Are Foundations too Focused on Themselves?

The Center for Effective Philanthropy (CEP) just came out with a new report, “Nonprofit Challenges: What Foundations Can Do.” There were some dismaying findings. CEP’s survey of nonprofit leaders found that 52 percent felt that foundations are unaware of the challenges that nonprofits face. Less than 33 percent felt that foundations use their resources in ways that help nonprofits actually meet challenges. And, perhaps the most alarming finding is that nonprofit leaders felt more challenged to attract foundation support than any other kind of support.

Survey respondents were nearly unanimous (99 percent) about the difficulty of attracting and maintaining (89 percent) foundation funding.

Today, there are well over 75,000 private foundations operating in the United States. Their tax-exempt assets total nearly $644 billion, of which they charitably spend approximately $3 billion each year (Foundation Center, 2012). With such largess and numbers, one wouldn’t imagine that foundation funding would be so hard to come by. Given how many foundations exist and CEP’s findings that nonprofit leaders find foundation grants the hardest to get, there is obviously a sharp disconnect between supply (foundation support) and demand (nonprofit financial need). So, what accounts for this disconnect? I would argue that the nonprofit economy is inherently dysfunctional, and one main reason is that private donors (individual philanthropists and foundations) behave as if the nonprofit economy is like a capital marketplace. Just like they behave in the for-profit economy, donors make emotion-based decisions, and foundations, as charitably focused as they are, are better suited to serving internal priorities than the needs of nonprofits. As a result, nonprofits that are set up to address issues and problems that could never be supported in the for-profit marketplace still find themselves underserved in the nonprofit sector. In other words, funders of nonprofits don’t prioritize the very things that were intended to be addressed in the nonprofit system.