This article was originally published by Stanford Social Innovation Review on August 3rd, 2011 with the headline - Just Give 'Em the Money: The Power and Pleasure of Unrestricted Funding
When I stumbled into philanthropy, seven years out of medical school, I had no idea that there was an accepted set of practices to follow. Through a combination of cluelessness, hubris, and too much time in remote field sites I remained blissfully unaware of the mores and norms of the grant-making world. In my ignorance, I figured that the best thing for the Mulago Foundation to do was to find high-impact organizations focused on the things we cared about most—and give them a bunch of money.
That's worked out pretty well for us, and unrestricted funding remains a cornerstone of our funding strategy.
What we—Laura Hattendorf and I—can't figure out is why everyone doesn't do it. Unrestricted money makes an organization work smoothly, enables innovation, and provides fuel for growth. It unlocks potential and allows people to get down to business and do what they're best at. It makes it possible for great organizations to weather crises without losing momentum. For us, it serves to leverage other people's restricted money—and I love the feeling that we're getting a better deal.
I suppose that many worry that if they give an organization unrestricted money it will be wasted or used inefficiently. The solution is pretty simple: If you don't think an organization is smart enough to use your money well, don't give them any. It would probably be best for all concerned if a few more NGOs went out of business anyway. (I just heard an economist on NPR say that in a healthy economy, about 10 percent of companies go out of business each year). The social sector could use a little pruning. It would probably be nice if a few foundations went out of business too, but that's a subject for another time…
In the real world, if you were to invest in a company you thought would make you a tidy profit, you wouldn't tell the senior management they had to make a product of your choosing, restrict the number of vehicles they purchased, or expand operations into a new country. Why should we do any differently in the social sector? Why not simply invest—fund—on the basis of return in the form of impact? Isn't that the point?
Unrestricted funding on the basis of real impact is a lot more satisfying than worrying about line items in a budget. What is important is the impact per donor dollar: the cost per child's life saved, per family out of poverty, per island species saved from extinction. If we like that number—if we think they are cost effective in terms of impact—we don't have to get worked up about overhead costs or whether employees fly business class now and again.
Perhaps donors feel that they're being more responsible by restricting funding to a given activity when they can track that activity closely. They're not. An organization can faithfully carry out the activities funded with restricted money and still not have much impact. The attempt to achieve tight control and close observation can miss the impact forest for the operational trees.
Or perhaps some donors give restricted money to have closer engagement with the doers. Let's face it, they're the coolest people out there, and I certainly treasure my relationships with those who are doing great work to make the world a better place. But if you really want a genuine relationship, show some faith and put some skin in the game with unrestricted money. You'll find that people are much less guarded and much more open to your ideas and ongoing input. The current fashion of donors calling themselves "partners" is more than a little silly—we're funders and it's a fundamentally asymmetric power dynamic. When you change the equation to unrestricted money for real impact, however, the dynamic can start to shift: donors give doers the dough they need to create impact; doers give donors the impact they need to justify their existence. It starts to look less like feudalism and more like symbiosis.
So, if you want to get more out of your philanthropy—both personally and professionally—find high-impact organizations working on the stuff you care about most and give them some money. Make them accountable for impact, and if you like the result, give them a bunch more money. They'll respect you for it, and will probably listen to you from more than politeness. And if enough of us do that often enough, we might even move the social sector toward a more efficient market for real impact.