Donors worry too much about how their money will be spent. That’s the growing sentiment of many progressive non-profits. Recently, I read a January 2024 Special Report in The Economist, No-strings philanthropy is giving charities more decision-making power, that affirms as much.  

The report’s basic premise is that organizations on the ground know how to best spend money.

The piece starts with an example of control and mistrust on the part of the donor.

“Yukabeth Kidenda, chief executive of Teach for Kenya, a non-profit group that trains bright young graduates to teach in low-income schools, has seen her fair share of controlling philanthropists. One donor asked for a hard copy of the name, identity document and signature of each of the 750 teachers trained that year. To Ms Kidenda it is a reflection of a general suspicion among donors, who worry their funds will be misspent or stolen” (No-strings philanthropy, 2024).

The report goes on to say: 

“For generations, philanthropy has been [characterized] by mistrust of the charity sector and a general attitude of paternalism. Non-profit [organizations] have had to write lengthy applications for grants. Those lucky enough to get funding have received money ring-fenced for specific projects. An onerous process of monitoring and evaluation has followed, which has meant recipients spending a lot of time and money assembling impact assessments and budgets, all in the specific format that each donor prescribes.

“This top-down approach has sometimes caused problems for the charity sector. It can result in a pattern known in the industry as the ‘non-profit starvation cycle’. The cycle begins with funders who have unrealistic expectations of how much it costs to run [a non-profit]. Under pressure to keep costs low, non-profit bosses cut back on operational costs, like hiring staff, training them, setting up data-collection systems and investing in IT. As a result of scrimping and saving, the budgets and impact assessments that [non-profits] send to donors are patchy at best, misleading at worst, and the cycle continues”(No-strings philanthropy, 2024).

The fascinating thing about this high trust, low-bureaucracy approach is that it saves time and makes the whole reporting process for a non-profit so much easier and less costly. 

And it allows the non-profit to use some of the money to strengthen their organization by investing in infrastructure and fundraising. Certainly, as the report asserts: “It is no bad thing that recipients are spending more on overheads. In the past, many philanthropists have been willing to pay for a charity to roll out projects, such as building a new school or handing out food. But few have been willing to fund the staff who plan those projects, their training or their laptops. Academic research has shown that groups that spend more on overheads often deliver better results. Plus, as Nancy Lindborg, chief executive of the David and Lucile Packard Foundation, says, unrestricted grants allow non-profit [organizations] with experience on the ground to craft projects where they see need, rather than simply rolling out projects that donors dream up” (No-strings philanthropy, 2024).

The good news? Things are changing: 

• “The Segal Family Foundation, a big American donor focused on east Africa, has contributed unrestricted funds to Teach for Kenya and attempted to reduce the administrative burden on the charity. It asks Ms Kidenda to fill out a short form online every year with straightforward data, like the number of teachers trained. That, she believes, is a much better way to do philanthropy. ‘If you want to give, give,’ she says. ‘Don’t give and then act like you feel bad about it or mistrust.’”
• “In a survey of American foundation leaders in 2021 by the Centre for Effective Philanthropy (CEP), a research [organization], almost every respondent said they had changed the way they work during the pandemic . . . . More than three-quarters reported changing their application processes to reduce the burden on recipients. The same share said they had made the reporting process less cumbersome. Over 60% were providing more money in the form of unrestricted grants.”
• “The Skoll Foundation, started by Jeff Skoll, formerly boss of eBay, is still asking recipients for progress reports but no longer prescribes what goes in them. ‘It’s all stuff the non-profit community has been begging for, for decades,’ says Fred Blackwell, head of the San Francisco Foundation, a big funder.”
• “By making unrestricted gifts, no-strings donors are handing non-profit [organizations] the power to decide for themselves how funds are best spent. Jennifer Steele is head of Meals on Wheels San Francisco, a charity that received money from both MacKenzie Scott and Jack Dorsey in 2020. ‘I can’t tell you how freeing it was,’ she says, ‘to feel trusted and to feel respected’”(No-strings philanthropy, 2024).

So, what does all this mean for you? Several things:

1. Educate donors to the benefits of un-restricted giving.

This will be especially difficult because donors do like to designate their giving. But, a constant objective of your donor education program should be to increase awareness of this point and to emphasize its value. Also, ON this point, we recommend that when asking a donor to give to a program category that matches their passions and interests, you ask for permission to use their gift to fund the highest-level category that their interest belongs to. For instance, if the donor’s interest is in food distribution to the homeless, you might ask the donor to give to the category of food that includes food acquisition, food storage and food distribution.

2. Widely and frequently publish how you measure and report on impact.

This will assure donors of how you think about stewarding their giving and executing your programs. It will also counter much of the mistrust a donor may have about how your organization is using their giving. Work at doing this in order to increase the donor’s understanding of your financial accountability. Undoubtedly, this will increase trust.

3. It is important to include allocated overhead in the pricing of every program and project category.

This is a critical and strategic fundraising point. Including overhead in the pricing of your program ask not only presents a true picture of the true cost of that program category, but it also helps fund the capacity building and infrastructure that is needed to properly run the program. Do not ignore this. To be sure, it is critical to the financial health of your organization and the effective execution of your program.

4. Strengthen and resource your program division so that it can easily tell donors that their giving is making a difference.

If you set up an effective system to measure the impact of your programs then it will be easier to report that impact to donors. And remember, impact reporting does not have to be a highly detailed technically laden report. It can be as simple as a story of a life changed and a few numbers on progress. Don’t overthink it.

5. If a donor requires extensive and detailed reporting for their gift, then you might consider not receiving money from that donor.

I know this sounds dramatic and counterproductive. But if the time you spend to service a donor’s lack of trust or need for an unusual amount of detail approaches costing more than 10% of the donor’s gift, it might not be worth it. Go find a donor who trusts you.

The financial relationship of a donor to a non-profit is delicate. It must be carefully cultivated with authenticity and honesty as its basis. Work at doing that. As time passes, you will see that you retain good donors who trust you. The net of all of this is that you will spend less time and money assuring the donor that their gifts are being used wisely. And that is good.

Richard