For the better part of the past two and a half years, philanthropy watchers operated under the premise that MacKenzie Scott’s grantmaking was an inherently effective undertaking. Or at least that she was following some very good, very beneficial philanthropic practices. After all, who could reasonably argue against huge gifts of unrestricted general operating support, the lack of reporting requirements, and her focus on historically undercapitalized people and organizations?
That said, it’s always good to test a hypothesis whenever possible, which is why a new report from the Center for Effective Philanthropy (CEP) is so interesting. From May to July 2022, authors interviewed 40 leaders and collected data from 277 survey respondents whose organizations received a Scott grant. The end result, “Giving Big: The Impact of Large, Unrestricted Gifts on Nonprofits,” which came out last month, provides valuable quantitative and anecdotal clarity into Scott’s approach.
Spoiler alert: Few readers will be surprised by the study’s findings. Scott’s support completely transformed recipient organizations, enabling leaders to improve upon existing work, hire new staff, and strengthen long-term financial stability. Better yet, fears that a massive, one-time grant would overwhelm organizations or make donors jump ship were mostly unfounded, although, as we’ll see, some leaders admitted the gift made their lives considerably more stressful, while others said the support didn’t “significantly strengthen” long-term financial stability.
Be sure to check out Philip Rojc’s mid-November piece looking at Scott’s latest grant drop, in which he recaps some of the broad findings from the CEP report. But I felt like it deserved a more thorough examination, given its broad scope and our general fascination with the many ways Scott is shaking up the world of philanthropy. I also attended a November 15 Zoom call in which CEP President Phil Buchanan walked through the findings with coauthor Ellie Buteau; Stephanie Gillis, Raikes Foundation’s Impact-Driven Philanthropy Initiative director; and two leaders whose organizations received grants from Scott, Lysa Ratliff of Kaboom, and Kyra Kyles of YR Media. Here’s what you need to know about CEP’s findings and the recent briefing.
“I had such a sense of relief”
To put Scott’s giving in perspective, CEP’s Buteau noted that the median grant size that organizations receive from large foundations is $100,000. In contrast, “at the median, the grant size was $8 million and constituted 69% of the organization’s budget from the year prior to receiving this grant,” the report read. For 88% of responding organizations, Scott’s grant was the largest unrestricted gift they’d ever received.
Forty-seven percent of respondents said they had no interaction with Scott’s team before receiving the grant. The typical respondent spent less than 30% of the grant at the time of the survey and most had determined how to allocate the balance.
The report cited numerous leaders attesting to the transformative impact of Scott’s gift. The support galvanized a shift from a “scarcity to abundance” mindset, provided a “sense of relief and breathing room,” and incentivized greater innovation and risk-taking.
“I had such a sense of relief,” said Ratliff during the Zoom call. “We were still in the pandemic, the future of the organization was heavy on a lot of our shoulders, and it was a time when we were trying to adapt and do relevant work.… To get a call like that and to literally have someone say, ‘I believe in the work that you’re doing and I’m going to give you a big gift’ — it was overwhelming.”
Authors found that recipient nonprofits are using grant money to improve or expand existing work — especially toward advancing equity — hire staff and/or consultants, improve their organization’s financial stability, and compensate staff. YR Media’s Kyles said her team used Scott’s funding to implement a 26% wage equity increase. “That was really important to us, because a lot of times we hear, ‘We don’t want to spend the money on overhead, that’s not what we do,’” she said. “That was really the biggest priority, in addition to creating reserves so that we have the space to strategize and the space to plan for the future.”
Post-gift ripple effects
The report noted that “to date, few nonprofit leaders have encountered organizational challenges or faced disruptions, such as declines in other funding as a result of these grants.” In fact, 86% of leaders interviewed said fundraising “has not become more difficult,” while about half said Scott’s grant actually made fundraising easier, suggesting that her support legitimized and amplified the organization’s work in the eyes of donors.
Nor did CEP find evidence that Scott’s grantees had problems involving “absorptive capacity.” Some funders limit grants to a percentage of an organization’s budget out of concern that the nonprofit can’t handle the avalanche of money. VR Media’s Kyles pushed back on this mentality. “I’m familiar with this from coming from a media background, of ‘you should really be trying to do more with less,’” she said. “But I think we’re seeing proof that you definitely can handle it, and in fact, it just goes to increase that impact.”
This isn’t to say that Scott’s proclivity to issue gifts that can be 80 times larger than a typical foundation grant hasn’t brought with it some challenges. For example, some respondents said the shock of an unexpected mega-gift brought with it a greater sense of “self-imposed pressure” to spend the money effectively.
