In the News: ‘Fiscal Sponsorship Is On the Rise’ by Eden Stiffman

A closer look at fiscal sponsorship authored by Eden Stiffman for The Chronicle of Philanthropy: https://www.philanthropy.com/article/fiscal-sponsorship-is-on-the-rise-allowing-groups-that-arent-nonprofits-to-accept-donations?sra=true

New Report: Fiscal Sponsorship on the Rise, Stewarding Billions of Dollars for Diverse Nonprofit Programs and Expanding Shared Infrastructure and Capacity Building

PRESS RELEASE. Philadelphia, Pa.—Fiscal sponsors are a significant part of the nonprofit funding ecosystem, showing rapid growth in the last 20 years, stewarding billions of dollars in community investment, and providing critical back-office infrastructure to diverse nonprofit programs. Those are among the key findings in a new report released today by Social Impact Commons and the National Network of Fiscal Sponsors (NNFS). This report is the first of its kind in more than 17 years, providing a significantly updated picture of the role fiscal sponsors play and how they can support greater growth and impact.  

A fiscal sponsor is a nonprofit organization that provides diverse nonprofit initiatives with access to charitable funding and additional shared support, including corporate structure, finance, HR, legal, insurance, risk management, and other resources. Nonprofit organizations and initiatives partnering with fiscal sponsors can then capitalize on these shared resources and focus more of their efforts on their mission. The new report is based on survey responses from 100 fiscal sponsors, conducted during 2022 and 2023. 

Collectively, the 100 sponsors that participated stewarded over $2.6 billion in community investments in the previous year. Other key findings from the report include:

• The last 20 years have seen larger growth in the field than the previous 50. Nearly three quarters of respondents (73%) were formed since 2000. Leading this growth were a majority (53%) locally and regionally focused sponsors, working within the communities they serve, followed by sponsors with a national (38%) and international (9%) geographic reach. Most respondents (58%) were medium to large in budget with expenses between $1 and $50 million.

• Fiscal sponsors and their project leadership exhibit appreciably greater race, gender, and other demographic diversity than the general nonprofit sector, comparing the field scan data with broader sector data collected by the Candid organization.

• Sponsors are expanding beyond basic back-office support. Finance, HR, legal, insurance, and compliance are still among the most offered by 73% of respondents, but many sponsors are also offering capacity building development support (61%) and strategic financial advice (49%).

• Demand for fiscal sponsorship currently exceeds supply of sponsorship programs. Roughly one in four respondents, 28%, reported that they temporarily suspended or stopped new project intake, and 62% reported that they need to recruit additional staff.

“Fiscal sponsors are a large and growing part of the nonprofit landscape,” said Thaddeus Squire, Chief Commons Steward of Impact Commons. “They provide a wide range of support and guidance to the projects they sponsor, and our research shows they sponsor projects with very diverse leadership. Nonprofit organizations of all types should consider fiscal sponsorship in developing their programming, funding, and overall business model development. 76% of the organizations that responded to our survey offered fiscal sponsorship alongside other programs, indicating that fiscal sponsorship, as shared infrastructure, is also a potential business model for nonprofits.” 

In addition to the field scan, Social Impact Commons today will be releasing a vision for the fiscal sponsorship field, focusing on a broader collaborative approach to nonprofit infrastructure sharing, called management commons. This vision would ultimately result in fiscal sponsors providing more equitable access to nonprofit leaders, building shared resources for particular areas of charitable work, geographic regions, and cultural groups. 

Fiscal sponsors would ultimately provide much of the shared infrastructure nonprofits need in a more financially sustainable manner, offering a long-term alternative to stand-alone nonprofit operations and enabling individual nonprofits to be laser-focused on mission. In a broader sense, the practices of nonprofit resource sharing at the core of management commons could also apply to any nonprofit organization, suggesting a fundamental shift in the sector toward more collective action and solidarity economy solutions.

Earlier research by Social Impact Commons and cited in the position paper showed that nonprofits’ “overhead” operating costs were 50 percent lower when using fiscal sponsors compared to operating independently. If those savings were applied across the nonprofit sector as a whole, it could mean reallocating tens of billions away from administrative costs toward front-line programming per year. 

“Building the management commons is essential to enabling the overall success of the nonprofit sector,” said Neville Vakharia, board chair of Impact Commons. “This approach has benefits on scale, efficiency, justice, and sustainability. We must collectively work to create this infrastructure to truly move toward social justice.”

The survey that formed the basis of the field scan was conducted between November 1, 2022, and March 31, 2023, with 100 sponsors responding substantially to all parts of the survey. The respondents were diverse in many ways.  Respondents came from close to 20 different states. Half managed fewer than 30 sponsored projects, but 18% managed more than 100 projects. The field scan was self-funded by Impact Commons and NNFS. Impact Commons was able to lead this work with generous operating support from the Andrew W. Mellon Foundation and Fidelity Charitable Trustees’ Initiative.

One Project with Two 'Model A' Fiscal Sponsors? That's One Too Many! by Colibri Sanfiorenzo Barnhard and Josh Sattely

We (HASER and Social Impact Commons) are occasionally asked whether it is advisable or even allowable for one nonprofit project to have multiple ‘Model A’ fiscal sponsors at the same time.  Below, we share our perspective on this question in English and here, our partner HASER has posted a version in Español.  We’ll save a nuanced analysis of the same question applied to ‘Model C’ relationships for a future post.

Model A Relationship:  

‘Model A’ Comprehensive Fiscal sponsorship (also called “Direct Fiscal Sponsorship”) is an arrangement where an exempt organization, typically a 501(c)(3) public charity, furthers its mission by sharing its legal home and back office infrastructure with mission-aligned “Projects” while retaining the discretion needed to ensure compliance with applicable laws and regulations.  Back office infrastructure includes but is often not limited to: tax and regulatory filings, financial and grants management, compliance, the ability to hire staff, asset management and liability insurance.  A simple way of looking at the relationship is - the Project becomes a program of the nonprofit but there are defined roles and responsibilities as to how the nonprofit supports and works with the program with maximum allowable strategic and programmatic decision making sitting at the Project level.

Through this relationship, Project leaders can raise money and carry out their work in a compliant and supported manner.  

Thorny Questions for Multiple Sponsors

Although not prohibited by law per se, because a Model A project is, legally speaking, a program or initiative of a nonprofit, it is highly unusual and generally not recommended that a Model A project use multiple fiscal sponsors as it raises a host of problematic questions:

• Transparency Questions: One program housed at two organizations is confusing to the public and regulatory agencies.  Donors understandably want to know where their money is going and the Attorney General or equivalent regulatory body of each state and territory is charged with ensuring donors are not misled and nonprofits are transparent.  If there are two homes for a program, how do donors decide which one to donate to? How do donors understand the full picture of the organization when its finances and overall structure are bifurcated?  If a confused donor raises concerns with the Attorney General, are both organizations investigated?

• Operational Questions: Each fiscal sponsor will have its own policies, process, and expectations around the relationship. What policy and procedure applies and in what instances? How are conflicts resolved? What programs and or operations sit where?  How does the leadership of the Project even juggle all this?  

• Financial Management Questions:  How do the sponsors and the Project understand the full picture of the organization when its finances and overall structure are bifurcated?   How is it determined who applies to what funding sources? What is shown in proposal budgets - combined budgets for each project budget at each sponsor or just one? How could either sponsor ensure the same costs are not reimbursed by the other sponsor? Are certain costs cross shared across the entities? How are those managed and distributed? Who holds the overall responsibility over grantees and vendors? Are revenues in certain cases documented twice too?

• Employment Questions: Who hires who and why? Who makes independent contractor v. employee determinations? If some Project staff are hired by one sponsor and other staff hired by the other, are salary scales and benefits packages aligned? If not, is that equitable? How are computers and other assets managed, supported and protected? How are legally sensitive and confidential employment matters handled? And how is supervision of staff managed, if they are spread across multiple entities?

• Legal and Risk Management Questions: One program housed at two organizations creates thorny legal and liability questions. Who’s the fiduciary for what? Who is ultimately responsible for the finances and operations of the Project? Is there one or two advisory boards? Who holds title to assets such as IP and equipment? How is that decided? Is there a license or partnering agreement defining how they are managed for the benefit of the Project? If something were to happen, who is liable? Do both organizations get sued? Which insurance policy would respond? What happens if one sponsor terminates the relationship and there are active grants and liabilities on that side?

