If I were writing for the NY Observer or some other similarly sensationalist newspaper, I’d write a headline that says:

“Nation Stunned: LA-based Weingart Foundation Places Trust in Nonprofit Grantees”

This is absolutely, positively not meant to be a dig on the Weingart Foundation.  To the contrary, they deserve praise.  As the LA Business Journal reports, the Weingart Foundation has announced that it will “offer unusual ‘core support’ to underwrite administrative costs for social service agencies that provide necessities such as food, shelter and health care to the region’s poor, unemployed and sick.”

This is contrary to normal practice, wherein “Most philanthropic foundations traditionally give large grants that pay the costs of specific programs but do not underwrite non-profits’ operating costs, such as staff salaries and rent. Many non-profits get their operating cash typically from their own fund raisers or from direct donations.”

My point is: the fact that this is newsworthy is a reflection of how far (too far) things have swung in terms of foundation grantmaking to nonprofits.  There’s a serious power imbalance here, one that has to change if we are going to increase the impact and efficiency of the nonprofit sector.

There’s a longer history here, one that I will be exploring over time on this blog, but as a starting point imagine the following in the for-profit sector:  Blackstone or some other private equity fund investing three million dollars in a portfolio company, but restricts the funding to the purchase of an Oracle database, with 10% for “overhead.”   Guess what?  That never happens, because it doesn’t make a lick of sense.

So why have we ended up at this perverse equilibrium in the nonprofit sector?  The list of reasons might include:

1. A desire for funding to go “to the beneficiaries”

2. Concern that nonprofits are not efficient enough, and that limiting grants in this way will lead to increased efficiencies

3. Because there’s a serious power imbalance between people who hold the money (the foundations) and the people who use the money (the nonprofits), so the people with the purse strings get to write the rules. (something I talk about more here)

4. Because the donors have their own philanthropic agenda, and fitting unrestricted funding into a specific agenda is difficult

5. The fear that on the part of the foundation program officer that one of their grantees will end up as front page news because of exorbitant salaries paid to their top executives or CEO

The result of all of this is that we end up with scores of nonprofits twisting themselves into knots to manage a series of too-small, too-specific “program” grants, with individual donors asked to pick up the difference between what’s funded and what’s needed to deliver on the non-profit’s mission (weren’t the foundation supposed to be the trailblazers in this equation?).

Worse, the nonprofits get tied into a cycle of yearly make-the-numbers funding, and they end up perpetuating the myth that you can neatly separate a non-profit into “program” and “everything-else-that-really-isn’t-that-worthwhile-but-we-have-to-do-some-of-it-even-though-we’d-rather-not.”

Lots more to talk about here, but here’s a starting point:  Do you think you’re going to get the best people to do a job that you (foundation program officer; non-profit grant-writer) have proclaimed is in the “not terribly worthwhile” bucket?

(Hat tip to Sean Stannard-Stockton at the Tactical Philanthropy blog for pointing out the LA Business Journal article.)