One day in the late autumn of 2023, a very special grant landed in Ungdomsbureauet. It is big – nine million Danish kroner. It is long-term – five years. And it is almost without restrictions.
This means that the Ungdomsbureauet can use the money for operations – an unheard of thing in a philanthropic universe, in which a request for operations is typically received with a facial expression of equal parts disgust and horror.
So it’s no wonder that the organisation’s Director of Engagement, Anna Asghari, is both happy and honored by the grant.
“We are very pleased with this grant, which provides us with some stability regarding our funding,” says Anna Asghari:
“It means that we can be more creative and innovative and do some of the things we do without constantly having to think about how to secure funding for our next project.”
We must dare to losen the grip
The new tunes come from the Lauritzen Foundation.
“There has been a tendency for operation and overhead to be buzzwords. This type of money is something that the organizations themselves have to raise,” says project manager Kamilla Søgaard:
“We must dare to losen the grip a bit and let the organizations themselves decide how the money is best used.”
The grant to Ungdomsbureauet is the provisional highlight of a strategic journey that aims to make the Lauritzen Foundation more bold, relational and proactive – with a view to creating better results with the allocated funds, says Kamilla Søgaard.
This requires the foundation to invest in building strong business partners.
“We can’t do anything without skilled organizations with competent people,” says Kamilla Søgaard.
It is in that light that the grant must be viewed.
“We consider this a five-year investment in a stronger, more robust and resilient Ungdomsbureau, which has the opportunity to develop the organization in a way that they could not have done otherwise,” says Kamilla Søgaard.
Six central principles
With the grant, the Lauritzen Foundation joins a new, strong trend within philanthropy: trust-based philanthropy.
Money for core operations is one of the cornerstones of trust-based philanthropy, says Shaady Salehi.
She is the CEO of the American organization Trust-Based Philanthropy Project, which advocates for trusting relationships between philanthropists and grant recipients.
“Financing the core operations of organizations is one of the six central principles on which trust-based philanthropy is based,” says Shaady Salehi:
“Firstly, giving the recipient the right to decide how the money is to be used is a very clear way of signaling trust. Secondly, it is a way of giving organizations the opportunity to move agilely and flexibly in an unpredictable world where conditions are constantly changing.”
Shaady Salehi also points out, however, that this approach goes much deeper than core funding — that it is a shift toward a more relational and mutual relationship between donors and organizations rather than the conventional transactional approach.
We need competent organisations
While trust-based philanthropy is still a rare bird in Denmark, the philanthropic trend has gained greater and greater traction in the world around us – not least in the UK and the United States.
Here, more and more foundations commit to providing money for so-called indirect costs. That is, expenses that are not directly linked to a specific project. Ford Foundation for example, gives a minimum of 25 percent – in some cases more.
Among other things, it should be seen as a countermeasure to the vicious spiral that goes by the name of the non-profit starvation cycle, explains Shaady Salehi.
Impact Insider has previously described the mechanism, which essentially consists of three layers.
- The funders have unrealistic expectations of what it costs to run a nonprofit organization
- The NGOs feel pressured to conform to the expectations of the funders
- The NGOs spend too little on overhead and underreport their actual expenses, which confirms the unrealistic expectations of the funders
Figures from five major American foundations show that a foundation grant covers, on average, 88 percent of an organization’s expenses for a given project. This means that the typical fund grant is in reality an expense and not an income for a social organisation.
And this hinders the organizations’ ability to create the results that both they and the foundations want.
This is a problem, says Kamilla Søgaard from the Lauritzen Foundation.
“We must not erode these organisations,” she says:
“We cannot expect a change for the target group if it we don’t have competent people doing their best. The organizations must have peace of mind. So we have a task helping these organizations not underfinancing themselves.”
Peace of mind leads to impact
An American study also shows that organizations that have peace of mind create impact.
In July 2020, MacKenzie Scott distributed 1.7 billion dollars, equivalent to 11 billion Danish kroner, to 116 organizations.
The money was given for a three-year period – completely without strings attached. There was just an expectation that each organization send three pages annually to MacKenzie Scott on how the money was spent.
Researchers from Center for Effective Philanthropy has investigated the effect of the distribution and has measured impressive results for the organizations’ target groups.
But more thought-provoking is the change that the free funds created in the organizations themselves and their leaders. It changed their mindset and enabled ideas they had never dared to think before, the researchers say in an article at Stanford Social Innovation Review.
“I can suddenly spend my time thinking about how we achieve the greatest possible impact,” said one NGO leader, while another said:
“That we have the money to start a pilot project and see how it goes is a pure miracle.”
Resistance among foundations
Shaady Salehi notes that the approach from MacKenzie Scott is not trust-based philanthropy as she and her colleagues define it. Although she does deploy unrestricted funding and limited reporting requirements, her approach is not relational or transparent.
