What is more important: funding of efficient projects or of building effective capacities and institutions? Farsighted Diaspora Jewish philanthropy that seeks to play a central role in Israeli society should shift its focus from the former to the latter. This represents a profound transformation of patterns of conduct of both philanthropists and nonprofits.

‘Institutions’ represent a unique type of ‘organization’. The latter are designed to address a specific challenge often in a specific context, for a limited period of time and by particular people, usually the founders. An ‘institution’ is designed to effectively and efficiently meet an array of challenges in a variety of contexts over a long period of time and independent of any specific individual.

The straightforward logic of this point is simple. Improving nonprofit management will enhance the effectiveness of every dollar spent.

But there is also a long-term effect. Israel’s nonprofits are a large part of its low-tech sector, which is underperforming compared to other developed nations. Better nonprofit management may propel an upgrade in the productivity of the low-tech sector, which is essential for Israel’s prosperity (see post no. 8 of this series).

Furthermore, building resilient institutions will ensure lasting impact on Israeli society particularly where these institutions address a vital societal need that stems from a government or a market failure (see post no. 14 of this series).

Finally, an agenda of nonprofit excellence may add an engine of growth to the Israeli economy. In the past few decades, excellence in Israel has been driven by the business sector (which is ranked 8th in the world. See Reut’s analysis “Public Sector Puts Brakes on Top15 Agenda”). In addition, academic and research institutions, as well as certain elite parts of the defense establishment, have also been critical engines.

The argument here is that the nonprofit world can become another such engine if philanthropists focus their resources on its excellence in management and execution. As nonprofits become increasingly important for the quality of life of citizens, such a focus can impact the lives of many. One effect may be the contribution to an atmosphere of uncompromising excellence that is essential for Israel’s survival and prosperity.

Why does a shift of focus towards better nonprofit management or institution-building represent a fundamental transformation? This is because many philanthropists are focused on and demand measurable results and a ‘bigger bang for the buck’. Their incentives are geared towards carrying out projects and promoting quick and tangible outcomes. The traditional expectation of no more than 20% overhead does not allow enough investment in institution and capacity building. Hence, building resilient organizations is sometimes sacrificed for short-term performance.

What does institution and capacity building mean in practice? I am not an expert on this topic nor on good practices of nonprofit management. However, some articles I recently read, particularly Jerry Hauser’s Organizational Lessons for Nonprofits (The McKinsey Quarterly, 2003 Special Edition: The Value in Organization, pp. 61-69; William F. Meehan III, Reinventing Philanthropy, The McKinsey Quarterly, pp. 120-122), may provide a few guidelines such as:

• Insist that nonprofits define a vision of the world that they are trying to help create; a mission that is relevant to that vision; a strategy to serve the mission that has a unique value proposition; and the core values of the organization.
• Demand that the grantees define solid, quantifiable performance goals and make specific people responsible for achieving these goals.
• Help nonprofits transcend the common start-up dynamics and tendencies of egalitarian management-by-consensus to build professional business-like organizational structures with senior management teams even if it requires nonprofits to spend more cents-per-dollar on management and overhead.
• Insist on replacing the start-up friends-and-family boards with strong and effective boards that are geared to meet the challenges of the organization. (See Paul J. Jansen and Andrea R. Kilpatrick, The Dynamic Nonprofit Board, The McKinsey Quarterly 2004 no. 2, pp. 21-29.)
• Ensure a stable financial base and systematically broaden it. This means transitioning from the prevailing pattern of setting development goals that are based on a wish list of desired programs to deriving the programming from sustainable budgets.
• Insist on transparency and accountability based on comprehensive and accurate information that allows evaluation of effectiveness and efficiency.

These principles sound simple and good for both donors and recipients. Why then is it not happening to a significant degree? My answer is that unfortunately Israeli grantees are often not expected to rise to the business and management standards of their donors. Furthermore, sometimes they are not even expected to meet standards that would have been expected from parallel grantees in America.

This is wrong and should change. Most philanthropic dollars are donated or overseen by people who have been very successful in the business world. Their success is often the outcome of high standards, which they are later called upon to apply to their favorite charitable organization. Philanthropic giving in Israel should be no exception. We should be held to the highest standards and helped to meet them.