With Money Tight, New Grant-Making Approaches Needed

To the Editor:

The rising conversation about new standards of accountability and giving for foundations is a welcome one. The national recession is rapidly sharpening cash-flow-management skills among nonprofit executives, but the current scarcity of grants is exacerbating trends that were already in motion.

First, foundation decision-making cycles are growing ever lengthier. Lead times of as many as nine months from proposal submission to the foundation’s eventual decision are now common, as are prohibitions on reapplying before one’s current grant is completely spent.

The results are a funding stream that is anything but seamless, and tough choices for executive directors. Do you retain the staff person whose program is technically unfunded for nine months? We know that with consistently successful fund raising the organization would have other grants to round out the program while one foundation is making its decision. But as the recession cuts deeper, more and more nonprofits, including some of our most effective and well respected, are cutting back.

The general-fund cushion that executive directors typically dip into to cover temporary gaps in funding is running thin. One risk too many can develop into serious financial trouble.

That trend is compounded by today’s standard one-, two-, and three-year grant periods. In today’s world, five- or 10-year core-operations grants seem like a pipe dream: They would convey a level of trust by the foundation’s trustees in the organization’s leadership that is nearly unheard-of.

Artful proposals are able to convey a project’s snappy kickoff, action phase, and powerful outcomes all within the 12 or 24 months specified by the foundation’s guidelines, but ask any executive director about those time limits, and my guess is that they will answer that they are meaningless. For practical purposes, such as gaining real ground in addressing a complex social issue, grant periods, like the lines on ancient maps, do not exist.

To be sure, there are excellent reasons for grant periods and internal decision-making cycles. For foundations, one assumes that six to nine months of review time are being used by staff and trustees to select the most-effective proposals. The shortened grant period provides an avenue to terminate funding for groups that, for whatever reason, are no longer appropriate fits with the foundation. For nonprofit groups, calendars and benchmarks focus the mind: We should be able to articulate our programmatic goals, strategies, and outcomes — foundation requirements are a good tool for measuring progress.

But at the moment, the power lies entirely on one side. There is no means by which nonprofit executive directors can offer honest responses about the halting and trend-driven nature of grant making to their foundation colleagues. The “avenue to terminate funding” is very real, and, from the nonprofit’s point of view, often capricious: An organization can be cycled off for any reason at all (was it a failure to cement a personal relationship? a change in the guidelines? donor fatigue?) and has no means of recourse.

The upshot is a path of communication in which anything one side says goes. Although management classes counsel us to do so, it is a rare director who approaches a foundation to scale a proposed work plan down if a grant is smaller or later than expected. Nonprofits engage in an unspoken competition to relabel their programs with the latest buzzwords, trying to demonstrate “responsiveness” ahead of their colleagues.

In practice, perhaps all of this evens out: When one door closes, nonprofits have a remarkable ability to find an opening somewhere else. But the pending Blunt-Ford bill [a House measure that would, in effect, force most foundations to give more away annually] is evidence of rising discontent with the one-sided relationship, and the scales could tip back in the other direction.

The challenge will be to develop new standards of accountability that do not encroach too far on the fundamental right — which should remain intact — of foundation staff and trustees, as managers of private philanthropic capital, to formulate their theories of social change and invest their funds as they see fit. Creative thinking about how to open new avenues of communication between nonprofits and foundations is in order, without swinging too far toward restrictions and directives. Such avenues would themselves be a welcome new form of accountability.

Rachel Peterson
Consultant to nonprofit organizations
San Francisco