• There is a dramatic imbalance of power and lack of real dialogue between funders and social entrepreneurs.
  • Funders’ exertion of power manifests in compromises, ethical knots and budgetary jeopardy.
  • Some funders are showing a willingness to grapple with the power dynamic.

In September, five major US foundations pledged to do more to help grantees cover operating costs – including rent, technology infrastructure, decent wages, and other overheads. This is a welcome and positive step by foundation leaders. Yet it is only scratching the surface of what is desperately needed to support social sector innovators.

The real need is to address the dramatic imbalance of power and lack of real dialogue between funders and social entrepreneurs. It is a difficult discussion. The perception is that speaking up might jeopardize potential future funding. But if we are serious about catalyzing genuine progress on critical global social issues, it is imperative that we talk about the elephants in the room.

In 2019, we distributed an anonymous, practitioner-driven survey asking an international group of social entrepreneurs with an average of 15+ years in the sector, to identify barriers to scaling. Social entrepreneurs reported that the #1 barrier to scaling their organization is the lack of consistent access to capital – and they specifically cited the imbalance of power and the lack of real dialogue between funders and social entrepreneurs. This central issue undermines the very impacts that we all seek.

What power dynamics can look like

Here are some examples provided through our survey:

“A donor’s large contribution allowed us to provide tens of thousands of vulnerable African children with practical information via our solar and wind-up radios. However, the donor imposed excessive reporting requirements, allowed only 2% overhead, and her ongoing contract changes required $10,000 in legal expenses, resulting in a significant financial loss. I felt hoodwinked and ashamed.”

“A donor requested we turn our female employees into volunteers in order to ‘make our organization more financially sustainable.’ Obviously, we said no.”

“A development finance institution made their grant contingent upon our hiring an expensive consulting firm. The consulting fees we had to pay ate up a significant portion of the grant.”

“A well-known donor institution funded the distribution of our affordable medical devices to public health clinics yet refused to fund the training required for nurses/doctors to use the devices properly. We pushed back, arguing that improper use of the devices could cause life-threatening health complications. We struggled for months to fundraise for the training component from other sources because we couldn’t jeopardize safety. Eventually, they relented. But it was shocking we had to advocate so vociferously for patient safety with a name-brand donor.”

“After receiving a large grant from their CSR budget, a company put our logo and their logo on their corporate marketing material without our permission. It looked like we had sold our organization to this company. The reaction was so negative, we struggled to contain the fallout and ultimately had to end our partnership.”

“An impact investor arrogantly questioned our integrity and critically interrogated our processes and financials, consuming countless hours of our management team over many months. The investor even demanded we change our business model to suit them, and in the end, more than a year later, they didn’t invest. Our scarce resources had been wasted.”

Sadly, most social enterprises/NGOs have stories underscoring how funders’ exertion of power manifests in programmatic compromises, ethical knots, budgetary jeopardy of uncompensated expenses, and relationships that are strained or broken in the name of funding – all of which erodes our collective impact.

Research by experts reveals the realities of this lopsided structure. The article from The Chronicle of Philanthropy on funders’ commitment to “do more” to support overheads, cited reports by Bridgespan “studying the persistent underfunding of grantees for at least a decade,” calling it the “starvation cycle”.

How Inadequate Grants Can Lead to Nonprofits' Financial Woes

Changing the status quo

Imagine, if you will, a new “contract” of authentic dialogue between funders and the field. While this requires candour by both funders and potential grantees, the power dynamic means that funders have an important role to set the stage.

  • Funders can start by examining their grant application process. Consider learning from the organizations you didn’t fund, offering a stipend to applicants selected at random, through outside researchers or anonymously. How many hours did they spend applying? Did the application enable them to adequately share their solution and impact? What could be deleted or improved?
  • Funders can encourage frank dialogue – and mean it. This includes clear expectations on both sides, including budget realities. Funders can champion social entrepreneurs to develop innovative solutions and communicate their findings without retribution.
  • Funders often don’t appreciate the complexity and time needed to achieve impact around social issues (cited by 17% of survey respondents). Changing this requires an openness by funders, and a responsibility by grantees/potential grantees to educate funders and manage expectations.
  • Funders need to understand the importance of multi-year support (cited by 14% of respondents). This provides the environment to further experimentation and address entrenched problems.
  • Funders and grantees could co-create reporting requirements from a cost-benefit analysis. Is the data being requested relevant, important or extraneous? What time/cost is required to capture the data? Is the data contributing to, or detracting from the grantee’s mission?
  • To advance social innovation, funders can incentivize collaboration between social enterprises and/or non-profits which address interconnected issues, to elevate and amplify each organization’s strengths.
  • Funders can partner with other funders around common issues, regions, or other criteria, such as MacArthur’s 100&Change.

These types of strategies are needed at a global level.

As political leaders advocate for nationalist, go-it-alone policies, the role of and relationship between social innovators and funders is critical to addressing the interconnected, systemic issues threatening our world.

Fortunately, some funders are showing a willingness to grapple with the power dynamic. They are adding women and more ethnic and cultural representation into decision-making roles. Some are working to establish authentic conversations with grantees. And, at the 2020 World Economic Forum in Davos, foundation leaders and social enterprise fellowship leaders discussed ways to change the dynamics to realize real gains for social good.

We urge us all to be constructive and candid as we co-create this new relationship between funders and practitioners. The issue could not be more urgent.