What should funders do when things go south with a grantee?
One of the perennial debates in the funding community revolves around the question of boundaries and role with regard to the groups we fund. Are we venture capitalists where, by virtue of the grants we have made, we have a seat at the table? Should we insist on an E.D. stepping down if we observe poor performance? Should we withhold further funding until changes we believe warranted become reality? Let’s call this the “venture” model, as many have done.
Or, should we see ourselves in a more passive role, financing the work of organizations, holding them accountable to stated goals and objectives, and observing weaknesses with constructive suggestions on what they might do? Let’s call this the “supportive” model.
I’m sure there are other versions of this continuum, but let’s explore this one. The premise of the venture model is that the funders have a stake in the success such that they ought to be able to bring their best to the table. If the group needs better leadership, the funder should help them find it. If the group needs more sophisticated financial systems, the funder should insist on them prioritizing this over other things. It, of course, helps if the funder would pay for it, but this is not necessarily part of the model.
In the supportive model, the funder may see value in particular activities or projects pursued by the group, but they also understand the value of bolstering leadership of the group by not intervening beyond constructive observation. A grantee that chooses over time to ignore the feedback from the funder certainly risks future funding. What is empowering in this model, one of the main reasons I support it over the venture model, is that it has at its core a belief that organizations will be stronger for having worked through their problems and opportunities rather than being directed by others in the proper course.
The venture model borrows heavily from the venture capital world, seeing grants as “investments.” The metaphor breaks down, however, when you ask who suffers from a failed grant versus who suffers from a failed investment. With an investment, the investor has a retained interest – the success of the enterprise means a fatter bottom line for the investor. With a grant to a non-profit, the grantor has no retained interest other than reputational. There is literally NO CONSEQUENCE to a foundation or philanthropist from failure. Indeed, many of us in the philanthropic world celebrate just this by arguing to colleagues that we should therefore take bigger risks. Why not?
The consequences to a grantee, however, are severe. Failure to succeed has direct impacts on their abilities to survive. Their stake is huge, relative to the funder. So a funder, who really understands and embraces their role as building the capacity of the organization should be very judicious about directing outcomes. They clearly have the power, but if they exercise it, what happens?
If a funder becomes directive and dispositive with a grantee, the grantee will acquiesce eventually. The group will cede its leadership function to the funder. And anyone in this game can tell you, funders are at best uncertain long term partners. They can bring in McKinsey & Co., hire very smart agents, and throw money at palliative solutions. What they never have is the shadow of ownership over the organization. It is never “theirs” because it doesn’t matter if it succeeds or fails.
No, give me the supportive model any day. I’d far rather endure the agony of a group learning on its own how best to manage its affairs.