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Foundations adapt to altered economy

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Ret Boney

Just like every other sector, foundations in the U.S. were thrown off balance by the market plunge and economic spiral that heralded the beginning of the Great Recession.

There was a collective pause in late 2008 as foundations, donors and nonprofits all tried to make sense of the reversal of fortune and determine how to proceed.

In those early days of the downturn, many funders reached out to grantees, listened and began to formulate a response, says Kathleen Enright, president and CEO of Grantmakers for Effective Organizations.

Three years later, with the economy still convulsing, some of those foundations are turning recession-response strategies into permanent ways of doing business, while continuing to look for promising new strategies.

“That’s part of our hope,” says Enright. “That we recognize this is not a temporary fix, but the new normal.”

Recalibrating

The New Hampshire Charitable Foundation, though rattled by the recession, worked hard to keep grantmaking steady for the community.

While the assets of Concord, N.H.-based community foundation fell 24 percent in 2008, assets as of the end of 2010 had rebounded and the overall goal of the organization remained steady throughout.

“We always are looking for how can do the most good for the community with the assets we have,” says Katie Merrow, vice president of programs for the foundation, which reported about $479 million in assets at the end of fiscal 2010 and awarded $28 million in grants.

“We want to put as much benefit to the community today while preserving buying power to impact the community in the future,” she says.

To accomplish that dual goal, the foundation held its spending rate for grants steady in 2009 and 2010, in 2011 lowered the rate to 4.27 percent of assets from 4.5 percent, and is reevaluating its role and activities in light of what Merrow calls a “fundamental realignment of public- and private-sector roles.”

Expecting to be in a constrained fiscal state for a long time, Merrow says the foundation constantly is recalibrating and looking for ways to better support donors and grantees.

“We need to help our nonprofit partners be better positioned to be effective in that new environment,” she says.

It’s that kind of thoughtfulness and flexibility that Enright is encouraging of the grantmaking community.

“The next era of response that some of our members moved into is being engaged in the shape of the work that is being done,” says Enright.

Commitment, flexiblity

To achieve maximum impact with fewer dollars, some of the most progressive funders are focusing on commitment and flexibility, principles actualized through general operating support over multiple years, says Enright.

Those foundations are placing more emphasis on flexible, unrestricted dollars that allow grantees the space and creativity to respond to a financial crisis that hit not only their organizations, but also the people and places those groups serve.

Many foundations also are focusing their grantmaking to achieve greater impact, she says.

“A new strategy is to narrow and really support the institutions most critical to their mission in a deep, long-term way rather than a dabbling way,” says Enright.

The New Hampshire Charitable Foundation is employing both those strategies and is seeing promising results.

For strong, sustainable nonprofits of critical mass, the funder has increased the number of operating grants and the number of multi-year grants it provides, says Merrow.

The foundation increased the number of operating grants awarded in fiscal 2010 to 129, up 59 percent from 81 it awarded in 2009, she says.

And multi-year grants tripled to 21 in 2010 from seven in 2009.

One beneficiary of that new strategy is Media Power Youth, a nonprofit that helps young people better synthesize and react to the influence of popular media.

Having supported the organization with small, program-specific grants, the foundation in 2010 awarded Media Power Youth a one-year, $75,000 unrestricted grant, which the nonprofit has used to review and revise its business plan, with an eye toward financial stability and expansion.

And this year, the foundation awarded the group a two-year, $150,000 unrestricted challenge grant to support the nonprofit while it puts its new business and revenue-generation models into action.

“It’s important to give them the flexibility to manage their funds as they need to in these difficult times,” Merrow says of the foundation’s grantees.

While Enright lauds the activities of funders like the New Hampshire Charitable Foundation, she recognizes not all have caught on.

“Some funders haven’t even gotten to the basics,” she says. “They’re not offering operating support and they still have a nine-month lead time for grants. The world is just moving too fast for that.”

And in times like these, when nonprofits must evolve to meet new demands amid new funding constraints, a lack of flexible funding can be fatal.

“Nothing squelches adaptive capacity more than restricted funds,” says Enright.

Funding advocacy, policy

Another, more sophisticated response to the new economic environment is wading into the often-murky waters of public policy and advocacy.

