What If Foundations Applied to Nonprofits?

Written by: Christine Reeves

Date: January 23, 2015

The United States boasts approximately 86,000 foundations (grantmakers) and 1.5 million nonprofits (grant recipients). Given the classic principle of supply and demand, there’s an obvious power dynamic that favors foundations.

However, what if – all other things being equal – the numbers switched? What if there were only 86,000 nonprofits and 1.5 million foundations? If that were the case, I can think of at least seven major changes:

(1)    Nonprofits would send requests-for-proposals (RFPs) to foundations.

We would operate in a grant-seekers market. Consequently, nonprofit executive directors and development directors would design requests for proposals for foundations. Nonprofits would not have the capacity to use the massive funding available, so development directors would have to be selective and reject most foundation proposals to give money. Maybe, thoughtful nonprofit development directors would send rejection letters that would explain how the foundation could be more successful next time.

(2)    Nonprofits would conduct site visits of foundation offices.

If nonprofits sent out RFPs, it’s likely that nonprofit development directors also would conduct site visits of funder offices, maybe inviting their organization’s board members to join. Development directors might question the size, location or quality of some foundation offices. To select the best foundations possible, nonprofits would want to rigorously evaluate foundations’ budgets. Nonprofits might look more favorably on foundations that could demonstrate that their annual qualifying payout of five percent or more includes only a very small percentage of overhead costs (i.e. foundation salaries and rent), with a much larger percentage going to grants. This percentage breakdown would demonstrate a foundation’s support of the idea that foundation dollars are partially public dollars. Development directors might also inquire what percentage of a foundation’s board and staff represent the populations (i.e. the homeless, immigrants, etc.) that the foundation wants to serve and empower. It’s likely that development directors would be highly skilled in evaluation and measurement of foundation outcomes.

(3)    Nonprofits would attend “nonprofit-only” events.

Nonprofit development directors would have to send a myriad of declination letters, and would likely feel terrible saying “no” so often. Therefore, development directors and other nonprofit staffers might pursue safe spaces (nonprofit-only conferences that don’t allow foundations leaders), where they could speak freely and not be solicited by foundation program officers.

(4)    Nonprofit development directors would be “dream jobs.”

Nonprofit development directors would be the most competitive positions in the sector. Some of the largest nonprofit organizations, such as The Red Cross and The Boys and Girls Club, might have term limits on their development director jobs; this would allow nonprofits to gain fresh perspectives from people in the field and prevent people from staying in the development director positions for too long.

(5)    Funders would primarily give multi-year and general operating support.

According to the IRS, most foundations must grant at least five percent of their endowments each year, based on multi-year averages. Because of how competitive it would be to get a nonprofit to accept a grant, it would be in a foundation’s best interest to only give multi-year and general operating support, which would make nonprofits more likely to accept their money.

(6)    Funders would prioritize mission investing.

The vast majority of foundations would designate of their endowment to mission investing, as a nonprofit might reject a foundation’s funding if that foundation invested in companies that contradict its mission. For instance, if a foundation funded the protection of the environment, but invested in ExxonMobil, that foundation’s grantees would be disappointed when evaluating the foundation. Moreover, nonprofits might require foundations to both divest from companies that undermine their missions, as well as invest in companies that promote them (such a wind power companies, in this example). A program officer might also assess historic data about a potential foundation donor, look at how it gained its wealth in the first place, and determine if that history is consistent with the nonprofit’s mission.

(7)    Funders would bring up power dynamics.

In this scenario, perhaps funders would be the ones bring up the power imbalance between nonprofits and foundations.

This piece is meant to be a thought exercise, and it is sprinkled with levity. It’s not a gauntlet thrown for a sector-wide coup d’état. Rather, satirically flipping our assumptions about the philanthropic sector allows us to see the current power dynamics at play. Given the supply and demand in our sector, how can foundations better address power dynamics, empathize and truly walk in the shoes of their grantees? After all, we are all on the same team, and it is a great team.

Christine Reeves is senior field associate at the National Committee for Responsive Philanthropy (NCRP). Follow @NCRP on Twitter.