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Vol. 4, No. 1 January 2008

Funders' Role in Providing Nonprofit Operations Support

The GEO(Grantmakers for Effective Organizations) listserv has been humming for the past year with various comments about the role funders should play in supporting the capacity of nonprofits. A summary of these comments is included in a recent GEO report, General Operating Support, which can be downloaded at the GEO website (www.geofunders.org). I found a recent posting by Barbara Dyer, President of the Hitachi Foundation to be an interesting response to a related question posed to the GEO listserve recently by Paul Shoemaker, “What needs to change in the nonprofit capital market?” Barbara's response:

The question about support for operations is critically important and needs to be addressed. Foundations play two roles: We are financiers of the nonprofit sector -- the bankers and investors. In this role we provide the seed and at times operating capital that has contributed to one of the most vibrant nonprofit sectors in the world. Problem is - our voluminous and at times arbitrary reporting requirements, overhead limits, funding timetables... contribute to very high transaction costs for nonprofits and an inevitable level of inefficiency within the sector. What many are quick to label as incompetence or lack of professionalism in the sector may be more a reflection of how we funders condition their world then an indictment of the ability of nonprofit professionals.

We are also investors in innovation for social progress. Here we develop and test theories of change in attempts to solve complex social, economic and environmental challenges. We support the generation of ideas and knowledge. We take risks with new approaches and challenge convention. We support pilots and capture lessons...

There are several problems however inherent in this division of roles. First, few foundations want to accept the role or responsibility as financiers of the sector. If we did, we would have far less resistance to providing general operating support and more mechanisms to make certain that we invest well. If we were really dedicated to there being a vibrant and effective nonprofit sector we would capitalize the sector in ways that reduce burdensome and inefficient transaction costs. Ideally, we might work to establish a financial institution, (presumably with branches throughout the country -- like banks) capitalized through an assessment of a small percentage of each foundation's assets, that supports the operations of nonprofit organizations based upon objective, transparent and reliable criteria. This would provide an alternative source of capital for organizations. Some of us would still want to support operations, particularly those dedicated to specific communities. There should be some alignment of approach and criteria between individual funders supporting operations and this new institution that awards support to efficient and effective organizations.

We are often frustrated by the mismatch between our social innovation goals and the performance of the organizations that we support. What we have now is a condition in which well-meaning organizations are forced to make themselves look like the projects we want to fund in order to get support for operations. When they can't achieve our vision, we pull the plug. If they could go elsewhere for support, and could be more honest about their own goals, many would. Meanwhile we foundations are also fairly criticized for not always being clear about our priorities, for perpetuating mythology about sustainability and for abandoning investments in design and development of new solutions before they are put to a full test. We have also been fairly criticized for being unwilling to claim anything less than success and failing to learn from experience. Finally, we have been fairly criticized for holding tight to the "not invented here" mentality. If we are serious about addressing the complex challenges in society, we must be willing to subordinate our individual brand and pool our intellectual and financial capital more deliberately toward designing and implementing solutions. We are trying to do this with our colleagues in the National Fund for Workforce Solutions and invite others to join.

Best regards for the New Year!

Barbara Dyer
President & CEO
The Hitachi Foundation