Philanthropic Foundations and NGOs: Challenges in the Relationship

Philanthropic foundations may have to develop a partnership with other NGOs to further their goals. However, there are challenges in building workable partnerships for this purpose.

Philanthropic foundations (PFs) and funding arms of corporate organisations (which are part of or outside the framework of Corporate Social Responsibility) have emerged even in developing countries like India. These may have to develop a partnership with other non-governmental organisations (NGOs) to further their goals. However, there are challenges in building workable partnerships for this purpose. This note outlines some of these. This note draws on insights from the economics of institutions, the author’s discussions with the heads of PFs and also his personal experience (which includes the documentation of the work of several NGOs working in the domain of education and development.)

There is an argument in the literature (Jansons, 2015) that Indian philanthropists prefer operational foundation models (where the operations are carried out directly by the foundations which have the money) rather than funding other NGOs. According to her (Ibid. p. 995), the most commonly cited reason for choosing an operational (or hands-on) approach is the desire to be engaged and in control’. Also, the hesitation to entrust money with an NGO lies in part with the perceived and real non-professionalism of Indian NGOs1. There is a need to understand the reasons behind such perceptions.

The other important aspect of this form of philanthropy is what Brian (2004) defines as impact philanthropy’ as a model of altruism where the philanthropist is one who wants to personally make a difference2. Such funders may have a greater interest in using the money for what they reckon as the social purpose as it is from their personal wealth. This is more so when the absolute value of the funding is substantial or when it is a significant share of the overall wealth of the funder and most of it is acquired during his or her lifetime3. One implication noted by Brian (2004) is a possible source of conflict between such a philanthropist and those organizations which receive money from the former. This arises when the organizations prefer to spread a donor’s contribution across many services, whereas the donor may prefer to target his or her contribution at a specific service4. Such donors are increasing even in countries like India.

The need to work with grassroots organisations

Philanthropic foundations may wish to make a difference in the social situation with their resources. However, they may not have the capacity or the plan to operate on the ground. On the other hand, there are NGOs working on the ground that depend on the financial resources provided by various funders. Hence, it may seem beneficial to have a partnership between PFs and these NGOs5. By working with these NGOs, PFs can scale up their operations to make a visible impact in a given domain.

However, there are several challenges in achieving a fruitful partnership between PFs and NGOs. (There are equally important challenges in the partnership between the POs and governments, and some of these are outlined here).

A major concern of the leadership of NGOs when they collaborate with PFs is over ideological autonomy. Though they are willing to accept funding from the PFs, they may not be willing to change their strategies or approaches for this purpose. There may be deep-rooted apprehension about corporates, which may be extended to PFs due to their source of funding, even when a PF has no legal connection with a corporate. NGOs may view foundations as a mere source of money and lacking expertise in social issues. They may hold on to, what they call, certain non-negotiable principles. In my view, there are challenges in partnership even if PFs accept the ideology and strategy of NGOs. Highlighted in this article6 are some of the operational and logistical challenges that may work against a fruitful partnership between PFs and NGOs.

Working with intermediaries

As a funding agency, foundations are interested in seeing that the money they provide is used effectively. Though this is true for any funding organisation, it is more the case with foundations because they provide substantially larger amounts when compared to what NGOs receive from other sources.

Philanthropists do not deal with the NGOs directly. Those who take decisions on resource allocation on behalf of them require proper documentation of expenditure to justify their decisions/​actions. This makes the nature of funding different from the one wherein philanthropists provide money for different activities based on their trust or confidence in those who spend this money. This managerial intermediation is necessary for PFs due to the large amount of resources available with them, and the scale of interventions that they plan to make. The fact that professionals are engaged for this purpose would also mean adherence to norms and standards.

Nature of outcomes

The outcomes of programs for which funding is made to NGOs may not be clearly definable in certain cases. This can be a challenge. Wherever the outcomes are tangible and clearly definable, the partnership can be relatively successful. Hence, one can argue for the use of such tangible and definable outcomes when an organisation is funded for addressing issues, such as increased enrolment in schools. For example, the number of out-of-school children brought back to school could be one such indicator. I could see such a system of funding wherein corporates or private firms provided money to an NGO to bring out-of-school children back to school through bridge courses. However, there are problems with such a funding strategy too. For example, the effort or cost to bring back different children could be different, and some children may not come back to school even after taking/​incurring substantial effort (cost) on the part of the NGO. The outcomes (and the timeframe by which these outcomes are achieved), especially in domains like education, may depend not only on what NGOs do but also on several socio-economic or contextual factors. So, whether an NGO can bring a set of out-of-school children back to school or not depends partly on what it does but partly on the contextual factors which may not be under its control7. Hence, NGOs may not be in a good position when funding organisation use such an arms-length strategy of funding. They may be interested in having a funder who meets the actual costs of the processes followed and not one who provides money based only on outcomes.

