose. But when an organization’s funds are tightly tied to specific projects and budgets, there is little room for testing new ideas or midproject changes in course.

It is extremely difficult to successfully lead and manage an organization with funding assured for only one year at a time.

Fewer grants are committed for more than one year at a time. It is extremely difficult to successfully lead and manage an organization with funding assured for only one year at a time. In addition to the fundraising work involved, the trend toward single-year grants makes it difficult to hire and train staff and to plan midterm and long-term work. Institutional grant makers budget well in advance and should be able to make three-, five-, or even 10-year grants to organizations that have proven their effectiveness.

Some project grants are made without including adequate provisions for overhead. As a result, organizations must find other ways to fund the rest of the project. Overhead support pays the project’s fair share of office space, utilities, technology, and shared resources like fundraising, accounting, communications, and leadership salaries. It is likely that this will exceed many foundations’ limitations on overhead. If we fail to pay the real costs of a project, and organizations cannot make up the difference with operating support, they will gradually develop a budget deficit—one that very few grant makers will be willing to erase.

There is a growing set of new donors who bring new resources, but they can be difficult to identify and approach. About 150 billionaires have taken the Giving Pledge to donate at least half their wealth. Family foundations are becoming increasingly important to nonprofits and sometimes provide hard-to-find general support. But they can be difficult for nonprofits to access, and they are less likely to work with their colleagues from other philanthropic organizations than donors with longer grant-making experience and larger staffs.

Some donors expect to exercise financial or management oversight similar to what investors use with young companies—even if the nonprofit is a highly experienced institution. Grantees may view this as unnecessarily intrusive.

While it is understandable that grant makers want to know the results of their investments, nonprofits rightfully fear that support will not materialize for complicated social-change work that is effective but not readily measurable.

Evaluation continues to increase in importance to philanthropy, with an emphasis on measurement. While it is understandable that grant makers want to know the results of their investments, nonprofits rightfully fear that support will not materialize for complicated social-change work that is effective but not readily measurable.

Grantees are deeply grateful for the philanthropic support they receive. They understand the privilege that comes from pursuing a social mission, free of the need to make a profit. They often love working with their program officers and are proud of their work. Their appreciation shines through in the conversations that provided the insights for this essay.

Some of the complaints of nonprofits have not changed much over the years. One is poor communication by foundations with their grantees, particularly about why priorities or guidelines are being changed or specific decisions are made. Individuals express many frustrations: “I received a letter saying I had been nominated for an award. I spent a lot of time preparing the proposal. After I submitted it, I was told I did not qualify to receive the award.” “We were told by our funder that his organization had huge admiration for the project. Then they declined continued support without telling us why.”

Failing to cover a program’s overhead costs can lead to a budget deficit. Another longtime complaint is the frequency with which foundations pause their grant making—sometimes for many months or even years—to review their priorities or change their guidelines. If the foundation is large and key to a field, this process can stop the growth of successful work and leave a large set of organizations without the ability to plan and carry out programs as they await the outcome of the planning process.

Grant makers are often accused of being trendy and fickle. They select a big, important area in which to work, support institutions that hire staff and invest in programs, and sometimes start new organizations in the field. Then, after many years or just a few, they have a change of mind or leadership, stop making new grants, and rethink their directions. This is enormously frustrating to the organizations that depend on them and sometimes results in the demise of promising or proven work. From the foundation’s perspective, there is often a good reason to end an area of work. Sometimes it has concluded that the work was unsuccessful but is unwilling to say that to a passionate and committed group of nonprofit leaders it has long supported. Often it simply wants to move resources to different problems and solutions that better fit its evolving analysis of what is important and what it believes is most likely to have an impact.

Grantees often feel pressure from their donors to undertake specific projects and work in particular ways to address the strategic goals set by the philanthropist or funding organization. And while it is always the case that nonprofits shape their funding proposals around the interests and guidelines of the donor, many say that pressure is increasing.

Perhaps the most troubling complaint relates to who decides the vision and leadership for the field and the priorities for the organization. Grantees often feel pressure from their donors to undertake specific projects and work in particular ways to address the strategic goals set by the philanthropist or funding organization. And while it is always the case that nonprofits shape their funding proposals around the interests and guidelines of the donor, many say that pressure is increasing.

