Foundation Friday: Building versus Buying

The Nonprofiteer experienced a brief moment of clarity today in the midst of her general puzzlement about what, precisely, the new philanthropists want to do that’s so new.  This came courtesy of George M. Overholser, whose article on the unlikely-to-be-thrilling subject of nonprofit accounting draws a distinction that illuminates everything.  "Old" philanthropy is purchasing the services that nonprofits already provide, and expects to be making that purchase repeatedly and pretty much continuously as long as the services remain high quality; "new" philanthropy is offering growth capital but it’s a one-shot deal, and charities unable to make themselves self-sustaining before the capital fund runs out should consider themselves failures and shut their doors.

[Needless to say, his version of this argument is much more nuanced and includes suggestions for using this distinction to secure more growth capital than the nonprofit sector has ever been able to before.]

A few questions occur, of wildly different levels of significance:

  1. If venture philanthropists are providing growth capital, shouldn’t they also develop and standardize the necessary accounting system for determining whether it’s in fact succeeding, that is, whether and when sustainability has occurred?  As Overholser demonstrates, such a system, while not all that complex, is a different style of accounting than has been demanded of charities heretofore; shouldn’t the people who ask the question supply this means for answering it?  It could be a standard accounting format, like FASB, and then funders could say, "We use FASB accounting" or "We use growth-capital accounting," and charities would know which chart to produce.  Surely among all the millions being given away by venture philanthropists there’s a couple hundred thousand to create some accounting software and train people in its use.  This may sound like a bean-counter question, but in fact charity executives who are taught to distinguish ordinary revenue streams from growth capital in the manner Overholser recommends will simultaneously learn to think differently about what they do.  And mystified donors like the Nonprofiteer will know how to distinguish between agencies selling solutions and agencies sellling amelioration, and to recognize that each has a place in the charitable sector.
  2. How is it possible to distinguish between the growth-capital people, who will give you x amount of money and then leave you stranded if it turns out to be not enough for sustainability, and the "old" philanthropy, which will give you x amount of money and then leave you stranded when their fruitfly-length attention spans turn to a different subject, or approach, or field of endeavor?  Charities have been being left high and dry for years; in the words of my ancestors, manish tanah?*
  3. What do we mean by "sustainability," anyway?  If it means "the ability to attract sufficient support from donors," the whole process seems like the long way ’round: wouldn’t it be faster for the venture philanthropist just to give the sufficient support him/herself?  And if the idea is that we want to spread the burden of supporting charities to the widest community possible, why not just use the tax system?

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*The beginning of the Passover Seder’s Four Questions, "Why is this night different from all other nights?"  A Hebrenglish version of the better-known, "So new?"

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2 Responses to “Foundation Friday: Building versus Buying”

  1. Anita Bernstein Says:

    Spot on!

    Regarding #1, I think not just software is needed, but the engagement of accountants. As a lawyer who works in the field of legal ethics I’ve always been half-irked, half-envious, in response to the accountants’ claim to be more ethical than lawyers, because an accountant’s job is always only to tell the truth, whereas lawyers shade the truth. Well, okay, but lawyers have an official mandate to donate some of their time working for the disadvantaged–a mandate that, last I checked, the accounting profession had not adopted. How about unpaid pro bono service from this profession on revising and disseminating accounting standards for philanthropy? Volunteers who don’t write standards could do the actual auditing work.

    When they asked the question you added at the end, your ancestors typed it “ma nishtana,” i.e. with different spacing. Ma = what; nishtana = [has] changed.

  2. Nonprofiteer Says:

    There’s a group in Chicago, CPAs for the Public Interest, that places accountants on nonprofit boards to serve as treasurer or auditor or just general financial advisor–so at least there are some accountants doing pro bono work, whatever the profession’s standards may be. You’re absolutely right that mere software (which is probably trivial to create) won’t do the trick–actual experts will be required. If pro bono efforts prove insufficient, again venture philanthropists could pick up the tab. How ready I am to spend their money!

    And thanks for the correction on the Hebrew–which I’ve never seen except in transliteration, and that in the Maxwell House Haggadah.

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