Foundations giving less for social change

By Todd Cohen

After gaining ground in the first half of the decade, foundations in the wake of the 2008 economic collapse have reduced their investing in efforts to try to fix flawed social systems to better serve people in need.

That finding in a report from the Foundation Center on the impact of the 2008 financial crisis on social-justice funding is particularly troubling because our deeply-afflicted economy has put vulnerable populations at even greater risk.

Social-justice grantmaking in 2009 fell to below 2007 levels, and likely still will trail 2008 levels in 2015 if funders do not see five years of above-average investment returns, says the report, Diminishing Dollars.

So in addition to the pain it has inflicted on people in need, the broken economy is making it tougher for nonprofits that work for systems-change to secure the funds they need to do their work.

And in the face of escalating and interconnected social and global crises, the nonprofit perspective in the often-corrosive debate about systems-change is indispensable.

Working in the trenches of society, nonprofits see first-hand the damage its broken social systems inflict on vulnerable people, as well as the obstacles those systems create for needy people to help themselves.

And nonprofit policy groups serve as the civil society’s research-and-development arm.

Foundation support is important, yet foundations accounted for only 14 percent of the nearly $291 billion in charitable giving in the U.S. in 2010, with nearly half of foundation giving coming from family foundations.

And data on social-justice funders sampled in a separate report from the Foundation Center, show their giving totaled only $3.1 billion in 2009, down from $3.7 billion in 2008.

So with foundation support shrinking from an already-small base, the challenge for nonprofit groups engaged in policy work is to better identify and tap private resources in the social economy that can be used for social good.

To address rising demand for the work they do, all nonprofits, not just those involved in policy work, face huge challenges in strengthening their organizational “capacity,” including the need to stop treating fundraising as a business transaction and build more meaningful partnerships with individual donors, foundations and corporations.

Policy work is difficult, messy and thankless, and it is essential that nonprofits be able to make a clear and compelling case that helps donors and funders understand social and global problems, and see how supporting their organization will help address those problems.

That requires even more work on the part of policy groups to understand funders’ values, the causes they care about and the problems they face.

Doing a better job understanding and connecting with donors and funders not only can produce greater investment in policy work, but also can help build the networks of individuals and organizations that will be needed to truly fix the broken social systems in our damaged society.

Foundations, business adapt for impact

By Todd Cohen

Foundations and corporations increasingly are recognizing they can have a bigger impact on causes they care about if they make full use of their assets.

That is good news because the social economy needs to grow to address social and global problems that are accelerating in the face of escalating economic, political and environmental crises.

Foundations, which can be maddeningly slow to adapt to economic and social change, and pig-headedly resistant to changing the way they do business, increasingly are moving beyond making grants and also making loans and investing in capital markets.

And corporations, which in recent years have tried to align their philanthropy with their business strategy, now are beginning to look at ways to use all their assets to invest in causes that will help address social and global problems that also represent big obstacles to their own bottom line.

‘Mission investing’

With the model for using private assets for public good evolving quickly, a growing number of foundations are pursuing “mission investing” to achieve a social benefit.

Private foundations are required by law to pay out at least 5 percent of their assets each year in grants and overhead costs.

In a healthy economy, foundations typically count on income they earn from investing their assets to cover that payout.

And they scream bloody murder when anyone suggests they be required to pay out a bigger share of their assets.

But with gloom and doom in the economy, more foundations seem to understand they can better advance the causes they care about by using more of their assets.

A recent report by the Foundation Center found that, among nearly 1,200 foundations that responded to a survey, 168 foundations with a total of over $119 billion in assets engage in some form of mission investing.

Half of those foundations, for example, hold “program-related investments,” or PRIs, often in the form of loans, loan guarantees or equity investments.

Those PRIs are derived from a foundation’s assets but count toward their 5 percent payout requirement.

Another 22 percent of responding foundations hold market-rate “mission-related investments,” or MRIs, that broadly support the foundations’ programmatic goals but do not count toward their required payout.

And 28 percent invest in both PRIs and MRIs.

‘Sustainable value creation’

A report earlier this year from Accenture and the Committee Encouraging Corporate Philanthropy called on corporations to do more to integrate social change into their business models to improve both their business and society.