Resolving all of the questions posed above (and others!) requires a tremendous amount of time and attention of the Project leadership and both sponsors on the front end, as does actively managing a split relationship of this sort once established.  As such, we do not endorse these set ups and recommend that fiscal sponsorship agreements  make clear that the ‘Model A’ Project may not have multiple sponsors simultaneously. 

**The information provided by Social Impact Commons and HASER does not constitute legal advice. Social Impact Commons and HASER are making this FAQ available for informational purposes only and we always recommend working with qualified and local legal counsel when structuring fiscal sponsorship relationships.

Is Fiscal Sponsorship a Service Provided for a Fee? Why it isn’t and why it matters. By Erin Bradrick and Josh Sattely

Fiscal sponsorship is a growing part of the nonprofit sector and, when done well, is an important and impactful tool for furthering public benefitting work and activities. However, because fiscal sponsorship is not a relationship that is explicitly defined anywhere in the law or Internal Revenue Code and is instead most often defined in a written contract, we see fiscal sponsors using a wide range of words and phrases to refer to what are essentially the same things. For example, comprehensive (or Model A) fiscal sponsors might refer to the projects they sponsor as “affiliates”, “partners”, “allies”, “projects”, or “clients”. As the field of fiscal sponsorship continues to grow and to attract additional attention from charity regulators and other governmental agencies, we believe there’s a strong case for developing a common vocabulary of key fiscal sponsorship terms, starting with how we refer to the amounts that fiscal sponsors allocate to cover their operating expenses. We won’t provide an overview of the basics of fiscal sponsorship here, but you can find more information here, here, and here.

Regardless of the model of fiscal sponsorship offered, fiscal sponsors of course incur costs and expenses in offering fiscal sponsorship, including in the form of staff time, administrative support, bookkeeping and accounting, reporting and other compliance, insurance, and other areas of overhead. In order to cover such costs, many fiscal sponsors allocate a portion of the funds received for the purposes of a sponsored project (often a specified percentage) to support shared operations costs. While this amount is commonly referred to as a “fiscal sponsorship fee”, we would like to encourage fiscal sponsors to instead consider referring to it as a “cost sharing”. Hear us out.

We (Erin Bradrick on behalf of the NEO Law Group and Josh Sattely for Social Impact Commons) had the privilege of attending the 2022 National Network of Fiscal Sponsors’ conference in sunny San Diego. In addition to great peer learning and networking, we had a chance to talk vocabulary and found that many fiscal sponsors are still referring - in their fiscal sponsorship agreements, on their websites, and in conversations - to the groups they sponsor as their “clients” that are charged a “fee for services”, while others had shifted to referring to “projects” and “cost allocations”. Fundamentally, what’s being provided by fiscal sponsors and how it is paid for is the same within the various models of fiscal sponsorship, so why the different language? You may think this a question of semantics only of interest to academics and overly caffeinated exempt law attorneys, but there are real implications and potential consequences for how these relationships and cost structures are characterized.

The language used to describe how a fiscal sponsor organization covers its indirect and overhead costs is important, and we encourage sponsors to move away from the “fee for service” characterization for three primary reasons:

1. It’s not legally accurate. At a basic level, comprehensive (or Model A) fiscal sponsorship is simply a nonprofit carrying out charitable programs. It’s how the programs are carried out - namely by pushing as much managerial and strategic decision making as possible to the program level and having an agreement memorialize the relationship that generally gives a third-party the right to request a spin out of the project - that makes it fiscal sponsorship. Just as a nonprofit would not call an internal program a “client” and charge it a “fee”, neither is it appropriate to frame Model A relationships in that manner. Likewise, pre-approved grant relationship (or Model C) fiscal sponsorship is essentially a grantor-grantee relationship. You don’t see foundations referencing a “fee” they charge to engage in grantmaking and neither should fiscal sponsors. In either model, there’s rarely, if ever, a third-party paying the fiscal sponsor a “fee” for fiscal sponsorship services – rather, the fiscal sponsor is receiving purpose-restricted funds and using a portion to contribute towards covering its general administrative and operating expenses. 

2. Language signals values and intentions. For fiscal sponsors striving to build deep relationships steeped in trust and reciprocity, referring to sponsored projects as “clients” and charging them a “fee” is not only inaccurate from a legal standpoint, it may send signals that counter the messages and intentions a fiscal sponsor is otherwise working so hard to cultivate. Given that fiscal sponsors exercise ultimate oversight responsibility over the activities and use of funds of the organization, including by sponsored projects, when a fiscal sponsor chooses to use “fees” and “services” language, it runs the risk of setting inaccurate expectations about the nature of fiscal sponsorship and the degree of control that the fiscal sponsor is required to maintain and exercise. In our experience, a lack of clear alignment and understanding between fiscal sponsors and projects about what fiscal sponsorship is and what it isn’t is often a significant contributing factor when problems arise in these relationships.

3. Protecting fiscal sponsorship practitioners and the field calls for accurate messaging. As discussed, referring to sponsored projects paying “fees” implies that fiscal sponsors are providing services to third-parties, which is not accurate. Giving that impression to regulators or the general public perpetuates the inaccurate notion that fiscal sponsorship is a conduit or a “charity-for-hire” mechanism, rather than highlighting the central oversight and support functions that fiscal sponsors play in carrying out compliant and impactful charitable work. Appropriate characterization of the relationship and cost structure protects the organization and helps advance the field.

As the field continues to grow and evolve, consistent use of legally accurate and values-aligned framing will help funders, regulatory agencies, and groups seeking fiscal sponsorship better understand the true nature of these relationships. It may also give staff at fiscal sponsors a grounded understanding of how they contribute.

For this post, we do not offer a single alternative term to express how administrative costs are shared within fiscal sponsor organizations, but examples we’ve seen include “administrative cost allocation”, “overhead cost share”, and “member contribution”. A future post led by our partners in the nonprofit finance and accountancy realm will go deeper into accounting considerations which may inform both what you call and how you report on how these funds flow. But for today, our takeaway message is, if you are a fiscal sponsor, please consider the implications of what language you use to describe your relationships and cost recovery structure. Happy sponsoring!

Possible Futures - A Vision Quest for Fiscal Sponsorship

NOTE TO THE READER

The below draft paper from Social Impact Commons is intended as a companion piece to a field-wide scan of the fiscal sponsorship ecosystem, being undertaken as a collaboration between Social Impact Commons and the National Network of Fiscal Sponsors (NNFS) in the fall of 2022. The field scan will gather basic organizational, diversity and inclusion, and capacity-related data on U.S.-based fiscal sponsors of all sizes and models.

The goal of this paper is to present and continue to shape the case for fiscal sponsorship to accompany the field scan’s data on the size and shape of the fiscal sponsorship ecosystem. These are two different, but complementary elements of the argument for the overall value and impact of our work. 

The below text is an opening salvo from Social Impact Commons. In lieu of traditional “peer review” processes, and to incorporate multiple voices in this casemaking effort, we are welcoming input and direct contributions of content to this paper from our community, including but not limited to:

• Editorial and commentary

• Stories and case studies

• Data and analyses

• Photos and graphics

• Vision statements for the field

The contribution period will be open August 11 and close on or around September 30, 2022, with the intention of issuing a final paper in October or November. All contributions are voluntary and will be credited. The final paper will be released under a Creative Commons license. A pdf of this paper may be accessed here. If you are receiving this paper from another source other than the Social Impact Commons website, please refer to this page for more information on this initiative and how to engage.

*** WORKING DRAFT - v.1 August 11, 2022 ***

Possible Futures - A Vision Quest for Fiscal Sponsorship

PART I: MANIFESTO

The field of fiscal sponsorship stands at the threshold of a new era of growth and transformative potential for the nonprofit sector. This moment has been largely propelled by the growing challenges to civil society and urgent call for social justice in the face of resurgent autocracy and white supremacy, coupled with an accelerating cadence of ecological disaster. In our age of social and environmental justice movement building, it is also likely being fueled by new generations of change leaders that find resource sharing and solidarity-oriented solutions more compelling than going it alone.

Fiscal sponsorship is commonized nonprofit management and infrastructure, or “management commons”. It describes a range of approaches to nonprofit structure and practice aimed at sharing essential operating capacities among multiple aligned missions and visions. As such, fiscal sponsors offer a potential path to permanent and scalable restructuring of our sector around collectivizing management, distributing risk, driving efficiency, and enabling more equitable access to charitable resources. 

