Chronicle of Philanthropy

This post originally appeared in The Chronicle of Philanthropy.

Open Road Alliance founder Laurie Michaels wrote a piece for The Chronicle of Philanthropy calling for change in the long-standing relationship dynamics between donors and non-profits, suggesting it’s time to communicate more clearly in order to collaborate more effectively.

January 14, 2015–Nonprofits face constant pressures to evolve: to develop the new, better, more effective, less expensive way to create change.

A big source of this pressure: Grant makers whose repeated message is that their dollars should support only innovations that promise a faster, more efficient, and less expensive path to success.

But instead of scouring the horizon for a sexy new project to fund, committed donors like me—and foundations of all sizes—should focus on adopting our own new, better, more effective processes and approaches to funding the charities we care about. If we did, we would change the way we do business and adapt to the needs of the nonprofits we support. We would stand ready to help them immediately when they hit an unexpected roadblock by providing the kind of support we would give one of our commercial ventures in similar circumstances.

Once we select a good partner, we should commit to give that group what it requires to ensure its projects don’t fail. Too often donors and grant makers are stingy and difficult about letting their money go. They attach to their grant agreements riders, restrictions, and requirements that waste staff time and complicate the process of achieving impact.

In these pages in September 2013, I wrote. about why I created a foundation that would give money to help projects that hit obstacles nobody could have expected. I had realized in talking to nonprofits that this kind of money was impossible for most groups to get—even though it was often a small sum compared with the initial grant a foundation made for a project.

In the year since, I’ve quickly learned about other reasons groups need a helping hand. Yes, inevitable unexpected challenges cause disruption, but so does the fact that many donors don’t provide sufficient grant money from the outset to cover the real costs of a project. Many projects are behind before they begin.

Since 2012, when I began to work on this effort, I have spoken with dozens of nonprofit leaders who describe how their programs are routinely shortchanged by their financial supporters.

In an examination of independent research, as well as our reviews of over 75 applications for emergency funds, we have found repeated examples that demonstrate why so much of philanthropy is dysfunctional. Foundations as well as affluent donors:

  • Refuse to fund the full amount requested in an application but don’t correspondingly narrow the scope of what they stipulate must be accomplished. In some cases, they expand it.
  • Give priority in grant making to the lowest bidder without thinking hard about how much money it honestly takes for a project to succeed. Nobody wins in this situation.
  • Stipulate conditions when they award a grant, like a requirement to work with a local organization, but refuse to provide funds so that the nonprofit can travel to vet and develop a partnership.

Yet none of the nonprofits I talked to had ever told donors that their funding practices were counterproductive. Nor would they allow me to tell their story, for fear the donor would react negatively toward a group that was critical of their methods. After all, they are giving their money away, so why isn’t everyone pleased with them?

Money is power, and it’s warping the relationships between partners who need to be completely interdependent. Foundations cannot effect change without nonprofits doing the work. However, nonprofits can’t go on strike for fairer terms, and so the power remains on the side with the dough.

In general, the grant-making process is designed for the ease of donors who often lose sight of what their true role is. Their role is to vet a potential partner and then back that group in a mutually beneficial relationship. Instead, many grant makers are so specific about how nonprofits can spend money that the nonprofit can’t modify its plan even if it learns after the work begins that success requires an entirely different approach. Donors also make it clear that no funds will be available outside of traditional grant-making cycles. Maybe foundations think such frugality is what good stewardship means. It doesn’t. It reduces impact, which is contrary to the goals of the foundation.

Most nonprofits are desperate to please donors. This unequal relationship inevitably leads to breakdowns in communication. Since nonprofits feel they cannot argue or turn down money, they accept restrictions and inadequate sums.

This becomes a vicious cycle: Program officers admit they knowingly underbudget because they believe foundations or other donors will be reluctant to pay for the true cost. Then, after the programs get going, they find they can’t do everything essential to succeed with the money they have, but they can’t renegotiate.

To be fair, in these cases nonprofits can be so oblique and noncommunicative that a willing donor can’t possibly know how to provide essential help. Nor is it really part of nonprofit culture to ask for help after the initial check is cashed. Staff members try to figure out whether a donor might be one who could be sympathetic to a request for extra help right away. But if the odds don’t look good, they often decide it’s better to let the project risk failure than jeopardize the relationship.

Moreover, this power differential is not simply an external relationship. It also exerts a corrosive influence within foundations and nonprofits.

While many program officers are supposedly encouraged to take risks by the institutions they serve, they still fear the consequences of asking their superiors for more funds to help a grantee. They don’t wish to appear as though they picked loser projects in their portfolios. So program officers don’t want to tell their boss that a program needs more money.

Similarly, nonprofit staff members who write grant applications don’t want their grants turned down so they don’t tell their boss that they are low-balling the cost. Somewhere the organization has to find that money, though.

Clearly both sides need to be talking to each other. Foundation executives need to convince their board and staff members that flexibility is an essential part of grant making and provide incentives to encourage this behavior internally. They need to treat nonprofits like equal partners, asking grant applicants to accurately state the full costs of what it takes to succeed in a project and add in estimates of contingency needs. Their program officers would scrutinize budgets from top-down and bottom- up approaches and question areas in which the numbers look unrealistically low or high.

Nonprofit leaders need to invite their staff members to speak candidly about program costs as well as potential or actual disruptions that put a project in jeopardy.

The nonprofit world does not appear to be embracing this kind of change. On all sides, fear of embarrassment, loss of status, loss of employment, arrogance, and ignorance abound. But so, too, does a genuine wish to change the world, and this common motivation and goal are what should lead us all to think and act differently.

Fundamental changes in organizational behavior are difficult to achieve but much less difficult than the real problems of the world we are all trying to solve, like ending malaria, alleviating poverty, or curbing climate change.

The transformation we need requires structural changes in how donors dispense their money, as well as more honesty between grant maker and nonprofit. Some changes will be incredibly simple, like setting aside a cushion for emergencies with every grant in recognition that something may go wrong. If nothing does go wrong, such emergency funds can simply be passed to the next project or put into a revolving fund to help other charities facing emergencies.

We all need to understand that failing to prepare for risk and contingencies is costing everybody too much time and money. It is far too hard to find donors who believe that their responsibilities continue when emergencies happen. It is distressingly easy to find donors who actually cause disasters by delaying their decision making or reducing the actual check, attaching new conditions after a grant agreement is signed, or cutting off funds with no warning.

Failure should be a rare outcome, not a constant threat. When grant makers undercut a project from the start, they are choosing a course that is destined to have a higher fail rate than if they provided adequate funds from the start. A nonprofit should be able to rely on its financial partners, knowing that it will enjoy full support.

So here’s a simple proposition: Let’s create long-term success by building collaborative relationships in which both donors and nonprofits acknowledge their desire to be fully supportive of each other in pursuit of a mutual goal. Then let’s make it happen.

This article was written by Laurie Michaels, founder of Open Road Alliance, an organization that makes grants and loans to nonprofits in need of emergency aid.