Providing multi-year operational funding to key organisations in target sectors and building the human capital of nonprofits are among the best-practice trends that are set to have a major impact on Australian philanthropy, according to The Ian Potter Foundation CEO .
The insights were partly drawn from an illuminating two-week study tour of the US in September 2017. Connelly, accompanied by The Myer Foundation CEO Leonard Vary, met with 29 key figures from the US donor community and examined best practice at some of the world’s largest and most successful philanthropic institutions.
“It was all about speaking with experienced philanthropists, including private individuals, ex-senior executives and current executives to get a sense of what they regard as best practice philanthropy,” Connelly says.
“[We wanted] to see what we might be able to bring back here to Australia in terms of our approach both at The Ian Potter Foundation and The Myer Foundation.”
Along with learning new strategies for effective grantmaking, Connelly says he was keen to evaluate changes he had already implemented since taking over as the CEO of the Foundation in December 2015.
“I wanted to test whether the direction I was taking the Foundation down is consistent with the comments and learnings that we experienced on the trip,” Connelly says.
Here are seven key best practice insights that Connelly believes are likely to shape the future direction of Australian philanthropy over the coming years:
1. Focused funding priorities to maximise the impact of giving
According to Connelly, many foundations in the US have very focused funding priorities in their nominated program areas.
“We’ve already been doing that at The Ian Potter Foundation, so that is essentially an endorsement of our approach where we have narrowed our funding guidelines within our program areas,” Connelly says.
“We believe that by narrowing our focus and focusing in on specific areas, we have greater potential for having an impact.”
Connelly is keen to stress that The Ian Potter Foundation retains its focus on major grants and seven main program areas: the arts, community wellbeing, education, environment and conservation, health and disability, medical research, and science.
“But in each of those areas we’ve narrowed our funding guidelines for all of them in the past two years,” he says.
“In the arts space, for example, we’re focused solely on supporting first-rate artistic institutions and organisations in metropolitan and regional Australia distinctive in artistic achievement, imagination, innovation, and fostering development across the sector or art form.
“We support those organisations to offer leadership opportunities of at least 12 months in the forms of fellowships, apprenticeships, mentorships and internships.
“That’s capacity building with a focus on organisations, and wanting to assist great artistic organisations to support artists and expand their ability to offer their artistic form to an increasing audience – that’s important as well. That’s very focused.”
The Foundation has also made changes in the major grants space.
“In October last year, after I had returned from my US study tour, as part of our annual strategic planning day with the board, we also agreed to narrow our focus in our major grants area. So we’re now only funding major grants in four program areas over the next four years,” Connelly says.
“Then in three to four years time, we’ll start to roll one or two of those areas out and turn back to supporting the arts, or supporting education, or other areas that are of interest to us. It’s about clearly articulating to the NFP sector so they understand whether the areas they operate in align with what The Ian Potter Foundation is interested in funding.”
2. Larger minimum grant sizes and longer-term relationships
A core part of streamlining the Foundation’s grantmaking focus has been to increase its grants to a minimum of $100,000.
“That doesn’t mean we don’t continue to deal with and support smaller organisations, because at the same time for pretty much every grant we’ve moved to a multi-year relationship,” Connelly says.
“The average duration of the grants awarded through the 2017 fiscal year is just under 30 months. Our medical research grants are the exception, as they support equipment purchases so are generally around 12 months in duration. If we exclude medical research grants, the average duration of recent grants is closer to 32 or 33 months.
“By extending the period we have to work with grantees, we allow ourselves to actually establish a genuine relationship. This works with both small organisations and also large organisations. Our focus is turning more to ensuring we are working with outstanding organisations, their outstanding people, and working together to facilitate our grantees achieving their mission for the people they serve.
3. Fewer open rounds each year
Another way the Foundation has streamlined is by dispensing with multiple annual granting rounds.
“We now only have only one open round annually for each program that we fund, we used to have two. So we’re being more proactive in seeking out opportunities to fund. That’s a challenge I’ve put to my program management team.
“Secondly, half our funding now goes to the major grants area and half goes into the program areas. There was no formal split between those areas before I took over as CEO.
“What that means is that major grants can never impact on the program areas, and so a program area’s budget, once it has been set for a year, is set in stone and program managers can go out and find projects to absolutely utilise that funding.”
4. Fewer grantees frees up human resources
The natural consequence of this streamlined focus is a reduction in the number of grantee relationships the Foundation has to manage.
“The average size of our grants in fiscal 2017 was $200,000, and that is three times the size it was two years ago. As a result, we’re dealing with fewer grantees, “ Connelly says.
Connelly says this will give Foundation staff more time to build their expertise.
“That leads to one of the significant changes I’ve made here, which is freeing up my program management team from the overly administrative functions they had previously, but also from having too many grantees and spreading themselves too thin.
“By dealing with fewer grantees, my program managers are better placed to get to know the organisations and actually spend time with them on open grants if we have them, or to spend time in the field with organisations in the areas that interest us.”
5. Untied capacity building grants
A major insight from the US, and one that flows on from having more tightly focused program areas, is the ability to support key organisations with ongoing multi-year grants, rather than on a project-by-project basis.
