Opinion

Easy answers to Bad Funding1

Finance | Nick Wilkie | 21 Nov 2009

Bad Funding has become part of civil society's DNA.  But it doesn't have to be like that, says Nick Wilkie

Bill Shankly (manager of Liverpool Football Club 1959 – 1974 and the finest mind the beautiful game has ever seen)  coined many pithy aphorisms in his time, none truer than his opinion that “football is a simple game made complicated by people who ought to know better”.

Isn’t funding a little bit the same?

Or rather why, when Bad Funding is so instantly recognisable does so much of it persist?

Especially when simple remedies abound.

The pitfalls of civil society finance are so well worn they hardly bear repetition. Though perhaps nobody has put them so well as Clara Miller, former Clintonista and now president of the Nonprofit Finance Fund in New York. The Looking-Glass World of Nonprofit Money should be required Christmas reading for anybody who funds or is funded. With searing Socratic wit does Miller expose the myriad shortcomings contingent on the separation of consumer and purchaser, and the continuing snag of failing to invest in long-term institutional strength. In short, some of society’s most valuable work takes place in profoundly unstable circumstances because non-profits are over-stretched and under-capitalised.

Expanded a little…

1. Grants are tied to short-term deliverables with the result that:
•    Immediate outputs are prioritised over long-term outcomes
•    Funding is insufficiently flexible to respond to changing circumstances
•    Planning horizons are typically limited to one or three year cycles
•    Key staff are not retained and core knowledge and competence is lost
•    There is no incentive to outperform – restricted funds are typically clawed back in the event of efficiency gains or leveraging of other income.

2. Short-termism – demands for unrealistic exit plans concoct the fiction that complex, deep-seated problems can be solved in arbitrary, fixed and short time frames.

3. Owing to this bias towards project funding over organisational capacity (and because project deliverables are still typically costed at a marginal or near marginal rate)…
•    There is insufficient investment in leadership, management and systems that ensure organisations run efficiently and effectively
•    Organisations suffer capital starvation - lacking reserves for asset acquisition, working capital and development (including research and development and innovation) and often, given their work does not generate profit, being unable to borrow or attract share capital

4. High transaction costs - multi-funding implies multiple applications and compliance with many monitoring processes.

And yet if only we cared to look, wouldn’t we find many of our obstacles eminently surmountable with relatively modest behavioural change.

So here’s a Christmas reading list from funded to funder.

1.    The Compact’s Funding Code and Julia Unwin’s Grantmaking Tango – because they set out brilliantly clear typologies of funding (for projects, organisational development or systems change) and exemplify how differing intents require adapted approaches
2.    Guidance to Funders – one of the most digestible publications ever to emerge from Whitehall with practical, common-sense tips about length of funding, balance of risk, timing of payments, reducing bureaucracy and proper costing. It’s managerial, dry and absolutely on the money. Now all civil servants and ministers have to do is read (and act) on it
3.    Funding our Future: challenges and opportunities in the next decade - David Carrington’s vision for the future replete with the gear change we need to get there
4.    Access to Capital, from the wonderful Venturesome Fund setting out how a range of financial instruments can drive social change well beyond bog-standard revenue grants for short-life, fixed-term revenue grants

And it’s this last point that perhaps unlocks the most exciting avenue to change.

In the past decade, a range of agencies (from CharityBank through to grantmakers at the Impetus Trust) have pioneered techniques of social investment. Too often, debate seems to have fixated on debt. But, in fact, the principle of investing in the underlying and long-term strength of institutions and not just the projects they carry out is what really counts in social investment – leading  to practical action on the fact that voluntary organisations require working capital (to ease cashflow, build infrastructure and invest in new ventures) every bit as much as they require in-out revenue and capital funding for immediate service delivery. And just as in our private lives we purchase our morning milk and our homes and our pensions using differing financial instruments, so too in our professional lives do we require different tools for different times.

Government can help or hinder the evolution of a more sensible financial spectrum. Beyond its own funding practice, it can make sure the Social Investment Wholesale Bank is a wholesaler not a new retailer – which would crowd out existing experts who have worked hard and smart to invest intelligently. And it can ensure that when it comes to unclaimed assets there is no specious distinction between social investment and youth – rather any investment in youth needs to be informed by the patient-capital approach of social investment.

But it’s up to all of us to become more informed and more subtle about the financing of civil society: a little light reading points the way.

Happy Christmas.

• Nick Wilkie is chief executive of London Youth 

Who's Who: Julia Unwin