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How-to Library • Featuring articles from past issues of Contributions

An Insider’s Take: Are Today’s Charitable Foundations Pulling Their Weight? (Part Three)

We recently sat down with Martin Teitel, Executive Director of Boston’s Cedar Tree Foundation and author of Thank You for Submitting Your Proposal, published by Emerson & Church. We posed to him a range of questions about the performance of today’s charitable foundations.

The gap between what foundations demand of nonprofits and the operating challenges these organizations face seems pretty vast. How might foundations narrow the gap or is that not to their advantage?

Let me start with the second part of your question first: it is to the advantage of funders to support the health of the grant seeker community. It is to the advantage of funders to live in reality, to make decisions based on how things are, not on their fantasies of an ideal grantee world. So it seems inescapable to me that funders would do a better job if they were committed to narrowing the gap between their own practices and the realities of the grantee community.

One way for foundations to narrow that gap would be to insist on placing nonprofit veterans on their staff and boards. In the foundation business, it’s not that hard to spot people who have never had to deal with the realities of life in the hardscrabble world of grant seekers.

Thank You for submitting Your Proposal
Martin Teitel is the author of Thank You for Submitting Your Proposal: A Foundation Director Reveals What Happens Next. For more information, click here.

Second, foundations need to define “results” and other terms of accountability not based on what they wish were true, but on how things work in the real world. This doesn’t mean funders have to give up on measuring results or demanding that grant seekers adhere to high standards. It just means that they need to pay careful attention to testing their own standards against how things are and how things can realistically be. And my admonition especially includes the army of power-suited consultants who make a nice living advising those funders – sometimes by telling them what they want to hear rather than what they know to be authentic.

And finally, the grant seeker community needs to meet funders part way here. It’s so easy for grant seekers to blame all their woes on funders – being a victim isn’t that hard – rather than looking at their own practices. Sloppy management, loose accounting, and dishonest fundraising are behaviors that funders can point to time and time again to justify their unrealistic expectations.

Rather than helping nonprofits cover their operating costs, grantmakers overwhelmingly prefer to make grants that support direct delivery of services. Why is this?

I think there are two closely related reasons for this problem. First, foundations are – appropriately – under a lot of pressure to be accountable and to show results. Often, this means foundations want results that are quantifiable, measurable. Those ideas are frequently reduced to units of population served or some other project-oriented metric.

The second reason is that some foundation boards put their staff under considerable pressure to fund work that the foundation board members understand as directly helping the community, however these board members might understand the words “help” and “community.” The building of organizational competence and capacity, the supporting of a nonprofit infrastructure to last for the long haul, are some of the goals that can be lost because of this funder stance.

While some grantee-grantor problems are created by both sides of the transaction, the insistence on supporting projects only is one I lay almost entirely at the feet of funders.

Finally I want to add that a cynical person might claim that funders insist on project support over general support because that keeps grantees on the shortest leash. General support moves some of the power from the grant maker to the grant receiver. Alas, I am one of those cynics.

The purpose of the tax exemption that foundations enjoy is to enable them to meet their charitable goals and to serve the public interest. When a foundation warehouses assets instead, isn't it nullifying its charitable purpose at the expense of taxpayers?

Yes indeed. I have no doubt that foundation assets should be under greater public control, because everyone pays more taxes to allow these tax exemptions in the first place. This question is an interesting juxtaposition with the previous one about project support. It shows the stark hypocrisy of some funders – those who demand maximum accountability and control over grant receivers but are outraged over the suggestion that they should be held accountable for their own publicly-derived endowments.

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If you have something fresh and interesting to say about fundraising, board development, or nonprofit management, please email your 700-to-1,000 word article for consideration to our editor.

While I think political realities make the prospect of increasing the 5% minimum payout requirement remote, I think there could be more incentives to reward foundations that do a better job with their endowments, along the lines of the present reduction of foundation excise tax from 2% to 1% when foundations behave in certain ways.

For example, you could eliminate even the 1% excise tax for payouts of 10% or better. Or you could put together a package of behaviors, like greater payout and more granting of general support over time that would cause the IRS to treat private foundations under some or all of the more favorable rules that govern public charities.

Generally speaking, how do foundations feel about cold calls from grant seekers?

Whenever my kids leave the house, I’m unable to resist telling them to drive safe, even though this mantra is a useless ritualistic statement of the painfully obvious.

Similarly, I have written so many articles and given so many talks that admonish grantees to read the rules before they apply to a foundation, but I think I’ve had little or no effect.

Cold calls do have consequences. One is that some foundations just hire more people to answer the phones to handle those calls. The salaries and fringe benefits of those functionaries are charitable expenditures that could have been grants. Lazy cold callers are just diminishing their chances of getting a grant.

Second, people like me build elaborate moats around themselves. I am a very difficult person to reach on the phone, by design. This is because the majority of the calls that come in for me are an irredeemably total waste of my time.

Does my behavior run the risk of throwing the baby out with the bathwater? Yes – I know I might miss a call from someone with a fabulous brainstorm that I should be hearing. I can only hope that the person with the appropriately-targeted good idea does read the rules and gets to me via the established channel.

 

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