Philanthropy Funders: Bending the “Moral Arc”

Funders and the "New Normal"

“We need to stop quoting Dr. King, feeling good about ourselves, and then continuing to do the same old crap that hasn’t worked for generations.” 

That was the urgent plea of prolific nonprofit commentator Vu Le in It’s 2020. Be bold or get the hell out of the way (January 20, 2020), Nonprofit AF Blog.  That (dare we say justified) rant was over six months ago, well before we knew how monumentally bad this brand new year was going to turn out to be. 

        Funders and the Pandemic

In early August 2020, we began to explore the seemingly benign theme of the nonprofit sector “…anxiously await[ing] the time it can return to ‘normal.’” See Philanthropy Thinkers On Not Returning to “Normal” (August 4, 2020). In that first of several related posts, we wrote about the many warnings by experts and commentators against simply trying to turn back the clock. The “pre-pandemic ‘normal’ was imperfect at best….and the deep inequalities and structural deficiencies in our society have come into painfully crisp focus.”

We promised to return to this subject and probe it more deeply. In Funders Urged Not to Return to “Normal”  (August 26, 2020), we presented advice specifically on how philanthropy’s funders and grant-makers should approach the weeks and months ahead. We discussed the thoughtful article by foundation veteran David Morse a few months ago in The Chronicle of Philanthropy. There, Mr. Morse urges foundations and philanthropists to “help create the better normal” by continuing “… what they’re now doing to provide support to their grantees who desperately need it, just more of it and quicker.” He adds: “And just do it; it’s a waste of time, space, and money to crow about it.”

Since the outbreak of the COVID-19 crisis, blogger Vu Le has continued – and dramatically enhanced – his pre-pandemic pleas to foundations to radically transform their funding levels and practices.  But Mr. Le cautions – along with David Morse and many others – that funders will fail to meet the challenge of this catastrophe by merely tweaking the old system around the edges. They must  address the core problems of power and privilege in society and in philanthropy itself.          

As commentator Arundhati Roy points out in The Pandemic is a Portal (April 3, 2020), Financial Times, “[n]othing could be worse than a return to normality.” There can be opportunity amidst the crisis. “Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next….” 

       “Bending the Arc Toward Justice”

In It’s 2020. Be bold or get the hell out of the way, Vu Le chose the occasion of MLK Day to drill down his continual message that funders as well as nonprofit organizations should stop with the endless intellectualizing and move on to action to bend the “arc of the moral universe” toward justice. What’s the “definition of equity?” he asks rhetorically. “Here’s my revised definition: Equity is about restoring power and resources to the people and communities who have been most harmed by the ongoing legacy of colonization, slavery, and injustice based on white supremacy and toxic patriarchy….There. Let’s move on. It’s not perfect, but we don’t have years to debate it like we have been. Our sector needs to think, speak, and act more boldly.”

He was sadly correct; we didn’t have “years to debate it.” It was just six short weeks until the COVID-19 pandemic engulfed us.  

While Mr. Le’s more recent writings laud those funders which have stepped up to the plate early in this crisis by pumping out much more money than usual with fewer hurdles and restrictions, he emphasizes they must do much more. They must commit to not rebuilding the flimsy and flawed institutions that were the building blocks of the old “normal.” See, for example: 

Along similar lines, see articles of note by other authors:

        Participatory Philanthropy

 About a year ago, in What is Participatory Grantmaking? (September 10, 2019), we wrote about a “recent school of thought” described by New Zealand’s Lani Evans in her essay and report titled “Participatory Philanthropy: An Overview” (2015). Her “deep interest in philanthropy” moved her to consider “whether or not philanthropy hinders social change” because it is so grounded in the “…culture-laden belief, often unconscious but seldom questioned, that possession of a greater material wealth or professional expertise is necessarily accompanied by superior skills to make things better no matter what the circumstance. This “top-down” assumption that “… people with these assets know more… extends to narrow beliefs about the identification, measurement, and evaluation of effective philanthropic practice.”  

Recent writings pick up this topic with greater urgency and renewed consideration under our current turbulent circumstances. See, for instance: 

       Conclusion

Returning again to author Arundhati Roy’s The Pandemic is a Portal, philanthropy funders must “rethink the doomsday machine we have built for ourselves,” choosing – now – not to “drag… the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas,… behind us.” 

