Control: Why So Many Funders Fear General Support and Can't Stop Micromanaging

Today's new study by Grantmakers for Effective Organizations tells a good news/bad news story. First, the good news: There's been a marked increase in multi-year funding, as well as an uptick in general operating support. Funders are also soliciting more feedback from grantees. 

Now the bad news: While the percentage of funds devoted to general operating support has increased lately, it's still only 25 percent.

That's the kind of stat that makes development staffers consider going to law school, although, ironically, many of their jobs wouldn't exist if foundations didn't create untold hours of work by doling out grants like finger food. 

GEO's study is optimistically titled "Is Grantmaking Getting Smarter?" And while the answer is a measured "yes," it's also true that you'd be smarter if your IQ climbed from 40 to 50. Alas, though, your struggles wouldn't be over. 

So why, exactly, are foundations so dumb, even after being hounded for years to increase general support? 

Some insights come from surveys of foundation staff and board members, and how they think about general operating support. One study, of California grantmakers, found that most of these folks said they favor GOS—although few said they "strongly favor" such grantmaking. But respondents also raised the familiar concerns about GOS—that it's hard to evaluate the success of specific grants or to ensure that funds would be "spent in a manner in accordance with the strategic objectives and mission of the foundation."

Translation: We're afraid of losing control. 

Let's stop and ponder this issue of control, because here is where I may be able to add something new to the perennial gripefest about GOS. 

At IP, we write a lot about both new foundations operated by living donors and legacy foundations run by professional staff. 

It's hard to say which type of funder has more impact, but one difference is crystal clear: The outfits run by living donors tend to favor general support grants and employ fewer staff. 

For example, the Robertson Foundation—bankrolled by retired investor Julian Robertson—gave out just over $100 million in 2012, with every dollar taking the form of general operating support. The foundation spent a mere $2.1 million on personnel costs, compared to the Knight Foundation, which spent around $15 million on personnel and consultants to give away roughly the same amount of money, including through many program grants. (I don't mean to pick on Knight, which seems fairly typical in this regard.) 

Another foundation run by a living donor from the finance industry, the Druckenmiller Foundation, moved $74 million out the door last year, all of it in general support, with even smaller staff costs. I could give a lot of similar examples.

Yes, some business donors like Michael Dell want to see milestones, metrics, and all the rest for organizations as a whole, though not usually for specific projects. But my sense is that the majority doesn't actually care about that stuff, whatever you may hear. The main outliers in this living donor story are the Open Society Foundations and the Gates Foundation, two quite mature operations which have armies of staff and give many program grants. 

So here's the key question to ponder: Why are living donors more willing to give up control over how grant dollars are spent than philanthropoids? 

You'd think it would be the exact opposite, with fretful donors micromanaging their grantees as they watch their bank balances go down. (Not that we don't hear such stories.) Instead, it's professional foundation staff and board members—those who don't have personal money on the line—who are the control freaks.

Why is that?

For starters, most big living donors come from the business world, and many have run sizeable organizations. The conventional wisdom in this sector is that the way to achieve the best results is to get behind winners—i.e., the people you're hiring or companies you're acquiring or investing in—and then give them the support they need to succeed. If things don't head in the right direction, you cut your losses. What you don't do is micromanage at every step of the way. 

So it makes sense that when the titans of industry turn to philanthropy, many operate the same way and are ideal funders. Note the irony here: The transplants from the private sector are often easier for nonprofit executives to deal with than their own brethren on the funding side of the fence. 

You might guess that nonprofit lifers who become funders just don't understand what organizations need to truly thrive, because they're clueless about such things after years in grad school and then more years in the mushy social sector, not to mention their involvement in the Park Slope Food Co-op. 

But that's not right. At this point, everyone has gotten the blizzard of memos about nonprofits thriving best with multi-year general operating support. And nobody knows that better than people who've been inside such organizations. Yet movement toward more GOS remains glacial. 

Maybe the best way to explain all this is with the famous adage about bureaucratic life: Where you sit determines what you think. 

Which is to say that people will naturally defend the resources and prerogatives of their positions, regardless of what's best in the grander scheme of things—or even what beliefs they held before taking the position. 

Today's nickle-and-diming system of program grants benefits philanthropoids in several ways. Most obviously, it puts them in the driver's seat of trying to achieve change, as opposed to their former colleagues on the other side of the fence.

Program grants are the precision-guided munitions of philanthropy: You get to decide to fund this study or that pilot program or this special initiative, as opposed to just writing a check and ceding those decisions, and the power that goes with them, to somebody else. 

Of course, it's also easier to see what your grant accomplished. Would you rather be one of the twenty funders who backed the organization that did a groundbreaking study, or the funder who specifically bankrolled the study? Given how murky the link can be between money given and results achieved, it's no surprise that so many funders love the specificity of program grants.

We all want to feel a sense of efficacy. And if we hope to move upward professionally, we want to create a verifiable track record of our successes. Program grants make it easier to do that in jobs that can feel nebulous. 

Business donors don't have these concerns. They're rich after all, and don't have to answer to a board or CEO, or burnish their CV to get a better job. They also are less likely to care about the details in the same way. The program officer who has a doctorate in education and logged years in the field will want both hands on the steering wheel in a way that won't be the case for a retired media mogul who has other preoccupations but does want better schools. 

My point here is not to impugn the motives of everyone in foundations. Plenty of philanthropoids do see their roles as empowering others, which is one reason why people get sick of these jobs; they want to do stuff themselves, not just give money to changemakers who get to have all the fun. 

My point, rather, is that people respond to the incentives of their situation. Smart and passionate people naturally want to get involved in a hands-on way. You don't typically end up in the social sector unless you have strong views about how the world should operate. And if you find yourself working in philanthropy, and within a system that puts you in a position of control, elevating the importance of your opinions, how likely is it that you'll campaign to change that system? Not very likely—even if you know the system is screwed up. 

Increasing GOS also faces an uphill climb because the disincentives to changing the system go beyond ceding power and control. Real change could also mean, well, losing your job. 

Let's say, for example, that Darren Walker at the Ford Foundation decrees as part of his new strategic plan that henceforth, Ford will only make seven-figure multi-year general support grants—as opposed to pumping out 1,400 grants a year, with about three-quarters of those grants (at least in 2011) taking the form of program support. 

Do you think Ford would still need a giant building on 42nd street? Or the 10 offices sprinkled around three other continents? Of course not. And if you worked at the Ford Foundation, you'd probably be the last person to tell Walker to take the path, whatever you may have thought before your job was on the line. 

Again, my point is not that anyone is behaving badly, exactly. The rational reflex in organizational settings is to keep resources in your corner. That's why so many efforts at reforming big institutions and systems fail so abysmally. The insiders will fight harder for the status quo than outsiders will ever fight to dismantle it. 

So my bet is that a few years from now, when GEO releases its next report, not much will have changed when it comes to GOS. 

What can we do about that? A few things, for sure. But I'll save those for another post.  

David Callahan is Founder and Editor of Inside Philanthropy (davidc@insidephilanthropy.com)