Power

There are few places in public life where there is a greater imbalance of power than between a private foundation and a nonprofit grantee.

I’m not saying that a foundation has more absolute power than, say, the Pentagon or Exxon-Mobil. Of course it doesn’t. I’m simply stating that the imbalance of power is more extreme between private foundations and grantees than between almost any other set of institutions in the country.

Let’s think about other arenas. A U.S. senator, for example, can be very powerful. He can be ruthless. He can abuse his influence. But if he makes enough enemies, or if he crosses too many ethical lines, or if he loses sight of the wishes of the people he represents, he can be voted out of office. There are consequences for his actions. His constituents, collectively, have the ultimate power in the relationship.

Or take corporations. They may manipulate states and cities into giving them unconscionable tax breaks. They may bully their employees. But corporations are subject to laws protecting workers and the environment.  They have to negotiate with labor unions. They are subject to boycotts by consumers. Most of all, corporations have to face the consequences of the marketplace. Competition is a great leveler. Corporations have to listen and behave and adapt, at least to some degree, or they will fail.

Now let’s consider private foundations. Few people walk around fulminating about foundations, which have a most benign mission: after all, they exist to support charitable works. Each year they make grants to deserving nonprofits. Who can take issue with that? But a private foundation can be irrational in its demands on grantees. It can be erratic in its grantmaking. It can renege on a multi-year pledge or otherwise withdraw its support for obscure and insubstantial reasons.

What recourse does the nonprofit have? None.

The private foundation, no matter its behavior, still has its money. It will remain in business. So long as the foundation makes the required annual charitable distribution of 5% of its assets, the IRS won’t intervene. It’s possible that state regulators might notice misbehavior, but usually only in a case where trustees are personally benefiting financially or committing some other sort of fiduciary malfeasance. Simply doing its job poorly or muscling around its beneficiaries won’t cause the foundation to receive any sort of regulatory consequence.

There’s no penalty for being a lousy foundation. No slap on the wrist for bad manners, for not returning phone calls, for not having a rational grant process, for spending too much on overhead or the CEO’s salary. There’s no marketplace discipline, because the foundation already has its money. There’s no competition. There’s no risk of going out of business. There’s only power, and money, and a steady supply of supplicants: the nonprofit world.

So can a nonprofit complain? Can it give feedback about outrageous behavior? No. There’s no point in nonprofits speaking out about what they really think. All the power rests with the foundations.

I once had a colleague who violated that rule. A program officer from one of the foundations that funded us was imperious, demanding, and – to add insult to injury – lazy and disorganized. He regularly misplaced our requests and reports, and he would then accuse us of not having sent them in the first place. “Yes, sir!” we’d say, and off the replacement reports would go.

And then one day my colleague had had enough. The foundation officer called to demand a report she had already sent twice, making disparaging remarks questioning her competence, and she responded by telling him just what she thought of the way he ran his foundation and treated his grantees. He was outraged. He said that nobody had ever spoken to him like that, and that we need not ever apply again.

And we never did. There would have been no point.

I don’t mean to imply that foundation officers and directors are incompetent or vindictive. The vast majority are smart and hardworking and well-meaning. But this example shines a bright light on the core power imbalance. Foundations are lords of the realm; the nonprofits are the servants; and there’s no court of appeals.

Most foundation officers I know are naive about this power imbalance. They talk earnestly about partnerships with their grantees, but true partnerships are rare, and candor from the nonprofits is rarer still. Believe me, foundation officers: your grantees fear you, love you, resent you, and grumble about you. They hang on your every word. They spend hours interpreting your body language. But they’re almost never going to tell you how they really feel. It’s too dangerous.

So be kind. Remember that the nonprofits are the ones in the trenches, doing the real work, the heavy lifting. Don’t demand additional reporting requirements unless there’s a very, very good reason. Be understanding when projected and actual budgets don’t precisely align: it’s hard to predict the future, and, besides, you want to give the nonprofit room to innovate, don’t you? Don’t be punitive over a missed deadline or two.

And remember that, whether because of your family, or your connections, or your education, or your good fortune – or a combination of all the above – you’re in a position of power. Use it to help people, not to feed your ego. Be humble. Be kind. Do good.

Copyright Alan Cantor 2013. All rights reserved.