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The question of restricted grants - Joseph Le Marchand

On Restricted grants in France

By Joseph Le Marchand, founder of the philanthropy advising company

Philanthropy, like tax, is a financial contribution to the public interest. But it is distinguished by two essential characteristics: the fact that it is necessarily voluntary when tax is mandatory, and that it is directed towards a particular destination when tax is in principle universal (no allocation of a revenue to a specific expenditure). This second characteristic is a frequent subject of discussion between donors (individuals as foundations) and recipients (associations etc.) of these funds. We will seek here to understand and reconcile their respective points of view.

Cross-fertilization of funds allocation
The allocation of funds refers to the allocation of a resource to an action. It can be done at several cumulative levels: designation of a cause => of an organization acting for that cause => of a specific action within that organization => of a specific expense line within that specific action.
Taking the example of the mobilization following the fire of Notre Dame, we have seen some donors support “the restoration of historical monuments” (cause), other donors support “La Fondation Notre Dame” (an organization) or “la flèche de Notre Dame” (specific program), or “les poutres de chêne” (expenditure line of the renovation program).

The principle of allocating funds is justified by a need for visibility concerning the actual use of the funds allocated, a need that donors very often justify by the fact that they want “to know where the money is going". It also corresponds to the search for an optimal positioning of these funds in order to maximize their potential: to position themselves in a complementary way rather than as substitutes for other sources of financing (notably public), to produce a leverage effect (create a leverage effect for other funding, allow risky experimentation, etc). Finally, it may be a discretionary choice of the donor, who mobilizes his or her skills and free will to direct his support towards one of the priorities presented to him or her.
It can be assumed that, in many cases, this freedom of allocation for the donation is a condition of its voluntary nature.

However, this assignment sometimes corresponds more to the feeling of a presumed need and can therefore be disconnected from real needs. The suspension of the fundraising campaign for the tsunami in 2003 by Médecins Sans Frontières, then by the Fondation du patrimoine in 2019 for the Notre-Dame site, raises the question of the concentration of highly targeted resources towards a finite cause. On the other hand, this allocation places management constraints on the recipient organization: associations funded mainly for “specific projects” report their difficulty in having their structural costs, which are necessary for the implementation of the said projects, financed. They also recall the complexity of management induced by such analytical monitoring (dedicated fund mechanism). They deplore the rigidity of the pre-established partnership framework, which does not allow for “agile” management of the action. Finally, they note that this practice encourages them to develop additional and ancillary projects opportunistically, which disperse their energies and divert them from their fundamental social mission.

As a result, associations often request “sustainable operating grants”. However, this practice of unrestricted and perpetual funding does not seem to constitute an optimal use of philanthropy since it leads to a capture of available resources by a small number of organizations, without periodic reexamination of their comparative advantages to serve the cause. Moreover, this type of almost unconditional funding can lead to the perpetuation of perfectible operations, and transforms a partnership relationship into a “guichet” logic, by which the donor is caught in a relationship of dependence.

The question is therefore how to reconcile this legitimate freedom of the donor to make restricted grants with the need to meet the real needs of associations.

Towards operational projects
Different philanthropic intervention strategies allow grantmaking foundations to articulate their donors’ issues with the operational constraints of associations.

Induced projects
In this perspective, the foundation takes to a certain extent the societal initiative, and relies on field actors to develop and implement responses to a societal need that it has identified as major and unfulfilled. This approach obviously presupposes that the Foundation has a very high level of thematic expertise, making it legitimate to act as such.
The Foundation may launch a targeted call for projects, intended to encourage or reveal field initiatives they do not know of. They will thus be able to reach a wide range of associations, identify initiatives that are not very visible, and capitalize on variations in responses to the same problem. However, these calls for projects create a lot of expectations from associations looking for funding opportunities, and require them to prepare time-consuming projects. The Foundation will also have to ensure that it properly calibrates the eligibility criteria to regulate the flow of incoming applications, and then ensures that it has the necessary resources to process the applications submitted and support a significant proportion of them.
Failing this, the Foundation may adopt a proactive approach, and suggest a specific action to a previously identified project leader, thus becoming a quasi “sponsor”. In this case, it will obviously have to be particularly attentive to the risks of interference and de facto management by ensuring that the project is consistent with the organization’s social mission and that it is the result of a co-definition.

Operating projects
Other foundations will take an interest in the “associative project” and choose to support an organization for all its missions without wishing to write it a “blank check”. In this case, the Foundation may then choose to support an action program or a recurring budget item. But it can also, with a view to providing strategic support, choose to support a structural project for the organization, as part of its overall strategy and aimed at developing its core business: review of fundamentals, internal reorganization, optimization of a support function, impact assessment of its activity, diversification test, etc. It is therefore a project whose scope and duration are limited; but which participates in the functioning of the organization, and which can therefore be called an “operating project”. By focusing on amplifying or optimizing the organization’s functioning, if necessary, it leads it towards an independent sustainable model (by improving efficiency, opening up new resources, etc.) and therefore has considerable potential for impact.
In addition to providing the necessary funding that is difficult to mobilize from usual sources because of the distance between the supported project and the field action, the foundation provides an external perspective if not new skills and networks that sometimes make it possible to strengthen the project. As these operating projects are by definition strategic and involve major transformations that necessarily require the full support of the teams, it is essential to ensure that the lead association is indeed at the initiative and not that it develops it in response to an arrowed funding opportunity.

The success of these operations depends on the quality of the partnership between funder and operator, which is itself based on trust, mutual understanding of the issues at stake, and recognition of the respective areas of competence and areas of sovereignty. It is the quality of this partnership framework that will make it possible to develop the supported project in an optimal way, to mobilize as many resources as possible to facilitate its implementation, and then to be able to adapt the pre-established framework according to the changes observed.

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