“A big thing in the US is what is referred to as ‘untied capacity building grants’. Good organisations need multi-year funding, not programmatic support. That has a couple of big implications,” Connelly says.
“The first is: ‘What is a good organisation?’ We as a foundation need to increase our capacity to undertake adequate organisational due diligence.
“If we decide, through whatever means we devise, that an organisation deserves our support, then we need to have different conversations with that organisation.”
“It’s not about what the next three-year project is, it’s about what that organisation might need in terms of financial support for the next five years in order to thrive and grow as an organisation.
“What does that look like for you? What support do you need? Is it strategic development of a business plan with a consultancy? Is it that you need to add to your executive team to implement a new IT system? What does that look like for you as an organisation?”
Untied grants change the conversation foundations have with their grantees, Connelly says, including the way the organisations think about themselves and the ways they can use philanthropic funding to support their own development.
“If you think about philanthropy in Australia over the past 50 years, there has been a lot of project funding where someone applies, a foundation says ‘that’s a good idea’, and gives them the money. Then there’s a never-ending cycle of applications either being approved or not.
“Whereas when foundations seek to be more strategic, and narrow the focus of areas they want to have a real impact in, it increases the opportunity for genuine strategic collaboration with those organisations and a co-design of projects between interested parties and other philanthropic foundations.”
Connelly cites the Ford Foundation as an example of a major US foundation that has made untied grants a core focus of its giving.
“The Ford Foundation distributes around US$500 million annually, so it’s huge. And 40% of its annual giving is now in what they call ‘Ford BUILD’,” he says.
The Building Institutions and Networks (BUILD) initiative is a five-year, US$1 billion investment in the long-term capacity and sustainability of social justice organisations that aims to strengthen those organisations so they are better placed to achieve their core missions.
“We met the guy who’s responsible for implementing Ford BUILD. That’s US$200 million per year in five-year grants, so that’s US$1 billion over five years in capacity-building support for around 138 organisations and nonprofits in the US.
“They’ve spent a lot of time thinking about how they identify those 138 organisations, what sort of support they offer them, what sort of reporting and evaluation processes they have. That was a very interesting and significant moment.
“We’re already doing it, but we can think strategically ourselves about what systems we have in place to ensure we are undertaking the best possible organisational due diligence, that we are maximising the value of the investment we make in those organisations, that we have the right conversational relationship with the organisations, and that we evaluate as well.”
6. Investment in the human capital of nonprofits
When building capacity of nonprofits, a core focus is the development of human capital within those organisations.
“I liken it to my 25 years of experience in the professional world, where you would have professional development opportunities (PDOs) every year for your professional staff,” he says.
“I’m a qualified chartered accountant, I’m required to maintain my PDOs. It’s just a given. It’s fundamentally important to update my skills base, and it’s the training that allows me to develop professionally.
“That fundamentally doesn’t exist among many nonprofits. They may not have the budget, they may not have the time, often they don’t have the people to administer or manage such programs.
“That is an area of future development that The Ian Potter Foundation is exploring with The Myer Foundation as a result of our trip. We’re now looking at whether or not we jointly establish a nonprofit professional development program specifically for the Australian nonprofit sector.”
7. Transparency is critical
When it comes to best practice giving, perhaps the most important aspect is transparency.
“The board of The Ian Potter Foundation wants to ensure that every dollar we distribute is distributed strategically, it’s distributed in areas that are important to us as a foundation, and that it’s distributed in such a way that it has the maximum impact it can have,” Connelly says.
“The way in which we look to achieve those outcomes might vary, but the underlying intent of being strategic, having impact, and doing so in a range of areas that really matter to us as a foundation will continue to be a cornerstone of The Ian Potter Foundation.
“We have been a leader in Australia thus far in looking to evaluate the success or otherwise of our grants. The Ian Potter Foundation will continue to develop its capabilities to effectively evaluate and learn from its grantmaking, and use that process to iteratively enhance our grantmaking.”
To enhance transparency, the Foundation has recently established a knowledge centre on its website that centralises most of its reports into a single repository.
“It includes annual reports, case studies, a grants database (including all grants that have been approved), our grantee learnings, information for grantseekers, and a list of potential evaluators,” Connelly says.
“That centralised repository is an example of how serious we are about transparency. We want to ensure that we’re very transparent and open with all of our information. Our annual reports include links to our financial statements, and we share our own learnings and insights as a funder.”
This focus on transparency has allowed the Foundation to become the first Australian foundation to be added to the Foundation Center’s Glasspockets site.
“The Ian Potter Foundation was added to Glasspockets because we satisfied all the minimum requirements for transparency. That’s something I’m quite proud of, and something that our team is very proud of as well,” Connelly says.
“It illustrates how we walk the walk as well as talk the talk. We expect a lot of our grantees and we expect a lot of ourselves as well.”
The Ian Potter Foundation is a major Australian philanthropic foundation that supports and promotes excellence and innovation. Based in Melbourne, the Foundation makes grants nationally to support charitable organisations working to benefit the community across a wide range of sectors and endeavours.