Foundations make hard choices about the use of their resources. They think about the many possible issues they might address and select among them. They also decide whether to use their funds for policy or advocacy, for direct service or systemic change, in one city, the whole country, or in other parts of the world. They make a plan about what they hope to accomplish and the best way to do so. They are generally led and staffed by smart, well-informed people with long experience in the field. In making their choices about what organizations or work to support, they look for a close match between what they are trying to do and what is proposed by the would-be grantee.

Nonprofit managers have training and expertise in their subjects. They hone their knowledge each day as they conduct their work. They have strategic plans and conduct activities that they have developed with their boards to address their goals. The best nonprofit leaders have a big vision, ambitious goals, long experience, and a drive to make change. They believe they know what is best to do in their field.

But all too often the two sets of decisions don’t fully line up. Then grant makers have to decide whether to support only the piece of work that most closely contributes to their grant-making strategy—a common conundrum and one explanation of the trend toward project funding and away from general operating support. Alternatively, they can support the full organization, knowing that part of the work aligns well and the rest does not. This can be a hard decision for a foundation, especially at a time when strategic approaches are highly valued.

A third choice, and one that concerns grantees more, is when donors ask nonprofits to address the foundation’s specific interests to receive a grant. When grant makers are confident of what they are trying to do, they may pressure grantees to work in certain ways. In general, the foundation has the power; the grantee must respond with grace in order not to jeopardize the future relationship between the two institutions.

Our times call for better-informed, nuanced public discussion of ideas and policies, and foundation leaders could well take on that role, speaking out on the issues that they have studied carefully and care most about and that their organizations invest in.

Just as there are many benefits to providing the resources to help strengthen important institutions, there are costs for failing to do so. Leaders become exhausted from the joint responsibilities of heading an organization and bringing in funds year after year. Successful projects—along with their realized and potential impact—come to an untimely end, and the work cannot grow and evolve. In extreme cases, organizations with long experience and continued relevance close their doors. The social problems that we care so much about continue to be unsolved, and progress is set back.

When donors are committed to advancing a field, they can often bring more than just their money to make a difference. They can invite grantees and other experts to participate in conversations in comfortable foundation offices. In this environment, organizations learn from each other, forge partnerships, and work better together.

I have always wished that well-known donors and leaders of foundations would take a more active role in the media and the public debate as “public intellectuals.” We work in an unusual environment that combines ideas with resources, and we are well positioned to speak out on the issues of our day. Our times call for better-informed, nuanced public discussion of ideas and policies, and foundation leaders could well take on that role, speaking out on the issues that they have studied carefully and care most about and that their organizations invest in.

As I went about my work at MacArthur, I developed my own guiding principles that I hope others will consider and build on:

• • Treat your grantees as respected experts. Learn from them. Offer advice sparingly unless asked. Introduce them to others who will help them be more effective. Don’t second-guess their management decisions.
• • Make general operating grants whenever possible.
• • Provide adequate overhead when making project grants.
• • Make the duration of grants as long as possible. Three to five years should be the norm, but why not make 10-year grants to organizations that have proven their effectiveness?
• • Make grants that strengthen an institution in addition to supporting programs.
• • Look for ways to help groups of organizations in your field with their common needs.
• • Have open processes to solicit proposals. The only way to diversify ideas and approaches is to listen to voices you don’t already know.
• • Stick with a topic as long as you can; if you conclude that an organization or a strategy is not working, share your thinking about that with your grantees and listen closely to what they say in return. (Don’t expect everyone to agree with you.)
• • Try to retain your humility. Remember that no matter how hard you work making grants, the grantees are working harder to change the world.
• • The challenges facing America and, indeed, the world require philanthropy to be as effective as possible. Nonprofit organizations are philanthropy’s partners in addressing these challenges. They have unusual flexibility to take risks and pursue solutions to our most pressing problems. As grant makers, we need to focus our attention and philanthropic resources on building strong leadership and solid, sustainable, and diverse institutions that address the problems and opportunities we care most about.

Elspeth Revere retired from the MacArthur Foundation in December and is now a consultant to foundations and nonprofits.