This situation may warrant the monitoring of the processes followed by the NGO instead of merely the outcomes. However, such monitoring may be viewed as intrusive by NGOs8. And when there is a need for intrusive monitoring by one major funder and it is accepted by the operational organisation, the engagement may become similar to one where the funding organisation owns the operational organization, or both come together as one organisation. In that case, the NGO may be reduced to an implementer of the vision of the funder. This possibility may propel foundations to have their own operational arms.

Procedural demands

There are different types of NGOs. Some are based on the personal experience and intrinsic motivation of the founder. Others are similar to social movements. Some others are professional organisations manned by people with experience in management and other related skills.

Traditionally, NGOs may have faced certain generic problems. In the 1960s-70s some NGOs in the South (the developing world) emerged out of social movements opposing the state. These were generally high in motivation but low in formal organisation (Mawdsley et al, 2005). Having emerged and functioning in the context of social contingencies, they may not have given a high priority to procedures of documentation and accounting. Those built on personal experience/​effort may not have had the resources to build an organisational system. Certain other organisations could be ideologically against institutionalisation’ and may see documentation and organisational practices as part of such institutionalisation. In sum, building a conventional organisation might not have been the prime motive in these kinds of NGOs. They may have seen the documentation and accounting as avoidable troubles9 to be followed just to get money from the funders.

These issues of governance in NGOs are global and not unique to India. Though there is evidence that donors consider NGOs with better governance favourably (Harris et al, 2015), there has been a lack of adequate transparency in the accounting and accountability procedures in NGOs across the world. There could be a number of systemic reasons for this. First, these NGOs, in their attempt to attract funding, may show low administrative overheads. As higher overheads may be seen as a sign of inefficiency by potential donors. Or, as noted in Hager (2003), NGOs know that donors want to believe that only a minimum of their contribution is used for administrative purposes and find ways (some legitimate and some not) to misrepresent their expenses in this regard. When they under-account the administrative charges to meet the needs of donors (John, 2003), the actual expenditure on this may have to be met from the savings from operations, which may compel them to inflate the cost of operations.

There is also the issue of cross/​multiple funding for the same purpose. Although from an auditor’s/ external funder’s point of view, there is a need to satisfactorily disclose cross/​multiple funding, if any. Also, there is a need for prior information from the funder for carrying out activities beyond the scope of the agreement. The absence of such information raises issues of integrity. NGOs, on their part, may view a declaration of no-multiple-funding as mistrust by the donor. There are different views on what are acceptable, ethical standards between PFs and NGOs. The accounting (and hence, the accountability and transparency) procedures followed by Indian NGOs are significantly different from those followed by private companies and PFs.

International funding organisations too face challenges in monitoring the actions of the recipients of their funds. Ensuring that the money provided is used for the purpose it is meant for, is not easy. This requires a significant part of the cost, which then is not available for operations. There could be a higher administrative cost for these organisations, and it has been noted that this could be linked to the concern about the possible misuse of funds10. Hence, it is costly for funding organisations to ensure the effectiveness of their aid. On the other hand, NGOs involved in implementation may have to spend significant effort to meet the accounting and documentation requirements of the donors11. In general, the costs or difficulties in ensuring the effectiveness of interventions funded by altruistic organisations are not trivial.

Most NGOs receive funding for time-bound projects, but these organisations may have to incur recurring costs for the maintenance (including the cost of employees or founders) for a longer period. This may encourage them to save money from projects for expenditure smoothing (and this may be called precautionary savings12). Hence, they may have to strategically account the costs of operations which are funded as time-bound projects13. This can create opaqueness in the accounting procedures of NGOs. In general, the accountability practices followed by NGOs have focussed on external or upward accountability to donors whereas the downward and internal mechanisms are somewhat neglected (Ebrahim, 2003). Though these issues are relevant for most NGOs in different countries, some of these may be relevant for Indian NGOs too.

There can be a demand for a trust-based or informal allocation of resources by NGOs (which may be necessary considering the nature of these grassroots organisations). However, this cannot sustain when it is not followed up by systematic documentation, given the nature of PFs. This is discussed in detail in the following section.

