New Open Road Philanthropic Project Takes On Nonprofit Project Derailments

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January 13, 2017; New York Times

A new philanthropic project called the Open Road Alliance has been established to help grantees that hit snags in promised projects. It is intended both to help the grantees complete projects and educate funders about the need to be supportive when such snags appear.

The Haitian nonprofit organization SOIL provides toilets to the poor residents of Port-au-Prince. These toilets don’t just offer residents a measure of dignity and safety; they also lead to the production of fertilizer, fueling employment opportunities and environmental restoration. Working since 2006, the organization, with a budget of $1.3 million, has empowered some of the poorest communities in the world to restore their environment by transforming hazardous pollutants into precious resources.

Providing services in Haiti is fraught with challenges and risks. SOIL is increasing the probability of success by employing staff who speak the local language; putting local suppliers, including local residents, to use in decision-making; creating projects with an earned income stream; and valuing diverse educational experiences. Even with all of these measures, the project was on the edge of failure less than two years ago when the private company running the local landfill lost their contract. Afterward, the area became full of smoke as trash was burned to maintain access. Employees were only able to reach the site once every two weeks, and there was no contingency landfill in the area.

SOIL’s predicament is not unusual. According to two separate reports by the Clinton Global Initiative and the Open Road Alliance, about one in five projects face challenges that could “slow or derail” successful outcomes. The large number of projects facing adversity is due in part to the failure of nonprofits to discuss likely risks with donors and donors’ inability to identify potential complications. According to the Open Road Alliance’s report, 76 percent of donors don’t ask potential grantees about the risks they face, and 87 percent of nonprofits leaders state that grant applications do not ask about potential hurdles.

The Open Road Alliance is a funding initiative providing one-time grants and loans covering “contingency funding that nonprofits frequently encounter” across sectors worldwide. Its report is based on its survey of four hundred grantors and grantees. The findings were centered on a random sample of two hundred organizations designed to determine the frequency, donor response, current policies and procedures, and consequences of unfunded requests on the relationship between funder and recipient.

Surprisingly, the report found major differences between grantor and grantee perceptions:

  • Grantees believe that asking for additional funds negatively affects the likelihood of being awarded future grants, while the vast majority of Funders claim such requests have no effect on future decision-making.
  • Funders incorrectly believe that if they deny a request for contingency funds, Grantees will find an alternate source of funds.
  • Grantees report that when requests for contingency funds are denied, projects are much more likely to be delayed and somewhat more likely to be reduced in scope than Funders believe; Grantees report 16 percent of such projects are terminated, while Funders estimate 10 percent.
  • Funders believe that Grantees are more comfortable talking about these issues with them than Grantees report.

Due to these findings, Open Road Alliance teamed up with the Rockefeller Foundation and Arabella Advisors to assemble two dozen organizations, including the Bill and Melinda Gates Foundation, Goldman Sachs, and the law firm Patterson Belknap Webb & Tyler, to develop a toolkit to identify and assess project risks. The new resource is available to the community and is constructed to encourage donors to use it in whole or in part to better assess project success.

The kit is part of an increased need to apply business fundamentals to grant making and to encourage grant makers to strategically take on more risky projects. To be more strategic, grantors need more information. The kit includes seven items to help facilitate conversations between donors and potential grantees. Equally important, the developers acknowledge the power differential between grantor and grantee.

“Part of the reason we focused on donors is they have the money,” said Dr. Michaels, a clinical psychologist who is married to David Bonderman, a founder of the private equity firm TPG.

“There’s a power differential,” she added. “It’s hard for a nonprofit to come to a funder and say, ‘How are you going to insure us if something gets screwed up?’”

