February 26, 2009 | Read Time: 4 minutes
The economic collapse has caused woes for all parts of society, especially for the nonprofit world, where endowment assets are dwindling, sources of donations and government aid are drying up, and demand for resources has skyrocketed. But there is at least one small reason for nonprofit workers to smile through the pain: Perhaps this ordeal will finally lay to rest two persistent myths that have plagued philanthropy for far too long.
Myth No. 1 is that foundations and nonprofit groups should be “more like businesses.” Not to be churlish, but in the current environment, one is finally tempted to wonder: Which businesses? Wall Street’s financial houses? Detroit’s automakers?
Myth No. 2 is that foundations are secretive, ethically shady institutions crying out for guidance and oversight from enlightened legislators and bureaucrats.
This second myth has recently taken the form of lawmakers in California and elsewhere asserting that too much philanthropy goes to the “wrong things,” which apparently includes the arts and colleges attended by donors.
If foundations won’t give more to the “right things,” the definition of which varies widely, then government will just have to step in to save us all from this crazy orgy of people giving to things they personally care about.
Again, one wonders if these are the same alert watchdogs who now cannot account for how banks have used $350-billion in government-financed bailouts or who somehow missed Bernard Madoff’s staggering $50-billion Ponzi scheme.
I mean to sound only mildly bitter. After all, as legends often do, those myths have served a useful end.
Studying the for-profit world has made nonprofit organizations more accountable, more focused on results, and better stewards of scarce resources. And government scrutiny has brought much-needed light to abuses by some foundations, resulting in more openness by most foundations. And just because nonprofit groups can learn from business and government does not mean they must remain eternally the teachers. In fact, recent events suggest they could learn a great deal from the nonprofit arena.
Here are five basic lessons we could have taught both government and business leaders if they had asked:
- When giving money away, set conditions on how it will be used.
When I learned the federal government hadn’t required banks to use their bailout money to start lending again, all I could think of was Homer Simpson hitting his head and yelling, “Doh!”
Then I imagined trying to explain an error of this magnitude to my board: “Yes, it was the biggest grant we ever gave. Yes, it was supposed to loosen up the credit markets. No, they weren’t supposed to use the money to puff up their balance sheets and award themselves huge bonuses. But there’s nothing we can do because we just, well, gave them the money.”
I would be summarily thrown out on my ear. In philanthropy, we know that money changes behavior only when conditions tie it to specific actions and results. Otherwise, it’s just a gift.
- Make sure one of those conditions is a full accounting of where the money went.
Could it really be that you can give somebody $350-billion and they don’t have to tell you what they did with it?
The answer is yes, unless you make reporting on how the money was used a condition of accepting it. Foundations know that, which is why most of us make this a condition for virtually any grant we give.
- Good intentions don’t always produce good results.
The subprime fiasco resulted partly from policy makers and financial leaders forgetting a rule nonprofit workers know all too well.
Opening homeownership to everyone may have been a laudable goal, but laudable goals don’t equate with laudable programs. That’s especially true when you forget our next lesson.
- Giving people or organizations more than they can handle is just setting both them and you up for failure.
Foundations and nonprofit groups have learned there is nothing admirable about giving or lending money to people who are not in a position to use it wisely or pay it back. You will only help dig a deeper hole for them.
Before foundations make a grant to an organization, we want to know if it is ready to handle an influx of resources. If it isn’t, we don’t just make the grant anyway; we work with the organization to help get it ready, or we walk away.
- Hiding your mistakes just leads to bigger mistakes.
Foundations and nonprofit groups have not generally excelled at disclosing failures. On the other hand, I don’t recall them ever bundling their mistakes, repackaging them as high potential investments, and selling them to unsuspecting buyers. Lately foundations have been embracing the idea that disclosing failures produces fewer of them; Wall Street and government should adopt the same philosophy.
In a struggling economy, foundations and charities are being called upon every day to do more and give more. Unfortunately, our resources are minuscule compared to the scale of need.
As these five examples attest, however, what we do have is knowledge about how to do philanthropy well. Perhaps, in the age of the big bailout, it is time for the teacher to become the student, for government and business to be “more like philanthropy.”
Grant Oliphant is chief executive of the Pittsburgh Foundation.