Using a strategy known as “sustainable value creation,” the report urged companies to identify social and global problems that serve as obstacles to their business, and then take the same approach to addressing those problems that they take in addressing business problems, using all their corporate assets and smarts.

In the process, corporate social investing becomes a way to benefit society while also improving the company’s bottom line.

In the face of rising expectations from shareholders, growing demand for greater transparency, and the need for new sources of growth, the report said, companies should move quickly to find ways to combine their own interests with those of society.

Impact investing

With the wounded economy compounding social needs, prompting cuts in social spending by government, and creating fear and uncertainty on the part of donors and funders, the charitable marketplace needs to find ways to grow and tap private assets that are not being used for public good.

By moving beyond grantmaking and investing more of their assets to address critical social and global problems, foundations and corporations are helping to expand the social economy by looking for new ways to put private resources to public good.

That kind of innovation is critical to help make the social economy more productive in serving people and places in need.

Nonprofit capacity needs more investment

By Todd Cohen

Nonprofits face a crisis in their organizational “capacity,” and their boards and funders need to step up to help address it.

Traditionally expected to do more with less, nonprofits are strained to the limit because of the wounded economy, with many of them at serious risk of failure.

Facing rising demand for services because the economy has hammered their clients, nonprofits also have had to cut their budgets, freeze or cut their staffs, salaries and benefits, and intensified the pressure on staffs already under stress and often headed toward burnout and the exit.

Yet instead of actively piloting their organizations through a storm that is setting off alarm bells, nonprofit boards keep hitting the snooze button.

Funders could be doing a lot to help, but many are preoccupied with their own agendas.

Individual donors are cautious in this uncertain economy and looking for ways to be more involved in causes they care about and to have a greater impact.

A growing number of foundations are looking for “evidence-based” programs that make a big impact.

And corporate givers are looking to invest in causes that will have a big impact on social and global problems that also represent big obstacles to their own bottom line.

An effective way for individual and institutional donors to increase their involvement with nonprofits, as well as their impact on causes they care about, is to invest in building the capacity of nonprofits.

And nonprofits face a long list of capacity challenges.

· * A mass exodus is expected among executive directors because of retirement, burnout and lack of board support, although the ailing economy may prompt some leaders to delay their departure.

· * Boards, often selected and serving for the wrong reasons, lacking a clear sense of their role and responsibilities, and typically clueless, need rigorous training and development.

· * Focusing on delivering services and making ends meet in the face of rising demand from clients and heightened caution and expectations from funders, nonprofits often short-change the need to plan strategically.

· * Nonprofits have become perpetual fundraising machines yet often treat donors as automated teller machines and fail to take the time to get to know their donors, cultivate them, engage them in their organizations, and help them see the connection between supporting the nonprofit and addressing the causes they care about.

· * Individual donors, foundations and corporate-giving programs want nonprofits to measure the impact of the grant funds they receive, yet few nonprofits are equipped to track and make sense of impact metrics.

· * Telling their story and communicating with donors, funders, partners, sponsors and clients is critical for nonprofits, yet they often lack the time and know-how to develop and practice he communication skills they need.

· * Nonprofits face huge challenges in acquiring and making productive use of technology to help run their back-office operations, and handle their fundraising, marketing and communications.

· * Funders increasingly want nonprofits to form partnerships to qualify for grants, but collaborating is hard work and requires a lot of time and resources.

· * Nonprofits are highly complex organizations, yet donors and the media typically expect people who work for nonprofits to take a vow of poverty, a model that is not realistic if nonprofits expect to attract the professionals nonprofits need.

· * Policy work and advocacy are critical tasks for all nonprofits, yet they typically shun it either because they lack the time or expertise to get involved, or because they believe they are not supposed to be advocates or fear that engaging in policy work may be too controversial and will upset their funders.

Building all or any of that capacity requires resources, and nonprofits boards should be working hard to help their organizations secure those resources.

Nonprofits also should be working to help funders understand their need for support to build their capacity.

And funders should be working to move beyond their default position of demanding too much of nonprofits while providing too little support.

While demanding that nonprofits measure their impact, for example, too few funders provide the funds to help pay for that measurement.

Nonprofit boards and philanthropic funders can take a big step in helping to address the urgent social and global problems we face by making significant investments that help nonprofits build their capacity to operate more effectively, efficiently and strategically in serving people and places in need.