Making success more likely: creating a better working relationship with donors and funders.

Issues related to nonprofits' impact, efficiency and effectiveness pervade media coverage of philanthropy and nearly every gathering of nonprofit professionals. Nonprofits often struggle to show that they are accountable without becoming overwhelmed by assessments or hampering the fulfillment of their missions.

Increasing demands for greater accountability and quantifiable outcomes, coupled with the difficulties of finding meaningful ways to measure nonprofits' success, often heighten existing tensions between funders and donors and nonprofit recipients.

The Center on Philanthropy at Indiana University recently convened a national summit sponsored by the McCormick Tribune Foundation, Expecting Too Much? Promising Too Much? Assessing Accountability for Grantmakers and Their Recipients. It focused on managing the expectations of funders and nonprofits to successfully move programs toward anticipated outcomes.

Much of the discussion dealt with assessments and evaluations. But leaders from both the funding community and nonprofits attending the summit made it clear that one key to achieving reasonable, meaningful measures of success lies in redesigning the way donors and recipients, foundations and grantees, approach impact.

One challenge is that the unequal power dynamic between grantors and grantees often results in nonprofits promising more than they can deliver. Nonprofit professionals at the summit reported feeling powerless to negotiate terms of a gift or grant because they're too eager to secure the gift or to please the giver.

They might also feel intimidated by foundations or major donors with their own priorities, ideas about how a program should be run, and new initiatives for the organization. In such situations, nonprofits might be too quick to agree to certain unattainable terms. Often they lack the courage, confidence, financial independence or power to say no or to negotiate plans or measurements appropriate for their mission and resources.

These feelings result in unequal negotiations between funders and nonprofits. Some of the tension involved in managing expectations is rooted in an old saying called the golden rule: "He who has the gold rules." As a result, nonprofits have difficulty being candid with funders and donors.

Similarly, a Center for Effective Philanthropy (CEP) report in 2004, Listening to Grantees: What Nonprofits Value in Their Foundation Funders, reads that because of "an uncomfortable power dynamic impeding direct, honest communication and a lack of broad, independent research, foundations often find it difficult to understand exactly what nonprofit grantees really value."

The report concludes that three dimensions explain a significant amount of variation in grantees' satisfaction with funders:

(1) Quality of interactions with foundation staff;

(2) Clarity of communication of a foundation's goals; and,

(3) The nonprofit staff members' previous knowledge of the foundation.

All three relate to the development of realistic expectations on the part of the foundation and promising realistic outcomes on the part of nonprofits.

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Foundations have worked deliberately to improve this relationship. In 2006, CEP released a second report, Foundation Communications: The Grantee Perspective, which advocates "ensuring consistency among communications resources; maintaining high-quality interactions, focusing especially on the responsiveness of foundation staff; and implementing selection and reporting/evaluation processes that are helpful to grantees." Additionally, the Council on Foundations (COF) stresses to its members the importance of effective communication, transparency and accountability.

Grantmakers for Effective Organizations (GEO) provides another way of tackling the inequities in grantor/ grantee relationships. Its Change Agent Project seeks to "catalyze significant, measurable change in the field of philanthropy by informing, motivating and equipping philanthropy's change agents."

Its first report published last year found that foundations are using new and innovative ways to break down barriers to nonprofits' success through redefining their relationships. It highlights the importance of good rapport between program officers and grantees, communicating a focused, long-term funding strategy, trusting nonprofit leaders, and providing the capacity-building support nonprofits need to succeed. GEO's mantra is "grantmakers are only as effective as their grantees."

Some of the tension between funders and nonprofits no doubt also arises from the old "scientific philanthropy" model that goes back to the original foundations set up by Carnegie, Rockefeller, and others. In this model, foundations assume they have found solutions to social problems and seek grantees to implement these solutions toward desired outcomes.

Similarly, a donor who has created wealth might assume he or she knows how to solve society's problems because of his or her business success. Nonprofits might promise to implement these solutions to receive the grant or the gift, without knowing whether they can achieve success.

Another challenge in managing funder and nonprofit expectations and arriving at appropriate measures of success is the high expectations and standards to which nonprofits are held. Nonprofits must hold themselves accountable, but in the minds of funders, donors and the general public there is very little room for failure. While only one-third of new for profit ventures survive their second year (Money magazine, July 2007), every nonprofit venture is expected to succeed, and to be consistently "efficient" in its use of funds.

These can be difficult waters to navigate. There is an assumption, sometimes referred to as the "logic model," that good planning, good use of resources, good management, and good evaluation by nonprofits will automatically lead to good social outcomes. But the process is seldom that straightforward.

Many factors beyond the nonprofit's control can affect outcomes. One presenter called the other factors the "noise" that impedes positive results. It can be hard for the public, donors and funders to fully appreciate how difficult it can be to achieve measurable social change, how difficult it can be to prove causality, or how long it can take to see that change, for example, in fighting homelessness or reforming education.

As nonprofits and foundations shift from measuring inputs and numbers of constituents served to measuring outcomes and impact, evaluation becomes more complicated and more expensive. Many nonprofits do not have the expertise or funds to implement the complex systems required to determine success measures or to evaluate them. Often donors and funders either don't consider or are reluctant to pay the costs involved in developing such expertise inside nonprofits, the cost of consultants to help nonprofits, and the cost of determining success measures and measuring results.

Some summit participants noted that funders and nonprofits should consider the notion of "net grants"--the cost of the grant minus the nonprofit's expenses related to grant management or evaluation. By realizing the costs funders and donors are imposing on nonprofits, both parties can limit the transaction costs and still get the information needed for responsible gift and grant management and assessment.

Nonprofits cannot simply say, "We can't measure outcomes and impacts." They have an inherent responsibility to hold themselves accountable, and they must work with funders and donors on measures that make sense.

Some participants at the summit suggested a negotiated set of outcomes between funders or donors and nonprofits, represented by Joel Fleishman's partner model discussed in his book The Foundation: A Great American Secret. This gets at issues such as, "Who decides? On what basis?" It takes into consideration the complexities of the issues an organization is dealing with, gets at short-term versus long-term solutions, and addresses measuring results versus process indicators.

The discussion about negotiated outcomes, about reaching agreement between funders and donors and nonprofits on expectations, on outcomes, and on impacts, prompted one summit participant to declare that the discussion called for an end to scientific philanthropy as we know it. And while there might be a role for scientific philanthropy in implementing proven programs across nonprofits, the discussion did suggest a leveling of the playing field in the donor-recipient relationship.

A negotiated set of expectations suggests that both the grantor and grantee bring expertise to the program being funded and share expectations about what can be accomplished. It simultaneously minimizes the risk of disappointment on the part of the donor or funder and the risk that the nonprofit will promise too much to please the donor or funder to secure a gift or grant.

So what should parties on both sides of the transaction do to create the best possible outcome? Donors and funders might consider the following:

* Share with nonprofits all the technical expertise they have related to a particular issue and evidence they have of the success of a particular program when approaching funding from a partnership perspective.

* Recognize that nonprofits have a mission to fulfill based on values they hold dear.

* Engage program expertise at nonprofits in the planning process for a gift or grant.

* Be committed to the fact that the best programs are the result of good planning, good management, and good evaluation.