Reimagining grant making

Reimagining grant making

Key points

What is the issue?

The COVID-19 pandemic has highlighted the need for funders to be responsive, impactful and flexible with their grantees, and many have risen to the challenge.

What does it mean for me?

Funders may be seeking to re-examine their approach to philanthropy.

What can I take away? 

For advisors helping them to navigate the legal and practical issues, ‘trust-based philanthropy’ may provide a useful model for consideration.

 

Philanthropy, at its best, lives up to its origins: love of humanity. It draws on abundance to fight scarcity; transforms communities; and is noble, important and necessary, particularly in societies that underfund social need.

Philanthropy can also do better. Some key challenges of the status quo include:

  • An inherent power imbalance: Voluntarism gives philanthropy outsized and almost unchecked power. Funders can choose whether or not to fund, select grantees and projects with almost unlimited freedom, and impose a considerable burden on grantees. They can even influence the strategy and direction of grantee organisations, the worst sort of ‘mission drift’.
  • Core costs: A lack of unrestricted funding is challenging for non-profits. Project funding that does not bear a portion of the core costs burden leaves pure core costs that must be met somehow. Organisational energy is needed to fundraise to address this shortfall, and the cost of such fundraising contributes to the level of administrative cost, which is under ever more scrutiny. Funding core costs provides organisational resilience and, arguably, allows non-profits to adapt and innovate.1
  • The ‘funding gap’: Non-profit organisations led by black leaders have been shown to receive less revenue overall and possess lower levels of unrestricted funding than their counterpart organisations. This disparity applies even when the non-profit’s work is directly related to racial justice or other areas in which lived experience is highly relevant.2

It may be that the disruption of 2020 provides a perfect opportunity to try to ‘reset’. There has already been much public discussion of these issues and a number of funders are reconsidering their approach. For any funders in this position, ‘trust-based philanthropy’ offers an interesting model for consideration.

What is ‘trust-based’ philanthropy?

The formal articulation of a trust-based approach to grant making is recent, even if some of the constituent practices are familiar. During its decade-long spend-down process, The Whitman Institute (TWI),3  a Californian non-profit, received feedback from its grantees that its funding practices should be shared more widely to help foster a more equitable and inclusive philanthropy. The Robert Sterling Clark Foundation4  and the Headwaters Foundation5  joined TWI in creating The Trust Based Philanthropy Project, a ‘peer-to-peer funder initiative to address the inherent power imbalances between foundations and non-profits’,6  in 2018.

Several key principles form the framework for trust-based philanthropy. From the perspective of legal and tax advisors, the following four principles are of particular interest:

  • Do your research: The onus should be on the funder to take active steps to learn about the grantee during its preliminary investigations and pre-grant due-diligence process.
  • Provide multi-year, unrestricted funding: Single-year, project-restricted funding limits the grantee’s ability to develop resiliency and devote its staff time to charitable operations. Grantees in need of funding for core costs need to devote staff time and cost to seeking that funding and are at risk of mission drift.
  • Simplify and streamline paperwork: Funders should identify how information they gather from grantees can be obtained in ways that are less time-consuming and burdensome. For instance, requesting grantees submit a grant application that they have already submitted elsewhere.7
  • Offer support beyond the cheque: The capacity of grantees, particularly grantee leadership, can be fostered in a variety of monetary and non-monetary ways. Although funders may provide a sounding board to counsel grantees, this principle is not to be confused with the idea that the guidance of donors with business skills will ‘professionalise’ grantees.

The two remaining principles focus on communication: be transparent and responsive, and solicit and act on feedback.

What about tax reliefs?

Funders formed as charities need to ensure their grant-making procedures comply with applicable fiscal rules and fiduciary principles.8  In the UK, a charity will need to ensure that its grants do not amount to non-charitable expenditure and that the charity trustees are able to justify every grant as being in the best interests of the charity. Charity trustees face potential personal liability for breach of duty, so a tendency towards caution is understandable.

Particularly where grantee circumstances are varied (some local, some foreign, some new, some established, etc.), procedural simplicity may drive funders to adopt highly standardised processes to mitigate risk. There is logic to this approach; as long as template documents are fit for purpose for the grants requiring the highest level of formality, all grants can be safely made with minimum funder effort. However, this approach is sure to impose an unnecessarily high burden on the lower-risk grantees. In the UK, grants paid to overseas grantees will require more formality than domestic grants to UK charities that are registered, exempt or excepted.

A grant-making procedure that prioritises flexibility over procedural simplicity can instead impose on grantees only such obligations as are appropriate to the circumstances of the grant. This alternative clearly requires the funder to bear a little more of the work: more than one template document will be needed and the funder will have to analyse each grant slightly more than some funders perhaps currently do.

What does this mean in practice?

If this is all sounding a bit academic, the following practical points may assist.

In relation to grantee due diligence, a funder can get to know a grantee organisation in ways that require less grantee staff time without compromising fiscal or fiduciary compliance. Funders can review publicly available documents and can accept information compiled for another purpose (including applications produced for another funder). Taken with public documents, meetings and phone calls can be used as an opportunity to obtain most if not all the information a funder may require, instead of requiring a grantee to complete a full application form after one or more preliminary meetings. Initial funder research may also avoid wasting both parties’ time if the grantee does not meet eligibility requirements.

Most funders will be free to make unrestricted grants to many, if not all, of their grantees. If a default position applies at all, funders should default to unrestricted funding, with project-based restrictions limited to scenarios where this is prudent for some specific reason. Where a grant for a defined project is made with reference to an agreed budget, it should reflect the true cost of delivery.

In relation to reporting, there will again be many scenarios where limited or no bespoke reporting is required for a fiscal or fiduciary reason. Funders wishing to measure impact should be led by grantees as to the best way to demonstrate impact in the particular circumstances, and should be open to doing so with reference to general reporting produced by the grantee, or for other (or mixed) purposes.

Funders need not sacrifice compliance. They can and should maintain grant-making records that include notes of conversations and meetings, memos extracting relevant information from generic or repurposed reporting or grant applications, and records of transparent communications with grantees.

Advisors with a role in drafting grant-making policies, template documents or internal procedures for funder organisations should avoid defaulting to an overly cautious or unnecessarily formal position. An informed discussion with a foundation client (properly documented to avoid later confusion) can get to the bottom of the approach a client wishes to take.

Overall, with some fairly small adjustments of approach, funders can redefine their relationship with grantees, empowering the organisations that know most about the funded work to lead.