The CEP report New Attitudes, Old Practices: The Provision of Multiyear General Operating Support highlights one of the most vexing paradoxes in the modern nonprofit sector: despite an understanding of the benefits of unrestricted, long-term funding, many foundations continue to provide only project grants.
For me, this puzzle is not just an abstraction; it’s a challenge I live every single day. For eight years, I was director of the Global Development and Population Program at the William and Flora Hewlett Foundation, one of the few large foundations that provides multiyear general operating support to many nonprofits. Now I am sitting on the other side of the funding table as the CEO of a global nonprofit organization, IDinsight. From my current perch, I can see that my organization’s work to amplify the impact of the African and Asian governments and NGOs with which we work would be impossible without a combination of project-level and general operating support.
From my vantage point as an ex-funder and a current nonprofit leader, I believe we can close the chasm between the funding available for nonprofits and the funding nonprofits need. But I also believe it’s not entirely the responsibility of the philanthropic community to do so. In my view, nonprofit leaders ourselves (and our boards) must take on the challenge of persuading funders that our organizations are not just holding companies for individual projects. And we have to ensure that that’s the truth.
To my fellow nonprofit leaders, there are three ways we can do this:
1. Have a clear mission that animates your work — and stick to it. From the perspective of a funder offering general operating support, the central question is whether the potential grantee organization’s mission is aligned with the foundation’s current strategy. If it is, the funder can have confidence that an unrestricted dollar allocated to the organization will be an investment in progress toward the funder’s goals.
However, nonprofit organizations almost always have multiple funders, of course, and a nonprofit that’s worried about making payroll might end up accepting a grant that leads them to do work they otherwise wouldn’t have taken on. This happens every day in the nonprofit world. A particularly poignant historical case was documented last year by political scientist Dr. Megan Ming Francis, who demonstrated that in the early 20th Century, philanthropic funding led the NAACP to shift priorities from anti-lynching to education access for Black Americans.
This tension between mission and resources helps to explain why, while attractive in principle, providing general operating support might feel risky in practice to many foundations. What if they give unrestricted funding to an organization that is then captured by another funders’ agenda? This concern is all the more acute if the unrestricted funding is subsidizing projects for which other funders are not paying adequate overhead.
Short of a wholesale shift in philanthropy to no-strings-attached funding, the solution to this is for nonprofits to be highly disciplined about adhering to their mission. Nonprofits need to know who they are and communicate that identity with clarity and conviction. Importantly, this means refusing funding with strings attached that are in tension with that mission. In my current role, I am learning every day that this is a commitment that takes courage and confidence, but one that in the long run serves all parties best.
2. Conceptualize, work toward, and measure organizational impact. For many funders, project funding is attractive because of the perceived ease of observing and measuring results. (E.g., “I gave a grant for these services to be delivered to these communities, and I see that happened;” “I gave a grant for an advocacy campaign and the outputs are nicely listed in this grant report.”)
In contrast, the returns on unrestricted funding are often characterized in far more diffuse terms. (E.g., “I contributed to strengthening an organization that played a role in a larger ecosystem of service delivery or advocacy.”) For funders, this type of impact assessment can feel more dependent on someone else’s judgment calls, and believing in its value requires a host of strong assumptions. At the Hewlett Foundation, a reassuring rationale for general operating support has often been that it helps “build a field,” but that is thin gruel for funders that prefer tangible, near-term outcomes that can be attributed to their support.
This gap can be closed — and the process of closing it is an important challenge for nonprofit leaders at the executive and board level.
It is fair for funders to ask nonprofits to describe and measure the results of their work, both at the level of individual projects or programs and at the level of the organization as a whole. In fact, the process of interrogating what an organization is accomplishing as a whole is central to learning what we’re doing right and how we can do better. It calls on us to understand how we interact with others in our fields, and what our special contribution can be — not only through direct services, but also through innovation and influence. Further, it forces a healthy conversation about how we are creating an overall impact that is larger than the sum of each project’s outputs.
In thinking through organization-wide impact, developing appropriate measures, and articulating the value of an organization’s work as a whole, nonprofit leaders can make it easier for foundations to provide unrestricted support for our work.
3. Understand your budget. Grant proposals for projects have budgets that lay out a sensible set of inputs. It’s relatively easy for funders to see if those budgets look realistic given the work that’s described, and the grant amount covers either all the costs or a known portion of them (since other funders’ contributions are also known).
In contrast, grant proposals for unrestricted support present the overall organizational budget. Foundations then offer dollar amounts based on a guess about how much money will be enough to be useful to the grantee, but not so much that it creates dependence on one source of funding. In my experience, there is little or no interrogation of the inner workings of a nonprofit organization’s finances in the context of considering a general operating support grant.
This mode of operating, in which project budgets are scrutinized and organizational budgets are not, causes problems on both sides of the funding relationship. Funders that like to make informed decisions may feel uncomfortable with their limited visibility into the logic of an organization’s finances. Nonprofits, which are forced by the current funding model to put lots of effort into perfecting project budgets, may as a result miss out on a larger and far more consequential focus on their overall financial structure and business model.
The organization-level questions about cost structure and financial sustainability are profound. By digging into these questions, nonprofit leaders can figure out the optimal size and pace of growth for their organization, the efficient allocation of staff across functions and projects, and the risks and rewards of investments in new geographies or partnerships. If economies of scale and scope represent part of the rationale for having an organization — rather than a set of isolated projects — it is crucial to make sure those benefits are being realized.
Nonprofit leaders should be as willing and able to engage with potential funders about their organizational budget as they are about individual project budgets — and they should be able to draw connections between the two. This not only helps convince potential funders that the organization is a good steward of resources; it also helps mitigate the risk that unrestricted support will permit a lack of financial discipline.
Like the authors of CEP’s report, I don’t know precisely why foundations are reluctant to provide general operating support given all its manifold benefits. But I do know that nonprofit leaders should strive for clear direction, demonstrated impact, and smart budgeting for their organizations. In doing so, we can put ourselves in the best possible position to receive many types of philanthropic support that will help us achieve our vital missions.