The Right Was Right on This

June 19, 2019

In the fourth installment of our continuing series of mini essays on the “Five Habits of Highly Effective Funders,” we turn this month to this core habit: “Effective foundations help grantees strengthen their organizations, not just programs.” Thanks to a productive meeting we attended last week at the Ford Foundation, we’re charged up with new insights to share.

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The leaders of Ford’s BUILD initiative convened the meeting with this premise: “Multiyear, unrestricted funding, coupled with support for organizational strengthening, works. It creates greater impact for grantees and for the sector.” The meeting’s purpose was to identify ways of spreading the gospel to other funders who care about grantee effectiveness but nonetheless maintain funding practices that perpetuate a “nonprofit starvation cycle.”

It’s not a coincidence that several of the leaders who attended the meeting were from foundations the Leap Ambassadors have profiled in their Funding Performance series: Jenn Hoos Rothberg, from the Einhorn Family Charitable Trust; Fred Ali, from the Weingart Foundation; and Stephanie Gillis, from the Raikes Foundation. These funders have come to realize that short-term project grants have their place, but we’re not going to solve society’s wicked problems if we fail to help our grantees plan, hire, and build for the long term.

Ford’s Hilary Pennington, Kathy Reich, and Chris Cardona acknowledged that when Ford examined its own practices a few years ago, it saw that it was providing mostly one-year, restricted grants. As a result, Pennington shared, “We were harming grantees, making it impossible for them to do long-term planning.” In addition, the foundation had low reimbursement rates for grantees’ overhead expenses, which meant that grantees had a hard time investing in their talent base, learning practices, and other core elements necessary for high performance.

This realization sparked real change. In 2015, 36 percent of Ford’s grant funding was in the form of flexible support. By 2018, the percentage had soared to 71 percent. “We now give our core grantees five-year grants, with a certain negotiated percentage for organizational strengthening,” Pennington explained. Ford is conducting an evaluation of 239 BUILD grantees to help our sector learn from these grants. Are these organizations getting stronger? Is this type of funding making any difference for the grantees’ programmatic work? Is this funding having a positive impact on the field in which the organization works?

This research won’t prove (or disprove) the hypothesis that investing in organizations helps nonprofits and their funders achieve greater impact. After all, we have no way to know how these grantees would have fared with more-traditional forms of funding.

But let’s face it: We already have plenty of reason to institute these kinds of practices, including the fact that foundation CEOs say that strengthening grantees is important to them, and yet research demonstrates they’re not doing so. According to a study published last year by the Center for Effective Philanthropy, nearly all foundation CEOs say that they feel responsible for strengthening grantees and care about grantees’ organizational health. Their grantees report the opposite: “The majority of nonprofit CEOs say their … funders feel no or little responsibility for strengthening their organization [and] most foundation funders do not care about strengthening the overall health of their organization.”

At the Ford meeting, participants discussed why organization building is such a hard sell. But the truth is, it’s been more intuitive for two sets of funders. The first are those whose leaders once sat on the grantee side of the table and therefore know from personal experience how the nonprofit starvation cycle undermines organizations. The second are conservative foundations like Bradley, Olin, and Scaife. They had the courage, conviction, and patience over many decades to invest not just in organization building but also network building. These foundations are now reaping policy and personnel rewards across the Executive, Legislative, and Judicial branches and at the local, state, and federal level.

It’s time for more funders to emulate these smart strategies. Let’s give our grantees the kinds of monetary and non-monetary support they’ve been telling us they need when we’re open enough to ask.

Happy Summer,

Signatures: Mario and Lowell
Mario and Lowell

Mario Morino is chairman of the Morino Institute, co-founder and founding chair of Venture Philanthropy Partners, and author of the lead essay in Leap of Reason. Lowell Weiss is president of Cascade Philanthropy Advisors, co-editor of Leap of Reason, and advisor to the Leap of Reason initiative.

Updates From Around the Leap Community

We give a quick shout-out to our colleagues at the M.J. Murdock Charitable Trust for describing the ways in which they have worked to uphold the aforementioned five habits of highly effective funders. We were gratified to read that after “reviewing our own experience in this space, we find these five tips to be highly accurate and useful.”

In the July 2019 Atlantic, Seattle billionaire Nick Hanauer (an early investor in Amazon) argues provocatively and persuasively that “Better Schools Won’t Fix America.” He acknowledges that his philanthropy—along with that of other billionaires such as Bill Gates, Paul Allen, and Alice Walton—was aiming at the wrong target. “I was captivated by a seductively intuitive idea … that both poverty and rising inequality are largely consequences of America’s failing education system,” he wrote. “Fix that, I believed, and we could cure much of what ails America.” He now believes the real target should be rewriting the rules of our economic system. “The most thoughtful and well-intentioned school-reform program can’t improve educational outcomes if it ignores the single greatest driver of student achievement: household income.”

Speaking of Seattle billionaires, Mackenzie Bezos would do well to read Hanauer’s article as she works to define her philanthropic sweet spot. She would also do well to read the cautions offered by trusted colleague Phil Buchanan in his Wired blog post “Five Mistakes Mackenzie Bezos and Other Mega Donors Should Avoid.” His advice: Don’t look for quick-fix “innovations.” Don’t look for one-size-fits-all performance measures. Don’t rely too heavily on your personal, insular network. Don’t dismiss all the philanthropy that came before you arrived on the scene. Don’t think you can accomplish anything important with your dollars alone.

The Laura and John Arnold Foundation’s Evidence-Based Policy team is looking to fund randomized controlled trials (RCTs) of social programs in any area of U.S. policy. According to the foundation’s request for proposals, “We seek to fund sizable RCTs with strong designs that evaluate programs with highly promising prior evidence or that are widely implemented.” To apply, submit a letter of interest (three pages max) via email.

We salute Rusty Stahl and his colleagues at Fund the People for launching the Talent Justice Initiative to help funders and nonprofits expand the diversity of our sector—from entry-level positions all the way up to the most senior ranks. The initiative is anchored in extensive research and includes an actionable toolkit aimed at nonprofits and funders eager to “advance talent justice.” For example, the toolkit contains resources for designing fair apprenticeship programs, reducing bias in hiring, and embracing diverse leadership styles.