Those Who Pay the Piper Call the Tune

Few nonprofits could survive without philanthropic gifts. Individual donations and bequests account for 16-29 percent of nonprofit income. Another 2-4 percent comes from foundations. These donations provide valuable support and serve as an affirmation of the organization’s good work and the cause it represents. Such gifts constitute “voluntary action for the common good” in the words of philanthropy scholar Bob Payton. A Google search reveals literally millions of sites dedicated to strategies for the cultivation of donations. Clearly donations are desirable. If that’s the case, big donations should be even better, right? What could possibly go wrong? 

As with other funding streams, excess reliance on a single source could create problems should crises, economic conditions, or a falling out with the nonprofit lead the funder to reduce or remove the support. Another consideration, less frequently examined, is the risk of the funding tail wagging the organizational dog.

In a recent Chronicle of Higher Education article, Stanley Katz warned of the influence big donors may have on education policy. Katz is particularly concerned about megafoundations – big new entities, such as the Gates Foundation, represented by the wealthiest Americans, making fewer, larger grants and expecting more in return. Some foundations have created their own 501(c)(3)s to more directly carry out their initiatives. Katz’s cautions can be generalized to nonprofits and scaled to organizations of all sized. In essence, he offers two concerns: the distortions created by strategic investments and the ways that funders influence process and policy. 

Strategic Philanthropy

            Perhaps due to the size of grants, donors’ business backgrounds, exasperation with inefficiency, or impatience with poor past return on investments, today’s philanthropists are more specifically targeting their gifts. Akin to venture capitalists, they precisely direct their investments and carefully track the results, often making future grants contingent on attainment. The up-side of this trend toward evidence-based gifts is accountability. The down side is that many of the problems targeted by nonprofits, at least in health, education, and social service domains, do not yield immediate and conclusive results. A further problem is the tension that results when a grant or gift is tied more closely to the donor’s business interests than the nonprofit’s mission or current strategy. Organizations may be hard pressed to decline financial support, even that which comes at the expense of growing in a direction they had not anticipated or divesting from other initiatives to pursue strategically fundable ones.  

Influencing Change Processes and Policies

            The increased specificity associated with gifts means that big funders are dictating not just the goal of the award (“help kids learn to solve disputes without violence”) but the process by which the goals should be met (“institute after-school and summer programs to help kids learn to solve disputes without violence”). If the prescribed approach is congruent with the evidence base and the interests and capacities of a particular nonprofit, the fit is good. If it is not, will organizations forgo the funding opportunity or change to fit the donor’s preferences? If this trend continues, what future will agency-level strategic planning have? Will the expertise of researchers and professionals in health care, education and social services still be relevant in conceptualizing how services should be delivered? Will an emphasis on proven or promising practices foreclose novel and untested approaches to change?

            Policies and government funding priorities will surely follow those areas of focus identified and tested by big donors. This may result in more efficient use of public resources and more effective service delivery, filling a needed void in governmental planning and performance. On the other hand these advances may come at a cost, to paraphrase Katz, in how we was a society, as a sector, make decisions about the goals to pursue and the ways to achieve them.