Yet, we labor under a private-sector worldview that privileges independent nonprofit formation, tax status, and operations as the orthodox “model” and only path to validity and vitality. Independent formation and operation and the “enclosure” (privatization) of assets may make sense for certain business models situated in the  for-profit sector. But it is incoherent or unnecessary in the nonprofit sector, whose assets are managed in public trust. As such, nonprofits and the sector as a whole are the closest we come to true commons–resources held in common and managed in a cooperative manner. Fiscal sponsors present both the archetype and entrée into a future of vastly more robust resource sharing.

The American mythology of rugged individualism, inflated by neoliberal capitalism’s worship of self interest still prevails and has left us with the false axiom that independent vision demands independence of infrastructure in the social good sector. Every person or group of people with a charitable vision requires their own nonprofit, staff, tax exemption, operating systems, and so on. As a result, there are roughly 1.5 million nonprofits in the U.S. today, 88% of which operate below $500,000 in annual revenue. Ninety-seven percent of all nonprofits operate below $5 million. And this not even counting the immeasurable “informal” activity of our sector–work happening outside traditional nonprofit structures.

The assumption that independence of nonprofit mission and vision requires independence of formation, exemption, and operation is not only false, it is also fatal to the long-term sustainability and impact of the nonprofit sector. Decades of research on the sector offers a consistent refrain: organizations are financially fragile (but stalwart in spirit!), lack capacity, struggle with developing resources, and so on. These are symptoms of the same underlying affliction: fragmentation brought on by the above false axiom. The result: a vast landscape of (often) intentionally smaller but invaluable stand-alone nonprofit organizations, most of which are not scalable by design or intention. These organizations are most often the ones operating in communities and possessed of trust and cultural competency to deliver effective and responsive services. Unfortunately, they remain under capacity and under-resourced owing to their small scale. 

Fiscal sponsors, as collective capacity builders, offer a new vision of hope for the sector. We are risk managers at heart, helping projects navigate risk, failure, and success. We are expert repositioning technicians, designers of efficient systems. We are trusted platforms that can leverage networks, cultural competencies, and relationships at scale. And most of all, we are structures for shifting power to leaders and communities that have long been starved of access. We can be the vanguard of long-overdue change in our sector. It’s no longer an option. It’s urgent and imperative.

What’s at stake? Quite possibly the future of civil society in America and our planet. 

Today, 501(c)(3)s represent more than $2 trillion in annual spending and activity–not counting the under-documented and under-compensated labor and in-kind contributions that are the lifeblood of our work. In financial terms, this makes public charities financially equal to about 50% or more of the entire U.S. federal budget, which averages about $4 trillion. Since half of the federal budget is spent on the military, our sector’s investment in social benefit work is arguably equal to if not greater than that of Congress. 

The nonprofit sector has always carried the lion’s share of water for social good in this country.  But as polarization continues to tear apart the American social fabric, it is also fast becoming the last refuge of civil society and efforts to curb planetary disaster. We are witnessing the erosion of function and legitimacy of our foundational democratic institutions across all three branches of government. A Cold Civil War has yielded social unrest and intractable deadlock in legislative bodies at all levels that everyday threatens the wellbeing of millions of people. While we must continue to fight for the hope of better government and more civil polity, the extreme dysfunction of government and its direct service agencies has made the nonprofit sector the frontline of the battle for social justice and the health of our planet. Government funding for nonprofits remains significant, but where government funding fails, nonprofits can turn to private sources.

We cannot continue with a paradigm that mandates independent nonprofit formation and status as the goal for every social mission. Our reigning strategy, to build the capacity of one organization at a time falters every day in the face of barriers to accessing philanthropic resources and the challenges of moving resources into a fragmented ecosystem. It also feeds a vicious illusion of scarcity–there seems to never be enough money to buy the capacity we need. This may be true if we confine ourselves myopically to the limits of institutional philanthropy as the predicate for social action. But the American nonprofit sector has always relied on the generosity of individuals, which opens a much more vast landscape of potential resources. 

In truth, the human will to make and do and, at any given time, our collective drive will always outstrip the resources on hand. This will is the leading force that drives our sector forward. In the perennial chicken-and-egg question of which comes first, financial capital or human drive? It’s always the latter; the former follows but mostly in instances where the doers have the right combination of luck and privilege. What we most urgently need, then, is more ready, equitable, efficient, and sustainable access to the scaffolding needed for people to gather the resources and get to work. Fiscal sponsors are that scaffolding for the nonprofit sector. And with it, we may build and strengthen the edifice of civil society with the care and urgency that the crises of our world demand.

Despite our most selfish predilections, which have been fanned by the fires of late capitalism, humans in general are, at their core, collaborative and compassionate, at least so says evolutionary biology. In the face of adversity, we help others, solve problems, take initiative, and the result is millions of informal acts of social good, happening both between and outside of conventional institutions, and under a surging tide of nonprofit organizations.

To challenge the path of independent nonprofit formation, however, is to challenge a fundamental paradigm–to change the very core of our beliefs from one grounded in the management of bounded privatized assets to one of mutual stewardship of boundless public commons. Make no mistake: to propose such a shift in today’s America is to suggest that the world is flat or that the sun does indeed revolve around the earth. 

Fiscal sponsors lead the way for our sector out of this desperate and fragmented land toward greater collective fulfillment of our will to work on the project of civil society. We are the original commons managers, stewarding a multitude of visions in the direction of hope. 

PART II: CALL TO ACTION

As the nonprofit sector, our first step down this path is to declare that…

We embrace a world of radical pluralism in which independence of ideas and agency does not require independence of infrastructure. Through the commonized management of fiscal sponsors, everyone with an impulse to bring about positive social change can have access to the infrastructure they need to pursue their vision and flourish, or falter, adjust and continue on. We shed the garb of economic Darwinism imposed by free-market capitalism and recognize that the will to justice and pro-social work in all its diversity is itself a charitable purpose. Fiscal sponsors provide a welcome haven for that purpose.

We move from fragmentation to collectivisation. When regarding the vast landscape of fragmented nonprofits the minds of many move to dystopian visions of placing it all on the cloud (if we ask Silicon Valley) or undertaking a mega-merger of all the small organizations (if we ask Corporate America). There is a more grounded solution that leverages the strength of local communities and the power of local knowledge, leadership, and cultural solidarity: commons management, for which fiscal sponsors already hold the model. What if we moved our fragmented nonprofit community one step toward greater solidarity through regional, field-focused, and identity-driven fiscal sponsors–a commons manager in and for every town, city, and community? 

For fiscal sponsors to lead this journey, we must…

Expand the fiscal sponsorship ecosystem. While there is still case making to be done, after sixty years of practice, we enjoy some confidence in our work and future. Our attention needs to be trained on securing long-overdue philanthropic investment, workforce development, innovation, and democratization of the collective knowledge we possess. Fiscal sponsors likely manage less than 5% of the more than $2 trillion activity of the nonprofit sector. There’s ample room to grow, if we muster the courage and organizing capacity.

Shift from a field defined by law and finance to a field more defined by organizing, activism, commoning, and movement building. While the tools and trappings of finance and law are essential to our work, the field of fiscal sponsorship (as with most of today’s institutions) has been largely defined by law and finance. From the beginning we have defined charitable work predominantly by corporate form and tax status. It is no surprise that the only definitive text on fiscal sponsorship is a legal text. At this point, we need to expand our tools and definitions to ground fiscal sponsorship in the practices of organizing, solidarity, and movement building–ensuring not just statutory compliance, but nurturing the social bonds and trust needed to address today’s most pressing problems.

PART III: POSSIBLE FUTURES

We vastly accelerate the forces of solidarity building and social justice. As global challenges facing civil society continue to mount, we are turning to solidarity and movement building. Indeed much of the grassroots leadership around social justice over the last five years has found a welcome haven in fiscal sponsors, which are well positioned to be the backbones for fostering and sustaining greater social equity.

We re-task billions in charitable funds from needlessly duplicated infrastructure directly to front-line work. According to the Urban Institute, the nonprofit sector realized $1.94 trillion in expenditures in 2020. Social Impact Commons has conducted several sample economic studies using the rich nonprofit financial data of Data Arts, looking at about 1,000 organizations operating under $2 million in budget. We compared costs to manage through independent legal formation with the equivalent costs to manage by sharing the same back-end infrastructure fiscal sponsors offer. Under fiscal sponsors, backbone costs were between 10% and 30% lower than those incurred by operating independently–and that’s just a sample and does not even speak to the intrinsic values to nonprofit leaders of receiving such holistic back office support. If we were to collectivize infrastructure across our sector through fiscal sponsors, as suggested above, that could mean a minimal “savings” (re-allocation to programs) of about $200 billion per year–roughly twice the amount of all giving and grantmaking in the U.S. in calendar 2021!

