Spring 2008
General Operating Support:
Flexibility, Accountability and the Grantmaker/Nonprofit Relationship
The Minnesota Council on Foundations engaged four member foundations and a representative of the nonprofit community in a roundtable discussion about general operating support. The age-old questions surfaced: How much is enough? What about measuring results? Why don't foundations "get it"? Why don't nonprofits "get it"?
The answers from our roundtable participants might surprise you. We share the insightful perspectives of:
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Kate Barr, Executive Director, Nonprofits Assistance Fund |
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John Couchman, Vice President, Grants and Program, The Saint Paul Foundation |
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Kathleen Fluegel, Executive Director, HRK Foundation |
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Mark Hiemenz, Community Relations Director, Ameriprise Financial Inc. |
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Steve Joul, President, Central Minnesota Community Foundation |
The foundations represented in our conversation give varying types and levels of support: some devote nearly 50% of their giving to general operating grants; others give very little under the traditional general operating label, yet they provide flexible, sustained giving in other categories, such as capacity building.
MCF President Bill King opened the conversation with a recap of general operating support given by Minnesota grantmakers. (See related story about state and national operating grants on Page 3.)
General Operating Support:
How Much is Enough?
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The Blue Cross and Blue Shield of Minnesota Foundation supports community
partnerships that advance children's health. The Minnesota Environmental
Initiative in Minneapolis is retrofitting Head Start buses to reduce harmful
diesel emissions. For more on strategic philanthropy initiatives that go beyond
general operating support, read
Voices in Philanthropy.
Photo by Scott Streble
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King: In a recent meeting I heard a nonprofit colleague state that only 10 percent of Minnesota grant dollars are for general operating support. Our Giving in Minnesota research report tells us that figure is actually about 25 percent. What do you think about nonprofits' perceptions of these numbers?
Fluegel: Few, if any, nonprofits think there's enough general operating support. We as funders need to engage with nonprofits in a conversation to understand how we can best work together. One of the things that is happening as we struggle with this recession is a fear on the part of nonprofits that funding is tighter in general and that general operating support will be reduced.
Barr: I also think the universal answer from nonprofits is that, no matter the amount of general operating support, it's not enough. The questions to all of us working in the independent sector are what difference does it make, and how does it have an impact on organizations' ability to do their work in the community? Does it matter what you call it if it's appropriate support that has the right amount of flexibility so that organizations can do the work they need to do?
What Does "General Operating" Mean, Anyway?
Barr: One of the biggest issues in the relationship between foundations and nonprofits and intermediaries is language. What exactly do we mean?
Couchman: To me, the discussion of general operating vs. program support almost misses the point; they've lost their meaning to some extent. In our guidelines we say we don't make grants for annual operating expenses because we're focusing on specific issues on which we've decided we want to have community impact. In order to do that, we know that we need nonprofit partners in those areas, and we work with those organizations in a variety of ways.
Hiemenz: I think a lot of nonprofit executives look at general operating as more flexible than program support. But program does not mean inflexible. How do you define a program? If a program is based on very specific outcomes that are tied more to the grant than to the outcomes of the organization, then you are going to lose flexibility.
Joul: There's a fine line between general operating and program support. General operating support is more empowering. As funders we still need to hold nonprofits accountable but at the same time be more empowering in allowing them to apply the funds where they think it's necessary.
Couchman: There are lots of ways to partner with nonprofits that are focused on building infrastructure or capacity that are part of a lasting long-term relationship that's more powerful than just providing general operating grants.
Who Makes the General Operating Decision?
King: What about your organizations' decision-making? Is your board engaged in the conversation about how to interact with nonprofits and whether to provide financial or other support?
Couchman: Our discussions at the staff level and in board committees center around the issues where we want to have some lasting impact: flexibility and investing more broadly or over a longer range of time with nonprofits to accomplish goals. The old paradigm was three years of general operating or program support and you are out. That's problematic; we need to change the discussion.
Hiemenz: The simple rule of thumb that I've always used when talking to nonprofits about our guidelines is that, if the main mission of your organization really fits in with our guidelines, then general operating may make sense. But if you're a multi-service organization, then we'd better see a program application.
But How Do You Measure Impact?
King: This is one of the driving arguments I hear from grantmakers who prefer to give project support: It's easier to measure and demonstrate outcomes to boards of directors than with general operating.
Couchman: While we say we don't do annual operating giving, we support a lot of small community-based nonprofits and we don't make them put it into buckets. If you're really making enough of an investment in an organization, whether it's general operating or program support, you can really say your money has some direct connections to the outcomes that the organization is achieving. I think there is a way to measure it.
Fluegel: The members of the family I work with are patient philanthropists; their time frame is very long. Their commitment to general operating support is a family value. It's really a different way of looking at philanthropy that says we are part of this community. While the giving is intentionally quiet and not splashy, the value of consistent investment over a long period of time is what makes a difference.
