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Aug 16, 2012

Is the DC United Way’s Focus on Large, well-established nonprofits wise?

Pablo Eisenberg writes a provocative column from time to time in the Chronicle of Philanthropy.  His latest criticism begins:

“The United Way that serves the nation’s capital last month announced a decision that signals trouble for small charities nationwide: It became one of a growing number of United Ways that are limiting their money to large and medium-size groups.

“As donors and organizations like United Way focus more of their dollars on big charities, the gap is growing nationally between the haves and have-nots in the nonprofit world.”

Mr. Eisenberg focuses on his worry that most of the DC United Way recipients are national parent organizations (American Cancer Society, American Heart Association, National Kidney Foundation) who he doubts are focused on the poor neighborhoods of DC.  The direction that United Way is going deserves continued dialogue.  Yes, it is courageous for United Way to chart a course and stick to it, but Mr. Eisenberg’s points are valid and one can agree and disagree with him.

But he doesn’t talk about the impact of United Way’s selection criteria on social entrepreneurship.  Innovation and new ideas in the for-profit world come from start-ups.  Start-ups will not meet any of the UW criteria, but the for-profit world looks to start-ups for job creation and shaping the future.  Why is this view not valid for nonprofits?

Foundations and UW should recognize that solving tough problems requires taking risks.  The UW approach is low-risk.  Do large nonprofits which have been around for 3 or more years and have reached a scale to bring their overhead below 35 percent of revenues have a monopoly on solving tough problems?  Sure, those standards may exclude some inefficient or ineffective nonprofits, but they do so with an ax, not with a scalpel.

I think the United Way has done what too many foundations have done:  they are overwhelmed with grant applicants and they are looking for ways to reduce the size of the stack they have to review.  That is all they have done.  Their criteria don’t have any necessary relevance to problem solving abilities.  And they just might exclude some brilliant new idea from getting started.

Better to focus on change capital and consider developing the same type of innovation networking that the for-profit angel and venture funding worlds use:  forums for new ideas to be presented; incubators for new ideas to get to the revenue-producing stage; advisory programs to nurture ideas into business plans that are financially viable.

I have focused on this problem of the effectiveness of centralized prioritizing in pages 121-125 of More Than Just Money.  There I quote John Carver: “How can a group of peers be a responsible owner-representative, exercising authority over activities they will never completely see, toward goals they cannot fully measure, through jobs and disciplines they will never master themselves?  How can they fulfill their won accountability while not … infringing … on the creativity … of management.?”  He was writing about for-profit boards and their relationship to management.  I think it applies word for word to the United Way of DC and its relationship to nonprofits.

Worried about the relationship between nonprofits and grant-makers?  Let me talk to your group on the topic Can Donors Hurt Nonprofits? Making sure your grants enhance nonprofit capacity.