How Funders Support Nonprofit People

Rusty Stahl

Funders often request compelling data to make the case that investing in grantee staff advances nonprofit programs and impact. Understandably, before making a significant investment you want to see proof that the investment will enjoy solid returns. Fortunately, there is evidence that strongly indicates how thoughtful funder investments in grantee staff can increase the performance, impact, and sustainability of people, organizations, and movements.

For example,

  • Third Sector New England and CompassPoint did a unified evaluation of sabbatical funding from the Alston/Bannerman Fellowship Program, Barr Foundation, Durfee Foundation, Rasmusen Foundation, and Virginia G. Piper Charitable Trust. They found that in cases where nonprofit leaders were able to take sabbaticals, at those organizations governance improves, executive directors return with fresh vision and ideas, interim directors boost their leadership and management skills, and the entire staff gains new skills and responsibilities. The evaluation found the investments also yielded benefits for funders, including deepened relationships with grantee leaders, greater perspective on community needs, and increased feedback on foundation impact on the community.
  • The Robert Wood Johnson Foundation funded the Center for Creative Leadership to offer the Ladder to Leadership Fellowship to executives at health-focused grantees. An evaluation found that 90 percent of the fellows’ supervisors, direct reports, and peers reported an increase or a significant increase in fellows’ leadership effectiveness. And 86 percent of fellows and their co-workers reported an increase or significant increase in their organization’s ability to deal with complex challenges.
  • A five-year assessment of the Evelyn and Walter Haas, Jr. Fund’s Flexible Leadership Awards found that of the 41 self-identified mission-related program goals among participating grantees’ — which included legalization of gay marriage through state law and then U.S. law — one was unmet, 19 were met, and 21 were actually surpassed. And the organizations that saw the highest gains in personal leadership development also saw the highest gains in mission advancement.

No, these were not randomized control trials. But they do show it is possible to measure the impact of talent investments.

Moreover, the findings echo data from the business management literature about the return on investment for employee development. In The Human Equation, Stanford Business School’s Jeffrey Pfeffer reviews rigorous studies across an array of industries and finds that sustained investments in employees can yield increases of up to 40 percent in profitability, stock prices, value to shareholders, and the lifespan of companies.

I. Feeling Under-supported

This and other evidence from philanthropy, business, and other sectors, however, has not had widespread influence over how foundations invest in the nonprofit workforce. In fact, research shows that nonprofit professionals perceive foundation funding as not supportive of their developmental needs.

  • A Center for Effective Philanthropy study found that 73 percent of nonprofit executive directors feel they don’t have the resources they need to develop their own leadership. The surveyed executives selected this as one of their top three most important problems that their funders do not understand.
  • New research from Bridgespan shows that 49 percent of nonprofit executives place significant value on “‘overhead’ funding to enable additional internal capacity for talent management,” but only seven percent get such investments. This type of support was the most desired of the choices offered.

Having worked with many grantmakers over the years, I know funders want to champion their grantees’ effectiveness. So why is it that nonprofit leaders feel unsupported?

II. The Payout/Overhead Contradiction

I believe it starts with the deep, underlying assumptions that shape foundation practices.

According to the Foundation Center and other sources, private foundations’ charitable payout includes “grants and, within certain limits, the administrative cost of making grants.” We may safely assume the rationale is that foundation staffs bring important value to grantmaking. Research from CEP reinforces this notion, showing with data that “the personalities, interpersonal styles, and expertise of program officers share a portion of the credit — or blame — for a foundation’s reputation among its grantees.” In essence, a foundation’s charitable work is impossible to separate from the people who do the work. “Personnel is policy”, and people are program.

While private foundations may understand their own staff costs are part of payout, this is not how they tend to treat the staff costs of grantee organizations.

The price of compensation and development of nonprofit professionals is not generally considered a directly charitable expenditure. It is seen as “overhead” — a debunked concept that envisions the cost of our workforce as undesirable oil that cannot mix with the life-giving waters of program expenses. In a recent report entitled “Overhead Madness,” California’s Full Costs Project found that “foundations use informal, unwritten, and highly-negotiable equations for appropriate grantee spending on overhead, indirect, or administrative costs.” Funder-created leadership development initiatives for grantees are often structured as foundation-managed programs that are separate and apart from grantmaking. While this approach has important upsides, it does not enable the grantee to develop the internal muscles (policies, managerial chops, budgets) to develop their own staff.

Organized philanthropy’s approaches tend to incentivize nonprofits to conceal and/or diminish staff investment beyond the bare bones. Compounded over multiple sources across time, it leaves little margin to provide robust wages, benefits, personnel policies, professional development, human resources, or other people-systems. It is not too surprising, then, that 90 percent of young nonprofit professionals cite burnout as a likely reason for leaving the sector.

III. Change is Possible

The good news is that private foundations have a model that works and that could be applied to the entire nonprofit sector — people are programs.

More good news: the outmoded approach of separating people from program is not embedded in law. It relies on a set of norms that will change when foundations have the political will to change them. Funders can use their intellectual, reputational, and financial capital to recognize the inextricably symbiotic nature of nonprofit workers and their good works. 

Fund the People has found that the value of investing in talent is a real blind spot in the funding community, and fundraising for staff development is a malnourished muscle in the nonprofit field. So, we dug deep for data, stories, ideas, language, and arguments, and developed the Fund the People Toolkit. This free, online resource supports funders as they look to invest in the workforce of grantee organizations. I invite you to visit the site, use the materials, and let us know what could be more helpful.

Together, we will make funding the people an essential part of effective philanthropy.

Rusty Stahl is president and CEO of Fund the People. Follow him on Twitter at @rustystahl.

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