How a Recession and a Myth Revealed What We Already Knew

Facing increased demand for services, nonprofits with limited resources did the best they could to stretch those dollars further, and many funders stepped in with emergency stopgap resources to help.
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Five years ago this month we witnessed a financial crisis erupt on Wall Street and in financial centers around the globe. Executives with egos the size of their paychecks had taken part in reckless, even immoral, behavior and the institutions they led were beginning to collapse. We felt the shockwave rupture through daily life across the country -- and then head for the nonprofit sector.

Facing increased demand for services, nonprofits with limited resources did the best they could to stretch those dollars further, and many funders stepped in with emergency stopgap resources to help. Thinking about the many nonprofits that showed grit and resilience in the face of enormous pressures, I am inspired. Thinking about the grantmakers -- many from the GEO community -- who stood up to the challenges of this new environment, it makes me thankful to work with such extraordinary individuals.

In many respects, the recession didn't reveal new lessons in how best to support nonprofits and communities; instead, it validated and amplified what we've long known to be true: for nonprofits to have the greatest impact possible, they need flexible, reliable dollars over the long term. That need merely became more acute in the face of the rising demand for services prompted by the economic collapse.

As anyone in the nonprofit sector knows, flexible dollars are hard to come by. However the numbers are showing some hopeful signs.

  • The number of grantmakers who gave at least 50 percent of their total grant dollars as flexible funds is increasing, going from one in seven grantmakers from 2008 - 2010 to one in five grantmakers in 2011 (Source: NCRP's The State of General Operating Support).
  • The total number of dollars given as core support has increased by 47 percent from 2008 to 2011 (Source: The Foundation Center).
  • And, less encouraging, the median proportion of grantmakers' budgets devoted to core support remained stagnant at 20 percent from 2008 to 2011 (Source: GEO's national field survey, Is Grantmaking Getting Smarter?).

So, when we look back in another five years, will the picture be any brighter? A lot of that depends on the actions that we take today.

The Weingart Foundation is one of many bright spots that give me hope. The Weingart Foundation was considering dedicating more of their grants to multiyear, unrestricted support, and the recession spurred them to move faster. Two years later, they conducted an external evaluation of 57 of the foundation's core support grants. Belen Vargas and Emilie Neumann recently discussed the foundation's findings in a post for the Nonprofit Resource Network:

What we learned from this review is that our core support funding allowed our grantees to not only maintain core programs and infrastructure, but our unrestricted grants also helped strengthen their capacity by: 1) using our funding to address organizational infrastructure needs; 2) providing the flexibility in funding to adapt, innovate and take advantage of opportunities; and 3) creating a grant review process that allowed for more open and honest conversations with us, which gave grantees permission to prioritize our funding to their greatest needs.

Today, the vast majority of Weingart's grants are given as core operating support. And, recently, they have gone one step further. The foundation is consciously helping grantees build operating reserves to further insulate them against the unexpected.

Another incredibly hopeful sign came recently when the CEOs of GuideStar, Charity Navigator and BBB Wise Giving Alliance released a letter dispelling the Overhead Myth. Leadership from these institutions, two of which had previously perpetuated the very same myth, will hopefully begin to reverse the long-held, faulty belief that money spent on overhead and infrastructure is somehow bad and not worthy of support.

Donors Forum in Illinois has also shown important leadership by bringing funders and nonprofits together for "Real Talk About Real Costs" (don't miss their video below). In this effort, rather than focusing on the question of how much grantees spend on overhead, they are asking the much more important question, "What do results cost?"

To answer this question, however, nonprofits will need even greater investments in overhead so that they can track and communicate their performance. In his book Leap of Reason, Mario Marino describes the alternative. He suggests that without proper investment in performance management, nonprofits are "navigating with little more than intuition and anecdotes."

When Weingart and others provide flexible dollars, in addition to stronger nonprofits, they also generate stronger relationships with their grantees because of the trust that this kind of support demonstrates.

Most grantmakers say they want increased candor in their relationships with grantees, but then many of the structures they put in place actually suggest a lack of trust. Program-restricted grants and limits on overhead are both attempts to exert control. But in philanthropy's work, control might not get us where we want to go.

Providing general operating support and being willing to cover the important costs that are considered overhead sends a clear message to grantees: "We trust that you know what's best for your organization, to invest appropriately and to make the course corrections along the way." In fact, I'd argue that grantmakers should only give money to grantees that they hold in this level of regard.

Leading with expressions of trust and behaviors that show us to be trustworthy will cultivate the candor that we hope for. A place to start is to give high-performing nonprofits the flexible funding they need to be resilient and to truly achieve meaningful results.

Many are worried that the financial sector has not learned from past mistakes -- that the ego and hubris that caused much of the trouble remains unchecked. Let's take a different path. Let's use the experience of the past five years as a poignant reminder of the value of trust, humility and respect in all aspects of our society -- and in no place more so than among those endeavoring to help the most vulnerable among us.

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