How Do Family Foundations Make Giving Decisions?
How do foundations make giving decisions? Hope Consulting and Guidestar have released the much-anticipated Money for Good II study (MFG II) to answer these questions.
Here is what they found about foundations-a category dominated by family foundations. Foundations research nine out of 10 grants to nonprofits for an average of four hours. Small family foundations with less than $1 million in assets do basically the same, researching eight out of 10 grants issued. How do foundations get information to analyze? Foundations reported using grant proposals and site visits where they meet with nonprofit leaders. Two pieces of gathered information are considered more important than anything else in the grant-making decision process: (1) past performance and (2) expected program outcomes.
Admittedly all this research doesn’t redirect the majority of grants made each year. In fact, about 75 percent of annual gifts go to organizations that received them the year before. That is why new research on organizations has a greater chance of stopping or reducing a grant than it does starting or increasing a new grant, according to the MFG II study.
That is how foundations are making decisions today, and they don’t indicate much desire to change the process.
Should we celebrate? Is this foundation status quo a road to success or a matter of concern? I, for one, am encouraged. Maintaining loyalty to organizations that provide the most meaningful reports on past performance and clear expectations for future program outcomes creates a socially beneficial giving marketplace. Linking $46 billion worth of foundation philanthropic capital to performance and outcomes creates positive pressure that rewards sustainable solutions to problems more than personal ties and marketing campaigns.
As an adviser to family foundations, I want to congratulate those who fit into this mold and invite the rest to join. The resources do exist to direct more family foundation dollars to high-performing nonprofits that are changing the lives of many more families in need!
If you are wondering how to identify and fund high-performing nonprofits, the MFG II study has issued a litany of recommendations. First and foremost, MFG II calls for a third party to create a “Consumer Reports” guide to nonprofits. According to the research, foundations need a searchable database where different elements of each nonprofit can be quickly evaluated. As charity evaluation platforms like Guidestar, Charity Navigator, Givewell, and Intelligent Philanthropy work hard to do exactly that, family foundations with limited staff can benefit greatly. These resources can identify key performance indicators to integrate into your evaluation of nonprofit infrastructure and impact.
The momentum for making informed decisions and funding high-performing nonprofits has been statistically verified in MFG II. Let’s make sure we continue the trend toward informed generosity that creates sustained transformation!
Paul Penley is director of research at the philanthropic advisory firm Excellence in Giving and the creator of Intelligent Philanthropy.
