Ethics

Illustration by Brian Ajhar

The inherent power imbalance with grantmakers makes grantseekers vulnerable. Therefore, grantseekers may be inclined to follow a foundation’s advice and even jump through hoops thinking it will ensure receiving a grant.

The Dilemma
Jeffrey Ostensen is the executive director of the Yellow Valley Community Foundation. The Foundation’s board has decided that it wants to help strengthen local organizations so that they are more likely to succeed in achieving their long-term goals. To accomplish this end, the foundation has set in motion a process of dialog with organizations that would like to request funding.

As a pre-application requirement, a small team of board and staff members from the foundation meets with the nonprofit to discuss its organizational health and readiness to proceed in requesting a grant. Often, the foundation representatives give strong suggestions for improvement and offer to provide needed training. The nonprofit organization makes its formal application to the foundation when the recommendations for improvement have been implemented. Grant proposals are assessed on their merits, with some being approved and others declined.

Jeffrey appreciates his board’s wish to help improve the health of the nonprofits in the area, but he has begun to feel uneasy about the process. Recently, a young nonprofit organization, the Rooftop Housing Coalition, went through the process. The foundation recommended to coalition president Zoë Friend and her colleagues that they make substantial improvements in the areas of financial management and personnel administration. The coalition agreed to make the suggested changes, and the foundation was able to make training and pro bono consulting available to the coalition to allow the changes to be put into effect.

The coalition was then able to proceed with a grant request to the foundation. Zoë had originally indicated that the coalition would request funding for a housing rehabilitation effort targeting the elderly, a program Jeffrey had felt was very promising. However, when the final request came in, it was for something very different--financing for new construction of low-income rental housing. Jeffrey made it clear to Zoë that although the request was interesting, it was not nearly as well related to the foundation’s priorities as the earlier grant idea. But Zoë persisted. The foundation’s program staff found the proposal interesting enough to present to the board--which, unfortunately, shot it down.

Although the Rooftop Housing Coalition had apparently benefited by making needed organizational improvements, Zoë let Jeffrey know that they were very unhappy with the end result of the process.

Jeffrey wonders whether the foundation is unfairly leading organizations “down the garden path” and raising expectations that can’t always be fulfilled. Or is it performing a community service in promoting organizational effectiveness on a broad basis?

Should Jeffrey advocate for a change in the foundation’s approach?

Old “Bait & Switch”
MaryAnn Holohean
Director, Nonprofit Sector Advancement Fund
Eugene & Agnes E. Meyer Foundation
Washington, DC

First, kudos to the Yellow Valley Community Foundation staff and board for understanding the connection between a nonprofit’s organizational capacity and its ability to carry out its mission effectively in the community--and for deciding to take positive steps to strengthen the effectiveness of the Valley’s nonprofits. Where Jeffrey Ostensen and his board are running into ethical problems is in the execution of this worthy goal.

Although Yellow Valley says it has established “a process of dialog” with potential grant applicants, it has in effect set a high and inappropriate bar for nonprofits to qualify for a program grant. Under the new process, a nonprofit makes its formal application to the foundation only after “the recommendations [of the foundation review team] have been implemented.” This is not dialog; it is a version of “bait and switch.” In its eagerness to strengthen nonprofits, the foundation is misusing its authority as a grantmaker to compel nonprofits to “improve” internal systems.

As a prospective grantee, I would find the process established by the Yellow Valley Community Foundation terribly confusing. Willingness to engage in organizational strengthening along the lines suggested by the Yellow Valley team (which takes the nonprofit’s time, money and staff/board energy) is in effect set up as a necessary condition of entry to the grantmaking process. At the same time, demonstrated improvements (in this case, in areas such as financial management and personnel administration) in direct response to suggestions by the foundation are not sufficient--or even relevant--to the program-focused decisionmaking process of grantmaking.