To realize this audacious vision, the fiscal sponsorship field grows and becomes more diversified through expansion to new cities, towns, suburbs, exurbs, and rural communities and through specialization across cultural competencies, identity groups, and field expertise. Instead of nearly 1,000,000 small nonprofits struggling alone in the wilderness, they share core backbone capacity and social solidarity through 10,000 local or specialized fiscal sponsors providing commonized management. 

To move from the roughly 1,000 fiscal sponsors operating today to an ecosystem of 10,000, our field becomes understood by philanthropy, policy makers, and nonprofit leaders as no longer a marginalized model, accounting for a fraction of the sector’s activity, but critical infrastructure for the sector, managing a substantial amount of its activity and future growth. 

Our field continues its work to relinquish the reins of power to BIPOC and other marginalized communities. It shifts its culture and practices from those that consolidate power and replicate white supremacist models of nonprofit management–the Nonprofit Industrial Complex–to a community of practice that provides more equitable, sustainable, culturally relevant, and impactful nonprofit resources for communities everywhere.

And lastly, fiscal sponsorship sheds its moniker, born of finance and legal coinage, and becomes management commons, transforming its image from a temporary waystation on the weary road to independent nonprofit status to a permanent structuring solution for solidarity and social justice.

This vision is not new. It is as old as our sector. Why does it still seem so elusive? Because we have not yet conjured the fortitude to challenge the ontology of the private sector that holds our sector so thoroughly in its thrall. To suggest that the proliferation of the independent charitable form is not only unnecessary, but perhaps the greatest thing holding our sector back from true flourishing, still draws looks of quizzical unease. 

It took well over a century for Nicolaus Copernicus’s heliocentric model of the universe to be accepted by the powers to be, religious and secular. We hope for the sake of our people and the planet that we don’t take as long to lean into the work of shifting our ontology for the social good sector. If we are to salvage centuries of progress toward a more civil society, currently under threat, and rescue our planet home, time is not a luxury we possess.

PART IV: FROM MYTHS TO MANIFESTATION

NOTE: In this section, we are inviting expansion through commentary, case studies, research, analysis, and vision statements that challenge the below myths and explore and amplify the case for fiscal sponsorship. Initially, we are organizing this around four topic areas and myths that persist about fiscal sponsorship related to each one: Scale, Efficiency, Justice, and Sustainability. We have started the thread in each case with a few myths, but welcome others. In each section we have started the ball rolling with some preliminary text, to be expanded over the coming weeks.

Essential to realizing the actions and vision outlined above is moving from myth to manifestation through challenging and illuminating a number of frequent misperceptions and misunderstandings about the fiscal sponsorship field. In this section, we focus on four major areas of conversation, Scale, Efficiency Justice, and Sustainability and have invited voices from the field to expand and fill in the contours of these subjects.

SCALE - of or pertaining to the ability of fiscal sponsors to support the scaling of sponsored projects, their fiscal sponsor resources, to the field of fiscal sponsorship itself. We hear…

Fiscal sponsors are only incubators and accelerators to help organizations on the way to independent formation and exemption. We know that fiscal sponsors, in particular “Model A” comprehensive sponsors, are increasingly seen as the forever homes for the projects they sponsor. We work with fiscally sponsored projects benefiting from decades long fiscal sponsorship relationships. Given their size and focus, eventual independent status is entirely illogical. While the incubator and accelerator functions will always be a value of fiscal sponsorship, it may become a minority case in the future.

The path to scale for fiscal sponsorship is only scaling the established sponsors; building new fiscal sponsor infrastructure is too hard/expensive. We hear frequently about the challenges fiscal sponsors have in garnering direct philanthropic support to build capacity. Funders often feel it’s an easier path to invest in large, established sponsors, instead of going through the effort and cost of starting a new one. This is a path, but we can’t ignore the forces of field specialization as well as diversity in cultural competency and community building that more recent generations of fiscal sponsors represent.

Fiscal sponsors cannot support projects once they hit a certain budget or operating scale. We hear this often–usually with arbitrary assumptions about the size of the budget that would inspire spin out. In fact, many large sponsors support projects that exceed $5 million in budget–projects that would otherwise be in the highest percentile of budget size for nonprofits overall. The economics of fiscal sponsorship, assuming appropriate sponsor capacity, can work at virtually any scale.

EFFICIENCY - Of or pertaining to the cost of fiscal sponsors and their classification as nonprofit intermediaries and the kinds/nature of support they provide. We hear…

Fiscal sponsors add unnecessary cost and inefficiency to the work of the sector; sponsor fees are too high. We know that study in recent years of nonprofit overhead has led to the debunking of the pernicious sense that nonprofits ideally should have zero overhead. The “Overhead Myth” has proven that some kinds of missions register more than 50% in so-called overhead, and that “indirect cost”, as we’ve always known, is a relative and highly variable notion, depending on the resource model of the nonprofit. As mentioned earlier, our own studies using the rich DataArts database of IRS Form 990 data, has evidenced upward of 10% “savings” in costs for organizations operating under a comprehensive fiscal sponsors, as opposed to going it alone. 

Related to concerns over cost, are assumptions that administrative time and process threatens to bog down the work of sponsored projects. This can be the result of poor management or lack of capacity at the sponsor, but it is more often the result of the management capacity that fiscal sponsors provide to projects where in many cases there had been none. Filling a management deficit can easily seem like an imposition, but expediency of action needs to be balanced with good and consistent stewardship and management practices.

Fiscal sponsors are only purveyors of back office support and nonprofit compliance. The perception that fiscal sponsors are just transactional providers of finance, HR, and compliance support persists. While fiscal sponsors do this work, the range and depth of services offered is expanding to include everything from advancement support, to constituent management, coaching, and other capacity building. In fact, we argue that sponsors are less intermediaries, and more collective capacity builders–common management platforms where almost any management capacity may be developed and shared for greater sustainability. Indeed, the persistence of the core “back office” as the fiscal sponsor staple may largely be tied to the sense that sponsors are only temporary stations on the road to independent status. Why would you want to add more shared capacity, when the goal is to break away? If we shift our thinking to fiscal sponsors as permanent shared management and collective capacity, we open the possibility of developing capacities such as fund development and advocacy at scale for our sector that have long eluded philanthropic solutions.

JUSTICE - Of or pertaining to the ways in which fiscal sponsors diversity, equity, access, and inclusion within the nonprofit sector. We hear…

Fiscal sponsors perpetuate the Nonprofit Industrial Complex. There is a well-founded refrain that fiscal sponsors may deliver economies of scale and efficiency, but are just replicating white-supremacist models of management. This is true, but increasingly, sponsors–in particular those truly embracing a DEIA work or with BIPOC leadership–are able to leverage cultural competency, values, and established trust with their communities. They are building intentional communities around common values and identities. They also manage and distribute risk collectively, allowing people who often cannot otherwise afford the risk (financially or socially) to experiment, learn, iterate, and hold ambiguity.

Fiscal sponsorship is not values aligned with the Solidarity Economy.  We hear that fiscal sponsors ask visionary leaders to relinquish agency, autonomy, and power. And fiscal sponsors are often myopically judged, along with the nonprofit sector, as an antiquated infrastructure for social change, to be replaced by more cooperative Solidarity Economy solutions. But in fact, fiscal sponsors can and do engage in Solidarity Economy approaches, centering constituent-governance, mutuality, and power sharing in their relationships with projects. The percent allocation-based cost recovery approach that fiscal sponsors use, allows sponsors to offer low financial barriers to nonprofit expertise and infrastructure. And cost is also proportionate to need.

SUSTAINABILITY - Of or pertaining to the financial, staffing, legal, or structural sustainability of fiscal sponsors. We hear…

Fiscal sponsor business models are not sustainable. Since we only report the planes that don’t land, there remains a perception, in particular in the funding community, that the fiscal sponsorship “business model” doesn’t work. In truth, fiscal sponsor resource models resemble closely those of co-ops: there is a shared management resource and multiple organizations (projects) pay their portion of the carrying cost. Within that basic idea, there is a spectrum of revenue models, all of which are sustainable so long as they are intentional and mindful of their driving values, maintain a balanced portfolio (specific to their model), and responsive to surrounding economic conditions. Sponsors range from 100% cost recovery models (mostly “Model A”) to 100% subsidized models, and everything in between. That said, fiscal sponsors have the same capacity challenges that any nonprofit encounters; they struggle to secure capital from philanthropy to build their shared resources.

