Let’s Put An End To Restricted Giving
Nov 24, 2014, Forbes, Felix Oldenburg: We like to think that private charitable giving is inherently different to, say, buying a service. This is why governments subsidize the one but not the other (tax exemptions amount to $55 billion per year in the US alone). In practice, however, donations are much more transactional than most donors admit. Through restrictions, donors can tell grantees how to spend their money. A typical case would be a donor giving to a relief organization in response to a specific disaster, or a foundation giving to a university for a specific line of research.
For social entrepreneurs, too, ever more donations come with strings, or restrictions, attached. Although statistics are hard to come by, the practice has grown especially among institutional donors, to an extent that many applications for funding now include restrictions even without the funder asking for them.
I would argue this trend needs to stop, for a few simple reasons.
First, although social entrepreneurs rarely complain—feeling that they are the weaker party at the fundraising table—restrictions are terrible for the growth of their organizations. Typically, these restrictions direct spending towards field activities rather than core investments in people, systems, and infrastructure that could drive growth. And just as importantly, extensive reporting on the use of funds eats up precious management resources and limits the organization’s ability to raise funds from several donors for the same set of activities. In short, restrictions can be destructive because they prompt social entrepreneurs to start tailored activities that are doomed for dependency or death.
Secondly, most restrictions are unnecessary to the funder. They have become a standard practice of presumably professional, strategic giving that nobody questions anymore. But if grant makers feel as though they need to impose control of this kind, it would seem that they do not fully buy into the organization they’re supporting—and should have used their resources towards a better selection. Any grantee will admit that it is flexible, unrestricted funding that enables their organization to operate at all. But luckily, in my experience, donors can be convinced four out of five times to drop restrictions and opt for smarter reporting or other forms of accountability.
Thirdly, restrictions often prompt grantees to lie to funders, especially when multiple funders impose overlapping restrictions. Tracking which money to spend on what turns into a sort of “ninja accounting” with misrepresentations that damage trust between donor and grantee, and may lead to even tighter controls—a vicious circle of mistrust that serves nobody.
Finally, and perhaps most surprisingly, a lot of this practice is actually not compliant with charity regulations. Under most jurisdictions, donors (whether commercial companies or foundations) may not influence the grantee’s operations after the grant is given. (I would be grateful for insights about your local regulations in the comments section.) If they do exercise influence on the organization’s operations—for example, by approving spending, deciding on activities, or managing PR—they enter (taxable) sponsorship territory. If donors really want to have a pre-specified set of activities implemented for them, they should consider buying that as a service on the commercial market.
It is time someone said it: Restrictions are not the call sign of a professional grant maker, but a contrived and corrosive control mechanism. They are bad for all parties. Let’s put an end to them.