Funders Get Real

Posted by Laura Otten, Ph.D., Director on February 18th, 2020 in Thoughts & Commentary

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Having worked for decades in the industry that so many derisively refer to as the “ivory tower,” I’d like to share that pejorative with funders.  While I don’t really want to heap more criticism on donors than they already get, it is really time that donors get smarter, step out of their sanctuaries, and be real.

A recent set of google alert headlines from around the country told the story perfectly:  25% of the headlines were about nonprofits that failed, all the while being supported by organized funders.  How had the donors failed to see/care/notice/question the serious financial challenges that the organizations had been facing over time?  The need to close organizational doors is rarely in response to sudden change.  To outsiders, it may seem like a nonprofit shuts down overnight, but the reality is that the handwriting had been on the wall for quite some time, usually years.  Leadership—paid and volunteer—was choosing to stick their heads in the sand/leave it for someone else’s watch/hope it would fix itself/I have no clue.  How did those donors, many continuing to throw good money at ineffective and/or failing organizations—miss the signs?

A while ago, after a near-full clean sweep of a foundation, I was asked to come in and speak to the new staff and explain the realities of life as a nonprofit.  Seriously.  The people in the room were not nonprofit folk.  They were academics, for-profit analysts, and for-profit managers.  I was stunned by the naiveté of their questions, the rigidity of their view of the world and the complete lack of real-world experience in, and practical knowledge of, the sector they are charged with funding.  Sadly, this profile is, increasingly, not an uncommon one of those working in positions that give money to nonprofits.  Given this, it is impossible not to wonder how they are deciding which nonprofits are deserving of funding and which are not.

Advocating for moving away from the archaic and inappropriate practice of judging the goodness of a nonprofit by its overhead ratio does not mean we throw the baby out with the bathwater.  Understanding a nonprofit’s multi-year financial health—past and projected–should be the first step in evaluating the worthiness of a funding request.  Regardless of the other important variables to assess in making a funding decision—programmatic impact data, strength of paid and volunteer leadership, etc.—it is first essential to determine whether the organization has the financial moxie to be here for at least a long(ish) haul. 

Once the determination has been made that the organization requesting the grant is solvent, and likely to remain so for the future, it is time to look at the quality of the request.  As raised dollars become ever more scarce with more nonprofits competing for a diminishing pool of donors’ dollars, funders have an obligation to those they increasingly like to call their “partners” (the nonprofits they fund), to not waste those dollars by giving them to organizations that turn around and close, squander the dollars, or play fast and loose with donor dollars.  Simply put, that is a slap in the face to those who deserve the support.

I fully get that donors’ dollars are theirs to do with as they please.  But I’ve also never met a donor—organized or individual—who doesn’t want her/his/its dollars to be used for good, to help others, communities, etc.  So, where is the disconnect?  Why do funders continue to make bad choices in the organizations and programs they chose to support, while leaving far more deserving options unsupported?

I was thinking about this very thing when I read two data points from research done by the Center for Effective Philanthropy and cited in The Chronicle of Philanthropy:  only 4% of nonprofits have had a conversation with their foundation donors about what a recession would mean for that support, while 89% of nonprofits would like to have that conversation. 

Upon reading this, all the while thinking about why funders don’t pay attention to fiscal health, my thoughts went to Kim Klein.  I remember the very first Kim Klein workshop I attend decades ago, and the funny thing she did around our cultural norm that it was impolite to talk about money, especially others’ money, in public.  It just simply isn’t done.  Certainly, assessing the financial health and well-being of an organization would require conversation between funder and nonprofit.  Maybe that conversation is just so taboo and uncomfortable that it excuses throwing very good money after bad.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.

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