Leaders also said the decision-making process for how to spend the money was more inclusive than previous deliberations, given the staggering amount at stake. Human nature being what it is, I wouldn’t be surprised if some of them were subjected to external pressure, however subtle, from stakeholders, staff and other constituencies lobbying for their priorities.
Obstacles to “long-term stability”
In what was the most surprising statistic in the report, CEP found that 37% of respondents did not think the Scott grant would “significantly strengthen the long-term financial stability of the organization.” Granted, that means nearly two-thirds said that it would strengthen their long-term stability, but you’d think that number would be a lot higher. Just throw a chunk of the grant into an endowment or the reserve fund, the thinking goes, and the organization should be in decent shape. What’s the problem?
The report points to two issues. The first is that even though Scott’s grants are unusually large, they can’t instantly address the organization’s every need. Leaders still have to make trade-offs, and pressing priorities like COVID response and advancing racial equity can soak up funding that would otherwise be earmarked for locking in long-term financial stability.
In addition, the report noted that “one reason not all leaders perceive this grant as significantly strengthening long-term stability may be the one-time nature of the gift. One-third of those we interviewed underscore the need for a plan to sustain work undertaken with the grant.”
This observation requires some parsing. It’s a little vexing, again, because the one-time nature of the gift shouldn’t prevent leaders from earmarking a portion toward cash reserves or an endowment. It does, however, suggest that the one-time nature of the gift, coupled with the absence of a preexisting plan to allocate the gift, can stymie leaders’ efforts to strengthen long-term stability. This explains why respondents’ biggest piece of advice for their peers is “the importance of having a strategic plan in place should the organization receive this type of funding.”
Kaboom’s Ratliff said her organization was prepared. A few years ago, board members asked leadership what they would do if they suddenly had a billion dollars. In response, Ratliff, who was head of development at the time, said she and her colleagues conducted an in-depth strategic planning exercise looking at “the pathway to achievement” if money wasn’t an issue. Scott’s gift “was transformational, because though we were ready, and we had the answers in place, we didn’t have the resources to jump; we still had to be very conservative in our approach because of the restricted gifts. But having this on the table, it allowed us to say, ‘OK, we know exactly what we need to do.’”
Open questions
CEP’s report captures the results from year one of its three-year study into Scott’s giving. The next phase will determine if recipients reached a “financial cliff” once her funding dried up and how organizations evolve compared to those that did not receive her support. I’d humbly like to throw some other ideas into the mix.
As we’ve seen, some respondents admitted that a completely out-of-the-blue gift created a sense of “self-imposed pressure” and, it’s safe to assume, pressure from other constituencies. How did leaders handle this pressure? How did they balance seemingly equally urgent needs from stakeholders? How did they manage the conversations in which they had to say “no?” As Scott continues to “empty the safe,” I suspect any guidance along these lines would be instructive for leaders who may have to navigate unfamiliar and potentially charged conversations.
We also know that a third of respondents felt that the whopping one-time nature of the gift, coupled with the absence of a preexisting plan to spend the unanticipated windfall, didn’t guarantee long-term financial stability. Given this fact, and the self-imposed pressure cited by recipient organizations, I’d be curious to know if, all things being equal, some respondents would have preferred their $8 million to be spread out over four years at $2 million each, versus Scott’s firehose approach. Maybe, in some cases at least, smaller, long-term support beats even a massive windfall.
This wouldn’t be an entirely academic exercise. As Rojc previously noted, Scott has shown a refreshing willingness to calibrate her tactics in response to criticism from what he called the “humble philanthropic commentariat.” There’s no evidence to suggest that her preference for one-time gifts is written in stone, especially if leaders make a compelling case that staggered, lower-stakes, multiyear support could be more beneficial to the organization (and their own blood pressure levels). We also don’t know to what extent Scott is going to make repeat grants down the line. A follow-up grant would likely make an even larger contribution to an organization’s stability.
These are pretty minor qualms in light of the report’s key finding, which is that large amounts of unrestricted support can transform an organization. Of course, nonprofit leaders already knew this, which is why they had been clamoring for it long before 2020. CEP’s Buteau noted that many participating nonprofit leaders contrasted Scott’s approach with other funder relationships in which “they’re spending so much time responding to funder demands and truly making compromises in the way that they do their work.”
What Scott is doing requires an enormous amount of trust in recipient organizations, and apparently, a hefty team of consultants. But she’s proving that giving away large amounts of money isn’t nearly as difficult as philanthropists have claimed over the years. She makes it look easy, and it seems to be working.
And therein lies what is perhaps the most intriguing question emerging from the first phase of CEP’s deep dive into Scott’s giving. Before signing off, Buchanan noted that most of the 1,500 people who dialed in were funders — “foundation folks, LLCs, individual donors.” How many of them will take the report’s findings to heart?