“This is a major divergence from trust-based philanthropy, which is rooted in relationship and mutuality,” Shaady Salehi says and points out that trust-based philanthropy is not equal to writing a blank check.
And still trust-based philanthropy meets resistance in the foundation world.
When the European fund association Philea held its annual conference at the end of last month, confidence was the headline.
In an article prior to the conference, the organization’s head of research and knowledge, Sevda Kilicalp, described why some foundations are embarking on more trust-based distributions, while others are steep.
The opposition is based, among other things, on a concern that it will be more difficult to hold grant recipients to account, just as it will be more difficult to ensure that the money promotes the foundations’ own strategic objectives. And then there are foundations that maintain that grants for clearly defined project goals are a prerequisite for measurable results.
A shift in power
Shaady Salehi of the Trust-Based Philanthropy Project recognizes the friction described in the article.
She ascribes this to the fact that trust-based philanthropy marks a shift in power in philanthropy, and in that light it is no wonder that there are foundations that are reluctant to relinquish control.
Her point, however, is that foundations have a lot to gain by moving into the trust-based field.
The approach is – in contrast to how trust-based philanthropy is often presented – extremely strategic, she points out. But in contrast to the more conventional philanthropic approach, the strategic capacity and competence is built jointly between foundations and grant recipients.
A close relationship with the organizations that work closely with the affected target groups, and an acknowledgment that the organizations know best, gives the foundations a good basis for learning, points out Shaady Salehi. And it enables them to use their funds better and more efficiently.
“A deeper understanding of what social challenges look like in practice makes philanthropy smarter. And it provides the funders with a bird’s eye view, from which they can see where their resources can create the greatest results,” says Shaady Salehi.
Shaady Salehi also believes that it is a misunderstanding that unrestricted funding should make the organizations less accountable. On the contrary, she believes that a new form of shared accountability is being built that points in the right direction.
“Instead of the grant recipients having a responsibility towards the donor who gave them money, a mutual accountability is built that is aimed at the target group for which the grants must do something,” says Shaady Salehi.
A grant is not a human right
Should all social organizations then receive blank cheques?
“No,” is the blunt answer from Dr. Christopher Johnson. He is chairman of the British organization Community Education Academy of Leadership that delivers projects for young people, adults (including elders) and to various ethnic communities, with a view to unlock their potential.
He also helps NGOs strengthen their fundraising capabilities and hosts webinars for the organization FundsforNGOs as an expert trainer.
Christopher Johnson recognizes the need for organizations to fund their core operations.
“I believe that core funding should be an element in all project development,” he says:
“It is very important that the organizations get their running costs covered and are able to pay salaries and rent.”
But, he adds:
“It is not a human right to receive a grant from a foundation or a public authority.”
The funders deploy money with a view to meet the targets formulated in their bylaws. And it is up to the organizations to demonstrate that they are able to deliver, says Dr. Johnson.
“You can negotiate with the donors. And I think you should. But it is up to the applicants to present their case in a convincing way,” he says.
At the Trust-Based Philanthropy Project, Shaady Salehi agrees that it takes two to tango, as she puts it.
“But in the relationship between foundations and grant recipients, it is the foundations that hold the most power. Therefore, they bear a special responsibility,” she says.
Trust is built up over time
In Denmark, the Lauritzen Foundation has provided core funding to RådgivningsDanmark and the association Fri af Misbrug, which received support for operations and rent.
None of them are organizations with which the foundation has long-standing relationships. The differs from the large grant to the Ungdomsbureauet, which builds on a years-long collaboration – among other things on the youth festival Ungdommens Folkemøde.
“We have worked with them on very specific initiatives. And it is on this basis that we can enter into this bigger, trust-based cooperation. The trust we have in each other does not come from nowhere,” says Kamilla Søgaard.
With that, she also says that not all of the country’s social organizations can expect grants like the one which Ungdomsbureauet has received.
However, she anticipates that this grant is unlikely to become the last of its kind.
“We wish to have a strong civil society and strong organizations. We have an obligation to ensure that,” says Kamilla Søgaard and continues:
“We’ll probably do this more because it makes sense. And we think that it can move the needle.”
The grant is a sign of deep trust
Anna Asghari from Ungdomsbureauet shares this belief:
“We have lots of visions and good ways to do things. But we have lacked the space to pursue our plans. Maybe there has been time to think the thought, but not to complete the idea. I hope these funds can help ensure that,” she says.
And perhaps most importantly, Anna Asghari adds, is the cultural change that the grant signals.
“The crucial thing about this operational grant is that the Lauritzen Foundation shows a really high level of trust that we are doing the right thing with the money. That we manage the funds within our purpose so that they benefit our target group in the best possible way,” she says.
“Trust is the cornerstone of a good collaboration with a foundation.”