Fiscal sponsors are exotic and untested models. Fiscal sponsors are not novel nonprofit structures or practices, but rather the codification and expansion of long-standing nonprofit models. In many ways, a fiscal sponsor is no different than a large nonprofit for multiple distinct programs. Only with the latter, the program likely has less day-to-day management autonomy, needs to cleave to the brand and identity of the main organization, and usually doesn’t have the authority to leave or “spin out”. With the myth of existicism also comes over-concerns about fiscal sponsors and legal and tax compliance issues. To fund a sponsored project is not giving money to a non-tax-exempt entity; in all cases fiscal sponsorship entails making a grant or gift directly to a public charity. And the compliance needs and issues related to both funder and project are no different than with any other nonprofit. 

The Real Work of Collaboration & Sharing: What Fiscal Sponsors Can Learn from the Behavioral Sciences

On March 24, 2022, we were grateful to welcome Syon Bhanot to our Member Conversation to discuss the potential applications of research from the applied behavioral sciences field to some of the most persistent problems faced by fiscal sponsors. Syon is a leading scholar of applied behavioral economics, teaching at Swarthmore College, but also a member of a number of research groups, including the MIT Applied Cooperation Team and his own burgeoning practice as a consultant in the study and application of applied behavioral economics. Other leaders in the applied behavioral sciences include these folx and in the popular press, the likes of Richard Thaler, Cass Sunstein, Daniel Kahneman, and others.

The behavioral sciences hold tremendous untapped potential to inform transformative solutions for fiscal sponsorship. This area of study is concerned with how real people behave in real situations, with all of our manifest imperfections. The behavioral sciences field was founded nearly 60 years ago in direct critique and opposition to classical economics, which still dominates a great deal of thinking in the field. The classical school is grounded in an idealized view of human beings as rational optimizers in all cases. If such were true, we would be more able to resist that late-night piece of chocolate cake, or more tragically, we would not have experienced the raging bonfire of moral hazard that led to the 2008 subprime mortgage crash.

Regardless of your model or philosophy for fiscal sponsorship, we are all in the business of sharing resources and infrastructure with our projects. We also rely on the cooperation of our project directors and their teams to work with our sponsor staff in a true co-management relationship. Creating cultures of mutuality, accountability, and sustained cooperation are essential to our work. More broadly, you could argue that the entire nonprofit sector is dedicated, in one way or another, to nudging people to overcome their lesser angels and behave more generously, or “prosocially” toward each other, rather than indulging in pure self-interest. You might also argue that our sector exists, at its core, to mitigate the negative impacts that result from our failure to resist those lesser angels: prejudice, racism, and the extractive, exploitative, and inequitable dynamics of neoliberal capitalism, to name a few.

The question of how we encourage “better” (more prosocial) decisions and actions is a core enterprise of the behavioral sciences. But doesn’t that sound like mind control? And who decides what is a “better” decision? Well, this work is also not to be undertaken without a great deal of thought and consideration as to when and how you apply its ideas. In fact, there is a whole field of ethics that has arisen to address the moral implications of behavioral science.

Syon shared with us a few of the concepts that are studied in his field and that underpin a great number of applications, from government to the private sector, and hopefully with greater embrace, the nonprofit sector as well. Below are some reflections on those concepts and how they might apply to our everyday work as fiscal sponsors.

Repeat Interaction & Reciprocity

There are many studies around the positive/reinforcing effects of repeated interaction as a motivator of behavior, as well as the power of reciprocity, a deep-seated way in which humans relate to each other. While our field talks a lot about mutuality and “community,” many sponsors still maintain very transactional relationships with their projects/sponsees and then wonder why they are treated merely like a vendor of services. There’s nothing wrong with that approach, but if you are preaching a culture of intentional community and mutuality and then work and operate transactionally, some dissonance may result and lead to behaviors you don’t want. Greater degrees of mutuality help build trust, which may allow sponsors to weather bumps in the road more readily as a community.

What might happen if you framed your sponsor-project relationship as much around what the project is bringing to your community as what you are doing for the project–from the moment of application and discernment, through the relationship?

Do you offer opportunities to have your projects support your work as a sponsor through services they have to offer? Do projects get financial or other consideration for such reciprocal support? How else do you engage in intentional reciprocity?

Social Proof & Observability

Another major motivator of behavior (good, bad, and ugly) is social (“peer”) pressure, as we well know. Key to leveraging social proof (or the fact that a significant number of people are doing or are interested in a particular thing) is observability–the ability for people to observe behaviors, register preponderance, and adjust their behavior accordingly. Social media provides a platform for social observability at massive scale and accelerated velocity. The behavioral science wing of the U.K. government conducted an experiment for the British taxing authority several decades back aimed at trying to get delinquent taxpayers to pay. They sent a range of collection letters out with a variety of messages from the expected punitive “or else” letters, to various incentives - but the most effective message in motivating folx to pay up was: “Nine out of ten people in the U.K. pay their tax on time… and you are one of the few who hasn’t paid yet.” The desired behavior became observable – and the deviant behavior was highlighted.

How much of your management behavior is focused on mere reminders and penalty-based incentives to motivate actions: submitting time sheets, reimbursables, and others?

How often do you hold up in very visible (communications) form the number of projects that DO submit on time, for example?

Are there other ways in which you could use social proof and observability to nudge projects toward certain behaviors (or vice versa)?

The IKEA Effect & Sunk Cost Fallacy

The IKEA Effect is so named for the fact that we tend to value something more that we build ourselves. This applies as much to nonprofit organizations, programs, processes, and policies, as it does to pieces of affordable furniture. Closely related to this syndrome is the Sunk Cost Fallacy, which describes the escalation of commitment we enter into when we throw good resources after bad in the hopes of finally seeing the efforts we’ve put into something finally come to fruition. While sustained investment is often needed to realize a successful program, we also need to be mindful not to become the gambler who keeps on losing in the hopes of recouping losses with the next hand. Both of these behavioral attributes lead to reticence to end ineffective programs, substantially re-think our models, or undertake any significant change for that matter.

These dynamics are also particularly prevalent in founder cultures, which constitute a vast quantity of fiscally sponsored projects, and may be the reason that culture or behavioral shifts in founder-led projects are often difficult to undertake–especially the decision to wind down, if a project has served its purpose or becomes unsustainable. For-profit start-up cultures tend to valorize and celebrate “exit” as a badge of achievement. But in the nonprofit sector, we tend to think of exit in negative terms, even as a moment of failure. The behavioral sciences also have studied how we register loss more acutely than gain (aka “loss aversion”), so both the IKEA Effect, loss aversion, and the Sunk Cost Fallacy can conspire to create unhealthy founding dynamics.

How can we create space to speak more frankly about these dynamics, embrace change and transition/succession, and celebrate exit as a moment of success for projects and sponsors alike?

How might sponsors harness the IKEA Effect positively, as a means of strengthening social ties within a community of projects through fostering a sense of ownership and participation in the design and development of sponsor resources?

Overconfidence

Lastly, we discussed our tendencies to be overconfident in our estimation of many capacities and abilities, which has been well studied and demonstrated by the behavioral sciences. For example, this may lead to organizations under-estimating their capacity to support a new project coming into our portfolio, especially if it is of significant size and complexity. Saying no is never an easy thing, and our empathic desire to extend a helping hand, coupled with some manner of overconfidence can find us over our head quickly.

We may not just overestimate our organization’s capacity to manage and operate, in our drive to achieve greater social justice we likely often overestimate our ability to understand the cultural contexts of the leaders we support. Even with the growing discourse around equity and inclusion, implicit bias training and awareness building, we also need to take care that mere awareness doesn’t lead to overconfidence in our ability to overcome such biases. Such work will never be finished.

How might we provide space and support for our staff and project teams, allowing them to celebrate the impact they have on some of the world’s most intractable problems, while acknowledging the limits of our agency. Practicing humility without helplessness requires intentional space for mindfulness, conversation, and healing for sponsors and projects alike.

