We understand philanthropy, in a broad sense, to be a tool for driving positive social change. But does philanthropy itself need to change?
Trust-based philanthropy is a relatively new practice offering an alternative to traditional philanthropy. The core objective is to build more equitable relationships between funders and nonprofits.
Decision Making
In traditional philanthropy structures, foundation leaders and board members are the primary decision makers. Financial decisions are driven by the board’s interest in building or maintaining wealth. The individuals in leadership and board positions are considered the “experts” who assess funding opportunities to avoid risk and keep payouts low.
Trust-based philanthropy instead promotes inclusive decision making, involving both foundation and nonprofit staff. This model views the nonprofit staff and the communities it serves as the “experts,” since those are the people closest to the issues on the ground. Trust-based funders emphasize building close relationships to their grantees in order to best understand their needs; those needs then guide decision making.
Funding
Traditional grants are usually restricted to specific projects or programs, with strict timelines and objectives. This means that the funder decides how and when the money will be spent, decisions that often come from the top down without feedback from the grantee. Because of these restrictions, most grants are oriented toward short-term goals. Grant renewals or long-term funding are much more difficult for nonprofits to obtain.
Trust-based philanthropy prioritizes unrestricted and multi-year funding. This gives nonprofits the agency to allocate the funding according to their own needs and priorities. These funds are also not restricted only to projects or programs, but can be used for overhead costs such as rent, salaries, and other essential expenses. This funding approach encourages long-term relationships between funders and nonprofit organizations, which promotes stability and security for nonprofits to tackle larger issues.
Impact Metrics
Historically, acceptable metrics to demonstrate the impact of funding have been extremely limited. Impact metrics are traditionally quantitative, focusing on measurable outcomes and numeric indicators. While these numbers can be helpful, and are especially important to donors and advisory boards, they often fail to convey the human impact of the investment.
Expanding the scope of impact metrics, trust-based foundations and the nonprofits they support often report in both quantitative and qualitative metrics relevant to their mission. Qualitative metrics can be more personal, shining light on the human impact of funding. They also allow for a more nuanced conversation about social impact and how it looks in different contexts.
Culture
The predominant focus of traditional philanthropy culture is on compliance and reporting. Relationships are considered to be transactional; extensive applications are required to facilitate a partnership, and these agreements are maintained by equally rigid reporting processes. Avoiding risk and proving impact are the goal outcomes, and all dynamics exist to ensure them.
The culture in trust-based philanthropy is more concerned with learning opportunities. Relationships are personal and meaningful. Partnerships are viewed as opportunities for collaboration and shared learning, and they are upheld through systems of mutual accountability.
While the missions of two different philanthropic organizations may be similar, their funding approach marks a vital difference in the grantee experience, and often the funding outcomes. As more organizations move to a trust-based model, work becomes more values-driven, nonprofit partners feel better seen and heard, and the potential for positive social change only grows.