Underneath the current interest and commitment on the part of funders to support organizational strengthening is an all-too-common perception that all nonprofits need to be more effective is “better business practices and systems.” Especially for folks who have never had direct operational experience in a nonprofit, it can be a heady experience to “tell” an organization all the things it does “wrong.” The fact that the Yellow Valley staff/board team makes “strong suggestions” to the nonprofits it meets with indicates a high degree of interest and involvement in the program by some staff and board members. Therefore, it is important for Jeffrey to identify the various interests of key internal players to be able to share his concerns, while at the same time maintaining the foundation’s commitment to support the strengthening of local nonprofits. Perhaps his board members believe that they are taking a “venture philanthropy” approach to funding, without understanding the true relationship between venture philanthropists and their nonprofit partners.

“Organizational strengthening” and eligibility to apply for a program-related grant should not be linked in this way because the power relationship between a funder and a prospective grantee is such that grantees will always assume--no matter how clearly the grantmaking guidelines may say otherwise--that their hard work in improving internal systems will earn them a program grant. Although some foundations do establish benchmarks of organizational effectiveness and improvement with selected grantees, this type of program most appropriately includes grantees with which the foundation has a long-term relationship or supports with substantial general operating support.

There are a number of possibilities. For example, the foundation could offer--outside the context of a current grant round--its organizational strengthening assistance to current or past grantees of the foundation or to nonprofit partners with whom the foundation has a long relationship over time. Since Yellow Valley wants to “promote organizational effectiveness on a broad basis,” perhaps it could partner with other local foundations to set up a program or fund to support nonprofit capacity building in the community. Jeffrey could talk with colleagues who are members of Grantmakers for Effective Organizations (GEO) to learn about other ways to organize the program; he could also consult the GEO Web site, www.geofunders.org, for ideas. He could also engage widely respected nonprofit leaders in the community in an open discussion with staff and board on this issue. As part of this exploration, Jeffrey and the board should also consider whether direct involvement of foundation board and staff in the nonprofit organizational assessment process--particularly when “strong suggestions” are given--is appropriate.

More and more funders across the country, including many “new philanthropists,” are seeking ways to strengthen organizational capacity of their grantees, nonprofits in their communities and the nonprofit sector as a whole. This work is tremendously important, but like all interesting work, it raises a host of ethical issues regarding the relationship between funder and grantee in the delicate area of organizational health. This work is done most effectively if it starts with respect for the grantees and the grantees’ on-the-ground knowledge of their organizations, cultures, lifecycles and capacities. Funders can be terrific supporters, facilitators and catalysts of organizational capacity building, especially if they come to the work with a healthy respect for the challenge and a desire to learn.

Too Great Expectations?
Armanda Famiglietti
Associate Corporate Secretary, Director of Grants Management, Carnegie Corporation of New York
New York City

Congratulations to the board of the Yellow Valley Community Foundation. It not only understands the importance of organizational capacity building, it’s doing something about it. Whether or not its approach needs to be changed…depends.

First of all, I recommend Jeffrey rethink the original rationale for making the assessment a pre-application requirement. Offering assessment and technical assistance to applicants on a voluntary basis signals that the foundation is committed to strengthening local organizations without being heavy handed about it.

Jeffrey also needs to answer the following questions before he raises the issue with his board. Was the approach developed with input from local nonprofit leaders? Did the foundation communicate the change in procedures clearly and comprehensively to its constituents? Is the foundation convinced that the pool of potential applicants understands that the assessment and the implementation of the foundation’s recommendations do not guarantee funding? Does the foundation’s assessment team include experts in nonprofit management and technical assistance provision? Are the recommendations implemented in a timely fashion? If the answer to any of these questions is “no,” then I suspect the process may be flawed and should be re-evaluated.

No matter what the foundation does, three constants will remain: (1) Grant applicants will have expectations of funding, (2) they will be disappointed if the funding is denied, and (3) compassionate grantmakers, like Jeffrey, will feel uncomfortable with relaying the bad news. These are the facts of foundation life.