Couchman: I really resonate with the long-term investment and patience to make a real difference.
Barr: I think this whole idea of being able to identify the impact of the use of the funds is one of the central questions. Nonprofits do a lousy job when they're thinking about general operating expenses. I hear them say that general operating pays the rent and program support pays for our work; that's the worst accounting I've ever heard.
Why not find a new way to really articulate "we're a great, effective organization and here's what we do"? When nonprofits talk to each other about funding, they get into that "woe is me I can't get general operating" mentality. Who's going to say "here's $5,000 and do whatever you want with it"? You have to be accountable, to say we ran an effective organization and we impacted people's lives. I think if nonprofits were universally more able to tell that story, we could cut through a lot.
King: Grantmakers want to be appreciated and valued for the gift they're giving. The assumption shouldn't be that it is forever.
Joul: I haven't found a donor yet that doesn't want to see something happen with their investment or money. As funders we want to see some sort of outcome, short-term or long-term. General operating is that longer term investment.
If you have trust and a relationship, you are believing that there are outcomes; they just might not be outcomes that you'll see right away. We have shifted our whole focus and mission to a social capital metric. Our area is not going to change overnight. We are partnering with nonprofits that understand our metric and that over time there will be incremental progress toward that larger vision.
Couchman: What constitutes an outcome and real results? Nonprofits sometimes don't realize that they need to present their results or impact more clearly. The reverse is also true with funders: they often have unrealistic expectations of what an outcome can be in the short term. With alignment and a relationship between the nonprofit and the funder, over time they can work together in a variety of ways to have an impact.
Should Foundations Define Outcomes?
King: Some foundations understand long-term commitment, long-term change and how social structures in communities change over time. But some philanthropists — particularly smaller, unstaffed foundations that don't have a lot of money — are looking for a big impact because it feels like their own dollars are being invested.
Fluegel: Some venture capitalists moving away from general operating support believe that they are better at running nonprofit than nonprofits are. I disagree. If you believe in an organization, then you believe that they're the best ones to make choices about where the funding goes. That's not to say that nonprofits don't need some help sometimes, which is where capacity building comes in.
Couchman: Philanthropy isn't about me as philanthropist. It's about the community and the people who are doing the work.
Hiemenz: In the last 10 years, the conventional wisdom has been that corporate philanthropy should be tied to the company's mission. On some levels there are a lot of good things about that, but we need to tie the language of philanthropy to the nonprofit language. Our guidelines used to say "financial well-being for a lifetime," but what does that mean to your average nonprofit that might have a program in financial literacy? We changed our philanthropic language to "meeting basic needs and supporting community vitality." I'm hoping more corporate philanthropists will spend some time looking at philanthropy and marketing and actually make some delineation between the two.
King: Historically, corporate foundations have been major general operating funders. In the last 15 years corporate folks have been looking for more measurable outcomes — that's the corporate culture.
Hiemenz: How are we looking for the results? What about the whole idea that we give you a grant and you send a report? A lot could be accomplished if you sent us a report and then we sat down and talked. Understanding of philanthropic outcomes is going to be shaded by expected outcomes in business, which is totally different from outcomes in the social sector. Any nonprofit organization, no matter the size or sophistication, is going to understand the need for measurable results. But it's also very difficult to understand what's appropriate in reporting those results, what's the bottom line versus the numbers.
Opportunity for Donor Education?
Barr: It depends whether a corporate philanthropist has dedicated staff at a foundation or an employee-driven charitable contributions committee. Most of the foundation people have worked for nonprofits and know how money comes in and goes out and that 60 to 80 percent is spent on salaries. Employees who volunteer on committees want to participate, but when they start looking at budgets they say, "oh my gosh, all the money is going to salaries and we don't want to pay for that." There's a disconnect, and that leads the drive to ask for exact outcomes. It's the trust factor, the comfort factor, the understanding. And there are things we could be doing with education and training to help overcome that.
Fluegel: As new foundations are formed, it's challenging for people who are new to the field and who want to have ways to evaluate. They may not see that at nonprofits — particularly small and midsize nonprofits — fundraising is happening on top of someone's job, and to be forced to jump through hoops for $3,000 or $5,000 is disrespectful.
That's not to take away from the importance of those smaller donors. How can we train those donors on how they can be good partners in the work? Is there a way for people to understand how they fit into the ecosystem, how everybody can get respect?
Joul: Donors want to make a difference; if they trust that organization and they have a relationship, they do feel they're making a difference. General operating support requires relationships and that kind of trust.
Can Foundations Trust the Numbers?
King: What about the grant proposals? Should we encourage people to build general operating support into proposals?
Couchman: It's bad business practice if you don't include administrative overhead. An organization can't run without it. If it's not in a proposal, we would worry about their business capacity to run a self-sufficient, financially health organization.
Hiemenz: The vast majority of so many budgets is salaries. Accounting needs to allocate salary to programs. It seems like relatively basic accounting — you should know what your expenses are.