And how might we engage in sharper portfolio management and other, more regular, organizational health assessments to support more intentional conversations around operating capacity limitations and strategic growth?

The above are just a few ideas from the vast field of the behavioral sciences. We encourage our peers and colleagues to delve deeper into this exciting area of research. It may just hold clarity about and answers for some of the most perplexing questions our field faces.

To continue your exploration of the behavioral sciences, visit Syon’s personal page with links to peer resources.

The Common Impact Initiative: The Case for Field Research

The Opportunity

The field of fiscal sponsorship is growing by leaps and bounds, driven by the diversity of urgent overlapping problems and opportunities for reinvention that we face today: social justice, climate change, income inequality, and many others—not to mention the global COVID-19 pandemic. Adding to these broader forces are the changing dynamics of the nonprofit sector writ large. Fiscal sponsorship is finding itself at the center of the conversation around nonprofit resource sharing, consolidation, and general “repositioning”. And new generations of social entrepreneurs and changemakers are finding fiscal sponsorship an attractive and flexible alternative to forming standalone nonprofits.

These dynamics are motivating the need for a deeper understanding of the depth and breadth of the field today. Philanthropies and policy makers are asking for information on the size and shape of the ecosystem. Amidst the sector’s wider focus on impact, how or to what degree do fiscal sponsors define impact, and do we measure it? Finally, we know that the breadth of fiscal sponsorship practice extends far beyond the bounds of self-identifying fiscal sponsors to include organizations engaged in sponsorship, intentionally and accidentally, as well as fiscal-sponsorship-adjacent work that shares common practices and concerns, but carried out by nonprofits not identifying as fiscal sponsors. These include large, multiunit nonprofits and networks, found often in healthcare and higher education, as well as multi-entity structures commonly found among community land trusts and nonprofit development corporations.

Of the many virtues and values that fiscal sponsorship offers, two areas of interest and opportunity rise to the top today: Equity/Access and Efficiency/Sustainability. Anecdotal evidence abounds and some quantitative data exists illuminating various aspects of how sharing resources can lead to greater sustainability, mission focus, and economies of scale, as well as provide improved and more equitable access to nonprofit resources. But we are still lacking in field-wide, collective data on these fronts, which is predicated on our ability to identify some key data points for each that can be tracked across a diverse ecosystem of sponsors.

Equity & Access: Fiscal sponsors offer ready-at-hand, “plug and play” infrastructure for leaders of new, grassroots, and community-based projects, virtually eliminating the prevalent knowledge, legal, and financial barriers to starting a nonprofit . This attribute of fiscal sponsorship alone presents a solution for many of the access and equity challenges that face BIPOC and other marginalized leaders in accessing the resources of the tax-exempt sector and advancing the interests of their communities. Indeed, many of the first fiscal sponsors were formed in the wake of the Civil Rights Movement out of the need to provide communities of color greater access to government funding streams. Effective fiscal sponsors share their resources through equitable sharing power and authority with the leaders of the projects they serve. Yet, the fiscal sponsorship field remains largely white-led, reflecting the larger profile of the nonprofit sector. Fostering the development of more fiscal sponsors of, by, and for historically marginalized communities is of urgent importance in the larger struggle for racial equity and social justice. Fiscal sponsors can be a catalyst for transforming the nonprofit sector from its role as participant in racial and social inequity to that of agent in uplifting leaders and communities that have been long disenfranchised.

Efficiency & Sustainability: Fiscal sponsors are collective capacity builders. As fiscal sponsors add more projects and grow their shared support, the overall capacity of the community of projects grows as well, a much more efficient way to build capacity than one organization at a time. Using data from SMU Data Arts, Impact Commons conducted a comparative study of a sample of 475 arts organizations operating below $2 million in budget in Southeastern Pennsylvania. We found that they spent between 17% and 27% of revenues on the equivalent back office supports that a comprehensive fiscal sponsor can provide for between 10% and 15% of revenue. That is a “savings” difference or re-allocation to program or other priorities of about 10%.

In addition to financial economies, we also find that a number of fiscal sponsors provide a wide range of wrap-around consulting services, as well as community learning and collaboration. As collective capacity builders, they are also collective risk managers. The cooperative nature of the fiscal sponsorship business model--typically a percent of each dollar received is allocated to shared expenses--means projects are only paying for services when money comes in, allowing them to weather vagaries in cash flow and other events through the collective strength of the portfolio of projects. This ultimately leads to greater overall sustainability of the community. Even in the event of a catastrophic event, such as the COVID-19 pandemic, a fiscal sponsor is able to mobilize stabilizing resources and support more quickly for its projects, than if they were operating independently.

Over the past year, we have heard from many fiscal sponsors that COVID led to a great upswing in demand for support from new projects, as well as dramatically increased revenues for many existing projects. This precipitous growth motivated strategic planning, self-assessment, and an urgent need to evaluate the question of “right size”. How big do we want to be? If we want (or need) to grow, how do we do it responsibly? The need for working capital and change capital for sponsors (and their projects) is greater than ever, elevating the urgency for field-level case making to philanthropy.

The Status

Fiscal sponsorship has been around since 1959, when TSNE MissionsWorks launched the first recognized “Model A” comprehensive fiscal sponsorship practice. The first (and still only) authoritative text on the field appeared in 1993 by attorney Gregory Colvin, Fiscal Sponsorship: Six Ways to Do It Right, and has since gone through several reprints. In 2004, the National Network of Fiscal Sponsors (NNFS) was formed as the field’s first trade group, with support from the W. K. Kellogg Foundation. Fiscal sponsorship operates within the bounds of charitable and tax law, but has remained relatively untested in case law.

Today, the San Francisco Study Center (fiscalsponsorshipdirectory.org) tracks about 300 fiscal sponsors. This is complemented by the membership rolls of NNFS (fiscalsponsors.org), which number about the same, though the degree of overlap in these databases is unknown. Beyond the self-selected groups in the above two databases, anecdotal evidence from funders and nonprofit leaders indicates, as mentioned above, that there are many informal or occasional fiscal sponsors: nonprofits that provide fiscal sponsorship support when the need arises, often not as a publicly advertised service or significant component of their mission.

Over the past year, the lack of shared impact data for the field, as well as census-level data describing the shape and size of the fiscal sponsorship ecosystem has revealed itself to be a significant barrier to our work, as well as the growth of the field. For example, lack of baseline data limits the ability to find fiscal sponsor matches, refer sponsees from one fiscal sponsor to another as well as better understand different approaches to shared services and how an organization can benefit from them. Moreover, there is still a dearth of awareness in the sector and among nonprofit leaders of the potential and breadth of support and impact that sponsors can offer. Members of the funding community certainly see the potential fiscal sponsorship holds and are investing in sponsor creation and capacity building. Yet, as a whole, the philanthropic sector seems to be stymied by a lack of evidence about the size and the impact of the fiscal sponsorship overall.

The first and last field scan for fiscal sponsorship was commissioned in 2006 by Tides, following a 2005 study by TSNE MissionWorks of funder attitudes toward fiscal sponsorship. With the increased national reckoning with racism and social injustice, three studies have been commissioned examining equity-oriented practices in fiscal sponsorship and intermediaries in general: Centering Equity in Intermediary Relationships (Change Elemental, 2019), commissioned by Ford Foundation; Reimagining Fiscal Sponsorship in Service of Equity (TSNE MissionWorks, 2021); and most recently, Leveraging Fiscal Sponsorship for Equity (PROVOC & New Venture Fund, 2021, forthcoming). Building on these studies, which were more focused on patterns of practice, we now need to map the landscape to strengthen the case for fiscal sponsorship, as well as identify opportunities for strategic growth.

Big Questions

The field is at an exciting point of inflection after 60 years of practice, and more information is needed to effectively navigate the path forward. The below three foundational questions loom large on the landscape.

• How is the field described, what are its defining attributes, and how big is it?

• Can we define patterns (shared thinking) around the impact that a fiscal sponsor has on their projects (sponsees), such that patterns of common impact may be established for the field?

• Does fiscal sponsorship offer a more equitable, scalable, sustainable, and impactful path for nonprofit work than the traditional, fully independent nonprofit route?

To begin to delve into these questions, Social Impact Commons is organizing a multi-year Common Impact Initiative, a collaboration among a consortium of convening, data holding, and supporting organizations for the fiscal sponsorship community. Our first step will be to assemble this group to gather some baseline data from known (self-identified) fiscal sponsors reachable through the networks of the consortium. Before the end of 2021, keep an eye out for a survey instrument. If you are a fiscal sponsor reading this post, we hope you will participate.

