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Jul 29, 2015

Moving the Dial: A Return to Unrestricted Operating Support

Those of us who focus on improving the nonprofit and philanthropic ecosystem can sometimes feel frustrated by the slow pace of change.  But we need to take notice when change does occur.  A major change was flagged almost in passing by Tom Watson in a recent opinion piece in the Chronicle of Philanthropy.  Speaking of the Ford Foundation’s new strategic focus, he mentions  “doubling Ford’s commitment to unrestricted grants for nonprofit operating support. ”  In the depths of my memory I recall a conference at Harvard’s Kennedy School that drew together major foundations to talk about what was wrong with current philanthropic practice.  One of their recommendations was for grant-makers to return to unrestricted giving.

In the chapter “Restricted Giving” in my book More Than Just Money, I wrote “Too many nonprofits are grasshoppers. We need to let them be ants.  Everyone is familiar with the tale of the grasshopper and the ant.  The grasshoppers focused on the day while the ants toiled to put away food for the the coming winter.  When winter came, the grasshoppers were starving while the ants were distributing food from the stores they had collected over the summer.  The moral of the story, of course, is that one should prepare for days of necessity.  Nonprofits prepare for days of necessity by building flexibility and liquidity usually through accumulation of large, unrestricted cash reserves.  Unfortunately, we make it very hard for nonprofits to become ants all the while we are critical of their grasshopper-like vulnerability…

“When we invest in nonprofits we tend to give the money with many restrictions on how and when the money can be spent, thereby limiting the value of the investment….Therein lies the paradox of nonprofit fundraising:  As donors we want the biggest bang for the buck, yet we put restrictions on our investment in nonprofits that may wind up creating the need for bigger bucks for that same bang…As long as donors feel the need for restrictions, nonprofits will have one hand tied behind their backs and they will need increasing philanthropy in order to survive.”

In my opinion, increasing philanthropy is not in the cards in the long run.  Despite the reports of Giving USA, the IRS Statistics of Income reporting Form 990 receipts by nonprofits continue to report that the slice of the nonprofit revenue pie filled by philanthropy remains roughly unchanged.  There are only two solutions then to nonprofits’ need for more resources:  make philanthropy more efficient by moving back toward unrestricted operating grants or develop more social enterprises to supplement philanthropy with their revenues.

I most often write about the social enterprise solution, which can help many but not all nonprofits.  The unrestricted operating grant solution, however, can benefit all nonprofits.

But the most persuasive arguments must come from the philanthropic community:

Silicon Valley veteran Sean Parker wrote in the June 26, 2015 The Wall Street Journal, “I care deeply, for example, about the plight of refugees and the peril of global warming, but I don’t pretend to have some special insight into how to deal with them.”

Concluded Tom Watson “Sean Parker is no one’s idea of a shrinking violet, yet there’s the modest acknowledgment that he — the money — doesn’t necessarily know better than those seeking it. I wish more donors with Mr. Parker’s financial capacity, social change ambitions, and youthful leadership would adopt this mind-set.  More operating support for organizations and a greater understanding of their inherent expertise in solving problems: That’s a potentially powerful mind-set that more donors should adopt.

“Simply put, the staying power of nonprofit groups and their deep institutional knowledge matters. Change doesn’t happen overnight, especially in a society that values democratic decision making.  But in part because of a trap set by too many grant makers, even nonprofit leaders who are deeply passionate about their causes often lose sight of their goals in the chase for donor dollars. They have become conditioned to think “How can I sell this great program to such-and-such donor?” instead of “How can this organization move the ball?”  That mind-set is the result of too many institutional and individual donors thinking they know far more than the organizations they consider investing in — which, quite frankly, is not the world’s smartest investing stance.”

In the words of Ford Foundation president  Darren Walker, “Our sector’s obsession with quantifiable impact, and frequently dogmatic adherence to discrete deliverables, undercuts the expansive purpose of [civil society organizations], miniaturizing them in their ambition. In other words, this system is rooted in transactional short termism — a tyranny of donors — that distorts and inhibits, rather than unleashes, the potential of civil society.”

Ford Foundation’s move to double the amount of their unrestricted grants for operating support may be nudging the needle.  Let’s hope the needle keeps moving.

Yours in Linking Mission to Money,

Allen Proctor

President, Center for Social Enterprise Development