Fluegel: It's the capacity issue. There's an increasing gulf in the nonprofit community between organizations that have infrastructure and sophisticated financial and management expertise. In the smaller, very critical community-based organizations, that expertise is not there. Capacity-building programs are another place that grantmakers and the nonprofit community could come together to get the right tools more broadly into the hands of nonprofit workers. All of us need to be more financially literate.
Barr: This is at the heart of the trust and relationship question. We have a mission to help nonprofits understand their true program costs. You have to allocate your expenses correctly, not fibbing, not making it up, not saying what you think such-and-such foundation wants to see.
There's a trust issue on both sides of the relationship. Particularly the younger, smaller less-sophisticated nonprofits don't trust the foundations to understand and really support them. They think, "Well, if I cram my numbers this way, maybe they'll think it's okay." I think they're wrong most of the time. Most foundations want to see real capacity, real infrastructure. But when foundations get bad financial information, they start to distrust the nonprofits and it just becomes a terrible circle.
King: In our grantseeking seminars we hear that point: they need to fudge the numbers because people will pick them apart. It's partly myth that foundations are this way, but there are a few grantmakers who do this. So it's real-life experience: Who can I trust?
Barr: Nonprofits are victims of another myth: that overhead should be no more than 10 percent or 20 percent. They have the same lens and filter problem that a lot of people have: that salaries are too high, or that you shouldn't have to pay rent. It's the same set of bad expectations.
Fluegel: My intuition is that nonprofits look at the real numbers and think "oh, they're too high," so they start playing with the numbers. Then the proposal is funded, but it's not enough, and soon they're subsidizing their own programs. We need to get the information out about what it costs to do this stuff. It's okay. If that's what it costs, that's what it costs.
Barr: Add to that the competition among nonprofits: "I only spend 5 cents of every dollar on overhead and they spend 20, so I'm a better use of your donated funds."
Why Do Foundations Only Want to
Fund What's New?
Barr: We hear, even on the program grant side, not just with general operating, that foundations want to fund something new and different. But most nonprofits provide some basic community service, so how can nonprofits best communicate to their philanthropic partners how well they do that service and get funding for that next period of time? There is that complicated thing about dependence and reliance versus doing something new. The joke is that every three years you just name it something new. A food shelf is a food shelf. You can call it 'Tomato Month,' but it's still a food shelf. Is that a basic issue or a myth on the nonprofit side?
Couchman: It's an issue. A challenge for community foundations is which community issues to fund; the broader the focus, the less ability there is to fund general operating and build long-term relationships.
Fluegel: Particularly with family foundations, our reward for long-time operating support of certain organizations is that we also get an opportunity to partner with a nonprofit on something new. It they initiate it, we are conscious of the cost. On the rare occasions when we initiate, we are plugging initial money in because we understand that we are taking their time away from something else. That's the treat. You don't get the treat unless you eat the spinach!
Any Lessons for Foundations that
Prefer Project Grants?
King: What advice would you give to your grantmaking colleagues who are solidly committed to project support? How would you make the case to change their minds?
Couchman: Continually revisit what you are really trying to accomplish. It's not about general operating vs. program grants. Ask what your larger mission is and then work backwards to the tools that you need to accomplish that.
Joul: Build trust between funders and the nonprofits. While we were talking I drew a little graph. The X axis is the identification of outcomes; the Y axis is the foundation/nonprofit relationship or trust. The greater the trust you have, the less need to identify specific outcomes in a short period of time; as that trust goes down, the identification of those outcomes becomes more important. Putting it in terms of social capital, if we develop some bridges and connecting points between the nonprofits and the funders, that will potentially lead to greater trust and bigger picture outcomes.
Fluegel: Take a fundamentally different approach to our community partners. Nonprofits are not groups looking for a handout but partners that have as much or more knowledge than we do. The opportunity to learn from people embedded in the community — who probably have a real good idea of where an investment could be made — is very, very exciting.
Barr: Relationships and trust are key. I'm thinking about our organization. The fact that we run loan funds is unique, but we have $11 million from foundations and banks that does not have any restrictions. There's a reason they trust us: We know what we're doing and do it appropriately and have good reporting. The flexibility question is also crucial. Build it into whatever type of grantmaking that you do. Maybe it's just built into the relationship, and when a program isn't going well, the nonprofit will feel free and comfortable calling and saying, "This isn't working. Can we do it differently?" Nonprofits are fearful of that, but a good relationship will do it. There's a good reason a certain amount of the budget needs to be flexible. Not no strings attached, not no accountability, but flexible.
Hiemenz: It's about flexibility, trust and relationships. The first level of conversation is understanding. Let's get the dialogue going within and across the nonprofit and philanthropic sectors.
© Copyright 2008 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher
is prohibited.
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Audio Clips
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Kate Barr on relationships and trust between
nonprofits and foundations, 1:23 |
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