Corporate leaders have long influenced philanthropy, from Rockefeller to Gates to the “hacker philanthropy” recently espoused by Napster co-founder Sean Parker. Corporations have aimed to apply business strategies to philanthropic efforts with varying degrees of success. Now, new survey findings suggest that giving nonprofit partners more freedom in how they use gifts is an important part of building the strength of the social sector. Just as many corporations rely on the ability to direct flexible resources in pursuit of ultimate outcomes, loosening restrictions on gifts and focusing on supporting strong nonprofit enterprises—versus specific programs—is critical to making progress toward shared social goals. 

Nonprofit Finance Fund's 2015 State of the Nonprofit Sector survey highlights systemic funding challenges facing nonprofits and offers concrete lessons on how businesses can partner with nonprofits in ways that will help overcome these challenges.

While the economy points to recovery, an estimated 76 percent of nonprofits across America still face overwhelming demand for their services. Half of nonprofits we surveyed said they couldn't meet demand, and of those, 71 percent said that client needs go unmet when they can't provide services. 

We must think carefully about how to make nonprofits—which play a critical role in strengthening our communities and economy—more sustainable if we are to ultimately move the needle on today’s critical problems. Corporations are particularly suited to address this issue, because they are intimately familiar with the importance of building strong, adaptable, and well-capitalized enterprises. A “doing more with less” mentality doesn’t set the stage for nonprofit sustainability and meeting social challenges. A nonprofit with a skilled, fairly compensated staff that operates in a maintained physical space with appropriate equipment and some financial cushion is better positioned to innovate, adapt, and operate in ways that best serve its clients. 

Our research indicates that corporate partners can better support nonprofits by:

  • Focusing on shared outcomes. The emergence of outcomes-based funding is advancing the alignment of funding with shared goals. Pay-for-success agreements, for example, are designed to bring critical services to people in need and measurably improve their lives. In Cuyahoga county, Ohio, the Partnering for Family Success Program will deliver intensive 12-15 month treatment to 135 families over five years to reduce the length of stay in out-of-home foster-care placement for children whose families are homeless. Corporate support is crucial to the development of pay for success, and more broadly, outcomes-based funding. Bank of America joined New York State and Social Finance Inc. in a pay-for-success program that raised $13.5 million to fund proven workforce reentry services for 2,000 formerly incarcerated individuals in New York City and Rochester, NY. The program aims to increase employment by providing participants work experience and supportive coaching, reducing the social and financial costs associated with prison recidivism, and providing a positive impact on family support and public safety.

    As a starting point, corporations and nonprofits must work toward gaining a shared understanding of the costs of achieving social change. Many times, supporters don’t cover the full cost of providing services and achieving mission; 89 percent of nonprofits report that funders ask them to collect data to capture the effectiveness of programming, yet nonprofits say that 68 percent of funders “rarely” or “never” cover the costs associated with measuring program outputs or outcomes. 

  • Releasing restrictions. Corporations should consider providing flexible or general funding that gives nonprofits the freedom to align resources with organizational and community priorities. Often, new funding comes with the expectation of a new service or program, or hindered with reporting requirements that are outsized for the gift amount. Expectations must match the level of investment. 

  • Just six percent of nonprofits feel they can have an open conversation with their funders about flexible capital for organizational growth or change. Only eight percent are comfortable talking about working capital needs. Coming from a corporate perspective, where adaptation, flexibility, and financial stability are accepted characteristics of strong organizations, this may seem surprising. 

    Corporate leaders are best positioned to change standard practices by providing types of funds that other supporters are unlikely to provide. Bank of America’s Neighborhood Builders program is one example of how a corporation has sought to pioneer this approach. Recognizing the need within the sector, Bank of America supports leading nonprofits with unrestricted funding so that they can strategically invest in their staff and their own long-term development. 

  • Helping make nonprofit partners more attractive to other funders. Most nonprofits rely on a large community of supporters. Corporate partners may be uniquely positioned and free to invest in efforts that position nonprofits to attract additional support. Investments in leadership, technology, financial education, and strategic planning are often difficult for nonprofits to secure, but have tremendous impact on an organization's long-term ability to serve its community. This flies in the face of common practice, which is to provide funding that connects directly to specific programs. 

Ultimately, if we want better social outcomes, nonprofits need room to evaluate existing efforts, responsibly experiment with new approaches, invest in scaling proven services, and undertake other bold efforts to move the bar. Corporate partners can help set the sector on a path toward greater financial health and better social outcomes. But they must draw on experience and research to reject standard practices, and improve the way they fund nonprofits, with the ultimate goal of positioning nonprofits to do their best work for the benefit of all.