February 25, 2011 | Read Time: 4 minutes
Over the past few months, the Nonprofit Finance Fund has had the opportunity to work with several foundations and regional associations of grant makers across the nation on efforts to rethink how they can better use their grant dollars to achieve more and better results in their communities.
Time after time, I have been struck with the deep desire by foundation program officers and staff members to change what many understand is a flawed system. Too often, foundations bear the brunt of the blame for creating many of the problems facing nonprofits.
As Ann Goggins Gregory and Don Howard suggest in the Stanford Social Innovation Review, the problem boils down to “funders’ unrealistic expectations about how much running a nonprofit costs.”
Laying the blame and responsibility on the doorstep of grant makers and their “unrealistic expectations” might play well with many people who work at nonprofits, but it won’t achieve the results we want to see.
In reality, grant makers and nonprofits are actually in the same boat, ensnared by a set of dysfunctional rules and conflicted beliefs about money.
While there are certainly bad grant-making practices that undermine nonprofit financial health, I have found many program officers, trustees, and foundation managers who have a deep understanding of nonprofit economics and the realities under which nonprofits are struggling.
To really understand why nonprofits struggle to cover their full cost of doing business, why a foundation grant can actually drain an organization’s liquidity when it does not cover the full cost of a service, or why the nonprofit world lacks an equity ethic, we need to understand the broader historical and social context of money in American society.
We are a nation with deep divisions, fears, and conflicts when it comes to money.
As the activist Lynne Twist notes in her book The Soul of Money, “Personal money issues, as well as issues of sustainability and social equity central to the human economy and the environment, are clearly rooted in the soil of our relationship with money and the money culture into which we are born and which we come to accept as natural.”
What’s more, she notes: “For most of us, the relationship with money is a deeply conflicted one, and our behavior with and around money is often at odds with our most deeply held values, commitments, and ideals.”
Likewise, Dan Pallotta, who has built businesses that serve nonprofits, writes in his book Uncharitable, “Our rules and ideas about charity began their journey into formalism with Puritan constructs. These constructs placed reason and results second to … self-sacrifice, self-denial, self-accusation, suffering, [and] self-criticism.”
Sacrifice, denial, suffering, and criticism—sadly these constructs are still in place for much of the nonprofit world.
It is out of these conflicted ideologies that the money rules that govern nonprofits were created. They tell us that anything resembling profit or self-interest must be banned; that philanthropy is distinct from the “real world” of for-profit business; and that overhead and profits are unnecessary and unrelated to mission.
These money rules and ideas about philanthropy constrain not only nonprofits but also foundations and their employees. Donors’ sometimes unrealistic expectations are symptoms of, not causes of, a much broader social anxiety about money.
So while helping foundation and nonprofit leaders understand the fully loaded cost of doing business is a needed step, we will not achieve the scale and social impact we seek until we deal with the broader rules that govern philanthropic enterprise.
One step is to change the language nonprofits use. We should never view ourselves as second-class citizens begging for scraps. Nonprofits are corporations that produce jobs, stimulate the economy, and promote more sustainable and vibrant communities. Nonprofits are businesses that exist to fill voids that cannot or should not be filled by for-profit corporations or government.
I am pleased to see that change is happening. Nonprofit leaders are talking more about their capacity to carry out their missions and less about overhead. More and more grant makers recognize the need for nonprofits to have a surplus and build reserves. Donors and boards recognize that growth isn’t always good, and buying that building isn’t always such a great idea after all
We can get there, but it won’t happen by laying blame and responsibility on someone else’s doorstep.
