WHY IT’S IMPORTANT: Five CEOs of Wealthy Foundations Pledge to Do More to Help Charities Pay Overhead
This article in The Chronicle of Philanthropy is a long read, but hugely important to every nonprofit organization that relies on grant funding for at least part of its revenue.
It’s notable when five of the wealthiest foundations revisit their granting processes and decide that they’ve been underfunding the support (they call it ‘overhead’) that makes it possible for nonprofits to deliver their missions. It prompted them to examine different ways they might change their granting structures to allow more flexibility in the operations and investments in infrastructure of their grantees.
The foundations are: Open Society Foundations, John D. and Catherine T. MacArthur Foundation, Ford Foundation, William and Flora Hewlett Foundation and David & Lucile Packard Foundation. After engaging Bridgespan to research the effects of their giving on a subset of their grantees, they learned that 42% of the nonprofits had less than 3-months of operating revenue on hand. While the foundations have agreed that their funding processes need to change, each will make their own adjustments based on their own priorities, and as they experiment with their own grantees.
As my colleague Justin Pollock, has pointed out, restricted funding is not inherently a problem if it actually covers the true costs of a program. But when a nonprofit ACCEPTS restricted funding that only covers PART of a program’s costs, by default they are saying ‘we will restrict our own dollars’ to go towards completing the program’s budget.
These efforts by major foundations to look at their own practices are a welcome sign that change may come.
It may mean more unrestricted funding or it may mean restricted funding that truly covers costs. But it will take time for any change to spread. Wherever you are located, don’t expect immediate change. I doubt that any local foundation landscape will change rapidly. While smaller organizations can often be more nimble than larger ones, larger foundations have the staff and funds to research new methods and their implications. On the other hand, you may find that a handful of your local foundations may read about this research and be energized to make their own changes.
Definitely something to watch. And you may want to forward this article to your friendly funders, as well.
This series of “Why it’s Important” is meant to keep you abreast of news, research and articles that provoke thought about how we govern and manage nonprofits.
If this article has started some conversations, or even caused some deep thinking about funding, please let me know.
And watch for more curated articles. If you see an article you think everyone should read, please send it on. Or if you want to talk about facilitation or planning for your organization, I’d love to have that conversation.
More eyes – more articles – more wisdom!
– Susan Detwiler
Why doesn’t a nonprofit board fundraise? There are a lot of reasons. At a recent Bloomerang webinar, “Getting Your Board on Board,” I offered ways to move board members along the continuum from ‘I’ll do anything except ask for money,’ to ‘I’ll ask a major donor for a gift.’
Since we couldn’t get to all the questions, I promised to answer some directly, and some of them in this post. If you want to see the first set of questions and answers, shoot me an email, and I’ll send it along.
And now, here are some of the questions that we couldn’t get to:
Board members who don’t give
What if your board recruits for new board members, but because they don’t give themselves, they don’t require new members to give? The cycle just perpetuates!
It sounds like your board members may not see themselves as responsible for the future of the organization. Once they consider that thinking about the future is part of their job, you can ask what ensuring the future looks like to them.
In this case, you may have to start by NOT talking about money. Instead, talk about the future, and the kinds of people you need on the board in order to make that future possible. Times have changed since the organization was established, and you’ve been able to change with the times. What kind of people do you need on the board in order to continue keeping up with society? Who might you need on the board in order to build the future you want? That way, board member responsibility for being donors becomes only one part of the whole package of being responsible for the future. By talking about the other board attributes first, the conversation can naturally migrate to money as a part of the whole.
Jump-starting a Development Committee
Other than sharing this webinar, what other things can be done to “jump start” a development committee?
Oh, so many things. And I wouldn’t start with this webinar. I likely wouldn’t even start with talking about money. I would start with envisioning the future. What does your community look like if you and your organization were 100% successful with everything you decided to do? Beginning with vision is exciting. The dollars and other resources are just a means to that end. Once you and your committee are excited, it’s so much easier to contemplate raising the dollars to make that vision possible.