While funders are fond of touting the need for innovation, taking risks and being open about the inevitable complications that surface is still somewhat foreign to many nonprofit/funder conversations. The answer, according to Open Road Alliance, is less about being a helicopter funder and more about simply being available to face reality with resources. This culture change could not come soon enough for SOIL. As the landfill access challenges continued, the organization went back unsuccessfully to its project donor to ask for additional support. The donor suggested Open Road Alliance, who granted SOIL $100,000 for a new composting site.—Gayle Nelson

Original post: https://nonprofitquarterly.org/2017/01/25/new-open-road-philanthropic-project-takes-nonprofit-project-derailments/

What Does It Take to Grow a Nonprofit? Teamwork and Capital

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November 16, 2016; Stanford Social Innovation Review

Although not always an indicator of impact and sustainability, nonprofit growth is a constant focus of philanthropic leadership. A recent study of over 200 organizations found three common attributes among nonprofits that were able to efficiently make the leap from idea to $2 million budget: strong teamwork, effective outcome evaluation system, and access to capital.

The field-based study began in September of 2016 by Kathleen Kelly Janus, a lecturer at the Stanford Program on Social Entrepreneurship. The study’s team examined more than 200 organizations, distributed among those with budgets under $500,000, between $500,000 and $2 million, and over $2 million. The organizations’ missions were diverse; leaders were asked to describe their work by choosing from multiple categories (and could choose more than one). The top three were education, with 48 percent surveyed; 26 percent with youth-based focus; and 23 percent community development missions. (Thirty-one percent chose “other” as one of their tags.) On average, organizations reached the $500,000 milestone in ten months but needed an average of 16 months to double their budgets to $1 million. On average, organizational growth from $1 to $2 million took a similar trajectory.

Since many articles focus on the personality of an organization’s leader as a key element of organization growth, the study began by examining the CEO/Executive Director. It found a wide range of actual job descriptions, but a key responsibility for organizations of all sizes is fund development. Interestingly, as organizations grow, the amount of time leaders spend in fundraising tasks increased from an average of 26 percent for organizations under $500,000 to 30 percent with budgets over $2 million. Study authors also noted a shift from CEO focus on program development for organizations under $500,000 to people management for organizations over $2 million.

Instead, the first characteristic of organizations achieving substantial growth was having a strong team of leaders to support the CEO/Executive Director. An effective team allowed the CEO to focus on capital instead of program. Connected to creating the team was the talent to avoid “bad hires” and purge them quickly when mistakes are made. Often, a strong team was not only made up of staff but key board members. Overall, the study found that “the lack of a high-functioning team can pose significant risks” to organization growth.

The second essential element was a focus on outcome evaluation. The study found that organizations with robust outcome tracking systems could decrease the time to reach the $2 million mark by as much as five months. The study also made a connection between effective evaluation structure and the ability to obtain a large catalyzing grant quickly.

The final element, access to capital, was often linked to the other two elements. Organizations with board members with connections to foundations or individual wealth were able to use their access to facilitate growth. Additionally, organizations with effective evaluation programs were able to discuss their clear program outcomes with funders, leading to more attention by larger foundations donating significant catalyzing grants.

Antony Bugg-Levine from the Nonprofit Finance Fund described in 2012 a key difference in the distinct types of capital essential for organizational growth:

Pay attention to the difference between “buy” money that pays for services and “build” money that enables an organization to invest in its long-term sustainability. As with any business, organizations need to balance both, and this balance shifts as they scale. Funders need to know whether their grantees need build money or buy money and how to be effective buyers and builders.

Overall, organizations of all sizes struggled to raise essential funds and it remains the number one challenge of growth. This is true even for organizations with “a fair degree of earned income,” as the report claims.

At the end of the study, authors identified three opportunities for funders to help organizations scale: fund leadership coaching, aid in building evaluation programs, and refer grantees to other funders in your network.—Gayle Nelson

 

Original cite:  https://nonprofitquarterly.org/2016/11/29/take-grow-nonprofit-teamwork-capital/

Health Conversion Foundations: How to Make Them Relevant

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June 2, 2016; Becker’s Hospital Review

Experts estimate there are about 400 foundations across the U.S. created due to the consolidation or conversion of a nonprofit hospital or health system into a for-profit. These foundations, known as legacy or health conversion foundations, maintain missions similar to their source organization: to support the health of the community the organization once served. In this age of limited government funds and great need, returning these resources in an effective and efficient method is essential.