 

 

Smashing the Overhead Myth: A Step Forward

Overhead Myth

It was just ten years ago, in 2009, when Bridgespan’s Ann Goggins Gregory and Don Howard published their groundbreaking article, The Nonprofit Starvation Cycle, in the Stanford Social Innovation Review.  Their premise: It takes money to achieve charitable purposes, and nonprofits must spend enough in overhead to avert being in constant financial straits. 

And it was just 6-½ years ago when activist Dan Pallotta first railed against the demonization of overhead in his famous TED talk. He explained that “… the way we think about charity is dead wrong.”  Nonprofits, he said, are praised for “how little they spend – not for what they get done.” 

Soon after Mr. Pallotta’s TED Talk went viral, the editors of The Nonprofit Quarterly posted a landmark letter, The Overhead Myth (June 17, 2013), from GuideStar, Charity Navigator and the Wise Giving Alliance “calling for an end to the obsession many have had with nonprofit overhead costs as a proxy for measuring effectiveness…” They explained that “the percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’—is a poor measure of a charity’s performance” and that more attention should be paid “to other factors of nonprofit performance: transparency, governance, leadership, and results….”

  Progress Against the Overhead Myth

Foundations are entrenched in their thinking and practices, so there has been resistance. More to the point, they want to give money for the exciting programs that have been pitched to them: not for equipment or staff salaries or keeping the lights on at the organization’s headquarters. And it gives them “the most direct control over the funds.” Similarly, donors want their money used for high-profile projects; fundraisers are eager to accommodate these wishes. As a result, many contributions come with restrictions including that no money go to “indirect costs.” 

There’s been progress in changing funder thinking and practices, but it’s been in fits and starts. At the beginning of this year, we asked: Are Funders Ready to Throw the Overhead Myth Overboard? (January 16, 2019). Researchers found that some “sophisticated donors and visionary funders are responding to the reasoned arguments that nonprofits desperately need financial support for their day-to-day operations and the build-up of a long-range, sustainable, structure of talent and assets.” But surveys continued to show that the funding of general operating expenses remains at just 20-25% of all foundation giving. “The good news is that number is starting to rise.”

By March, we were happy to report additional progress in Ford Foundation, Others, Move to General Operating Support (March 13, 2019). “Now, we see the beginnings of a more enlightened era: Thought leaders, nonprofit organizations, and funders and donors recognize that adequate spending on general operating expenses – including reasonable pay for nonprofit executives and workers – creates the solid structure on which a nonprofit can grow, thrive, and fulfill its charitable mission.” We cited examples including the Ballmer Group, the Chicago Community Trust, the Cummings Foundation and the Sobrato Family Foundation

We also reported that “in 2016, The Ford Foundation embarked on an important experiment and change of direction” to “give $1 billion to social justice nonprofits, with all funds going to a combination of general operating support and organizational strengthening.” After the first two years of its five-year test period, “Ford’s BUILD initiative is hitting its stride and starting to see results.”  Observers including Aaron Dorfman, president of NCRP, a philanthropy watchdog group, commented that Ford’s change of direction – away from its usual practice of giving “mostly small, short-term, project-based grants” could be “hugely important.” He added: “When Ford does things, people pay attention.” 

  Big Move Away From The Overhead Myth

What perhaps only insiders have known – until a big announcement on September 4, 2019 – is that Darren Walker, head of the Ford Foundation, has been working with four other leading American foundations since 2016 to study and develop a plan to change the focus of charitable funding for the future. The goal: to move away from the old thinking that furthered the Overhead Myth and to fund grantees out of The Starvation Cycle and toward long-term financial sustainability.

The group meeting secretly for over two years include The Ford Foundation (Darren Walker), The Open Society Foundations (Patrick Gaspard, The John T. and Catherine MacArthur Foundation (Julia Stasch, who has recently retired); The Hewlett Foundation (Larry Kramer); and The Packard Foundation (Carol Larson). These five foundations “hold combined assets of $45.8 billion, or 5.3 percent of the assets held by all of the more than 86,200 foundations in the United States.” 

According to Maria Di Mento, writing for The Chronicle of Philanthropy in Five CEOs of Wealthy Foundations Pledge to Do More to Help Charities Pay Overhead (September 4, 2019), all of the five had – “unlike many other foundations, which don’t provide overhead subsidies” – previously funded operating costs of grantees “but realized it wasn’t enough.” 

Characterizing it as “an unusual move,” Ms. Di Mento explained that these collaborators “were embarking on a major campaign to encourage all other grantmakers to join them to help cover essential operating costs.

