A philanthropist friend and I were recently discussing why nonprofits don’t “own” the success metrics donors attach to their grants. I argued a nonprofit focuses on its organizational mission and survival while a granter focuses on its program mission when providing support. The granter’s mission often differs somewhat from the nonprofit it employs through a grant to implement it. When the granter adds additional metric “hoops” to jump through to a grant, they reflect the donor’s needs and not the nonprofits, often hanging like a Sword of Damocles over it. Even more ironically, they force the nonprofit to meet extra performance criteria while the general capacity support it desperately needs to perform more efficiently is limited by the same grant imposing the metrics!
Contrast grants and their donor-imposed program criteria and limitations on overhead expenditure with pure donations given to nonprofits based on a request for support or a self-defined need. Donations are also intended for program use, but can satisfy general support and overhead needs as well. Metrics are not attached to donations as a prerequisite to receiving funds although a number of 3rd party entities like greatnonprofits.com, charitynavigator.com, etc. measure and assess nonprofit efficacy and efficiency. The difference is the onus is on the nonprofit to use and report on donations it gets wisely after they have been received.
Grants and donations are technically both gifts but they have very different meanings and foster different perceptions and behaviors.
Websters online defines the noun donation as:
- Making of a gift especially to a charity or public institution
- A free contribution
It defines the noun grant as:
- Something granted; especially: a gift (as of land or money) for a particular purpose.
So both are gifts, but by definition grants have strings attached, while donations don’t.
My philanthropist friend pointed out, “Donors typically use grants and gifts interchangeably”. I agree, and in my experience in the sector, nonprofits typically equate donations and gifts. The result is that when granting institutions and nonprofits use the word gift, they have different perceptions of what that term means. To a donor it’s perfectly reasonable to give a gift with strings attached that first must meet its goals (a grant). What the nonprofit expects is a gift with no strings attached to meet its goals (a donation). The interchangeable use of these two terms as gifts creates perceptual dissonance in the way nonprofits react to grant-imposed requirements like metrics. Nonprofits assume all gifts are designed to meet their mission and operational goals. Grants just seem to have those additional pesky requirements that must be satisfied or at least paid lip service to.
Granters perceive grants as they are defined; gifts for a particular purpose with requirements to meet — specifically their program goals and measurements. Many nonprofits actually have to massage their goals to meet granter criteria before they can receive their “gift”. My philanthropist friend pointed out that “Some donors attach strings to grants and others don’t”. If donors are giving gifts with no strings attached then these “free contributions” as Webster defines it, are actually donations and not grants. In these instances, both donors and nonprofits have the same understanding of a gift. Unfortunately, what is actually a donation is mislabeled a grant, because the lawyers say that’s how it must be structured.
More typically however, grants have one or more of these characteristics and reflect a donor’s perception of a gift but not a nonprofit’s:
• They must first meet donor program funding objectives before being provided
• They have prerequisite criteria attached to them before the nonprofit receives funding.
• They have strict expenditure requirements/limitations.
Nonprofits benefit from grants — through a symbiotic relationship that hopefully accomplishes their goals after meeting the granters. Granters might wince at this description because they try to do the right by gifting to nonprofits. However, if nonprofits must first modify their goals; meet granter criteria to receive funding; and are restricted from applying funds to meet their capacity needs; it’s fair to say they are meeting granter objectives before their own.
It’s the difference between giving your kid a toy you know he’ll love because it’s what he wanted and giving your kid a toy that you feel will suit him best based on your idea of an appropriate toy. Yes they are both gifts, but the intent differs, and in your generosity you are meeting your needs first – otherwise you’d just give the little darling what it wants. Meanwhile junior is happy he got a toy – but it’s not exactly what he wanted, and why is that [thinks junior] if you were already generously giving out toys?
My philanthropist friend referred to a “Dance of Deceit” that occurs when nonprofits and granters engage in negotiations that knowingly bend grant criteria rules. The steps involve granters finding loopholes around their criteria to satisfy real need and nonprofits reclassifying overhead costs as program expenditures so they can use funds as if they were unrestricted donations. The dance of deceit allows both sides to feel the granted gift functions more like a donated gift.
Unfortunately, to make grants feel like donations, both sides engage in variety of dysfunctional activities that are open secrets in the sector. How else can one rationally explain the “Dance of Deceit”; or focusing on a nonprofit meeting criteria during grant processing, but not following up to ensure it has during implementation; or nonprofits reporting back their expenditures in the right buckets by juggling a variety of income sources and using creative accounting to make the numbers work; and finally that old favorite, the self-serving evaluation that allows both granter and nonprofit to declare success whether real or imagined.
The sector would be better served if all parties acknowledged the difference between donations and grants and whom they are primarily designed to serve. Expectations would be more realistic on issues like capacity support and metrics. For example, we might ask, “Is the nonprofit sector better served by individual targeted program grants with prerequisites success metrics, and do they really foster broader efficiency and efficacy in a nonprofit; or are donations better at meeting these needs, with objective third party institutions applying general efficacy and efficiency metrics across the sector?”
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.