The recently released Disrupting Philanthropy Report explores the implications of networked technologies for philanthropy and provides excellent examples of the changing landscape. However, its most compelling observations may be that the best examples focus on reorienting the relationship between philanthropies and grantees and how they share information and collaborate. While much has been written about the need for nonprofits and philanthropies to change, it often focuses on one or the other as a distinct actor. This overlooks the symbiotic relationship that exists between them unique to the nonprofit sector.

In the traditional philanthropic relationship foundations act as resourcers and NGO’s as implementers. The two are dependent on each other to get the job done. Contrast this with a private or public center entity which resources and implements its own projects from its own revenue sources. The problem in the modern philanthropic resourcer-implementer relationship is that both have slightly different mission objectives — The NGO based on constituent demand and the foundation based on grant criteria which may or may not reflect local demand and is designed to filter the cornucopia of potential grantees. Consider the outcome when an architect (the grantor) and a builder/contractor (the nonprofit) both have a slightly different vision of the end product they support and neither can complete it without the other. A tangible example of this metaphor exists: The Twin Towers collapsed in New York almost a decade ago, and a gaping hole has existed in the ground for much of the decade since. Similarly, many of the problems funders and nonprofits tackle have existed for decades and grown even more complex.

What has caused this “division in vision” and how does it affect the way philanthropy operates?

At the start of the modern philanthropic movement a century ago institutional donors supported a handful of nonprofits addressing major social issues. Identifying “the right” nonprofit handling it best was easier, and philanthropic gate keeping criteria reflected this. The focus was on vetting institutions and supporting their missions. With fewer nonprofits meeting the need, selected charities could also rely on long term funding to support their operations. Fast forward a century with almost one million registered nonprofits, another half million identified charities and about 45,000 new nonprofits starting each year, according to the Urban Institute. Foundation gate keeping has gotten far more sophisticated, and in the process has changed the nature of the foundation-nonprofit relationship. Traditional philanthropy is still based on resourcing the right institutions to meet a mission objective. The difference is that identifying these institutions has become a full time job.

Many philanthropies now create their own complex set of program criteria to insure that a finite amount of resources are directed at deserving institutions. Criteria are sometimes determined by a funder before real demand in the field is even assessed. The result is that grantees are expected to meet the philanthropic institution’s mission objectives before receiving support rather than demonstrating why their mission goals warrant support as the main determinant.

The successful modern grant proposal is often a study in effectively subordinating the nonprofit’s mission objectives, and instead making the case for why its activities perfectly match the mission of whatever philanthropic institution it is requesting support from. The practical effect of meeting foundation missions first is that the nonprofit acts more like a subcontractor to the philanthropic grant giver than a gift recipient meeting its own needs. Moreover, funder initiatives often last only a few years before changing, and with so many grantees, few can expect long term support.

Unfortunately, the philanthropic relationship is still perceived by both sides to operate as it historically has. Much philanthropy still consider the grants they give with strings attached as outright gifts to support nonprofit missions rather than appreciating they are designed to meet their own mission criteria first. Many nonprofits also act as if the grants they receive are outright gifts. They eschew grantor requests for metrics as overly burdensome and wonder why these supposed gifts don’t support their real needs, which include administrative costs to allow for healthy operation and institutional growth. This gap between perception and reality causes much of the dysfunction in the relationship as the two missions compete for dominance. The unacknowledged subcontractor relationship has continued for many years because of what a funder colleague dubbed “the Dance of Deceit”. Here are its steps:

Differences in mission are purposefully underplayed when the nonprofit applies to meet the funder’s criteria and win a grant. Once the grant is won, the nonprofit applies the funds to meet its mission goals and constituent demand. When reporting back, it then retranslates actual use of the funds into satisfying the funder’s criteria. This process is an open secret and has allowed the subcontractor relationship to tacitly operate because philanthropies are typically less focused on how the nonprofit implements its grant and more on the processing required to initially win the grant. Grant selection is a full time bureaucratic process in many philanthropic institutions. A combination of grantees reporting back what grantors wish to hear and often self-serving grant evaluation processes allow grantors to declare mission success. However, the system has started to show strains over the last decade because the chorus to really demonstrate donor and nonprofit accountability and grant impact has grown, exposing the reality of the relationship and its limitations in trying to satisfy two institutional missions.

To address the problem systemically and pull philanthropy into the 21st century the issues cannot be addressed from either the funder or nonprofit side exclusively, but rather by changing the nature of the collaborative relationship between them. The best examples in the Disrupting Philanthropy report speak to addressing philanthropic issues through information sharing, collaboration, smarter investment and metrics that better measure outcome and impact… None of these are new, but they all speak to addressing the issues by focusing on constructive, open, and honest nontraditional relationships between philanthropic institutions and nonprofits. The new ingredient in all this is a highly networked world with technology that promotes collaboration and the ability to create solutions to address this relationship in new and effective ways.

Jonathan Peizer is the Principal of Internaut Consulting supporting foundations, nonprofits, governments and socially responsible private sector initiatives. He is the former CIO/CTO and Director of the Open Society Institute’s Global Internet Program.

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