Here’s to the road ahead!

Equitable Contracting - Patterns of Practice

Commoning places a strong value on decentralized or shared power structures and relationships as one of the essential paths to equity and justice. Contracts and agreements of all kinds, but in particular between sponsors and projects, should be approached through the lens of mutuality and shared authority and responsibility. Below are equitable contracting design principles--patterns of practice--we have identified as considerations when constructing, negotiating, and entering into contracts.

1. Table Setting. It is helpful to provide context around the missions and purposes of the parties and their intentions surrounding the engagement. We use recitals or background statements at the outset of the contract to communicate this important information.

2. Smartly Organized. Well-written contracts can serve as handy reference guides to help understand and manage relationships. One should not have to sift through page after page of “legalese” to find the terms most frequently referenced by staff. The terms of a contract should be organized in a way to promote ease of use and we suggest separating the legal “boilerplate” language from the terms that matter most to stakeholders which are placed in an exhibit or at the beginning of the contract. These terms include the key timelines and milestones, designated contacts, description of who is doing what (i.e. the “scope”), and how and when money and/or other resources are exchanged. When the parties anticipate they may enter into a series of engagements over time, use a “master service agreement” where the parties agree to the general legal terms that will govern their overall relationships at the outset and then each time they wish to enter into a special engagement with one another, a simple sheet listing the key business terms is signed and becomes a part of the larger agreement.

3. Use Definitions. If the contract will have words or phrases carrying special meaning used in multiple parts of the contract, add a definition section so there is a simple reference sheet that makes very clear what all of these terms mean. Capitalize those words or phases when they appear in the contract so the reader understands they are associated with the special meaning from the definition section.

4. Fair Terms. Contracts should not be one-sided but rather have balanced key clauses including the following:

   • Notification. In general, each party should have a reasonable time to respond to concerns raised by the other party and an equitable process should be in place to address concerns. Sanctions and penalties, if any, should be graduated so as not to impose the maximum penalty on the first offense.

   • Indemnification. Each party should be responsible for its own actions and the maximum liability they can be exposed to should be in proportion to their responsibilities and the amount of funds being exchanged.

   • Disputes. When conflicts can’t be resolved between the parties, an independent mediator should be utilized before escalating to any litigation process. Consider power dynamics and resources needed to travel and participate in any conflict resolution process when deciding on the venue for arbitrating or litigating conflicts.

   • Intellectual Property. When it comes to intellectual property such as copyrights, predominant and historical corporate thinking says the party paying should own the work product or have the exclusive right to use it for certain purposes. This “winner takes all” mindset is evolving for nonprofits and for-profits alike and it is worth considering opportunities to share ownership among the parties or making the work freely available to other stakeholders using licencing constructs such as Creative Commons or open source. Additionally, funding sources increasingly require their grantees share work produced with their grant funds with the general public; something to keep in mind.

5. Gender Neutral. Contract language should be gender neutral referring to person or individual rather than assigning sex or sentences should be structured to eliminate pronouns completely. Also, when names of individuals are used, list them in alphabetical order.

6. Plain Language: Phrases like “Notwithstanding the aforementioned” and “the party of the first part renders unto the party of the second part” add nothing beyond confusion and frustration to a contract. Legal drafting should employ short sentences, clear language, avoiding complex construction, and legal jargon, such as Latin terminology, and abbreviations. Contract sections and headers should be descriptive in terms understandable to an average person. Agreements should be available in the predominant language of all parties, even when United States law is in force.

7. Risk Appropriate Complexity. The complexity and length of agreements should be appropriate to the risk and relationship that the agreement is meant to govern, with the intention for agreements to be minimal in length and not “over-manage” from a legal standpoint.

8. Clear Amendment & Equitable Exit. The manner in which the agreement may be changed or exited by either party should be clearly stated. And if exit or termination is the goal or possible eventuality, fair and balanced (not punitive) terms for all parties should be articulated.

9. Practical Compliance. Compliance-related matters should be as simple to satisfy as possible, while serving the underlying purpose of the agreement--”over-compliance” should be avoided, or cumbersome compliance standards or methods, where simpler approaches would suffice.

10. Values-aligned Subcontracting: In agreements where either party is permitted to engage subcontractors, there should be requirements that subcontractors comport with standards of fairness and sustainability in their business operations.

11. Use of Attorneys. Groups making good use of this guidance and our Commons Tools Library should require less legal expertise as resulting contract structures and terms will be fairer and easier to understand than most contracts. However, contract attorneys can still play an important role in thinking through and drafting solutions to complicated scenarios. When using attorneys to negotiate and/or draft contracts for you, we encourage you to share this sheet to ground them in our shared approach. If legal counsel has questions or suggestions to improve this guidance, we welcome the opportunity to engage.
    

DISCLAIMER

The above blog post does not constitute legal advice. Social Impact Commons is making these ideas available for informational purposes only. Different circumstances and legal jurisdictions may call for different contract language and we recommend you seek the advice of local counsel in drafting any contractual agreements.

The Right Size - Questions of Growth & Scale for Fiscal Sponsors and Projects

The subject of strategic growth and scale has become a central question for the fiscal sponsorship community. The forces of growing social, racial, and economic inequity in our country, compounded by the pandemic, have fueled both a rush of beleaguered organizations seeking refuge and safety in numbers, as well as accelerated growth in grassroots, social justice organizations seeking fiscal sponsors to accelerate their missions. Most fiscal sponsors are reporting tremendous growth in the demand for their support, and many individual projects are experiencing rapid and significant influxes of support and parallel increases in demand for their services. Questions about how to think about scale, whether to scale, and how big is big enough are top of mind.

The distinctly American obsession with bigger-is-better and growth-for-growth's-sake is deeply ingrained in our cultural values and has profoundly distorted our assumptions about the nonprofit sector, largely in unhealthy ways. The assumed value of bigness permeates manifestations, from the “Big Mac” to the spurious free-market mantra, “if you’re not growing, you’re dying.” Growth, accumulation, and scale are so deeply ingrained in American, capitalist culture that to deny their alleged “truth” is akin to asserting the earth is flat.

Today, more than ever, we must challenge bigger-is-better as our reigning paradigm and think about the value of scale and impact in a more multifaceted way, celebrating the value of both big and small and all things in between. For the private sector, growth and scale are mostly driven by market dynamics: the need for dominant (or some specific) market share, competitive advantage, and ultimately, profit. And with profit as the primary motive, scale, success, and value are naturally measured in money.

In contrast, the nonprofit sector, true to its name, is not motivated by profit (or money), but the fulfillment of charitable purpose, or mission. Yet, the growth-for-growth's-sake paradigm and the tendency to assess scale and value using the myopic measure of money prevails--a morbid condition induced upon the nonprofit community through private sector operating assumptions and values. When nonprofit leaders describe their organizations, the first thing out of their mouths is often a statement about the size of their budget. And I’ve found that most fiscal sponsors, when asked the same question, respond with the number of projects “under management” and cash throughput. But is that really why we’re doing this? And do those stats say anything substantive ultimately about impact or mission fulfillment? Not really.

For single-mission nonprofits, the question of scale is often tied to capacity building. Despite the fact that most of our sector is “small” in budget scale, the march to “professionalize” the sector over the past fifty years has forced nonprofits to scale for the sake of attaining a size that can support independent back-office and other infrastructure. (“If we were only bigger/had more money, we could afford a fundraiser, full-time accountant, etc.”) This brand of capacity building continues to be pushed by funders and the management consulting industry, often leading organizations to carry or strive for scale they cannot sustain, all in the name of being big enough to keep standing on their own. Of course, fiscal sponsors offer a solution to this problem: organizations can achieve a right size relative to their mission--even if that means at a modest budget size--while accessing full-charge, but fractional back-office supports.

If we are to move away from growth-for-growth’s-sake and growth-for-capacity’s-sake, whether we represent a fiscal sponsor or a project, we must ask the question, what is the right size for my mission? For fiscal sponsors and the nonprofit projects they support, the answer is complex. In our view, there are four considerable dimensions that inform strategic thinking about scale and impact for fiscal sponsors and their projects.

A Right Sizing Rubric

Our proposed Right Sizing Rubric may be used to think about scale for any nonprofit mission. But we share it here as a tool for analysis and consideration of scale for fiscal sponsors and their projects. The below rubric dimensions are relational: Impact & Mission Model relate directly to Culture & Working Relationships, and Financial Model & Capitalization relate directly to Human Capacity & Systems. Each of the dimensions represent areas of strategic decision making, and all four interact and affect each other.

