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Philanthropy at its Somewhat Myopic: Mistaking Means and Ends

The most significant of NCRP's grantmaking requirements is that 50 percent of a foundation's grants be for general operating support (GOS) -- unrestricted support for an organization.
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In the last post, I described the National Committee For Responsive Philanthropy (NCRP)'s prescriptions for foundation governance in Criteria for Philanthropy at its Best®. Here I'll discuss its prescriptions for grantmaking practices themselves. I will also discuss NCRP's literally unbelievable response to critics of its Criteria.

But first the nitty-gritty. The most significant of NCRP's grantmaking requirements is that 50 percent of a foundation's grants be for general operating support (GOS) -- unrestricted support for an organization.

Just so you know where we stand, the Hewlett Foundation and I personally are long-standing practitioners and strong proponents of GOS. I was the chief author of Independent Sector's 2004 Guidelines for the Funding of Nonprofit Organizations, which make the case for GOS. In fact, NCRP included the foundation as meeting its Criteria in this respect.

But GOS is a tool, not an end in itself. The appropriate form of support involves a balance of considerations, and there are many situations -- more than 50 percent for some foundations -- where GOS does not maximize social impact for marginalized groups or anyone else.

At the risk of repeating an earlier post, let me remind you of the basic differences in forms of funding available to philanthropists. When a foundation provides unrestricted, core, or general operating support, its funds support the grantee organization's entire mission. Alternatively, a foundation may support specific programs within the organization or projects carried out by it.

The appropriate form of philanthropic support depends, most fundamentally, on whether a donor's goals align with the entire mission of an organization or only some part of its mission. Here's a simple example:

• A donor interested in promoting medical education and research in general might give general operating support to a free-standing research institute or medical school. A grant to a medical school within a university would not constitute GOS, because it would not be unrestricted support for the institution as a whole.
• A donor interested in cancer research would provide project support to a cancer center within a medical school or a medical institute.
• A donor interested in supporting research on a particular form of breast cancer would provide project support for the work of a particular researcher or research group.

Here is an example of how the Hewlett Foundation used a mixture of forms of support to reduce air pollution in California's San Joaquin Valley -- a problem that has a particularly drastic impact on communities of color in the Valley. Where the Foundation could find, build, or strengthen local organizations focused on this problem, we provided general operating support. But reducing air pollution in the Valley also required supporting specific projects, such as contracting with a university economist to conduct a study of the health costs of pollution. We also provided project support to the Latino Issues Forum's Sustainable Development Program to work on this initiative -- project support because the Latino Issues Forum deals with a broad range of issues besides air pollution, including education and consumer protection, so GOS wouldn't have made sense.

The best reason for GOS is that it is the primary means for supporting great leaders in building great institutions -- a point eloquently made by Grantmakers for Effective Organizations, Social Venture Partners, and most recently by Sean Stannard-Stockton in his Tactical Philanthropy blog.

On the other side of the coin, bad reasons for eschewing GOS grants include:

• The myopic notion that administrative and overhead costs, for which GOS can be used, are essentially wasteful. (Responsible donors pay their share of overhead even when making project grants.)
• The mistaken belief that a donor can only hold a grantee organization accountable by supporting specific projects with identifiable budgets, and that one can only evaluate the effectiveness of specific projects
• A donor's self-aggrandizing and mostly unfulfillable wish to attribute success to his or her particular grant funds
• Foundation boards and staff members finding multi-year renewable GOS grants boring even when they are effective, and enjoying the action and power of directing particular projects

But as the example of reducing air pollution in the San Joaquin Valley indicates, there are also good reasons for making project grants rather than providing GOS. The overarching reason for making a project grant is that a donor cannot find organizations whose overall mission is highly aligned with his or her goals. Although this is seldom the case with schools, youth programs, and poverty programs that provide direct services, it is quite often true for:

• Support for research projects conducted by experts within universities, think tanks, and similar organizations -- as suggested by the examples of research on cancer and the economic effects of pollution.
• Support for advocacy on particular issues by multipurpose organizations like the American Civil Liberties Union or Natural Resource Defense Council. If your passion is to protect the rights of students to criticize their school administrations, or to attain higher fuel efficiency standards in California, you would support these specific projects of the ACLU and NRDC rather than supporting the organizations as a whole.
• Building new fields and movements. A funder's ultimate goal in building a new field or movement is to develop strong organizations. But it usually requires decades of project support grants to get there. For example, a decade ago a funder would have had to make project grants to a variety of multi-purpose environment organizations to advocate for policies to slow climate change. Today, an increasing number of organizations are dedicated to the subject.

When alignment between the foundation's goals and organization's overall mission is pretty good, general operating support is the way to go. But when alignment is not strong, the support of particular projects usually makes the most sense all around.

With this background, let me return to NCRP's requirement that 50 percent of a foundation's grants be for general operating support. I am sure that there are plenty of foundations that eschew GOS for the bad reasons mentioned above. But there are also many foundations that have had great social impact -- in health, the environment, and fighting discrimination and poverty -- through project-oriented grants. No one, including NCRP, has data suggesting that these foundations would have achieved greater social impact by adhering to its 50 percent requirement.

In mandating the use of a particular funding instrument, NCRP's requirement not only seems heavy-handed, but also ignores the fundamental question of impact. Just as a hammer is a useful tool for constructing a building, general support can be a useful tool for organizations and their donors to achieve impact. But donors, just like craftspeople, need to know when and how to use the other philanthropic tools available to them.

And this brings me to NCRP's recent response to its critics. Let me refer to several of what NCRP calls "myths," or "falsehoods being spread about the Criteria."

Two related putative myths are that the Criteria "impose a 'one-size-fits-all' set of metrics on philanthropy," and that "NCRP decides what 'counts' towards meeting a specific criterion." Like Captain Renault in Casablanca, NCRP is "shocked, shocked" that anyone would think the Criteria seek to impose numerical requirements. And NCRP hastens to say that it's up to each individual foundation to decide what counts.

Well, fifty percent is a numerical requirement. And the IRS would disagree that it's up to each foundation to decide what counts as GOS, since that term is defined by regulation. A foundation has no more discretion in counting whether it meets NCRP's mandate that at least 50 percent of its grants be for general operating support than you or I do in deciding whether certain income we earn is taxable.

Another supposed myth is that NCRP is calling for "mandated legislation of philanthropy," when it is only trying to stimulate foundation presidents and boards to "have serious discussions about important issues." That's why each chapter concludes with "discussion questions."

But there are at least two reasons why someone might continue to doubt NCRP's intentions. One is the unguarded language in the draft of the Criteria NCRP distributed when it was seeking their widespread endorsement and before it got some pushback on its regulatory agenda: "Watchdogs like NCRP will use the criteria to praise field leaders and criticize those that do not measure up. Policymakers may find the criteria valuable when considering regulations or legislation that affect institutional grantmakers." A reader might be forgiven for thinking that NCRP had something more in mind that facilitating discussions among foundation leaders.

More fundamentally, if NCRP actually wanted to help foundations reach their own conclusions, it would have presented balanced arguments on the pros and cons of the Criteria. But NCRP does not discuss when GOS might be appropriate and when not. Indeed, it is striking that in quoting a well-balanced paper by the Council on Foundations on Project vs. Operating Support: Which is the Better Strategy?, NCRP summarizes the paper's "case for operating support" and entirely omits its equally well-articulated "case for project support." As we'll see next week, this one-sided advocacy, bordering on the intellectually dishonest, pervades the other Criteria as well.

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