Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

September 28, 2009

Foundations need to act smarter

By Todd Cohen

Charitable foundations are missing a great opportunity to help nonprofits do a better job.

Foundations face little regulatory oversight, are free to do pretty much what they like, and lack any market incentive to adapt to nonprofits’ actual needs.

Foundations account for only 13 percent of $307 billion in annual charitable giving in the U.S.

And private foundations each are not required to pay out in grants and overhead combined more than five percent of their assets each year.

It is no wonder many foundations remain isolated from the day-to-day realities nonprofit face.

For their part, nonprofits enable foundations’ lack of connectedness.

Needing operating capital, many nonprofits take the role of supplicants and treat foundations officials like philosopher kings and queens.

So nonprofits will jump through hoops to try to meet foundation grant guidelines that can be arbitrary and unrealistic.

A new report sheds light on the parallel universe many foundations inhabit.

While many of them mean well, genuinely wanting to help nonprofits more effectively address the symptoms and causes of social and global problems, foundations also can be blind, failing to see nonprofits’ real-world needs.

Foundations also can be in denial about the gap between what they expect and demand of nonprofits and operating challenges nonprofits actually face.

With the recession placing enormous financial and operating pressure on nonprofits, foundation funding could be making a much greater impact on nonprofits.

“On the Money,” a new report from Grantmakers for Effective Organizations, or GEO, says grantmakers are partly to blame for nonprofits’ continuing financial stress.

“The size of many grants and the strings attached to them often don’t align with the results grantmakers are asking of their grantees,” says Kathleen Enright, president and CEO of GEO. “Many of the ways grantmakers provide financial support to grantees are actually counterproductive and can detract from nonprofits’ ability to have an impact.”

Rather than helping nonprofits cover their operating costs, for example, grantmakers “overwhelmingly” prefer to make grants that support direct delivery of services, GEO says.

It also says foundations place “enormous burdens” on nonprofits through grantmaking practices such as “duplicative” grant applications and demands for “arbitrary impact indicators.”

And foundations’ “lack of knowledge about the true costs of running a nonprofit often leads to ineffective grants and financially-challenged” nonprofits, GEO says.

Foundations can be a great resource for nonprofits by providing funds they need to strengthen their organizations and deliver services more effectively.

To do that, foundations should work to better understand and address nonprofits’ actual needs and challenges.


  • At 8:04 PM, Blogger Tom Bailey said…

    The challenge is that foundations quite often want even MORE control than just what is in the grants. The "what is in this for me" often goes outside of just the improvement of the cause of the charity.


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