Different institutional environments

Foundations which generate their endowment from private-sector activity or a for-profit firm, and NGOs which address a social issue might be functioning in two different cultural milieus. The political economy in India in the first four decades after independence was one that generated a high level of suspicion regarding the activities of private firms by governments, bureaucracy and civil society (though there were occasional collaborations with some of these actors with select private firms in a non-transparent manner)14. Given this history of the private sector in independent India, and that it was seen as being interested only in making profits by all means, there is a greater social and governmental demand for accountability of private firms. This may have led to the institutionalisation of such accountability practices, including auditing norms to be followed by private companies.

However, voluntary or NGOs have been perceived differently in India. First, many such organisations had their beginnings in the social concern of their founders. A greater part of the work of these organisations was based on the voluntary efforts of the founders and members. Such a social concern or voluntarism was expected to encourage these people to act (including the manner in which they use resources mobilised from different sources) in the interest of the society. Even when they had employees or paid volunteers, their work was seen partly voluntary, as the wages or salaries were much lower than that for government or private-sector jobs.

Most of these organisations were not well-funded, especially during the first four to five decades after independence. The funding available from Indian sources (government and private sector) was minimal then. When the government provided grants, the amount of support provided was small and was mediated through bureaucratic red-tape. (Allegations of corruption were not uncommon). Most of the NGOs depended on international organisations (Christian NGOs or multilateral, bilateral or international funding organisations), and their cost in funding Indian NGOs (in terms of foreign currency) was not high. The Christian funders may have expected the religious values to serve as the basis of earnestness in the practices of NGOs funded by them. There could be personal relationships between the funders and NGOs or there could be informal ways of regulating the activities of the latter (Mawdsley et al, 2005). Or as noted by these authors (Ibid), the northern (developed countries) NGOs which served as funders were, until then, taking a direct role in the implementation by treating the southern (developing countries) NGOs as operational entities. For all these reasons, the social demand for explicit accountability measures in NGOs in India was muted then and hence, they might not have followed such practices15. They might have used internal mechanisms to monitor the behaviour of employees, but these would not be visible to external stakeholders. These NGOs might have continued in this situation in the 1990s and early 2000s, even though there was an increase in funding from other sources (including private sector within India) by then.

These two different institutional environments that private firms and NGOs faced in India may have created the incompatibility between the accountability measures expected by foundations and those followed by the NGOs. In general, there are two issues faced by NGOs, especially those which are located in the developing societies (Mawdsley et al, 2005): lack of professionalization (organisational development and capacity building) and accountability (financial probity and transparency). Though certain strategies employed at professionalization may be seen as those which rob the autonomy from NGOs16 (Tvedt 2001 & 2006; Wallace 2004), the absence of certain practices of accountability could be a source of friction between the PFs and NGOs17.

Power structures

Political scientists and sociologists have been concerned about the power structure in the relationship between donors (mostly organisations located in the developed world) and NGOs (which are likely to function in developing or poorer societies)18. With regard to PFs, although they have the backing of a sizable endowment, some of the new organisations could not establish long-standing relationships with NGOs and hence, the concerns of dependency of NGOs on the donor was not a major issue. One cannot see much effort on the part of NGOs to change their procedures (or organisational culture) to meet the needs of PFs. In fact, one can see signals of resistance against what they have considered institutionalisation’ and to change their ideological positions to align with those of the funding PFs.

Foundations may use the exit’ option19 when NGOs do not meet their requirements of accountability, whereas NGOs may continue and expand their operations with funding from other sources. 

Similarly, PFs may not be able to influence the development agenda of the NGOs or the latter may not make changes in their agenda because of their relationship with PFs. Both PFs and NGOs may focus on similar issues which are of long-term interest to the country. Foundations may not pursue easily quantifiable results. Both may pursue systematic changes in the socio-economic context. Hence, the possible strain in the relationship may not be due to any attempt on the part of one of the parties to influence the agenda of the other. In summary, the concerns in the literature about the donor-dominance may not be very relevant, and these may not explain the dynamics of the relationship between PFs and NGOs.

While analysing NGO-donor relationship, a number of features are identified for a successful partnership (Lister, 1999; Reith 2010; Morse et​.al 2006). These include mutual trust, complementary strengths, reciprocal accountability, joint decision-making and a two-way exchange of information; clearly articulated goals, equitable distribution of costs and benefits, performance indicators and mechanisms to measure and monitor performance, clear delineation of responsibilities and a process for adjudicating disputes; shared perceptions and a notion of mutuality with give-and-take; mutual support and constructive advocacy; transparency with regard to financial matters, long-term commitment to working together, and recognition of other partnerships20. A number of these elements could be missing in the relationship between foundations and NGOs, and that could be the reason for the outcomes that we have discussed earlier. In that sense, foundations may attempt to become a donor-cum-operating organisation driven by the concern about the final impact of its actions21.

