How to Mobilize Philanthropic Resources for Their Best Possible Uses
Important parts of the nonprofit and mission-driven ecosystem have seen fewer new donors, lower donor retention and lower rates of giving recently as sky-high inflation tightens charitable purse strings.
Foundations are scrambling to do more with less, but maximizing a foundation’s impact does not, as is often misunderstood, require mountains of capital or the resources of a much larger global organization. In recent years, smaller foundations have emerged as pioneers of the most cutting-edge philanthropic work, often quietly and with little fanfare.
An innovative and maximally impactful philanthropic strategy includes three practices that all boards of trustees should consider:
- Trust in staff, grantees and the mission.
- Tolerance for (calculated) risk.
- Willingness to think beyond minimum distribution grant budgets toward a holistic use of resources (possibly the most important practice).
1. Nurturing Trust
Foundations can and should work hard to practice trust, both inside and outside the proverbial walls of their institutions. For foundations with professional staff, this means empowering or cultivating staff to make decisions and shape engagement with grantees and other partners. Even more important, trustees can demonstrate trust in grantees and target beneficiaries by making multi-year general operating support grants and prioritizing grantees that are proximate to the communities they serve. This is often harder than it sounds — and it requires humility — but smaller amounts of flexible funding are often more valuable to an organization than larger, restricted grants.
It is thrilling to see support from major funders and foundations for initiatives like the Trust-Based Philanthropy Project. One foundation in particular, the Woodcock Foundation – where I have the honor to serve as a trustee — has been implementing the tenets of this practice for some time.
When inflation spiked in early 2022, Woodcock Foundation’s trustees voted to increase all grants by 10% to help grantees cope with the higher cost of payroll and operations. The foundation could have first undertaken detailed financial analysis of each grantee, which would have delayed the decision, but trustees had faith that grantees would steward these additional resources with integrity — and subsequent engagement with grantee leadership has confirmed these resources were put to good use.
2. Tolerating Risk
There are good reasons why philanthropists want to minimize impact risk: Funding is precious, the opportunity costs are high, and a donor’s dogged pursuit of a pet project can waste resources. More often, though, philanthropies are more risk-averse than they should be, wanting to bet on proven concepts or organizations.
Young organizations and founders, which are by definition unproven, are riskier bets than organizations with long legacies, but Woodcock Foundation and some of its peers supplement grantmaking to these leaders with other forms of wraparound support (what one Woodcock Foundation trustee calls “after sales service”).
Most grantees remain in the portfolio for many years, and some of them graduate out when they reach a certain size or maturity. Investing in unproven leaders and approaches can maximize the additionality that relatively smaller contributions can have. Not surprisingly, taking risks means that grants sometimes do not achieve their original goals, but they always generate valuable insights that inform future strategy.
3. Activating the Whole
Being willing to migrate all of a foundation’s resources toward their highest and best use means looking well beyond the minimum 5% distribution requirement of private foundations and toward a holistic understanding of a foundation’s assets. While this certainly complexifies a foundation’s activities, foundations big and small have proven it is feasible and manageable.
The idea of mobilizing 100% of a foundation’s assets in service of its mission was pioneered by the The F.B Heron Foundation, and other foundations like the Jessie Smith Noyes and The Russell Family foundations have been notable early adopters of this unique investment approach — even as they generally aim to operate in perpetuity. Smaller foundations have also encouraged larger foundations to take action.
To date, the Woodcock Foundation has migrated 92% of its endowment to align with its social mission, a process facilitated by hiring an investment adviser with impact investing expertise and experience. The foundation continues to refine and deepen its approach to impact investing over time. For example, Woodcock Foundation’s initially passive strategy of screening public equities has evolved into a diversified and active ownership approach that includes specialized managers and filing shareholder resolutions.
Similarly, Woodcock Foundation created a catalytic capital budget that allows it to make high-impact investments — and years of experience have enabled the foundation to streamline its process for making program-related investments (PRIs). The foundation makes (concessionary) PRIs that put the foundation in excess of its 5% distribution requirement, and has gotten comfortable that the impact of those PRIs far exceeds the small reduction in grantmaking that results from earning a below-market rate of return on its catalytic capital.
In some cases, it invests this catalytic capital in organizations or areas that have previously received grants — freeing up new grant funding for programs, like the foundation’s Democracy program, that are less amenable to investment because they usually have no revenue model. In addition, Woodcock Foundation provides grants to 501(c)4 organizations; recipients must still use foundation funding for tax-exempt purposes but this grows the budget pie and allows them to mobilize other types of funding.
Philanthropic boards of trustees wield enormous power to shape the growth of the sector. From smaller to large global foundations, there is always room to be more trusting, courageous and innovative in how we steward precious tax-exempt resources.
The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.
Related story: 3 Ways to Accomplish More With Less at Your Nonprofit
Margot Brandenburg is a senior program officer on the Ford Foundation’s Mission Investments team, focused on building and strengthening the infrastructure of the impact investment market—with an eye to shaping the broader capital markets. She has spent two decades working at the intersection of philanthropy, capital markets, and social and environmental justice.
Prior to joining Ford, Margot served as founder and CEO of MyStrongHome, a benefit corporation delivering resilience finance services to homeowners across the Southeast and Gulf Coast of the U.S. Before that, she helped design and lead the impact investing initiative at the Rockefeller Foundation. She co-authored the book "The Power of Impact Investing" with Judith Rodin, a former Rockefeller Foundation president . While at Rockefeller Foundation, she also focused on job creation and issues of economic security for low-wage workers.
Margot began her career in international microfinance and has worked with several community development finance institutions in the U.S. She serves on the boards of the Workers Lab, Brooklyn Cooperative Credit Union, and the Woodcock Foundation, and as an adviser to the National Domestic Workers Alliance as well as the National Energy Improvement Fund.