Sustaining nonprofit groups moves front, center with sector’s backers

 

Published in the August 17, 2007 edition of Columbus Business First

 

A good indication of the stress in the nonprofit sector is talk of fiscal sustainability even as we reach the mature stages of an economic recovery.  

 

One step forward in this discussion was a symposium held in March at Harvard University titled “Capital Ideas: Moving from Short-Term Engagement to Long-Term Sustainability.” 

 

The symposium proceedings report a large part of the problem comes from the pressure to address critical social issues so rapidly that the volume of service overwhelms the nonprofits’ capacity.  Money and effort become focused on results, leaving little or no cash for reserves or investment back into the organization. 

 

A vivid example of this short-term focus is some nonprofits’ boast that 100 percent of a donated dollar goes to service delivery. 

 

Melissa Berman, of Rockefeller Philanthropy Advisors, said private donors steer clear of supporting sustainability because of what she labels misunderstanding, mistrust, and mismatch.  The misunderstanding is about how the nonprofit sector works, which makes donors feel vulnerable to being snookered and wanting to understand where their money is going. 

 

Because donors cannot understand the nonprofit context, their mistrust leads them toward program support, which they think they can understand.  The mismatch of power compels many nonprofits to acquiesce to private donors’ whims. 

 

Ms. Berman reports one recent comment by a donor: “I don’t want to have to pay for light bulbs; somebody else should pay for light bulbs.” 

 

Emerging Models

There is a sense among donors that some changes in how philanthropy works in the U.S. would be beneficial.  The symposium conducted a survey of 82 foundations which revealed four areas of strong agreement: 

 

  • Virtually all agreed foundation relationships with grantees should change from oversight to partnership.
  • Virtually all saw the need to simplify grant applications and to scale back grantee effort to be more in line with the size and scope of particular grants.
  • A sizable majority felt that grants should have fewer line items and restrictions and that donors should increase the size and length of grants.
  • Most also felt that standardization of applications and reporting was desirable. 

 

Movement in this direction already is occurring with some enlightened donors.  Venture Philanthropy Partners in Washington, DC views its gifts as investments.  It funds only infrastructure.  Its average investment is $2.75 million and lasts 4.5 years.  It has already concluded that future investments should be in the seven to 10 year range. 

 

Similarly, the MacArthur Foundation has shifted $5 million of its grant program exclusively to multiyear operating support.

 

5 rules, 4 principles

The symposium recommended nonprofits could enhance their sustainability if donors would use these rules:

 

  1. Equity is as important to nonprofits as it is to for-profit organizations.  In the United States, public and private donors focus on programs rather than on the organization.  By contrast, the international donor world is seeing support of the organization as the key to sustainability.
  2. Donors need to understand how their gifts blend with other donors’ gifts in terms of risk level, term, disbursement rate, and purpose in order to assess how well their donations enhance the matching of resources.
  3. Nonprofits need to know how cash moves through their s and donors need to understand how their gifts can best support good cash management by the nonprofit.
  4. All gifts should have some measure of return so the return can be consistent with the size, duration, and scope of the gift.
  5. Performance measurement needs to focus on improvement rather than on the mistaken notion that benchmarks can measure effectiveness or excellence.  The diversity of the nonprofit sector makes elusive any effort to determine good performance by any nonprofit, but one can reliably measure improvement by a nonprofit.

 

The proceedings of this symposium are excellent reading for anyone interested in fostering a healthy nonprofit sector and enhancing the value and effectiveness of philanthropy.  A good place to start would be to ask how your community might benefit if donors and nonprofits agreed to build a relationship around these principles: 

 

  • Reduce the transaction costs nonprofits and donors incur from existing approaches to applying for and reporting on grants.
  • Fund at the organizational level rather than the program level, even when the donor’s or nonprofit’s primary interest is in one program.
  • Fund to meet the organization’s business needs and operating realities.
  • Small can be beautiful:  Do not encourage growth for growth’s sake.

 

The 73-page proceedings of this symposium can be accessed at the Web site www.proctorconsulting.org/documents/CapitalIdeas_proceedings.pdf.

 

Allen J. Proctor was chief financial officer of Harvard University and is the author of “Linking Mission to Money, Finance for Nonprofit Board Members.”  www.proctorconsulting.org

 

Copyright 2007. Reprinted with permission, Business First of Columbus Inc.