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After raising large sums of money for his non-profit and speaking at high-profile events such as the World Economic Forum’s annual gathering in Davos, Jacob Lief came to a sudden realisation. “It was nonsense,” he says. “The money was flowing in but we weren’t changing people’s lives.”
Lief, who is founder and chief executive of the Ubuntu Education Fund, which helps vulnerable children in Port Elizabeth’s townships in South Africa’s Eastern Cape province, shifted his strategy. He started saying no to donors whose grants came with restrictions on how the money would be spent and focused instead on finding the best ways to support the children for whom he set up the charity.
“We now go for high net-worth individuals or family foundations who understand that highly restricted funding isn’t worth our time,” he says, adding that while his organisation’s budget is now much smaller, it is able to achieve more.
The organisation, through what it calls the “Ubuntu model”, works closely with families and communities to create individual plans for each child to provide the stability, health and education they need to escape poverty.
For non-profits, finding donors who are prepared to give their money with no strings attached is not easy. When it comes to influencing how their funds are spent, donors flex their muscles in a number of ways. Some specify that their donation must be spent on a particular programme. Others want to have input on an organisation’s overall strategy and the management of its operations.
The late Peter Lewis, who made his fortune selling car insurance in Cleveland, Ohio, was a particularly demanding benefactor. He once imposed a year-long boycott of local charities, claiming the trustees of Case Western Reserve University were mismanaging construction of a Frank Gehry building he had helped fund.
Others have imposed their will on charities from the grave. It was, for example, only after a lengthy legal battle that the art collection of Albert Barnes, who died in 1951 and whose will stated that the collection should not be changed in any way, could be moved to a new location in Philadelphia.
Serving on a non-profit’s board also allows donors to have a say on a non-profit’s operations. This, of course, can often be beneficial, particularly if a donor has relevant professional experience.
“It works for both the charity and the donor,” says Patrick Boggon, director of Tarnside Consulting, a UK-based fundraising consultancy. “The charity gets to harness the expertise of the donor and by that process the donor feels more engaged in that cause.”
But it can create pressures, too. “It’s a double-edged sword because you spend so much time cultivating wealthy donors to be engaged beyond cheque writing,” says Doug Wingo, whose consultancy, Wingo NYC, helps non-profits develop relationships with donors. “But often they have slightly different priorities from the executive director, which is where the tension in this relationship plays out.”
Even if donors do not join the board or become personally involved in shaping an organisation’s strategy, the terms of the grant can create restrictions on how non-profits use the money. Wealthy donors often like supporting a specific project, making gifts for buildings or setting up scholarship funds that carry their names. And many make grants that are for one year only, with non-profits required to reapply for funding at the end of the grant period.
Yet often what charities need is an ongoing source of money that can be spent on anything from IT systems to training for staff, allowing them to become more efficient or expand their programmes. For Lief, when donations are earmarked for certain projects or come with time limitations, it leaves non-profits without the flexibility needed to innovate.
The amount of funding being made available for general operating costs is creeping up — from an average of 20 per cent in 2008 to 25 per cent in 2014, according to the US-based Grantmakers for Effective Organizations.
Nevertheless, it remains a small proportion of overall giving.
To set expectations and avoid clashes, those advising both charities and donors stress the importance of upfront discussions between grant-makers and grantees.
Eric Kessler, founder, principal and senior managing director of Arabella Advisors, whose clients are donors and investors, believes that if the discussions are held early enough, potential conflicts can be avoided.
“My firm influences $3bn a year in charitable giving and impact investments,” he says. “And I can count on one hand the number of times where there was significant misalignment between donor and recipient.”
Boggon agrees. “It’s a bit like matchmaking,” he says. “If someone wants to throw their weight around inappropriately, the match doesn’t work and then usually that gets sorted out fairly quickly.”
Kessler argues that while high-profile disputes hit the headlines, relationships between donors and grantees are generally improving. “This is getting much better, even though it appears to the world that it’s getting worse,” he says.
Moreover, he adds, while it is often assumed that donors are the decision makers in the philanthropic power dynamic, this is not necessarily the case.
“People aren’t chasing dollars as much as they used to,” he says. “We increasingly see organisations saying, ‘Thank you, but that’s not what we’re trying to do right now.’ And that’s good for everybody.”