A post to Exponent Philanthropy's blog

Changing the Culture of Philanthropy: Building a Movement to Fund Real Cost

Before I came to the PIMCO Foundation, I worked in the nonprofit sector for six years. Year one changed my career trajectory, and years two through six provided formative life experiences. I have vivid memories of my time in nonprofit, from counseling youth to meeting donors to schlepping t-shirt boxes up and down and around the town. But two of my favorite memories are:

1). Punching my campaign cost code into the fax machine and copier every single time (literally, every single time!) I had to send a fax and make a copy

2). Nearly missing out on love thanks to not-so-great IT infrastructure

Now, I’m sure #1 is crystal clear. For those of you who worked in nonprofit, you may have had to do the same code-punching. But you may be wondering about #2, so allow me to explain.

In 2006, I took a weeklong vacation to Italy. I had no smartphone at the time, and needed a complete break from work, so did not check email. When I returned to the office and began digging out of email, I found an interesting note from my friend Topher. Topher had written a matchmaking email to me and his co-worker, Tim, saying he thought the two of us might hit it off. I quickly scanned the rest of my emails from the week. No response from Tim. “What?!” I thought. “Seriously? This guy didn’t step up and write me after Topher sent his note? Forget it, then. He’s not worth my time.”

I let a few days go by and then realized I had nothing else going on, so I dug up Tim’s email address and wrote him. Two years later, we got married.

Unbeknownst to me at the time, Tim had responded to Topher’s email – he had written me while I was on vacation. But my nonprofit had such lackluster IT capabilities that Tim’s email bounced back, as my inbox filled up a few days into my trip.

Insufficient infrastructure and limited resources don’t lead to impact

Fast forward to today. We still have nonprofits that don’t have reliable IT systems. We still have nonprofits that can’t afford training for their staff. We still have nonprofits that can’t set aside savings. And we still have nonprofits stuck in what Ann Groggins Gregory and Don Howard from Bridgespan in 2009 dubbed the “nonprofit starvation cycle.”

It’s 2016. None of us is still using the same cell phone we had back in 2006, so why are we asking nonprofits to keep running the way they did 10 years ago? The doom loop must cease; we must do away with the overhead myth; and most important, grantmakers and nonprofits alike must start having real conversations around real costs.

The PIMCO Foundation’s story

In late 2015, the PIMCO Foundation began exploring a grantmaking approach based on real cost funding. As a funder, we are well aware of all the necessary investments that nonprofits need to deliver on their missions and be sustainable over the long term.

With this understanding, and our hope to encourage more honest dialogue about nonprofits’ real operating costs, earlier this year our board approved an overhead rate of up to 25% on all grants made through the PIMCO Foundation.

We all know low overhead does not equal organizational effectiveness. To manage successful projects and programs, organizations, we believe, must have the capacity to support their infrastructure and human capital. Full cost funding is about financial, social, and human capital.

It’s time to change the practice

It’s time to leave the status quo behind (just like those cell phones from 2006) and instead create a community of practice in which grantmakers and nonprofits alike can deliver transformative impact.

Isn’t our mandate as funders to make things fundamentally better? That is the awesome charge we’ve been given. So let’s do it. Let’s have the authentic, trust-filled conversations and focus on outcomes, not on overhead.

After we sent out an announcement about our move to fund the real cost, a grantee wrote us: “Wow!! I just wanted to send a quick note to say thank you so much to the entire PIMCO team for your leadership on this issue. To generate the kind of long-term impact and change we all are working together to create requires a professional approach to organizational management, and these costs are not only real but very valuable and worthwhile investments, so it’s nice to see this approach being affirmed.”

The challenges of humanity today are vast, but the power of philanthropy is profound. We all have an opportunity to make our grantee relationships real and transform the dynamic. Let’s start funding the real cost and create real change.

And who knows? With better IT systems locked in, there could be more matchmaking in our nonprofit partners’ futures…

Sarah MiddletonSarah Middleton is a vice president responsible for global corporate citizenship at PIMCO and is executive director of the PIMCO Foundation. She was named by the OC Register as one of Orange County’s “100 Most Influential” people of 2015. Sarah has spoken at national conferences such as ACCP (Association for Corporate Contributions Professionals) and Social Innovation Summit, as well as numerous local and regional conferences. She holds an MBA from the University of California, Irvine and an undergraduate degree from The Catholic University of America in Washington, D.C.

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