Health organization conversions began in the 1980s as for-profit health corporations expanded their market by purchasing nonprofit hospitals, often associated with religious denominations. In the 1990s, this trend continued as Blue Cross Blue Shield plans in California and other states were transformed into for-profit entities.

In the 2000s, hospitals, healthcare systems, and health plans grew even larger, serving increasing geographic areas. (The Nonprofit Quarterly has written extensively on thedeath of the rural health organizations.) At the same time, hospital systems located in strong urban and suburban markets tend to be conversion targets. Other characteristics of converted health organizations are: small or medium in size, located in the South, and not or only rarely connected to a medical school or other teaching institution.

In 2010, the IRS identified 306 conversion foundations with assets of $26.2 billion. In the six years since then, the number of organizations in the healthcare industry has continued to decrease and conversions continued as hospitals and health care systems’ revenue sources shifted due to the Affordable Care Act (ACA). For example, in 2012 alone105 hospitals were acquired. Although there are no comprehensive reports for this period, experts estimate an additional one hundred legacy foundations were formed.

Similar to a community foundation, these legacy foundations are connected to specific places or geographic areas. The assets held by health conversion foundations range from less than $10 million to more than $3 billion. The larger organizations often make annual grants of $5 million or more and include some of the country’s most influential health supporters such as the California Endowment, the California Wellness Foundation, and the Colorado Health Foundation.

Due to the size of these foundations and the vast needs of the communities they serve, it is not surprising many conversion foundation leaders feel immense pressure. One expert,Wayne Luke, managing partner of the nonprofit practice at executive search firm Witt/Kieffer, provides advice that can be broadened to any new foundation. First, develop a well-thought-out plan before beginning grant distribution. Second, enlarge the mission beyond health to include social determinants such as education, housing, economic development, and access to healthy foods. (We would add transportation to this list, as it is often mentioned as a barrier to health care in nonprofit hospitals’ community health needs assessments, or CHNAs.) Third, since new legacy foundation boards and staff often contain leaders from the source health care organization, foundations should promptly broaden leadership to increase credibility and organization knowledge. Fourth, build collaborations across the community to expand impact and outcomes.

It is clear the healthcare industry will continue to shift as new healthcare laws and regulations take effect. Communities depend on leaders of conversion foundations to develop strong partnerships and effectively distribute the essential resources they are responsible for.—Gayle Nelson

 

Original Cite: https://nonprofitquarterly.org/2016/06/07/health-conversion-foundations-how-to-make-them-relevant/

2 Foundations Choose Higher Payouts, Inviting Others to Do the Same

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February 16, 2016; Philadelphia Inquirer

NPQ has often advocated for foundations to consider higher payout rates, taking up the issue in some detail in Buzz Schmidt’s classic, “‘Deliberate Deployment’ or Perpetuity: Questions to Inform Timing Strategies for Philanthropy.” Since then, we have seen a number of foundations moving to deploy more of their assets in the here and now—if not by “spending down” more quickly, then by investing more of their full assets in mission-related activity. But Schmidt also suggests that foundations consider a set of questions in a more “deliberate deployment” strategy, and that is what we see in this story.

Two influential leaders in the Philadelphia area philanthropic community passed away this past January: Patricia Kind and Harold Taussig. The foundations they created, the Patricia Kind Family Foundation and the Untours Foundation, are memorializing their legacy through increased grantmaking. Together, foundation leaders are asking other foundations to join them in giving away more than the five percent required by law.

Throughout Patricia van Ameringen Kind’s long life, she supported some of the most vulnerable. She was trained as a nurse, and this training influenced her philanthropic support of those living in poverty in her community. She and her husband founded the Patricia Kind Family Foundation in 1996 to support the needs of Philadelphia’s poor. The foundation recognizes the essential work of smaller nonprofits by focusing its giving on organizations with budgets under one million dollars.

