Survey Reveals Impact of Recession on Grantmaker Practice

Washington, D.C. – Grantmakers that have strategies in place for listening to and learning with grantees, are more likely to provide the types of support that grantmakers and grantees agree are essential to boosting nonprofit success, according to a new field study of grantmaker practice commissioned by Grantmakers for Effective Organizations.

Is Grantmaking Getting Smarter?: A National Study of Philanthropic Practice is a comprehensive study of the attitudes and practices of staffed grantmaking foundations in the U.S. In light of the global economic downturn, it builds on a similar study conducted in 2008 to highlight some of the shifts in grantmaking since 2008 and what they mean for supporting resilience in the nonprofit sector. GEO conducts this survey every three years to examine trends in the key funding practices that help bolster nonprofits to achieve more positive social impact.

In 2008, GEO’s survey revealed a persistent gap between nonprofit needs and grantmaker practices, with foundations making slow progress on improving practices in two key areas that they themselves say are important for effective grantmaking: the money, improving the type of financial support grantmakers provide; and the relationship, working in a supportive and respectful relationship with grantees.

Looking at the 2011 data to see what trends emerged, an interesting pattern surfaced. There appears to be a connection between stakeholder engagement practices with grantmakers making smarter decisions about what to do with their funds to better support grantees. Grantmakers that listened to and learned with their grantees and other stakeholders were more likely to offer multiyear, general operating and capacity-building support – the kinds of support that enable nonprofits to address the deep-rooted problems in their communities.

  • Funders who always used grant reports to foster learning between the foundation and its grantees were three times more likely to increase multiyear grantmaking than those who never did (13 percent vs. 4 percent).
  • Those who always sought external input on foundation strategy from recipient communities or grantees were nearly three times more likely to increase general operating support than those who never did (27 percent vs. 10 percent).
  • Funders that always sought advice from grantee advisory committees were about twice as likely to increase capacity-building support (4 percent vs. 13 percent).
  • Funders that always sought external input on foundation strategy from recipient communities or grantees were about twice as likely to increase capacity-building support (27 percent vs. 12 percent).

There is also evidence of a continued movement of grantmakers committed to shifting to more effective practices that support nonprofit performance. When faced with limited funds to give out, some foundations made improvements to their internal processes to make it easier for grantees to access funds and many also preserved two types of much-needed support.

During a time when grantmakers may have had limited options for supporting nonprofits financially, they made shifts they could, including shortening the process of reviewing proposals and awarding funds. The biggest shift reported was that funders managed to reduce the turnaround time between receiving an application and approving a grant from 90 days in 2008 to 60 days in 2011; and they reduced the time from approval to initial payment from 21 to 15 days.

Many grantmakers chose to preserve their investments in general operating support (51 percent did not change) and capacity-building support (59 percent did not change) at the levels they had before the recession hit – a significant number even increased these types of support (35 percent increased general operating and 30 percent increased capacity-building support). Grantmakers who increased these investments overwhelmingly said these changes were unrelated to the economy, which shows that these types of support are becoming core elements of foundation grantmaking strategy.

Funders are now more likely to solicit feedback from grantees to strengthen foundation performance. Nearly a third of funders surveyed in 2011 said that they solicited anonymous feedback (30 percent vs. 22 percent in 2008), with a similar amount collecting it on the record (31 percent vs. 25 percent in 2008).
Overall, progress across the foundation field has been generally slow, which may not be surprising given the kinds of pressures facing the nonprofit sector and philanthropy.

On the whole, general operating support remained static. While it’s encouraging that grantmakers preserved their levels of general operating support at a time when it might have seemed more logical to provide restricted dollars to serve immediate client needs, it is also disappointing that grantmakers are still only devoting a median proportion of 20 percent of their annual grantmaking dollars to general operating support. According to the Foundation Center, that number hasn’t changed much in almost a decade.

Multiyear support did not fare well over the past several years. Funders reported making multiyear awards much less frequently than they had in 2008 and 28 percent of funders said they decreased these dollars. One of the more hopeful pieces of news – more than half (54 percent) of those who decreased their multiyear commitments said these changes were temporary due to the economy.

Evaluation remains an exercise in proof and accountability rather than learning with peers inside and outside of an organization. When it comes to evaluation, about 70 percent of respondents said they evaluate their work. But in 2011, grantmakers were less likely to identify strengthening future grantmaking as a very important reason for conducting evaluations than they were in 2008.

Most grantmakers did not significantly change their stakeholder engagement practices. Around 58 percent reported they assess the needs of communities, roughly half invite stakeholders to address board members (53 percent) or provide input on foundation strategy (51 percent) or grant proposals (49 percent) and a small number delegate funding decision-making power to stakeholders (16 percent).

Not surprisingly, the GEO community represents grantmakers who are far more likely to engage in practices linked to stronger nonprofits and better results. Notably, while the median proportion of funds going to general operating support stayed steady at 20 percent in the field at large, it jumped from 20 percent to 25 percent among GEO members. GEO members were also two times more likely to:

  • increase the percentage paid out of their endowment (34 percent vs. 19 percent);
  • increase dollars for grantee capacity building (47 percent vs. 25 percent);
  • increase use of strategies to improve grantee cash flow (22 percent vs. 11 percent);
  • delegate funding decision-making power to representatives of recipient communities or grantees (27 percent vs. 13 percent) sometimes, often or always; and
  • give multiyear grants sometimes, often or always (50 percent vs. 23 percent).

“The nonprofit sector has been forced to deal with significant challenges, including volatility in investments and unreliable donor commitments, that have pressure tested funding strategies and grantmaking practices,” said J McCray, the study’s author. “For some grantmakers, these challenges represented an opportunity to make significant enhancements to how they support and work with grantees to help build strong, effective, sustainable nonprofit organizations. But for others, the study highlights a missed opportunity to increase the types of support that both make nonprofits more resilient and enable them to address systemic problems facing their communities.”