12/29/2008 05:12 am ET | Updated May 25, 2011

The Philanthropist: Investor or Contractor?

Aaron Dorfman, Executive Director of the National Committee for Responsive Philanthropy writes that he agrees with "about 80 or 90 percent" of Money Well Spent. "But here's where I differ with Paul Brest. ... When taken to its extreme, strategic philanthropy becomes overwhelmingly controlling. It's as if the foundation is a puppet master, pulling the strings of nonprofits in order to produce a desired result. In the extreme, strategic philanthropy reduces nonprofits to being contractors working to achieve the vision put forward by the foundation. This type of control, I believe, leads to less impact from philanthropy, not greater impact."

Philanthropists have a variety of different forms of funding available to them. At one end of the spectrum is unrestricted, core, or general operating support, where the funder buys into an organization's mission with no interference. Aaron accurately describes the other end of the spectrum when he characterizes it as "contracting." And there are many points between.
In Chapter 7, Hal Harvey and I argue that the appropriate form of support in any particular cases depends on the alignment between the foundation's goals and the mission and activities of its grantees.

Let me give examples from the Hewlett Foundation's efforts to reduce air pollution in California's San Joaquin Valley -- a problem that has a particularly drastic impact on communities of color in the Valley.

Where the alignment is strong, general operating support is in everyone's best interests. It gives the nonprofit organization great autonomy and avoids unnecessary paperwork for both the organization and its funder. Thus, the Foundation provides general operating support to the Coalition for Clean Air and to some regional and local organizations that are focused on air pollution.

On the other hand, the Foundation contracted with Professor Jane Hall, an economist at California State University at Fullerton, to conduct a specific study of the health costs of pollution. An update of Professor Hall's study, showing that pollution costs the California economy $28 billion yearly, has just made headline news in the California press.

Why general support in one case and a contract in the other?

The Coalition for Clean Air's work is almost perfectly aligned with the Foundation's goals--and any differences are outweighed by the value of general operating support. But the Foundation does not have a general interest in supporting Cal State Fullerton or even in supporting all of Professor Hall's varied research agenda--as valuable as both are. Our concern is with air pollution. Hence, the contract for a particular project whose scope was clearly defined by both parties.

The Hewlett Foundation's grants to the Latino Issues Forum (LIF) for its Sustainable Development Program lies midway on the spectrum between general operating support and support for individual projects. While our work in the Valley focuses on air pollution, LIF covers a broad range of issues including Education and Consumer Protection. Because there is a close alignment of our concerns with LIF's Sustainable Development Program, the Foundation provides that program with core support.

Money Well Spent argues for a presumption in favor of general operating support when alignment is pretty good--it need not be perfect. Unrestricted support to an organization's unit, such as LIF's Sustainable Development Program, is next best. But depending on a foundation's goals and the organization's mission and activities, the support of particular projects sometimes makes the most sense all around.

Of course, when making project grants, foundations should also pay the reasonable overhead, or indirect costs, that go with a grant. After all, the university must provide Professor Hall with an office and keep its lights on when she works on our project late at night.
Beyond this, a number of foundations, including Hewlett, provide "organizational effectiveness" or "capacity building" grants that organizations can apply for to strengthen critical aspects of their work, for example, strategic planning, fundraising, or board governance.