Notes:

  1. She notes that Indian preferences correspond with a broader Asian bias of family philanthropic initiatives maintaining operational control, rather than working collaboratively or as grant-making entities (UBS-INSEAD 2011, p. 42).

  2. This does not mean that the philanthropist has a clear-cut plan to how to make difference in a particular domain or is interested in micro-managing the process.

  3. There are a few major foundations operating in India. One belongs to an old industrial house in the country. My view is that it has diversified funding into several activities and hence, may not be expecting a substantial impact in any particular domain. Another international foundation seems to be a little distant from the ownership (or the company which provides the endowment) and the management is more interested in meeting the well-laid-out requirements for the provision of funding, that is, the foundation serves as a resource conduit by meeting certain standards. The Azim Premji Foundation is focusing on a particular sector/​issue – education.

  4. Those funded by Bill Gates and Warren Buffet come under this category.

  5. This was also a time when NGOs are seen as partners even by governments to strengthen the delivery of social and public services. This is not necessarily to substitute the role of the state. However, NGOs can complement the efforts made by the governments.

  6. On the other hand, a major part of the social science literature highlights the possible influence of PFs on NGOs.

  7. Outcomes in education depend not only on what is provided by the governmental or non-governmental organization but also on the demand of parents and communities. See Santhakumar et al (2016).

  8. There is an argument in the literature that donor demands for greater transparency, monitoring, and accountability have often taken the form of a micro-managing obsession with audits, targets, and performance indicators, and instead there should be greater personal interactions. See Mawdsley (2005). However, they have noted that even such personal interactions can also be viewed as intrusive by the NGOs in the South (or the recipients of funds).

  9. There is a global resistance by NGOs to these practices of accountability imposed from elsewhere. Mawdsley et al (2002) notes: Although many Southern NGOs are supportive of the goal of improving effectiveness and accountability, they are critical of the manner in which these objectives are being pursued. Some of the main problems concern the distorting impact of chasing targets and key indicators; the time burden imposed by reporting demands; and the exclusionary effect on smaller NGOs that are unable to master the new technical requirements (e.g. log frames) or language (e.g. English, French, Spanish) needed to produce the necessary glossy applications and reports.’

  10. See, http://​chris​blattman​.com/​2012/…; though one estimate of the administrative cost of NGOs is around 6 % (Nunnenkamp and Ohler, 2010), much more than that (around or more than 10%) may be spent on administration by the aid organizations. The justification is that such higher administrative cost is needed to ensure the effectiveness of the aid. See https://​www​.the​guardian​.com/​v​o​l​u​n​t​a​r​y​-​s​e​c​t​o​r​-​n​e​t​w​o​r​k​/​2013​/​m​a​y​/​02​/​g​o​o​d​-​c​h​a​r​i​t​i​e​s​-​a​d​m​i​n​-​c​o​s​t​s​-​r​e​s​earch

  11. Nunnenkamp and Ohler (2010) quote Kerlin (2006: 382): USAID regulations and paperwork can overwhelm even experienced INGOs.”

  12. See Raymond and Glen (2005). There may be cases where this saved money is used for personal expenditure of the managers of NGOs.

  13. This can be due to the unwillingness on the part of donors to acknowledge the long-term process by which an NGO comes to exist and continues to operate in a social context.

  14. Bardhan (1992) hints at the lack of institutionalized connection between industrialists and political class until the 1980s but there are others who analyze the class/​caste basis of the adversarial relationship between the Indian bureaucrats and industrialists then.

  15. There are other commentaries on the accountability practices of Indian NGOs. One such write up (http://www.guidestarinternatio…) notes the following: While the sector is regulated by multiple laws and authorities, its credibility is often questioned by most stakeholder groups due to lack of information (about existence, performance, finances, output and outcome), absence of performance benchmarks, government licenses and permissions not being sufficient indicators of performance or credibility, media reports usually being centred around stories of what went wrong and the general lack of awareness of the common man about the voluntary sector. These issues are recognised by others too and have become the basis of initiatives such as Credibility Alliance (www​.credall​.org​.in)

  16. There are counter views which see this professionalization enhancing the effectiveness of NGOs and making them the authorised critical voices’ that have the ability to stir governments and global institutions to more positive change (Tandon 2003).

  17. The issue of higher transaction costs with a negative impact on the value of aid is well recognised (Acharya et al, 2006; Vandeninden and Paul, 2012). In the domain of international aid, one can see frictions between donors, Northern NGOs (NNGO – which prepares and oversees the strategy for intervention) and the southern NGOs which implement development projects (Lister, 1999).

