Donors Too Often Support Visionaries Who Don’t Have Management Skills

By MARK R. KRAMER

Leadership is not the same as good management. Yet neither can be effective without the other.

Whether in the nonprofit or the for-profit world, a good executive director or chief executive officer needs to be a motivational leader, instilling a sense of energy and vision to gain cooperation from those outside the organization and commitment from those within.

But vision and energy aren’t the same as management, either.

Vision helps to determine what an organization needs to get done. Management is the ability to shape an organization so that it does what is necessary in a timely, efficient, and effective way. That requires developing and adhering to a set of operating procedures, financial controls, budgets, and the like.

Such work may be less fun than planning a grand strategy, but it is essential if the organization, whether charitable or commercial, is going to deliver its services with a consistent level of quality at the lowest possible cost.

Foundations are beginning to pay considerable attention to helping their grantees build their management capability and increase their organizational effectiveness. Grant makers are realizing that the better managed a nonprofit group is, the more effectively their grant dollars will be used.

Those efforts to improve management and operations, however, are not always welcome or successfully carried out.

The reality is that a nonprofit group’s survival depends on attracting and satisfying donors, which is not the same thing as whether its services are delivered effectively.

And therein lies the root of the problem in nonprofit management: the way in which donors make their decisions in the first place.

Speaking from my experience as a foundation trustee, I often think about how a grant maker arrives at a decision. First, one must select a written proposal that sounds exciting and important enough to stand out from the flood of other requests. Such a proposal takes a good writer, a great new idea, and a compelling vision.

Next, the foundation may ask a prospective grantee’s founder or executive director to come for a meeting. Perhaps a program officer or trustee goes so far as to do a site visit, spending part of a day being shown around by that same leader.

Often, the program officer or trustee comes back and says to the foundation board, “Wow! What a great idea, what a compelling need, and what a terrific chief executive. I really liked him — so committed to the work, so insightful about the issues, so energetic and visionary.”

And then the foundation makes the grant.

Once it is made, little attention is paid to evaluation. The foundation may look to see if the money was spent as intended. The board may feel good when it gets a report that tells how important the grant was, though such reports are usually thinly disguised preludes to further requests for money. The grant maker might even hire an outside evaluator to decide if the grant “worked” and what lessons can be learned for next time. But how often do foundations look to see if the services were delivered as cost-effectively as they were at other organizations with similar missions?

The problem with nonprofit management lies right there — in the foundation’s failure to link financial support to performance. What grant makers and individual donors most often support is charisma. And they mistake leadership for management.

If, instead, foundations focused their grant making on well-managed charities and didn’t contribute to poorly managed ones, they would begin to exert forces that parallel a competitive market and push nonprofit groups toward better performance in their delivery of services. This redounds to everyone’s benefit, because as charities become more efficient, they begin to have greater impact, and both the charities’ and the foundations’ limited resources can go further in tackling society’s problems.

It is popular to draw parallels between philanthropy and venture capital nowadays, and I can’t help myself: Imagine if, after a single meeting with a venture capitalist, a start-up company got the money it was looking for. That’s highly unlikely. Engaging the venture capitalist’s interest is only the first step. An intensive due-diligence period typically follows in which all aspects of the company would be examined.

Financial performance would be analyzed and compared to that of other companies delivering similar services. The strength of the entire management team, not just the chief executive officer, would be assessed. And the quality and cost of services that were being delivered would be evaluated rigorously. Customers and suppliers would be solicited for their opinions about the company’s performance. References would be checked for key managers.

And at the end of this painful and often protracted process, the venture capitalist would be able to make a judgment about whether the company was well-managed.

Yet, how rare it is for foundation executives to evaluate potential grantees in the same manner that venture capitalists assess the companies they support. For many, if not most, grant makers, it’s impossible to investigate grant applicants adequately because the foundations make so many grants to so many organizations, and they are deeply reluctant to spend money on staff or overhead.

Foundations might do an even greater service to society by making fewer grants, investing in sufficient staff, and doing their homework better — in other words, acting as the force that links contributions to performance.

A few grant makers are beginning to do so. The Edna McConnell Clark Foundation, in New York, for example, has decided to work closely with a limited number of grantees, making five-year commitments of support.

The foundation’s staff spends between 150 and 200 hours on due diligence before a grant is made. The staff bases its investigation on seven criteria that are composed not only of the mission and social impact of the organization, but also its financial health, management capacity, operational viability, evaluation processes, and technological capability.

But most foundations, to say nothing of many individual donors, skip the due-diligence step. Or they think that a site visit tells them everything they need to know.

And it does, about charisma, but not about management.

Mark Kramer is a founder of the Center for Effective Philanthropy, a nonprofit research organization, and managing director of the Foundation Strategy Group, a consulting firm in Boston. He is a regular contributor to these pages. His e-mail address is kramercap@aol.com.