Would That Be Such a Bad Thing? A Philanthro-ethics Question

overfundingIn retrospect, I wonder why no one ever asked me before. The question – in the context of a course on grantmaking strategies – was: what would be so terrible if a funder overfunded a nonprofit?

In my advisory work and in my teaching, I spend a lot of time helping funders “right-size” their grantmaking. To take just a few examples:

  1. A NFP/NGO requested $x. The funder’s immediate assumption is all grant requests are bloated and funds half the requested amount.
  2. A NFP/NGO sends a project request: The funder suggests that they should do it for less – with little regard to what it might actually cost to create a successful project.
  3. The funder requires that the grantee do an evaluation of their program/project. The grantee [as too often happens] plugs in a percentage figure to satisfy the grant requirement, with neither side understanding that a reasonable evaluation simply cannot be done for that amount.
  4. A funder is committed to a particular field of service and funds a program at a multi-service organization. The funder refuses to provide any infrastructure support [often mislabeled as “overhead”].
  5. A funder has an [often unstated] expectation of publishing the results or that the new project continue beyond the length of the grants, but doesn’t fund capacity expansion that this nfp needs to keep this data or to raise the sustainability funds.
  6. A start-up or early stage project submits a proposal for a wonderfully exciting project, but naively understates the real financial needs for the project to have even a reasonable chance of success. The funder funds the request, fully aware that it is an underfunded project.

Recognize any? While not every funder is guilty of these, enough are that it warrants significant discussion in a best practices workshop.

Some best practice rebuttals, seriatim:

  1. Only funders can establish an atmosphere allowing openness and honesty about real numbers and expectations. If we as funders have the reputation of always reducing a request by a certain amount, it doesn’t encourage the openness to determine what the real numbers are. [Note to grantseekers: even if the onus is on the funder to set the tone, you are not exempt. There is a radical difference between legitimate rounding up and exaggerated hyperbole in telling your story.]
  2. Organizations are often so hungry for funds that they will say yes even to grants that are clearly inadequate to achieve success. Often the nfp/ngo’s are well aware that, in accepting this money, they are almost certainly guaranteeing mediocrity, but they feel, they dare not say no to a funder. Indeed, underfunding does no one a favor: as funders, don’t we want what we fund to bring us credit and to be known for excellence, not mediocrity? Of course, not every project succeeds even when it has adequate funding, but a failure shouldn’t be because our funding approach has made that inevitable.
  3. Evaluation, impact measures, outcome metrics are all the rage. Not a bad thing. Sadly, though, in too many cases, neither the funder nor the nfp really understands what program evaluation means, what useful results would be, and what kind of financial and human resources are necessary to get there. I have sat in far too many foundation proposal review meetings where the evaluation requirement is clearly a plugged number. If we want reasonable evaluations, we need to learn what they are, and what they cost – and then fund them.
  4. So much has been written about the overhead myth that I will simply emphasize what should now be obvious. No organization can support a quality project or program without a strong organizational infrastructure. These dollars are critical, not irrelevant. It is reasonable to discuss what infrastructure costs are applicable to a particular funded project, but not to consider any and all such costs as simply padding.
  5. You are beginning to see a theme: We as funders need to clarify what our expectations are and fund accordingly and appropriately. For many very strapped organizations with limited tech support, publishable data is elusive, or beyond the capacity of an overworked staff. For a project to outlive our funding, we need to structure our grant in careful collaboration from the very beginning.
  6. This situation applies across the board, but is particularly acute among early stage nfp’s. The idea is terrific [or you wouldn’t be considering funding in the first place] but you are well aware that the submitted budget is far below what is really needed. If this were a venture capital project with comparable appeal, the funder would be all-in, with insistence on involvement, and provide funds needed to get to the next stage. Unfortunately, that same perspective seems to dissipate when it is an nfp. The founder of this great idea may very well be intimidated by the fundraising and underprices his proposal simply because of naiveté. There are times like these that a funder may choose to give more than requested, with an accompanying offer to provide welcome advice on organizational growth.

The underlying principle in all of this is that philanthropic grantmaking is not a negotiation but an investment in the success of an idea, a project, a program, or an organization. There is no doubt that, given the power imbalance, most nfp/ngo’s will take whatever we offer, but that doesn’t make that a winning negotiation. Indeed if we underfund or under support, no one wins. Our role in most cases is to “right-size” our funding, to give these projects the greatest chance to succeed. [See #2 above.]

It was in the context of this discussion that a participant asked an intriguing question. Now comfortably on the funder side, she began her post PhD career in the human service sector. She recalled movingly how stressed the organization and its staff were on a daily basis with barely enough funds to keep the doors open. Would it really have been “wasted” money if a funder didn’t simply “right-size” but chose to give more? Would that be bad philanthropy? Does it reveal sloppiness on the part of the funder? Would it spoil the nonprofit? Would it erode the carefully honed discipline urging genuine information sharing between funders and grantees?

Or, perhaps, it is a sign that a funder recognizes how stretched so many nfp’s/ngo’s really are and this bit of unanticipated generosity makes a huge statement about the importance of their work.

Something to think about.

Richard Marker teaches and advises funders from around the world through both the NYU Academy for Grantmaking and Funder Education and the Wise Philanthropy Institute, both of which he founded. His blog can be found at Wise Philanthropy.