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