Qualifications of a Board Member
Can you share a board member outline for qualifications to be used by the nominating committee?
There are many places to go for a classic grid that looks at demographics and skill sets for board members. The best advice I’ve heard, though, is to decide what you want to accomplish in the next three to five years, and figure out what skills and attributes will help you get there. Then, while seeking those skills and attributes, seek to balance the age, demographic and social circles that are represented. This post talks about Five Essential Qualities of board members, and includes links to some sample qualification outlines. This one talks about the need for people of different ages.
Thanks for asking! If you have questions about helping your board see the future, and their role in making it happen, I’m happy to talk. Just reach out and let me know.
Any other questions? Let me know and I may answer them here!
Consider the IRS Form 990. The executive director tears his hair out over it. The accountant prepares it. The board looks at it and nods. Let’s just get it done.
But when the Internal Revenue Service redesigned the Form 990 in 2008, it created an opportunity that too few nonprofits take advantage of.
High net-worth donors check your financials before making a major gift. The federal government requires the 990 to be available upon request. You can’t turnaround online without a governance guru writing about transparency.
So what are we waiting for? If the 990 is so important, why aren’t we figuring out ways to use it to our own advantage? Just because it’s a government form, created for the government’s purpose, doesn’t mean we can’t take it to its highest potential.
Talking to foundation executives, I heard one say that she “checks the 990 to see the ratio of board members relative to the size of the budget.” The Community Reinvestment Officer for a national bank said she checks for a “tangible lack of board involvement.”
Why not use the 990 to lay the groundwork for a more substantive conversation with donors and foundations?
Imagine the possibilities! Where the 990 asks for your purpose, make it sing! Footnote the heck out of it. You can add as many expansions as you want, so why not use it. And since you’re putting it on the website so everyone can easily find it (you are putting it on the website, aren’t you?), take a little extra space and answer funders’ questions before they ask them.
One terrific example of taking the Form 990 to new heights is at the Creating the Future website. Creating the future is a living laboratory for developing and demonstrating tools for individuals and communities, so people are living well, individually and collectively. It’s a concept that begs to be explored, but most funders won’t take the time to ask. So the organization has its Form 990 on its website, as well as an annotated Form 990, that gives detailed explanations of why they answered each part the way they did.
You can just see someone looking at their website, seeing “Form 990” and “Form 990 annotations,” and clicking the second one out of curiosity. Creating the Future has just engaged a supporter.
Imagine the possibilities. What will make supporters feel good about giving to your organization? Can the Form 990 help?
To talk more about using what you have to make a difference, governance transparency, or to see how The Detwiler Group might partner with you to plan the future, contact me at email@example.com or www.detwiler.com.
It’s human nature to group people and stick a label on them. We segment out individuals who are donors as being different from other people. We talk about ‘donor relations’ as if that’s distinct from building a relationship with everyone, regardless of who they are. Too often, though, we forget that this is just shorthand for real people.
Recently, Harvard Business Review blogger John Michel did an excellent job of explaining the positive impact of focusing on people and not their roles, in his post A Military Leader’s Approach to Dealing with Complexity. It made me revisit a post of my own, C’mon People It’s Not Donor Relations, and consider implications for board leaders.
Donor relations are people relations. Just like employee relations are people relations, volunteer relations are people relations, and board relations are people relations. Any time we interact with another individual we are in relationship with that person.
Michel’s post includes two gems that strongly correlate with board leadership, and the impact of the relationship between people who serve on nonprofit boards and people who are on the frontline of delivering the nonprofit’s mission.
First, if you focus on people instead of their roles, it promotes their inclusion when you craft your vision.
Or, as Michel writes:
“Making inclusivity a priority will increase ownership, enhance motivation, improve information sharing, and result in leaders making wiser, more informed choices.”
We’re all aware of trustees who operate in an ivory tower and create strategic plans without involving the people who are actually charged with executing that plan. Remembering that employees are people with their own ideas and thoughts makes it easier to bring them into the process.
