Is it Really Strategic Philanthropy If the Grants are One-Year?

There are several different types of philanthropy out there – strategic philanthropy, charitable giving, social entrepreneurism, venture philanthropy, philanthropic investment, catalytic philanthropy – and I’m sure there's someone somewhere inventing a new kind right now.  I think it is incredibly helpful to think long and hard about the different approaches, as they provide some shape to what can feel like an infinite number of choices and decisions.

Most of the foundations I have worked with, partnered with, and worked for have all been operating within the realm of strategic philanthropy, although their foundations might have branded themselves in different ways. The process is relatively the same across the spectrum, with program teams identifying either issues or solutions, developing a strategy (which is then chopped into a smaller strategy by focusing on a select geography or type of activity such as advocacy or communications), setting outputs or outcomes, and then making investments (and some would say buying the services) in nonprofits to implement the strategy.

There is an obvious flaw in this process – that those doing the work are often not part of the strategy development. Thus, nonprofits end up having to organize their work around the multiple strategies of different foundations. Although there can be benefit in this for the nonprofit (as they might be able to build up capacity, knowledge, and networks they might not otherwise have access to), there are significant risks, in that the organization itself is forced to become programmatic rather than strategic. Instead of building out its own strategies, working with partners to form even stronger advocacy or service delivery, organizations end up running projects and initiatives.

What I’ve become most concerned about is the continued use of one-year grants for organizations that are part of the cadre of nonprofits selected to implement a foundation’s strategy. The costs of this are significant:

1. Transaction costs are high for both sides of the equation, but especially for the nonprofit. Executive directors easily use 20 percent of their time for development and preparation of the next one-year grant. This is time that could be spent in advocacy, mobilization, leadership development, and coaching others.
2. The process of operating under one-year grants within a bigger strategy means that the nonprofit is left talking about their piece and their project,  instead of being positioned to become a partner with the foundation and the other nonprofits about how to further advance the overall strategy. Over the years, I’ve watched as a number of emerging leaders, people who might dramatically catalyze an issue, begin to fall under the weight of having to speak to the foundation's strategies rather than their own. We’ll never know what the loss is to our children, youth, families, and communities in undermining rather than nurturing leadership.
3. Changes in foundation staff (including illness, maternity/paternity leave, and departures) create instability for nonprofits in terms of delayed grants, extended conversations, and often having to educate the new program staff on the issues of the field. Nonprofits central to the strategy are suddenly left not knowing if the next one-year grant is coming or not, making it all the more difficult to implement the foundation strategy, let alone their own. The exception is when a foundation has some bench strength or evaluation criteria about their effectiveness in helping their grantees maintain organizational health to hold themselves accountable.

There are, of course, reasons why one-year grants exist in the first place. Program staff almost always have budgets smaller than the strategies, so they feel they need to spread the money across a set of grantees, with one-year grants established as the best way to do so. This is reinforced by structural issues within foundations, including things like level-set budgets throughout a strategy rather than ramp-up and ramp-down periods in which multi-year grants could be staggered.

Program staff may also want to minimize risk through one-year grants. The irony is that they are in fact likely to be increasing risk by keeping their grantees tied in too tight and unable to respond to changes in the field, and by forcing them to direct resources towards grant renewal rather than implementation of the strategy.

In all fairness, there are situations in which one-year grants make sense: mini-projects, planning, and specific capacity-building to add expertise (not staff) or technology. However, one-year grants should be the exception for any foundation using a strategic grantmaking approach. Actually thinking about it, one-year grants should be the exception regardless of the type of grantmaking.

Any foundation that is setting outputs and outcomes is, in some degree, being strategic. I argue that this strategic approach can be strengthened. Trustees and management should expect that all grants coming to them for approval are multi-year by default...and that a strong case will need to be made for one-year grants, rather than the other way around.