Episode 83 : Trust-Based Philanthropy: Bucking the Trend of Outcome-Based Stewardship

Welcome to another edition of "Around with Randall," your weekly podcast making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett. It's a wonderful day right back here on "Around with Randall."

Summer has, at least found me here in Omaha as temperatures go up, gives us a chance to see spring come to its full wonderful place in our world. The birds are out, the trees are coming in with leaves, and budding flowers are blooming. And gives us a chance to think about the great things in life, and today's subject is along that line. And really brings three interesting concepts, or at least articles, together that I hadn't ever contemplated just because of my history in philanthropy. The first is the series of articles that has been written about Mackenzie Scott and her amazing generosity over the last couple of years to date. As far as I think we can find there's been about $12 billion given out in unrestricted gifts to just over 1,250 nonprofit organizations around the United States. While some of those are bigger places, at least bigger in terms of of number of employees and and organizational budget size, they're not enormous. You think about the gifts that she's giving to the University of California Channel Islands in Oxnard, bigger organization, but not you know, United Way or Harvard or one of the big boys. The thing that I find most interesting, and I think has caught some people by surprise is that she has given most of these gifts, if not all, in kind of an unrestricted way. In fact the last major communication that came from Mackenzie Scott was this idea that I don't want to be the center point of these news announcements. I want the organizations to be at the forefront, and so she's actually making these gifts and pulling back from the public view and allowing the organizations to speak as to what the gifts will do. That's not what we see in the norm. We've talked about on this podcast in my experience over the last five to ten years that we see donors wanting more and more evidence of the great outcomes that are being discovered, worked through, trying to be achieved by a nonprofit organization before they make that philanthropic gift. In some ways that's the opposite of what Mackenzie Scott's doing.

The second was an article from the Chronicle of Philanthropy about a month ago about the building conversation around small nonprofits and the struggles that they're having as they are experiencing what Giving USA has shown us over the past decade or so that larger gifts are making up more and more of a percentage of the total amount of giving. And I've talked about this before. When I began my career the predo principle existed. It was 80% of your gifts come from 20% of your people. Today it's probably 95.5% - 5% give 95% of the dollars with that though has really been a challenge for smaller nonprofits, particularly if they are seeking grants from some of the larger foundations, charitable trusts, community foundations, because those organizations also require a reporting structure about outcome about what was the value that was received. That's something that I think of naturally, and this is where my history and just short of 25 years of doing this deviates from the experience of many nonprofits, any organization that I've had the amazing privilege of working for has been large enough to handle the reporting requirements. It hasn't been a challenge. We have staffing and and accounting people and finance people who could show results. If it was in education it might be okay. Then how does this affect outcomes for students? And if it was in healthcare, it was okay what does this mean for quality scores or access to healthcare? Larger organizations? But what about those organizations that are tiny? And that's what's discussed by Michael Nelson in that Chronicle Philanthropy article from April of 2022 where he goes through a number of examples where smaller nonprofits operating on budgets of $200,000 - $500,000 in total. That's their total expense budget so there's not a lot of, you know, extra people just sitting around. They're finding it more and more difficult in reporting, but I think even more challenging, they're finding it more upsetting that they really don't think they can apply for certain philanthropic opportunities because a part of those opportunities is the reporting that's required back in the future, and they don't have the staff, they don't have the finance, they don't have the the the extra people, and that's causing some concern. And Mackenzie Scott is going the opposite direction. She's not really requiring any reporting, and trying to get organizations to utilize the money in whatever way they want, so not only is the money unrestricted which is different than a most of the giving that we see at large levels today, there's very little reporting just do good work with it. I don't have that experience in a small a nonprofit. Maybe a little bit as a board member, a consultant a little bit, but I'd never put it in that context.

What happens if you can't give the results, not because you don't want to but you don't have the structure? Well that's causing smaller groups which, in some regards are doing the kind of work that society is pushing right now, whether it's race relations, whether it's social economic challenges, what food kitchens, social equity, those are organizations of many of the times that are very small and very directed in their own community and as a result they may be left out of funding opportunities.

And then I recently saw an editorial or column by a doctoral student at the University of Washington, which really got me thinking. I thought it was really fascinating and it was based on this new concept, which she is actually studying and writing about around the concept of what's called trust-based philanthropy, which is the pendulum swing pushing back against what we're seeing in terms of large organizations making gifts but at the same time requiring a great deal of reporting, pushing back on that pendulum back towards the middle to say wait a minute when you do that you've eliminated so many great small nonprofits that we need to have this new new age thought of what she's calling trust-based philanthropy. That you don't need as much reporting, or the reporting that's provided is coming from another source. So let's take this apart. First and foremost, I think that it's important to realize that this is a new mindset. My 25 years has required more and more stewardship for larger gifts. That is highly detailed. And then maybe in healthcare more so than almost anywhere else, because if it's certainly research-based, you're looking for research outcomes. I think about a former client that I used to work with, actually two that come to mind, that have large research-oriented parts of the organization, and they raise a great deal of money for those two. Well what about the issue or concept of how they report out results? That's almost now normalized that you are going to produce immense amount of what the results were, reports what the change in mindset is, is that it's the funder trusting although that's not the word that's used but that's really what it is. The the organization giving the money, or the individuals giving the money, trust the organization enough to say, look just use the money, tell them, tell us generically how you're going to use it and we'll know and we'll watch and and we'd love to know updates but we don't need large reports. I find this fascinating because this is the way philanthropy was for my grandparents, generations that when you look at the early baby boomers and then, or excuse me, the older baby boomers like my parents. But more importantly the greatest generation and back into those who were born into the earliest part of the century. Their philanthropy was based on the belief of the mission and they gave unrestricted dollars at much higher levels. The circle is repeating itself. That we moved all the way around the circle from complete trust to complete reporting and now we're kind of coming back up the other side of the circle to say well that's probably still, that was probably too much, let's get back to the fact that donors should trust their organizations. That's I think very interesting.