In part because of detailed rules and regulations governing nonprofit and foundation involvement in lobbying and advocacy, many foundations have avoided the public-policy arena altogether.

But now is the time for funders to weigh in and make their voices heard in Washington, D.C., and in state legislatures, says Enright.

“Grantmakers often decry the fact that we can’t fill the gaps left by government,” she says. “But we can’t both decry that fact and sit idly by and leave the needs of our communities unrepresented in the policy debate.”

Grantmakers and donors spend far less on promoting the issues and causes they care about than does private industry, she says.

“Until we’re willing to lift up these voices at the same level as Walmart, then we’re going to end up being the place lawmakers look to make cuts,” she says of the nonprofit sector.

And advocacy, public policy and civic dialog are critical points of leverage for foundations in this environment, says Merrow.

While government cuts may be inevitable, foundations can fund the activities the will help nonprofits and the communities they support evolve and adapt, she says.

“If the state cuts a program by $20 million, we can’t fill that,” she says of her foundation. “But we can help those nonprofits reengineer so they can reduce the harm, or help them serve people in a different way. We can support advocacy to make sure voices are heard. And we can foster informed civic dialogue so all are informed about the decisions our leaders are making.”

While the New Hampshire Charitable Foundation has long supported these activities, it has increased its emphasis recently and is focused on making sure disadvantaged people have a voice in the public-policy debate.

And the foundation is currently conducting an in-depth review of New Hampshire’s capacity for advocacy with the goal of “building field-level capacity for advocacy so there’s sustainable support for everyone having a voice,” says Merrow.

Collaboration

While foundation endowments overall have yet to claw their way back to pre-recession levels, funders are looking for ways to leverage their non-monetary assets.

Those assets include respect, reach and the promise of money in the future, a combination that can bring players to the table to discuss partnerships or new ways of operating.

Foundations increasingly are working with governments to reform rules and regulations governing public-sector grantees, and to streamline the process for their own nonprofit grantees, says Enright.

And while they may not be able to fund large new programs as often as before, foundations are more willing to provide grant support for organizations that want to combine their resources in new ways, and for organizations that want to pursue relationships that could lead to new ways of operating.

The New Hampshire Charitable Foundation has long been involved in public-private partnerships, but that line of activity has become even more important as a way to bring additional resources to the table, says Merrow.

“We look for public-private partnerships to see what business, government and foundations can do together,” she says.

The foundation helped develop the Green Launching Pad, an effort that supports innovative new business ventures that boost the green economy and green jobs.

And earlier this year it provided $100,000 in seed money to support a partnership between the statewide center for nonprofits and a New Hampshire-based business to develop a shared computer platform for local nonprofits.

Now fully operational, the platform provides access to an “operations toolkit” containing resources like fundraising templates, board-training videos and opportunities to join with other nonprofits for bulk-purchasing opportunities.

“That’s an innovation that will help nonprofits share resources during tough times,” says Merrow. “It is a partnership that brings the value of the private sector to the nonprofit sector.”

Easing the burden on grantees

Finally, grantmakers are doing a better job of understanding and reacting to the Herculean tasks most nonprofits face.

“When I hear some foundation folks talk about these financially vulnerable nonprofits, it feels a little paternalistic,” says Enright. “I would encourage any grantmaker to find a way to walk in the shoes of these cash-strapped nonprofits.”

Many of those nonprofits are highly sophisticated organizations that are piecing together ways to keep going “even though the chips are stacked against them,” she says.

Understanding and empathizing with that fact is critical, says Enright.

So that its grantees can “spend more time on mission,” the New Hampshire Charitable Foundation has been working to streamline the process for both applying for and reporting on grants from its organization, says Merrow.

The foundation recently worked with a group of local entrepreneurs to develop and pilot a process that involves a one-page application and a five-minute in-person pitch from would-be grantees, an experiment that “went incredibly well,” Merrow says.

“We’re trying some innovation ourselves,” she says.

That’s just what will help foundations, and the organizations they support, survive the extended economic downturn and acclimate themselves to the new and different future that awaits, says Enright.

“The organizations that are going to survive and potentially thrive in this changed environment,” she says, “are those that are adaptable and that won’t get stuck in the way things have always been done.”

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