I encourage Jeffrey to look at the up side. In most communities, foundations thoughtfully set their funding priorities; they publicize the priorities and procedures for applying for a grant. After careful and judicious review, an application is either funded or declined. The staff of the nonprofit is usually very happy to receive a grant or disappointed when support is not forthcoming. The difference in Yellow Valley is that nonprofits have the opportunity to benefit greatly from their association with the foundation, whether they receive a grant or not.

Be Up Front
Janine Lee
Vice President, Youth Development Division
Ewing Marion Kauffman Foundation
Kansas City, MO

Jeffrey’s concerns may call for a change in the communication process rather than the approach. There should be clearer guidelines and expectations communicated during the pre-application process. It is not unrealistic for foundations to expect to invest in strong, healthy nonprofits for reaching mutually beneficial goals. However, asking the nonprofit to make the improvements without making it clear that such improvements will not necessarily lead to a formal grant request approval sets the stage for miscommunication, hard feelings and implied commitments.

The desire of the foundation’s board to help strengthen nonprofit organizations is a move in the right direction. They are recognizing how the programmatic investments that they will later consider are more likely to be successful if the organization is strong in its leadership, management and operations. When Zoë and her colleagues made the substantial improvements in her organization, she submitted a proposal that Jeffrey felt was not well related to the foundation’s priorities. How did that happen? Were the priorities ever communicated? The foundation’s board and staff had the responsibility to communicate with Zoë during the pre-application meeting what their expectations were regarding any grant requests that would be submitted after the improvements were made.

If the board is specifically interested in continuing to use the pre-application approach to strengthen nonprofits, it will need to be done with much clearer communication up front to avoid unrealistic expectations. The nonprofits that agree to participate in the process would then clearly understand that the benefit of strengthening their organizations might not lead to any further consideration of more formal grant requests.

Heavy Hand of Fate
Nancy Aronson
Executive Director
Institute of Mental Hygiene
New Orleans

The approach being used by Yellow Valley is fraught with problems, and Jeffrey should be working to change it. The reasoning behind its technical assistance grants--to help nonprofit organizations be more effective--is laudable, but in offering “strong suggestions” it is being far too intrusive and heavy handed. Advice given by foundation staff or board members carries great weight because of the inherent power imbalance between grantseekers and grantmakers. Grantseekers are in a very vulnerable position and may be inclined to jump through hoops thinking that will ensure they receive the grant.

The two processes--requests for project-specific funding and technical assistance grants--need to be clearly separated, and that separation needs to be clearly communicated. Applicants must know that if they receive funding for technical assistance from the foundation, that does not imply their request for program support will be put on a fast track for approval. This does not mean that the foundation should not share concerns it may have about organizational health with applicants as it is reviewing requests for funding, especially if it will influence the decision to approve the grant or not. However, after these concerns have been broached, it should be left up to applicants to decide if they want to seek technical assistance and what the shape and scope of the assistance should be. This not only respects and empowers the applicant, but it also increases the probability that the technical assistance will be more effective.

Communication is a two-way street, and the Rooftop Housing Coalition erred in changing its request midstream. Jeffrey should make sure every applicant is told at the outset that if significant changes are made during the grant application process (key staff, program focus, etc.), they must be communicated to Yellow Valley immediately and could affect the foundation’s decision. Zoë and Jeffrey (or the program officer) should also be checking in periodically, which would result in fewer surprises and perhaps less disappointment with the final result. Finally, applicants have a responsibility not to take decisions personally. This usually occurs when there is open and honest two-way communication.

Note: This dilemma is based on a real-life experience reported in an Institute for Global Ethics Ethical Fitness Seminar.

The institute would like to hear from you on this dilemma. To respond, order the institute's CD-ROM version of training-Cornerstones for Ethical Foundations: Tools for Dealing with Ethical Dilemmas; call 800/729-2615 or 207/236-6658, e-mail ethics@globalethics.org or visit www.foundationethics.org