According to Ford’s Darren Walker, the five leaders first got together in the fall of 2016 and have continued meeting “both in person and on conference calls to weigh the strengths and weaknesses of their foundations’ different approaches to supporting grantees’ administrative, overhead, and project costs.” They learned that “many of the organizations they supported – including large, prominent, household-name organizations – face major deficits because of stingy policies that provide just a sliver of the money they need to operate and run projects.” 

  Findings and New Directions

As part of the first phase, the CEOs selected Bridgespan – of the original “Starvation Cycle” fame – for consulting help and advice precisely because that organization “had been studying the persistent underfunding of grantees for at least a decade.” That group of experts “helped the presidents analyze their grant-making practices by studying a group of the five foundations’ grantees.

What has emerged so far is not a single, one-size-fits-all, solution. There has been no consensus on a “common approach to helping nonprofits shoulder their overhead costs,” according to a Bridespan partner, Michael Etzel. “The result was a menu of six grant-making approaches designed to be adaptable” to a variety of ways that funders and organizations can “work together yet provide enough standardization that the process will be transparent.”

   Conclusion

In later posts, we’ll explore these six different approaches and how this important collaborative venture moves forward. 

There is cautious optimism in the philanthropy community; it’s “fundamentally good news that some of American’s most powerful grantmakers are focusing on fixing the problem of underfunding nonprofit overhead.”

Ford Foundation Chief: Transform Philanthropy Now

Philanthropy, honey, it’s time for an intervention.” – E. Villanueva

When one of the philanthropic community’s most influential leaders, Darren Walker, head of the Ford Foundation, makes an impassioned call for change, it is newsworthy. And when Ruth McCambridge, the editor-in-chief of one of the sector’s leading publications, The Nonprofit Quarterly, writes that he “hits it out of the park,” that, too, is noteworthy.

At the close of an old year and the beginning of a new one, it’s not unusual for people of a philosophical bent to take stock and make resolutions for the future.

The Coming of Hope: A Vision for Philanthropy in the New Year is Darren Walker’s important and inspirational article on January 9, 2019, in the Ford Foundation blog Equal Changes.It is beautifully written and while “expressing faith in hope and collective longing for shared peace and prosperity,” Ms. McCambridge points out that Mr. Walker pulls no punches and “succinctly names the problem that challenges us all.”

This existential threat is growing inequality; it must be addressed now, and the philanthropic community must acknowledge some complicity in it.

Inequality as Key

“Millions of people,” writes Mr. Walker, “feel frustrated with, and excluded by, an out-of-balance global economic system they are decreasingly willing to tolerate.”

The causes are known;  “global capitalism” contributing to ever-growing inequality, “authoritarian leaders” who stoke this discontent; rapid technology changes with little-understood consequences, “and the long-standing evils of racism, classism, ableism, homophobia, and patriarchy.”

Making these problems worse is the unrelenting assault on facts and truth as well as the conduct of leaders who “openly disdain, demean, and deconstruct vital public institutions designed to serve us and our system of self-government” and the “disregard for what democratic government can do to promote equality, justice, and human dignity.”

But then Mr. Walker lowers the boom: Philanthropy, for all its achievements and good intentions, is part of the system in which this inequality germinates. And “philanthropy is by no means immune from the plague of inequality.”

The Role of Philanthropy

Walker notes that, recently, many thought leaders have presented important “critiques of philanthropy as an enterprise.”  He lists three good examples who raise valid concerns: “Many have pointed to the ways philanthropy replicates the worst dynamics and inequalities of our broader system.” He notes that he doesn’t necessarily agree with each and every point of these books or others in a “growing chorus.” But we “ignore them at our own peril.”

  • Winners Take All: Anand Giridharadas.  It “rightly skewers that segment of philanthropic giving that boasts of saving the world while fundamentally strengthening the economic and social structures that separate the haves and have-nots.”
  • Decolonizing Wealth: Edgar Villanueva. The book explains how “colonialism and oppression” contributed to our current imbalanced financial system and how “structural racism continues to shape philanthropy today.”
  • Just Giving: Robert Reich. While expressing admiration for the past of philanthropy and its potential, he discusses the “undemocratic nature of wealth and philanthropy” and calls for more transparency and accountability “in service of democratic values.”

