How Does Competition Affect Grantmaking, and What Can be Done?

February 11, 2014

Several speakers at the Foundation Impact Research Group (FIRG) have observed, at least in passing, that competition among grantees for foundation grant dollars is increasing. But what are competition’s implications for foundations and grantees? At this fall’s conference of the Association for Research on Nonprofit Organizations (ARNOVA), researchers presented new work that helps illuminate this question. Lewis Faulk, Mandi Janis, and John Boyer used the case of one institution in the DC area to quantify how grantmaking changes when competition increases.  They found that as competition increased, the foundation was less likely to select grantees that had never received a grant from their foundation.  Those potential new grantees without a foundation contact, with lower operating margins, and without significant assets faced even worse odds. 

 

While this is not surprising for those working in the sector, it suggests that competition does more than allow foundations to be more selective. The fact that both relationships and easy-to-evaluate financial metrics became more important (especially for unfamiliar applicants) suggests that competition also changes the way that program officers make decisions.  I would suggest, and I think Faulk would agree, that competition likely operates by eating away at program officers’ time, which is critical to evaluating potential grantees that are working to establish themselves — the hard-to-recognize “diamonds in the rough”.

 

These findings might give grantmakers pause.  However, Jasmine McGinnis Johnson’s research on community involvement in grantmaking might point to a counter-strategy — community boards — to help foundations identify nonprofits that would be good grantees but are not yet “insiders.” In her work comparing community and traditional boards at six foundations, she found that community boards were more likely to support nonprofits that are new grantees. They are more likely to choose younger, smaller, and less professionalized organizations. Fall 2013 FIRG speaker Robert Gallucci (President, John D. and Catherine T. MacArthur Foundation) explained a related program that he has piloted as a human resources strategy – a grantmaking fund that is allocated by employees who do not generally have grant responsibilities and which has a policy of only reviewing applications from “outsiders” to the Foundation’s existing grantmaking.

 

These studies are, admittedly, small scale.  Researchers need to do more work to understand how the proliferation of nonprofits affects grantmaking.  Do these results generalize?  Does competition encourage a different kind of selection that foundations might want to avoid or correct with alternative strategies?  Or, does it simply allow foundations to be more selective? It would be interesting to hear what readers think!

 

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For more information on the Faulk study (and to volunteer to participate in future surveys on foundation practices), contact Lewis Faulk at American University.  Website here: http://www.american.edu/spa/faculty/faulk.cfm

 

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