It's Time for Philanthropy to Be as Bold as Leaders on the Front Lines of Social Change
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It is not an overstatement to describe the numerous threats we are facing in our country as existential. To meet those threats, movements and social justice organizations are evolving to engage in bold and powerful advocacy. And that places the philanthropic sector at a crossroads.
Philanthropy can continue with cautious and risk-averse approaches to funding, which, at best, are insufficient to meet the moment, and, at worst, hinder the very movements that civic engagement funders seek to support. Or the sector can listen to grantees and leaders in their field who want philanthropy to keep up with the times and reevaluate overly cautious approaches and use every available legal lever to achieve transformative change.
Through working with dozens of “multi-entity” organizations each year, New Left Accelerator (NLA) has a birds-eye view of how progressive organizations are using a mix of related legal entities — including 501(c)(4)s, various kinds of political committees, 501(c)(5)s, and even corporate structures, in addition to 501(c)(3)s — to secure policy wins, generate independent revenue and accomplish their goals.
Across a broad range of issues — from voting rights to reproductive freedom, climate justice, healthcare access, racial and gender equity, and reversing our spiraling inequality — the number of multi-entity organizations is rapidly growing. Many multi-entity organizations are led by Black people, Indigenous people and people of color (BIPOC) — who view multi-entity work as an imperative because it can vastly expand the legally permissible capacities and strategies of movements.
But multi-entity work places an incredible burden on nonprofit leaders — especially in BIPOC organizations that are often the first targeted by opponents for investigations and attacks concerning administrative irregularities.
Running an organization with multiple legal structures means navigating a highly complex patchwork of tax, employment and compliance laws. Organizations need to build new multi-entity systems to manage resources legally across entities, engage multiple stakeholders to coordinate strategy and find new multi-entity-competent attorneys, accountants and staff. Multi-entity leaders desperately need access to new resources, tools and expertise to manage their multiple legal structures effectively and in full compliance with state and federal laws.
I founded NLA, a 501(c)(4), and The Capacity Shop (TCS), our affiliated 501(c)(3), precisely for this reason. We saw the opportunity and the imperative to equip organizations seeking to use every tool at their disposal to transform ideas into impact and build power. But we need other sectors of the ecosystem — including philanthropy — to keep up with leaders and evolve to become multi-entity competent.
Current funding practices all too often limit the ability of organizations to maximize their impact. Because of the structural and positional power that funders hold, they act as gatekeepers, their policies and practices effectively dictating the legal structures and strategies that entire movements can use to achieve their goals. From overly restrictive grant terms to disconnected and uncoordinated c3/c4 funding practices, funders can needlessly, and perhaps unknowingly, inhibit grantees’ ability to use bold, legally permissible strategies to achieve their vision. Precious resources are regularly wasted simply because philanthropy lacks a thorough understanding of multi-entity work.
Here are just a few examples from the field that demonstrate how funder practices can negatively impact leaders seeking to engage in multi-entity work:
A multi-entity organization has an executive director with a vision for compliantly using a family of legal entities to build power and wants to restructure her two boards of directors. The boards, however, do not understand multi-entity work, do not get along with each other, and cannot agree on a strategic direction. The organization becomes paralyzed. In response, a funder that supports capacity-building provides a board consultant who has never worked with multi-entity boards. The consultant develops a vision for the board’s structure and work that is not compliant with laws that regulate nonprofit governance. The grant and valuable time are wasted and relationships are damaged.
A group of multi-entity grantees completes a capacity-building program led by a 501(c)(3) funder providing them with a financial management system and technical assistance. A handful of the grantees are multi-entity, with their 501(c)(3) arms legally managing finances for both the c3 and c4. But the funder never asked the grantees if they were multi-entity, and the consultants hired by the funder do not know how to build multi-entity financial management systems. After the program is over, the grantees pay a different provider another $5,000 in precious general operating funds to modify the system to facilitate multi-entity financial management. They never tell the funder because they believe the funder might not give them their c3 grant if the funder knew that they did c4 work.
An organization is being investigated by a state agency for potential errors in its tax filings. The group needs money for legal advice, new multi-entity financial management and compliance systems, and resources for staff education. It had asked its c3 funders for general operating support to improve its financial practices, but was given restricted program funding instead. The group did not want to tell its funders about the investigation, fearing it would scare the funders and impact future grants — so it took the program grant and muddled through the investigations without sufficient resources. The organization did not receive the resources it really needed, and the funders missed an opportunity to learn about and change their practices to meet the true needs of their grantee.
With a front-row seat to the impact of problematic funding practices, NLA decided that we needed to better understand the cultural and structural barriers within philanthropy that impact multi-entity giving. So we decided to listen and learn.
From February to June 2022, we conducted 30 confidential interviews with staff from philanthropic institutions that fund civic engagement, including a mix of leadership, program officers, administrative staff and donor advisors. Some of the funders only support 501(c)(3) work, while others provide a mix of 501(c)(3) and 501(c)(4) resources (with varying levels of restrictions on the use of their funds).
We’ve compiled what was shared in those interviews — without attribution to encourage interviewees to speak freely — in a newly released report titled “Unlocking Progressive Power Building.”
What did we learn?
Our interviews described a philanthropic sector in transition. As in the examples above, a lack of understanding, or even awareness, of multi-entity work often dominates philanthropy’s internal culture and prevents open and honest communication about the reality of grantee work and needs. Standard grant practices are often far more risk-averse than what the law allows, limiting the impact of grantees’ work to the detriment of us all. Few funders have sufficient training, support or education on compliant practices for their staff; almost none train their trustees. Few institutions collect data on legal structures, so many lack the information they need to shape giving for maximum impact. Few run multi-entity-competent capacity programs. In short, much of the philanthropic sector remains stuck in old ways of thinking and doing.
Encouragingly, a growing number of funders are now supporting multi-entity work and innovating with giving practices that allow maximum flexibility and minimize burdens on grantees. An increasing number are investing in their (c)(3) grantees’ operational capacity to execute multi-entity work in compliance with the law. Some are screening their capacity-building partners for multi-entity competencies. Innovative leaders are investing in the development of shared infrastructure and multi-entity praxis that serves the field or an entire state ecosystem — and not just one organization at a time. Their thoughtfulness and innovation represent bright spots.
And the best news may be that nearly everyone we spoke with was hungry to learn and evolve. There was high awareness among interviewees that changes are needed if the philanthropic sector wants to keep up with grantees’ needs and a near-universal desire to better understand multi-entity work and advocate for improved and compliant practices within their institutions.
As one funder put it: “We are hearing from our grantees directly that they need help in thinking about how to use and form other legal entities. And that means we need to be thinking and talking about that, too.”
The emerging multi-entity paradigm could be a game-changer for advocacy across issues and for democracy itself. But it will require change in the practices of philanthropic institutions, and change is never easy, especially within a sector that can be exceedingly and understandably cautious. But the time has come for the philanthropic sector to use the vast resources at its disposal to be at least as bold as the multi-entity leaders on the front lines of our movements. For the success of our movements, philanthropy must adapt and transform its practices to meet the needs of the time.
Deborah Barron is a multi-entity executive director of New Left Accelerator, a 501(c)(4), and The Capacity Shop, a 501(c)(3), and the author of the new report, Unlocking Progressive Power Building. She’s an organizer, a recovering attorney and the proud mom of two children, a 9 and 7 year old.
