Effective criticism is neither easy to come by nor always welcomed by foundations. This is an inherent problem embedded in the nature of grant-giving organizations, not one born of misguided spirit—and it invites thoughtful probing. Several concerns about foundation grant-making styles are noted below in order to generate discussion. Legitimate counter arguments to the recommendations exist. While foundations are likely the primary audience for the nudges that follow, others are licensed to tune in.
- Increase the level of "venture capitalism." Risk-taking and experimentation by foundations are means to foster social learning. While foundations are well positioned to contribute to social learning, they often appear to be among the timid. Without abandoning sound program funding policies, there should be room for foundations to increase the number of grants where outcomes are less certain—where the opportunities to learn through doing are greater.
- Give greater attention to longer-term solutions. Corporate and political decisions are frequently driven by short-term considerations. In many instances quarterly earnings influence business decisions and the fact of biennial elections propels political decisions. But foundations are largely insulated from these forces and have the privilege, some would say the imperative, of basing decisions on much longer time frames. Too often they do not. Which institutional investors, if not foundations, will represent the interests of future generations when it comes to protecting the planet's natural environment?
- Increase the number of multi-year grants. One-year grants dedicated to new or ongoing programs create a special problem since little of genuine institutional importance is normally completed in the very short term. Six months into a grant the recipient feels compelled to advance a funding request for the following year—without being able to measure results from the current grant. Thus, the case for multi-year thinking by funders is probably stronger in specific cases than is generally recognized or admitted.
- Reduce the cost of obtaining grants. Many executives in not-for-profit organizations are among the most talented leaders and energetic entrepreneurs in society. But it is a discouraging fact that even the best of them spend more than half of their time in fundraising. While open competition for grants is part of a free market system, a creative executive's most productive hours ought to be dedicated to program innovation and management. With governmental funding declining and the competition for foundation grants increasing, fundraising expenditures seem bound to rise in absolute terms and as a percentage of budgets. Because these costs are ultimately paid for by funders, this ought to be discomfiting to foundations. A creative response to changes in society is needed.
- Increase the number of unrestricted grants. Unrestricted grants are highly valued because they offer flexibility and options for creativity that are generally hard to come by. Most grants, however, are restricted to specific activities and may therefore limit innovation by those who arguably make up one of the most talented sub-sets of people in our society. While many situations call for restricted grants, foundations can sometimes gain better results by softening restrictions and shifting "accountability" from the front to the back end of grants. The challenge comes in deciding when and how to do this.
- Find better ways to evaluate foundation performance. Foundations face special challenges in obtaining good institutional performance feedback. Outsiders who know them well enough to provide effective critiques are normally potential grantseekers and are wary of risking disfavor. Those who are farther away and are not potential grantseekers will usually miss the target in their critiques. And those whose funding proposals have been rejected—usually the vast majority—understandably have little heart to help a foundation "get it right."
Other foundations, if invited to engage in peer review, practice "senatorial courtesy"—knowing that the funders' world is a small one. Furthermore, there is no profit/loss indicator to review annually, no stockholder initiatives to prick the conscience of directors, no public testimony by foundation officers, and only very rarely is there media criticism of foundation decisions—as a content analysis of the New York Times or other leading dailies will show. In sum, absent a specially designed initiative, it is unusual for foundations to obtain the kind of constructive criticism which their role as public trusts invites and warrants—and which they themselves need.
Some of these observations may hit the mark more squarely than others, but these seem to be the kinds of non-issues which merit "issue status." To paraphrase an aphorism concerning the role of generals in war, these matters seem too important to be left solely to grantmakers. In that vein, we welcome comments at any time.
Theodore M. Smith
Executive Director
February, 1996
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