  18. There could be an unequal power or a donor dominance in these relationships (AbouAssi, 2012). This may reflect in different ways: NGOs trying to fit their organizational procedures and operations to donors’ priorities. The former may be compelled to change their cultures so that they lose their local identity and connections with constituents. According to Doornbos (2003: 15), donors develop their programs, preferences and priorities and revise them at an ever-increasing pace, while (at best) NGOs try to figure out how they might fit in or if they meet the criteria underlying the latest preoccupation of donors’. Froelich (1999) has defined this as goal displacement of the NGOs to meet the needs or wishes of the funders. Hence the control of money is seen as a major constraint to the development of authentic partnerships between NGOs and donors (Sizoo, 1996; Dichter, 1989). Elliott (1987: 65) has seen the exchange between the donor and the NGO in the following way: ‘… this is a dialogue of the unequal, and however many claims are made for transparency or mutuality, the reality is – and is seen to be – that the donor can do to the recipient what the recipient cannot do to the donor’. Alesina and Dollar (2000: 55) argue that aid allocations are very effective at promoting strategic interests of donors”. Donor’s role in setting the agenda is mentioned by a number of studies (Markowitz and Tice, 2002; Henderson, 2002). It is argued that donors prefer those development areas that are currently popular (Degnbol-Martinussen and Engberg-Pedersen, 2003). Funders’ preference for easily quantifiable results is also noted (Lindenberg, 2001). Similarly, donors may not support political strategies, even though these may lead to meaningful social change in the long-term (Markowitz and Tice, 2002). Wallace, Bornstein and Chapman (2006) characterise the relationship between NGOs (in developing countries) and international donors as one of coercion and compliance. The heavier the dependence of the NGO on the funder for resources, the more powerful and influential the funder is (AbouAssi, 2012).

  19. The use of exit or voice options is discussed in the literature in the context of NGO-Donor relationship. NGO may use voice option if it has access to more information about the donor’s interests and plans (Gehlbach, 2006). Or the use of voice option is more likely when the NGO and donor have a long-standing relationship (AbouAssi, 2012). The availability of other donors is an important factor enabling the use of exit by the NGOs.

  20. There is an argument that the presence of a strong institutional donor in the board of an NGO may lead to an improvement in the latter’s governance (Pablo de et al, 2006).

  21. The choice of a donor between acting as a direct service provider versus providing grants to other organisations which provide services – the kind of decision that the foundation has encountered – is modelled (Arya and Brian, 2016). They show that the desire to boost perceptions of efficiency through accounting reports encourages a donor to rely more on others to provide services rather than being a direct service provider. According to them, the temptation to expand either the scope or length of the charity supply line is muted by a desire to avoid redundant costs and improve service delivery.

REFERENCES

Jansons, E. (2014). The Business Leaders Behind the Foundations: Understanding India’s Emerging Philanthropists. International Society for Third-Sector Research and The Johns Hopkins University 2014.

Mawdsley, Emma, Townsend, G. Janet & Porter, Gina (2005). Trust, accountability, and face-to-face interaction in North – South NGO relations, Development in Practice, 15:1, 77 – 82, https://​doi​.org/​10​.​1080​/​096145

Hager, A. Mark (2003). Current Practices in Allocation of Fundraising Expenditures. New Directions for Philanthropic Fundraising 41: 39 – 52. Presented (revised title) at the 2003 Annual Conference of the Association for Research on Nonprofit Organizations and Voluntary Action, Denver, CO.

Tvedt, T. (2001) Angels of Mercy or Development Diplomats: NGOs & Foreign Aid, 2nd edn, London: James Currey; Philadelphia, PA: Africa World Press.

Tvedt, T. (2006). The international aid system and the non-governmental organizations: A new research agenda. Journal of International Development, 18, 677 – 690 DOI: 10.1002/jid.1304.

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Lister, Sarah (1999) Power in partnership? An analysis of an NGO’s relationships with its partners. International Working Paper Series, 5. Centre for Civil Society, London School of Economics and Political Science, London, UK. ISBN 0753012626, http://​onlineli​brary​.wiley​.com…(SICI)1099 – 1328(200003)12:2%3C227::AID-JID637%3E3.0.CO;2‑U/pdf

Reith, Sarah (2010). Money, power, and donor-NGO partnership. Development in Practice. Vol. 20, No. 3 (May 2010), pp. 446 – 455 http://​www​.jstor​.org/​s​t​a​b​le/27

Morse, Stephen, and McNamara, Nora (2006). Analysing institutional partnerships in development: a contract between equals or a loaded process? Progress in Development Studies 6, 4 (2006) pp. 321 – 336.

AUTHOR

V Santhakumar, Professor, Azim Premji University