A day after Mrs. Kind’s death, another of Philadelphia’s most generous leaders, Harold E. Taussig, passed away at the age of 91. Mr. Taussig never forgot his roots as a small-business owner and entrepreneur. He was one of the first to see the value of offering vacationers the opportunity to stay in apartments instead of hotels. Through his Untours Foundation, he provided low-interest loans to startup businesses and other enterprises to create economic opportunity to alleviate poverty throughout the world. Since its inception, the foundation has made more than $7 million in low interest loans.

Although their methods differed, Mr. Taussig and Mrs. Kind shared a dedication to those living in poverty. To memorialize their generosity, the foundations they created are reaching out throughout the philanthropic community, asking other foundations to dedicate more of their resources toward alleviating poverty and underwriting second chances.

Foundations are only required to give away five percent of their assets to maintain their tax-exempt status. Administrative expenses, including staff salaries, are eligible to be included in that five percent, so even less than five percent of their assets may be given in grants each year. Leaders of the Patricia Kind Family and Untours Foundations are advocating for a different use of resources.

“The standard foundation structure of using only 5 percent of foundation assets to address a foundation’s mission is a waste of 95 percent of its assets,” said Elizabeth Killough, director of the Untours Foundation. “On top of not addressing mission, that 95 percent is often invested at cross purposes to the foundation’s mission.”

As the divide between rich and poor continues to expand, will these foundations’ efforts toward building a movement to spend more of their assets on the work of social change catch on?—Gayle Nelson

 

2 Foundations Choose Higher Payouts, Inviting Others to Do the Same

Gates Foundation Invests in Corporation to Fight Disease

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The Bill & Melinda Gates Foundation is investing $52 million in CureVac, to fund a new factory in Germany. The factory will make drug products using mRNA. This represents the foundation’s largest ever investment in a corporation. It is also a symbol of what the world learned since the Ebola outbreak, diseases in poor countries affects health across the world.

The Gates Foundation’s majority equity investment will be used to build a $76 million factory developing products using mRNA, a messenger chemical that provides information from the gene into cell parts making proteins. It is believed that mRNA can be used as a platform for rapidly producing low-cost drugs and vaccines. These products are “thermostable,” meaning they do not need cold-chain storage, a major hurdle in supplying vaccines in developing countries.

Additionally, the two organizations are forging a larger partnership as part of the foundation’s focus on vaccines that fight global diseases that disproportionally affect people in the poorest countries. The Gates Foundation’s mission is “guided by the belief that every life has equal value….[The] Foundation works to help all people lead healthy, productive lives. In developing countries, the emphasis on vaccines leads to better health thereby increasing individuals’ ability to lift themselves out of extreme poverty.” This initial project is part of a larger plan to invest billions to develop vaccines for viral, bacterial, and parasitic infectious diseases including rotavirus and HIV.

This investment is part of the trend of foundations turning to corporations rather than nonprofits or other foundations to solve the world’s inequities. These partnerships are part of socially responsible investing, or SRI. SRI includes impact investing, shareholder advocacy, and community investing, and is designed to encourage corporations to act in a socially respectable manner in addition to making a profit.

Because the majority of medical research is driven by the desire to make a profit, corporations and the world’s scientists are focused on drugs and vaccines that will make the largest monetary return on investment. These are rarely realized in medicine that’s focused on outbreaks in the world’s poorest countries. World NGOs have described this as “the 10/90 gap”; ten percent of global health research is focused on ninety percent of the world’s diseases. Ignoring these diseases leads to epidemics like the recent Ebola outbreak.

While there are clearly questions embedded in such tight relationships between nonprofit and for-profit organizations, these types of partnerships are gaining support with conservatives as well as liberals. Prime Minister Stephen Harper of Canada recently met with Bill Gates to discuss their shared goal of improving the lives of women and child around the world. Canada is funding twenty research teams of African and Canadian scientists to expand immunizations in order to eradicate polio and eliminate tetanus.

The CureVac factory is expected to produce additional products funded by the foundation. The corporation will hold the licenses created by the partnership and sell the products at an affordable price in poor countries.

Original cite: https://nonprofitquarterly.org/philanthropy/25738-gates-foundation-invests-in-corporation-to-fight-disease.html