Even as financial stress affects our capacity to give, specialised philanthropic vehicles can keep funds flowing to the community sector, writes Simon Mumme.

As the Australian economy contracts, the community sector will work overtime as more people enduring fiscal hardship seek its services.

But non-profit organisations will have fewer resources to meet this demand.

The level of “responsive” giving – that is, occasional donations to fundraisers or appeals – will diminish as people of all levels of wealth focus on their own circumstances.

But for high-net-worth donors, there are ways to give consistently through economic cycles, by committing funds to a carefully managed charitable trust or foundation.

These vehicles distribute only the earnings of invested capital, and therefore provide non-profit organisations with a reliable source of income in periods of economic growth and decline.

The Perpetual Foundation, which advocates the use of philanthropic trusts and foundations, regards philanthropy as an investment “in the creation of social wealth”, rather than as charity, says Catherine Baldwin, former head of the foundation.

She says a reliable stream of money enables the boards and management of non-profit organisations to bypass the “scrum” for short-term funding, and to focus on their social missions.

Funding droughts can result in an organisation putting their financial targets ahead of their social causes. It can also cause “mission creep”, as groups apply for funding to undertake projects that are not aligned with their core purpose – simply so they can get the money.

In 2007 the Perpetual Foundation commissioned research from SEEEN, an organisation cultivating leadership and management skills in the social economy, to analyse governance and decision-making processes in non-profit organisations.

Baldwin says the research found that, often, a “misalignment with social mission develops because of the almost total preoccupation with finding funding and resources for survival”.

One major reason why non-profit organisations sometimes lose sight of their true mission is that they often rely on short-term grants rather than funding that can support their operational infrastructure.

Irregular, “project-only” funding can affect the working conditions of non-profit organisations, and hence their social missions.

“In the long run, you can’t have strong programs or projects in weak organisations,” Baldwin says.

The ideal role of a foundation is to act like a marathon runner, rather than a relay sprinter. Foundations should stay the course rather than pass the baton on to the next foundation after a short sprint, she says.

Of course, it is impossible for most foundations to support a large number of causes, due to their own limited economic resources.

To develop a closer partnership with non-profit organisations, and also to reduce the costs of assessing many organisations seeking funding, the Perpetual Foundation will stop conducting annual funding rounds and adopt an “open registration” process, enabling deeper research of charities’ ambitions and their needs, Baldwin says.

She says the foundation aims to spend more time analysing organisations of greatest interest to donors, and allocate grants to the most suitable charities.

This analysis should identify non-profit organisations’ needs for general funding and the costs of developing and maintaining operational systems. Baldwin says grant-makers should begin asking: “Will funding a particular project or program really advance the fundamental purpose or would the funding be better applied to operational costs and infrastructure?”

“Non-profits may be able to execute a good project, but what’s the quality of the underlying organisation?” she says.

“Our approach to grant-making will look at funding quality, well-managed organisations with great leadership, good disciplines and practices, and a focus on achieving positive societal outcomes.”

Funders should look for certain attributes in non-profit organisations, she says. Since these organisations aim to create meaningful results in society, they should be able to clearly explain their goals and methods, and be able to evaluate their progress.

The leadership, processes and culture of non-profit organisations should also be investigated, as these qualities are crucial to the fulfilment of their social missions.

But funders “should not try to tell non-profits how to run their organisations or projects”, Baldwin says.

Non-profit organisations should not “be expected to jump through hoops” or undertake specific projects in order to secure funding. They may be dependent upon benefactors, but should never be their playthings.

Baldwin says donors and non-profit organisations can both benefit by sharing lessons from their own good and bad experiences in the community sector, and by discussing public policy and how government actions affect their projects.

The most recent initiative undertaken by the Perpetual Foundation is to review research on social and environmental problems in Sydney with United Way. The Sydney Community Foundation, Westpac Foundation and the Centre for Social Impact are also involved.

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