Build your vision in pencil, instead of ink, so you can be flexible enough to hear and incorporate the ideas of staff and increase the buy-in of everyone involved. Increased buy-in leads to increased success.
Second, remember that every single interaction has an impact. Every spoken or written word and every non-verbal communication becomes a part of the whole image of who you are. Relationships are a result of both conscious communications AND unconscious communications. Every time a member of the board speaks to the person on the frontline, that conversation has an impact. All the more so when the communication is nonverbal. That’s when the leader is less conscious of what she is ‘saying.’
As Michel writes:
“Effective leaders understand that every interaction is a potentially powerful means of nurturing a relationship, eliminating an obstruction to progress, or reinforcing trust.”
John Michel based his observations on his experience in the military, relaying the impact of interpersonal relationships when confronting complexity. The situations and scale may differ but the principle is the same. People matter. Relationships matter.
Building relationships is a fundamental tool to make sure that when you lead, others will follow.
Have you seen the impact of leaders who build relationships? Or the impact of those who don’t build relationships? Let me know!
And I’d love to have a conversation about how your strategic planning can successfully include staff, board, volunteers and community. Contact me at firstname.lastname@example.org.
*Big Hairy Audacious Goal
I’m a really big advocate for starting any project with a Vision.
Where’s your horizon?
What do you need to get there?
What steps do you have to take?
Sometimes, though, even the steps to get there require a lot of little steps first. This is especially true when the people involved haven’t experienced much success.
That’s a pitfall of focusing on the Big Hairy Audacious Goal. As proposed by Jim Collins, et al, the BHAG is important for inspiring the troops. I agree, our BHAG – our Vision – is the horizon to which we are pointing all our efforts.
However, when the troops are downtrodden or haven’t worked together in the past, they may not have the self-confidence or a level of trust to focus on an audacious goal. In this case, small successes pave the way.
I watched this in action at a private school with an aging, authoritarian founder. The board of this school is hand selected by the founder and will not take a step without his approval. This founder does not let anyone but himself meet with those he considers major donors. The school is viewed as his school; a cult of personality.
The obvious question is whether the school will continue much beyond the founder’s life. Or rather, the question was obvious to everyone except, it seemed, the founder.
I met with a handful of lay leaders who knew they had to find a way to build supporters with a loyalty to the school, not just to the founder. They also knew the founder would resist every step of the way.
A Big Hairy Audacious Goal for this group would be for the school to have a true governing board, with a succession plan for the founder, deep and broad relationships with existing donors, and plans for growing the image of the school distinct from the founder.
That’s quite a BHAG. But the initial need was to inspire the confidence needed to act without the founder’s permission.
We began with just meeting to discuss the issues. It may have seemed like nothing happened, but the mere fact that the meetings were being held began the process of instilling confidence in the actors and a trust in each other. Having meetings about board and school issues without the founder was a huge step.
Discussions revolved around ways to engage prospective supporters and advocates without relying on the founder. They knew that trying to wrestle existing supporters from his stewardship would cause a head-on collision. Instead, they sought ways to expand the circle. It took six months to get to the point of reaching out to potential supporters, yet those six months of meeting for a shared purpose served to build confidence.
Although certain the new ideas were unnecessary, the founder was willing to let the lay group reach prospective supporters outside his circle. After persevering, they reached one high-profile but previously unappreciated individual who became convinced of the group’s sincerity, the value of the school, and ultimately, the value of their BHAG. Together, he and the lay leaders crafted a process that used his influence to approach the founder and reinforce the goals of the group.
As I write this, there are still many steps to take. The culture is slowly changing. The founder is still reluctant to release the reins, but he has accepted that change is needed.
I don’t know if this school will be able to make all the necessary changes. However, I do know that without first building self-confidence in the lay leaders, they would not be in a position to make any changes at all.
Have you encountered boards reluctant to take on Big Hairy Audacious Goals? Try building confidence with small successes.
And let me know if you have other examples! You can reach me at: email@example.com.