July 16, 2015

Smart Donors Are Putting Nonprofits Back in Charge

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Big changes in civil rights, antidiscrimination, poverty, or climate change won’t happen without strong — and well-financed — nonprofits.

So far, this has been a summer of political campaigning and stunning social change: hateful flags coming down, rainbow flags going up — and deeper meaningful conversations in the United States about the forces that still divide us.

Among those voices has been that of Darren Walker, president of the Ford Foundation and keeper of its $12-billion-plus endowment, who announced last month that the second-largest philanthropy in the nation will focus much of its grant making on inequality, aiming to use its capital to create a "social-justice infrastructure." This fits our changing times like a glove.

But so does Mr. Walker’s other major strategic shift: doubling Ford’s commitment to unrestricted grants for nonprofit operating support.

It’s hardly a magic bullet for nonprofits struggling to get grants from large foundations like Ford: Larger grants to fewer organizations may limit opportunity for other nonprofits, especially if other foundations take Ford’s lead. As Mr. Walker himself wrote last month: "Almost certainly, providing deeper, more intensive support will result in fewer grants, and, most likely, fewer grant recipients." But I do think his decision signals an important shift for American philanthropy, and one not just tied to Ford’s money but to how philanthropists, new and old, go about funding social change.

Ford’s move puts the organization back on the table as the main course in the philanthropic meal. It’s a clear recognition that organizations do the heavy lifting — often over the course of decades — in fighting social ills, conquering disease, and forging new policy.

Ford’s call represents the crest of the wave in U.S. philanthropy toward specific (and often grantmaker-driven) efforts and back toward the staying power of nonprofit organizations themselves. It’s a mature and serious nod to the general realization that making progress on problems like inequality, poverty, disease, and climate change is more like a tugboat shifting an ocean liner across a busy harbor than a speedboat racing to the finish line.

In an essay on the value of organizations that he wrote for Civicus, Mr. Walker discussed great social challenges: "Imagine a South Africa still repressed under apartheid. Imagine a United States without civil rights — or voting rights — for women and African Americans." His argument was that civil society, including large and sustained organizations, worked for decades to bring about those changes.

There are a couple of scenes in Selma, Ava Duvernay’s 2014 film about a critical moment in the American civil-rights struggle, that showed quite clearly how important organizations can be, even in the presence of charismatic leadership. Albeit briefly, Selma portrays the tough daily struggle, the hard decisions, the economic need of organizations locked in big social causes — but even a powerful film can’t really capture the swath of organizational might needed over generations to win the fight for voting rights.

Picture the host of American nonprofits that drove the civil-rights battle over half a century, or the long-term campaign for LGBT rights, or the fight for immigration fairness. Programs didn’t win; organizations did.

Simply put, the staying power of nonprofit groups and their deep institutional knowledge matters. Change doesn’t happen overnight, especially in a society that values democratic decision making.

But in part because of a trap set by too many grant makers, even nonprofit leaders who are deeply passionate about their causes often lose sight of their goals in the chase for donor dollars. They have become conditioned to think "How can I sell this great program to such-and-such donor?" instead of "How can this organization move the ball?"

That mind-set is the result of too many institutional and individual donors thinking they know far more than the organizations they consider investing in — which, quite frankly, is not the world’s smartest investing stance. Mr. Walker of Ford calls this out directly in his Civicus essay:

"Our sector’s obsession with quantifiable impact, and frequently dogmatic adherence to discrete deliverables, undercuts the expansive purpose of [civil society organizations], miniaturizing them in their ambition. In other words, this system is rooted in transactional short termism — a tyranny of donors — that distorts and inhibits, rather than unleashes, the potential of civil society."

It’s a very tough mind-set to break, but break it we must — because the stakes are high. Philanthropy is growing a tick, if you’ve been watching closely.

Giving in the United States crept over its historic 2 percent barrier last year, hitting 2.1 percent of U.S. GDP, according to the Giving USA report released last month — for a total of $358.4 billion in 2014, a 5.4 percent gain over the previous year. But will this marginal increase go to strengthen the organizations that fight long-term battles for major successes, or does it represent (in essence) the short money?

The so-called "new philanthropists" — often derided for lacking patience and strategic insight — may provide a partial answer. Silicon Valley veteran Sean Parker wrote a much-shared column for The Wall Street Journal last month that urged philanthropy to adopt the hacker mentality — make big bets, act fast, focus on the problems that can be solved, and embrace market-driven philosophy.

This shift has been in the works for a decade because donors, nonprofits, and everyone else is frustrated with the too-safe, too-conservative, too-hidebound world of philanthropy. Mr. Parker is right about the need for donors to make big bets and take chances to solve problems — and indeed nonprofits need them to provide more capital for exactly that purpose. But he was also unfairly dismissive of organizational strength and confused the conservatism of grant-making foundations (the capital) with the starved ambition of the nonprofits (the social entrepreneurs).

While that observation went too far, everybody should cheer another part of Mr. Parker’s essay: "This is core to the hacker mentality: We hack systems that can be hacked and ignore the rest. I care deeply, for example, about the plight of refugees and the peril of global warming, but I don’t pretend to have some special insight into how to deal with them."

It’s that last part I loved — and if they’re paying attention, nonprofit leaders and the new generation of donors may see a real opening in that admission. Sean Parker is no one’s idea of a shrinking violet, yet there’s the modest acknowledgment that he — the money — doesn’t necessarily know better than those seeking it. I wish more donors with Mr. Parker’s financial capacity, social change ambitions, and youthful leadership would adopt this mind-set.

More operating support for organizations and a greater understanding of their inherent expertise in solving problems: That’s a potentially powerful mind-set that more donors should adopt.

Tom Dallessio, executive director of Next City, a journalism nonprofit focused on urban planning, explained why that was important in his response to the Ford announcement: "Investing in organizations as partners, as Ford has committed to do, will enable CEOs such as myself to be bold and innovative. It will free us to think imaginatively, and to fail as necessary, without fear of financial ruin. And, it will enable us to be nimble and mission-driven, two key qualities in this new economy."

That’s unquestionably correct. As (I hope) larger amounts of philanthropic capital seek the right places to power social change, nonprofit leaders have a new challenge that’s pretty old-school: getting that organization story right.

Tom Watson is president of CauseWired, a consulting firm that advises nonprofits, and a lecturer at Columbia University. He is a regular columnist for The Chronicle of Philanthropy.