Going Forward

The current crises did not develop overnight, and will not be solved quickly either. But, right now, “philanthropists and funders of every stripe must invest in the architects and architecture of progress—the individuals, ideas, and institutions that make change happen.”

A first step – “placing meaningful resources close to the people” – is one that the Ford Foundation itself is championing by important changes in its own grantmaking.  Philanthropists must “trust those we fund, and fund them adequately to do what they believe is best, not what we think is best, including “entrusting organizations with long-term general support funding and project grants that provide adequate overhead.”

A second step is committing to “good government” notwithstanding differences of opinion among philanthropists about the size or function of government. “Good works require good government.”

A third step is “reckoning with privilege.”  Darren Walker wants funders to examine their own “unconscious biases” and more clearly understand “how others experience the institutions of philanthropy – how remote we can be, how insular, how difficult to navigate.” He wants philanthropists to recognize that “the communities most proximate to the problems possess unique insights into the solutions.” That means committing to diversity – especially at the top of organizations.

Conclusion

The president of the Ford Foundation concludes his call to action with optimism and hope. “The good news is that I see a growing movement to appreciate the criticisms of philanthropy, and to face them head-on,” to move from “generosity to justice.” To him, this is “the best response to philanthropy’s deepest flaws and inherent contradictions.

Foundation Law: Free Online Learning

Now, perhaps more than ever, there’s a need for more people in the philanthropy sector to learn the ins and outs of the law of nonprofit organizations.

For example, funders want and need to know how they can participate in the social movements sweeping the nation. New and existing 501(c)(3)s are eager to understand what they can and cannot do in terms of advocacy along with how foundation funders can lawfully help them.

According to Philip Rojc and David Callahan, writing for Inside Philanthropy: “There’s been a lot of change in philanthropy lately.” In Rules of the Road: Why Foundation and Nonprofit Law Is Getting New Attention, they explain: “Major new funders are entering the scene on a regular basis, regional and local giving is on the rise, and fallout from the 2016 election has led to important changes in how some funders operate.”

Of course, many foundations have “historically been skittish about engaging too deeply in public policy and electoral politics.” They have questions and concerns about what 501(c)(3) institutions, and foundations, in particular, must do to comply with the law. As anyone reading this blog can attest, “what the law really says … can be hard to figure out.”

“Learn Foundation Law” Courses

Back in 2010, well before the current tumultuous political climate, the legal staff at four major American foundations (including the Bill & Melinda Gates Foundation) saw a need for “easily digestible” and widely available training resources for funders and grantees alike. They joined together to create a “free first-of-its-kind resource for private foundations (and others who are interested), to host e-trainings and tools related to the basic legal rules for private foundations.” What emerged from this collaboration is “Learn Foundation Law,” a comprehensive online training program about legal issues in grantmaking, designed to supplement existing in-person training courses.

The courses are intended for “new entrants to grantmaking, whether they’re greenhorn funders themselves or newly hired foundation staff.” They are about one hour long, and “cover all the basics, from how foundations should interact with government officials to expenditure responsibility and prohibitions on electioneering. There’s even a course on the rules surrounding program-related investments.”

Each course “features a program officer named Maya who leads participants through the training.” The students can continue to take advantage of the program by way of a refresher attendance at courses they have already completed.
Recently, the website was redesigned and relaunched to add more materials and update the trainings to reflect current developments in law and the changes in the political landscape.

Course for Public Charity Grantees

A new offering on the redesigned website is a course for grantees, not funders. It explains the rules for public charities seeking foundation funding for advocacy work. The Learn Foundation Law team “saw the need for an advocacy course for grantees – to help organizations navigate the rules around advocacy and lobbying, and to explain how private foundations can fund public policy work.”

Conclusion

“The resource is no doubt welcome, especially as nonprofits cry out for the general support that’ll help them build movements and break through political deadlock,” according to the authors of Rules of the Road: Why Foundation and Nonprofit Law Is Getting New Attention. In the same article, though, Rojc and Callahan raise – at length – some of their serious philosophical concerns about expanded involvement of private foundations in the advocacy work of public charities.

First, they present “the larger question”; that is, “whether foundations should be so close to the levers of policy in the first place.” Second, they voice their own “deep” concerns as well as others’ “about the state of American democracy” and whether “philanthropy can fix the potential erosion of American civic institutions.” They also worry that philanthropy is “contributing to that erosion by distorting the power balance of civil society in favor of the rich. And by bankrolling so many fiercely ideological voices.”