I also would say that in today's times, particularly coming out of the pandemic hopefully, that there was this mentality particularly from the federal government with PPP and PPP2 and other programs like it, ARPA, that they just gave out block grants or block dollars. Now there was, in the PPP, the connection to how many employees and salaries and things of that nature, but they didn't get into the lot big details of how you used it, needed to be used to keep people on staff. But how you used them wasn't reported, just wasn't used correctly. So societally, there are other examples where there's been less restrictions in part because of the pandemic and the immediacy of the need that are outside of philanthropy that produced an unexpected boost to nonprofits, about dollars that they could invest in certain ways. And the question becomes what we're going to do with that. I think something else to consider, and the author does a terrific job in this concept of trust-based philanthropy, is that she talks about the ideal that you may not need your data, that maybe it's a third-party's data, so instead of if you're a small organization been given a grant you can use maybe someone else's data, maybe there's community-wide data that shows that the community has had less of let's say food insecurity or more kids graduating from high school and your organization's a part of that effort, based on its mission.

Most grantors, donors want to know that impact, but a small nonprofit doesn't have that kind of data capacity. But using third party is interesting in that you could show improvement and that you're a part of that effort. Is that valid enough and that's bad, based back to that trust-based philanthropy. The answer might be yes. So when you piece the first thing of Mackenzie Scott and the $12 billion+ and this unrestricted giving to these organizations, and then the fact that there's more and more conversations particularly with smaller organizations that can't make the reporting that we've become accustomed to. And then the third is this new kind of concept called trust-based philanthropy. You put them all together. What are the tactical outcomes that we're talking about today?

The first is, it should be okay for gift officers, chief development officers, whomever represents the organization and the public, to have candid conversations with donors and asking them to trust the organization a little bit. Part of this is also realizing that the organization might need unrestricted dollars to function its basic expenses - salaries, infrastructure, investment for growth. That that trust, philanthropy is important. I think the other thing is, is that society you'll find people may be more accepting of those conversations.

Number two is, it doesn't mean that the larger organizations should fall back from or fight the idea of great stewardship, meaning reporting. If you have the capacity and capability then you probably should be doing it. But for smaller organizations it changes your messaging, and what you're asking for in saying we need x amount of dollars for this basic need or basic output, and that we're hoping you'll trust us to use those dollars correctly. We'll give some type of reporting, but it may not be what people are used to.

The third is actually a little bit interesting for those of us who serve on boards, particularly on boards that give money away. Particularly, I think of, like private foundations. So a private foundation is delineated from a public charity or public nonprofit, and then it's usually set up by one person or one family and gives money out to many different sources. How do we help them understand that the generosity of Mackenzie Scott and allowing organizations to invest that money in the best interest of the organization and what its mission is, is highly advantageous, creates high levels of flexibility, allows us the opportunity to use dollars in unique ways that we may not have thought of six months ago based on the time and the need of the moment. How do we get people to think about this idea of trust-based philanthropy differently? And that's going to require conversations, and that's one we should be having. Can you trust the organization to use the money appropriately to move our mission forward? That's going to be a lot of hard discussions because there's more and more dollars concentrated in these huge pots or pools of foundations, of private foundations, of granting organizations. And again, back to that principle of 95.5, that 95% of our dollars come from five percent of our people. Those five percent are more sophisticated. Can we work with them on this trust-based philanthropy concept? Where it's not as arduous and while that if we're at a big organization affect us as much it may affect societally across the spectrum of nonprofit work, charity, smaller nonprofits, and giving them more opportunities to apply or to request funding.

It's an interesting subject, one where in my history with larger organizations it's a blind spot. And I found, kind of, the bringing of these three articles together an interesting way of looking at what is the antithesis of the progress we've made towards stewardship and detailed reporting. And there may be some value in it that six months ago, or a year ago, I would have never considered maybe it's one that you can think about a little bit as well. Today's subject, that idea of trust and how we build it with our donors and make sure they understand there are things we need that may not have the exact direct result that we've shown in the past but will be critical to meeting our mission and serving those in our community. d

Don't forget to check out the blogs at Hallett Philanthropy, www.philanthropy.com. Two or three a week posted, 90 second reads. Good something to contemplate, leadership issues, nonprofit issues, societal issues, things of that nature. And of course, if you want to get a hold of me, email me at podcast@hallettphilanthropy.com. Glad to chat also if you have a subject matter you'd like me to discuss, I'd love to hear it. Don't forget what you're doing every day, whether you're a large nonprofit or a small, is critical to somebody doing something who needs something. And that the pandemic has proven again that philanthropy is that hole filler that we step in when the community organizationally can't handle it. And the nonprofit steps in and serves that purpose and that purpose is to help those who are the underrepresented, that not heard the things in our community that don't have the greatest profile, the things that bring great value to what our community is and does. That's a noble cause. What you do, no matter if it's finance, fundraising executive, director, coordinator, it doesn't make a difference. You're making a difference. Don't forget that. That difference is enormous to someone else, which brings me to my favorite saying some people make things happen, some people watch things happen, then there are those things people who just wonder what happened. That we serve those people, those things that are wondering what happened. That the joy of philanthropy is based on its definition making a difference, serving mankind, helping others. If you do that every day, you can get up head to the office, head to the computer, head to your meetings, head to your donor interactions, prospect interactions knowing you're a difference-maker and that is a great way to spend a career. We'll look forward to seeing you right back here on "Around with Randall" next time with our next podcast. Don't forget, make it a great day.