new health foundation was created following the purchase of a nonprofit hospital by a for-profit hospital. Overnight, the hospital board of directors became the foundation board of directors. The board hired a chief executive officer but refused to allow her to hire any additional staff. The CEO was expected to develop the foundation's strategy, navigate the board through politically charged local issues, create new partnerships, and grow the foundation. But she was also required to personally proofread, photocopy, and collate meeting materials; find and schedule the caterer; take meeting minutes; and handle the bookkeeping.
Bookkeeping is important. And everyone likes to eat food at meetings. But you want your leaders driving the train, not shoveling coal into the furnace. The problem here is that the board refused to invest in any additional staff—not even a virtual assistant or part-time bookkeeper—to handle the back-office work so that the foundation leader could lead. As a result, the CEO spent nearly three-quarters of her time doing administrative tasks. That's time not spent building relationships, assessing community needs, planning, or thinking. Not surprisingly, she was frustrated. A year later, she was secretly looking for a new job.
Hiring the right talent and positioning that talent for success is critical. Unfortunately, all types of philanthropists fall prey to a scarcity mentality that holds them back. Lisa McLeod, author of Leading with Noble Purpose, explains:
Many corporate leaders make the mistake of not putting a power player in charge of corporate philanthropy. They hire lower-level, less expensive employees for this role. This sends a message that philanthropy is not important. It also results in less effective philanthropic impact. If businesses want to give in meaningful ways, they should invest in philanthropy leaders who have both the positional authority and personal authority to make a difference.1
Not every region of the world is equally positioned to invest in philanthropic talent. In Russia, for example, the philanthropic sector has few people with appropriate degrees, and there is no systemic training in the management of nongovernmental organizations. “In general, the [philanthropic] sector offers lower financial remuneration than the business sector,” explains Oksana Oracheva, executive director of the Vladimir Potanin Foundation. “Few foundations offer competitive salaries; the best-paid positions (at the program officer level) are within the US$3,000–US$5,000 per month salary range.”2 Some effort is under way to offer nonfinancial benefits, such as extra days off, flexible work schedules, conference participation, and special recognition awards, to attract and retain top talent. Unfortunately, these efforts are not used systematically, and it's still difficult to attract people with the right skills.
Lack of Investment in Your Own Capacity
A scarcity mentality holds philanthropists back from investing in themselves in other ways. This includes a lack of investment in research, organizational learning, operations, infrastructure, and innovation.
One couple wanted to spend $1 million to reform public education across a 12-state region of the United States. On one hand, a million dollars is a lot of money. On the other hand, it would cover the salary of about 16 teachers. For one year. It's hard to reform public education by hiring 16 teachers for a one-year gig.
Unfortunately, this couple was not willing to invest the time and resources necessary to learn about the strengths and challenges of public education, best practices in education reform, or ways it could realistically make an impact with this level of investment. Nor were they interested in exploring how they could leverage their million dollars by partnering with existing education reform efforts. They wanted all their funds to support education. While noble in its intent, this approach would not help them reach their goal.
Lack of Investment in Nonprofit Talent and Capacity
Well-meaning philanthropists just like you have a scarcity mind-set when it comes to investing in the talent and organizational capacity of grantees. Simply stated, you don't invest enough. And what you do invest is too often tied up in unfair and unnecessary hoops, hurdles, and hoopla.
As you know, your grantees are helping you achieve your philanthropic mission. Chances are high that you, the philanthropist, aren't the person building low-income housing in Philadelphia, installing portable toilets in Ghana, or training the next generation of teachers of color. Your grantees are.
And, as you know, your grantees are comprised of people. Amazing people. These outstanding people rely upon information, training, technology, curriculum, fundraising, financial systems, governance, and a host of other things to do their best work.
Don't you want the most talented people doing their best work to help you fulfill your mission? Of course you do!
Yet time and again, funders withhold investment in grantee talent and infrastructure. Do you want your grantees to have mediocre financial management systems, outdated technology, and lackluster board governance? Of course you do not! Yet philanthropists just like you overlook these real needs all the time.
Instead, you believe all your money should “help people” (or animals, or the environment), without recognizing the needs of the organizations doing the help. You have a scarcity mind-set, and it's undermining your effectiveness. Let me share a few examples.
One donor told me she would not allow grant dollars to pay for personnel costs of their grantees! You read that right. She will fund a program, but not the employees who run the program. She might fund a tutoring program, but funds could not be used to pay the tutors. Or she would support policy advocacy, but her grant could not be spent on the advocates.
How on earth can you expect students to learn without people to teach them, or legislators to vote differently if the policy advocate cannot meet with them? You can't. To think otherwise is delusional.
Not paying for personnel costs is one example of a scarcity mind-set. Another is paying below-market rates. In reflecting on the UK-based Shell Foundation's 15 years of investment in social entrepreneurs, former Portfolio Director Simon Desjardins explained how underinvestment in talent resulted in poor outcomes:
Though most recognize the importance of building a world-class team, few are prepared to pay for it. In many quarters, it is still assumed that because an enterprise has a social objective, its compensation levels can and should be below market…. In some regions (especially Africa, where there is often a shortage of trained professionals), investors and even some entrepreneurs will balk at the idea of paying … a market-related salary and typically opt for someone with a lesser track record. Time and again, we have seen this decision backfire and result in lost time and wasted money.3
Increasingly, philanthropists are recognizing that to achieve real outcomes, they must pay the real costs necessary to achieve those outcomes. Philanthropy California, an alliance of three regional associations of grantmakers, and the Nonprofit Finance Fund have come together to create the Full Cost Project. The goal of this initiative is to increase philanthropy's impact by adopting new funding strategies centered on the needs of today's social sector organizations. According to a report issued by this association of grantmakers:
Real cost funding is not about overhead rates. Rather, it is a holistic approach to grantmaking that starts with the end in mind—what are the outcomes we are looking to achieve and what does it really cost to deliver those outcomes? … Simply put, the real cost of outcomes includes all of the necessary costs for a nonprofit organization to deliver on mission and to be sustainable over the long term.
