Grantmaking foundations rely heavily on nonprofit grantee organizations to accomplish their objectives. As practicing foundation and nonprofit executives and academics, we thought, therefore, that all foundations should be very interested in understanding their relationships with grantees in order to improve their own performance. Surprisingly, most foundations do not ask grantees for feedback about key areas of their operations that influence their relationships. Were they to ask, large foundations might discover they are not performing nearly as well as they think. Whether this reluctance to ask tough questions comes from arrogance, skepticism, or fear of accountability, the result is that valuable input is often ignored.
Under the auspices of the Southeastern Council of Foundations, we submitted a survey in 2004 to health legacy foundations in the Southeast designed to document several of their most important characteristics. Health legacy foundations are those that hold the residual assets from the sale of nonprofit assets to for-profit companies. Typically, they invest the sale proceeds and make grants to other nonprofits.
Thirty health legacy foundations responded to our survey. Additionally, a random group of more than 230 grantees graded the performance of these same foundations using a 16-item questionnaire modified specifically for nonprofit foundation grantees. Peters and Waterman identified the original indicators of high-performance businesses in their best-selling book In Search of Excellence, and Sharma outlined the original business-oriented questionnaire in “A Scale to Measure Excellence in Business: EXCEL.”
We found that large health legacy foundations tend to earn lower performance grades than smaller foundations. For the purpose of this study, we defined large foundations as those with assets greater than $100 million. Assuming that the relationship between health legacy foundations and their grantees is typical of foundation/grantee relationships, our findings may be of interest to other family, community, and independent foundations.
Findings & Conclusions
On average, the larger the foundation, the greater the likelihood that it is a low-performer. This finding throws into question the bureaucracy, hierarchy, and complex work rules used by large foundations as they attempt to add value to their philanthropy.
Large foundations earn very low marks for their inflexibility. They may place more importance on the grantee following the rules than on making an impact. Since foundations do not have a widely supported method of measuring success, they may be retreating to the predictable activity of bureaucracy, enforcing process rules.
The eminent sociologist Max Weber (1947) observed that bureaucratization is an inevitable, and in some aspects even desirable, development of modern organizational life. As organizations increase in size and complexity, adherence to impersonal rules and their uniform application increase as well. Legal authority emanating from the top of the organization becomes a defining characteristic of large organizations.
As a predictable consequence of bureaucratization, large foundations are unwilling to experiment. Large foundations have long touted their ability to take on risky projects. The fear of failure, though, tends to neutralize this theoretical strong point. Grantees believe that large foundations create an atmosphere that systematically dampens innovation. This is predictable behavior on the part of foundation boards as their fiduciary pressure to conserve the corpus of the foundation exceeds the pressure for desired programmatic results. Smaller foundations, on the other hand, are more willing to jump into risky projects.
Large foundations perform even more poorly as they add staff and decentralize their decision-making. Mintzberg observes that as organizations increase in size, they adopt mechanisms to improve performance. One mechanism to improve operations is to push decision-making further down the hierarchy. However, when this happens among foundations, performance actually falls. Grantees explain that the act of decentralization in foundations merely adds layers to each decision and slows things down. Whether the staff of a foundation is too defensive to make decisions, or too browbeaten by their boards every time a mistake happens, is open to debate. Grantees, however, see more foundation staff as an impediment and, perhaps, a waste of money.
Grantees also criticize large foundations for not following up on their programs after the end of the grant. Few large foundations visit former grantee organizations to see if their funding left any lasting impact. Some grantees view this as disinterest, others as the product of values. Large foundations may value funding more than relationships, and all of this talk about “partnership” may just be talk.
Grantees think that large foundations often make grants in fields in which they have little or no expertise. Perhaps they are easily bored with one field of work or easily defeated by deep-rooted social problems, but foundations seem to be constantly looking for the next new thing. Smaller foundations score better for “sticking to their knitting.”
While large foundations often stray from their grant guidelines, they will still require grantees to follow the rules. Sometimes grantees see funding decisions that are strictly the result of a strong personality at the foundation. A foundation composed of several different personality cults is a foundation prone to break its own rules. They may also be violating their publicized policies in favor of the latest fad. Rules change. Grantees are then confused. Is it who they know or what they know that is funded?
Smaller foundations earn higher scores for several important reasons. First, these foundations adhere closely to their stated values. They hire employees that exemplify those values, and they let their values drive the direction of their organization. Smaller, high-performing foundations also pay attention to their grantees and listen to their opinions. They believe in their grantees and support them emotionally and intellectually, as well as financially. This degree of attention may explain why they are often smaller foundations. High performers also encourage innovation and creativity, unlike the larger, low-performing foundations. Smaller, high-performing foundations seem to be less fixated on following the rules and more tolerant when circumstances change. They can make quick decisions because they have small staffs and efficient management.
The question that large foundations should be asking is: how can we retain the advantages of size (for instance in fund management, capacity building, durability, or research) while cultivating the strengths of a smaller organization (such as flexibility, close relationships, and expeditious decisions)? Why not ask your grantees?
Byron Harrell, Sc.D., is the president and CEO of Baptist Community Ministries (BCM) in New Orleans, a private health legacy foundation.
Richard Culbertson, Ph.D., is an associate professor in the Department of Healhty Systems Management in the School of Public Health and in the Department of Family Medicine at Tulane University, New Orleans, Louisiana.