Why It’s Important: The Funding Gap

Why It’s Important: The Funding Gap

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.

No Reserves!

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

Is Board Recruitment the Key to Your Vision?

Is Board Recruitment the Key to Your Vision?

credit: John Quidor

In Washington Irving’s story of Rip Van Winkle, old Rip goes off hunting to the mountains, encounters supernatural beings, drinks of their keg of brew, and falls asleep. Upon awakening, he returns home, only to find that 20 years have passed and the country is no longer beholden to King George III but is instead a republic with George Washington at the helm.

Imagine yourself, 20 years from now, returning to the nonprofit of which you are a part. Would you recognize it? Is the mission the same? Are its values the same? Would you still want to support it?

Organizations review their missions regularly; that’s a good thing.  Nonprofits must evolve over time or risk irrelevance. But there is a difference between evolving to better serve the greater vision and doing a complete about-face on what that greater vision is.

This is the imperative of board recruitment:

Do your new directors aspire to the original vision of the institution?

If not, the organization may, in the words of Nonprofit Quarterly, be hijacked.

Consider the American Bible Society, which moved from a nonsectarian mission to distribute bibles to one that overtly espouses an evangelical point of view.  As Ruth McCambridge relates, the move has been gradual, but appears caused by having individuals with a particular point of view on the board. These individuals in turn recruited like-minded other directors, until board level decisions began reflecting their particular view, affecting all their programs and policies.

This very clear example is a cautionary tale.

Whom your board recruits today affects what your organization looks like 20 years from now. 

Each successive board moves the institution forward, and the tiny shifts build up over time.

Diversity of viewpoints keep the organization from shifting too far in one direction or another. The vibrant discussions that diversity leads to is one factor in ensuring that each decision is thoroughly examined.

Diversity of experience, viewpoints, skills and aptitudes keeps organizations relevant. It’s also a way to keep the vision front and center.

Recruitment is a fiduciary responsibility and a crucial investment in your future. 

Sign up here for other hints about building a great board, or balancing growth and caution. Or if you want a no-obligation conversation about board relations, let me know.

Sustainability or Mission: Discuss

Sustainability or Mission: Discuss

In recent years, a lot of nonprofit board education has focused on sustainability. Discussions frequently focus on finances: How are we going to maintain our programs? What happens if we hit another recession, or if our major funder disappears?

More sophisticated discussions include sustainability of the physical and governing infrastructure: What can we put in place so we have the board members we need to keep us going? How do we manage succession planning? How do we ensure our roof won’t leak in 5 years?

Fiduciary Responsibilities

However, there is an inherent conflict between sustainability and some of the fiduciary responsibilities of the board. The triumvirate of fiduciary responsibility are Duty of Care, Duty of Loyalty and Duty of Obedience. Grantspace gives these succinct definitions:

Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.

Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.

Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

These duties are almost always refer to the organization. In most materials about fiduciary responsibility the word sustainability doesn’t appear. Not in Grantspace, nor in this Guidestar blog post on fiduciary responsibility, nor in this Bridgespan article. The National Council of Nonprofits references sustainability, but doesn’t define its relationship to the organization.

Potential Conflict

And that leaves us with a question of potential conflict of duties. The Duty of Loyalty says to put the interests of the nonprofit ahead of personal or professional concerns, and Duty of Care says to make sound and informed judgments. Both of these imply that sustainability revolves around the institution – finances, infrastructure, community goodwill.

At the same time, the Duty of Obedience says you must remain committed to the mission. Therein lies the potential conflict. What if keeping the lights on means accepting a grant that takes you away from your mission? What if another institution is better at ensuring all the children in the neighborhood have winter coats? Do you compete against that other institution for a grant that will provide the coats?

If you do, are you fulfilling your Duty of Obedience to the mission?

What happens when the best decision that could be made for advancing the mission is one that means the organization forgoes a grant needed to keep the doors open?  

This is an extreme question, but as the call of sustainability becomes louder, the conflict becomes more evident. Indeed, there is no doubt that every organization will encounter some form of the conflict between sustainability of the nonprofit and obedience to the mission. We all know of institutions guilty of mission drift, as they ‘chase the money’ by creating programs solely for the purpose of getting grants.

What then? What can a board do when confronted with this conflict?

Conflict….or Tension?

Perhaps a redefinition is in order. Conflict implies they cannot coexist. Perhaps a better word than conflict would be tension.

Tension is not a bad thing. It implies an awareness of differences or awareness of an imbalance. Tension can be addressed in a way that affirms the Duty of Obedience while maintaining the Duties of Loyalty and Care.

This tension can only be addressed if it’s acknowledged. When boards isolate discussion of the budget from evaluation of program impact, they are siloing the Duty of Care from the Duty of Obedience. Similarly, discussion of the impact – or cost – of one particular program without the context of the entire organization risks dropping a highly efficacious program due to cost, or keeping a minimally efficacious program solely because it is inexpensive or brings in dollars.

Awareness of the tension opens the path to collaboration among organizations that have the same mission and vision, rather than reinforcing competition or becoming territorial.

Zimmerman and Bell provide one way to address this tension, but the first step is to acknowledge that it exists. It is then up to the board and administration to research and agree on how to address it.

Ultimately, the goal has the same name: sustainability. But it encompasses so much more.