A decision about Impact Model will affect matters of working and values-based Culture. For example, if your management culture has historically been “high touch”, rapid growth may spread your staff resources too thin too quickly and undermine the existing quality of relationships. A change in Financial Model will affect Human Capacity and Systems, and around the thinking goes. To state the obvious: if you grow in number of projects and income under management, your staff and systems will need to expand accordingly. Which of the below dimensions is driving strategic decision making may change over the course of time and organizational development, and at any given time, all four are likely to bear different weighting in strategic decision making. Despite the multi-directional way the decision process may flow, there is a general sense of flow of decision making that starts with Impact & Mission Drivers and follows the order in which the following descriptions unfold.

Impact & Mission Drivers

These are virtually synonymous in their use here and refer to what is motivating your work. Where does the impetus come from? Despite the tremendous diversity of missions out there, all missions are driven by a mix of two elements, or motivation archetypes: external motivations and internal motivations. Each of these offer different scaling considerations, each show up in different proportions and ways in nonprofit missions.

External Motivations are those that emanate from an external (to the individual or group of people that make up your organization), often quantifiable need, such as a population of youth to be educated, homeless housed, or a disease that needs to be eradicated. Scale and size of the nonprofit relative to mission is informed by the size of operation needed to address the external need, as delimited or proscribed by the organization.

Theories of change or impact focus on addressing the quantifiable need, usually within a certain demography, geography, and/or time frame. We might be decreasing numbers, i.e., people in Chester who are homeless; or increasing numbers, i.e., all children living in Santa Clara County have access to education and healthcare. External motivations are often the dominant drivers of health and human services, education, environmental conservation, and general community benefit, for example.

Internal Motivations are those that entail a set of decisions driven by individual or collective values, self-image, desired work-life balance, skill sets, and other considerations idiosyncratic to the specific person or persons that constitute your staff and board. In short, it’s the answer to the question, “What is enough?”. We make decisions about what is enough all the time: this is the right size house for me, or this is all I’m willing to spend on that new jacket. Organizations merely collections of humans making similar decisions. In the field of applied psychology includes the study of human satisficing (yes, that spelling is correct), the science behind how we decide what is enough.

Theories of change that are dominated by internal motivations often cleave to the individual or group sense of sufficient size, as determined by organizational leadership, or the whole organization team, if more collective work culture is in place. For example, if the potential of human creative imagination to think up new theatrical works is theoretically infinite, why does one theatre company have a bigger budget and put on more productions than another operating at a comparable level of artistic quality and in the same marketplace? If you were to read both of their mission statements, I would venture they both can argue they are fulfilling their missions to make theatre, just at different operating scales. Of course, a number of other issues contribute to answering that question: the genre (and audience interest in that genre), leadership’s skills in raising funds, marketing prowess, etc. But a big factor, in my experience, is simply the decision of the artistic direction concerning the size, volume, and expense of the work they feel comfortable producing.

Culture & Working Relationships

Trust & Power Dynamics change with scale: as the size of your organization and/or number of audiences/beneficiaries increases, the ways in which you maintain trust in your work and distribute or share authority (if that is a value) changes. It’s not that trust is impossible or power cannot be shared in large-scale operations, just the way you structure and accomplish it needs to change, and thus factors into growth decisions and change management.

For example, it is often simpler (and may require less structure and process) to maintain trust and transparent relationships within a small group than in larger scale organizational systems, where it may be impossible or impractical for everyone involved to build mutual relationships. Rapid growth in staff teams can lead to instability, erosion of communication and trust, and other negative events, if intentional new systems and processes are not built to accommodate the changing dynamics.

Similarly, sharing power and authority, as in more “horizontal” or collective/cooperative organizational structures, may be easier to accomplish informally at smaller scale, but requires much more formal structure, process, and communications to do effectively at larger scale. This may be one of the reasons that more top-down, consolidated power structures are assumed to produce great efficiency at scale--the conventional “corporate” structure--and often emerge as organizations get bigger. More contemporary sociology of the organization has evidenced this does not have to be true. Holocratic organizational structures are on the rise and break larger organizations into semi-autonomous smaller units. Because it is usually true that making decisions within large groups of people is usually slower and takes more effort (coordination and process) than small-group decision making.

Social Ties & Relationships are considerations closely allied with the adobe trust and power, but speak more to the everyday work experience with and among your colleagues. Do you feel better working in a small group or intimate setting or in a large organization? The answer to this question drives job decisions everyday and it tends to become a shared value for some organizations. For many organizations, the ability to be on a first name basis with their beneficiaries is a desired or essential aspect of their impact. So, how to maintain that at scale can become a major cost driver. “Higher-touch” service models become very expensive from a staffing standpoint as the number of constituents they serve increases.

We cannot discount the importance of good old-fashioned chemistry: person-to-person working relationships. Even with the right skills, knowledge, intention, and experience, as with all kinds of relationships, some people just don’t work well together. In my experience, this basic, deeply human, and scientifically unexplainable factor has driven many decisions for projects to spin out, just as it often may drive the decision to quit a job.

Finally, when it comes to the scale of both your internal team and community of projects, there are a number of sociological and anthropological areas of study that look at the limits of human tie-building. Most notable of these is the theory of Dunbar’s Number, developed by British anthropologist Robin Dunbar. The theory basically maintains that there is a cognitive limit of about 150 people with whom any single person can have a sustained and meaningful relationship. It’s interesting that many coworking or collective organizations naturally plateau at around that size. Likewise, corporate and team dynamics change greatly at 50 people and then again around 150. I have found it notable that most fiscal sponsors top out at between 75 and 150 projects. Could that be Dunbar’s Number at work?

Human Capacity & Systems

Staff & Contracted Services are the chief driver of cost (and revenue) considerations when contemplating both scaling up and scaling down. Since fiscal sponsors are really in the business of shared services, this means shared people power, making staff and contracted services the largest fixed cost we carry, above occupancy and other major cost centers. (This is in fact true for most nonprofits.) So, the manner in which you are meeting service demand through a balance of in-house and outsourced human capacity is the key to sustainability and effectively managing growth.

Taking on large projects (or spinning them out), in particular in “Model A” settings, can have a profound impact on staff, and thoughtful up-staffing doesn’t happen overnight. We need to build more fiscal sponsorship-focused temporary services to allow sponsors to expand and contract with greater ease and less risk. Many of the relationship and capacity building functions fiscal sponsors hold are hard to temporarily source, owing to the need for specialized knowledge of the fiscal sponsorship environment. But some functions, such as bookkeeping and financial management, lend themselves easier to outsourcing.

Systems, like staff and services, need to be both robust and scalable (up and down). Here we mean things like workspace, enterprise technology, practices, and policies. These elements of the management system, in particular technology, often are overlooked or underestimated in their limitations to accommodate expansion and contraction. Chief among these--and the reason Social Impact Commons started our enterprise technology resource development with Sage Intacct--are the accounting systems that are essential to all fiscal sponsorship practices. There is no fiscal sponsorship without superior financial management systems.

Owing to the substantial cost and labor of implementing enterprise technology systems, fiscal sponsors often wait until a major expansion is afoot to think about upgrading in the interest of future scalability. In this case it’s easy to get caught behind the eight ball, and rushing to catch up can be a messy and expensive process. While, in concept, re-examining policies, processes, and practices should be less expensive, they too often are overlooked in moments of growth. Don’t underestimate how growth may bring about the need for new or more robust policies and processes.

Financial Model & Capitalization

Operating Revenue Model and overall “portfolio management” is essential to any right sizing conversation. We’re discussing it last not because it is of less importance, but because the approach to resource or revenue model often requires decisions concerning the above dimensions of our rubric to be made first. Once you have set the scope and boundaries of your right size (for a given period of time), and determined what people power and systems you need to operate well, then it’s a question of achieving a sustainable revenue model with reasonable risk accommodations. That said, you may be operating in a philanthropic environment or at a scale where other constraints exist on your revenue streams (such as lack of available unrestricted operating support, which is all-too-common for fiscal sponsors).

For fiscal sponsors, there are some specific scaling considerations relative to sustaining core operating staff and systems: larger overall financial project portfolio and “throughput” can enable more shared infrastructure costs to be covered through cost allocations (fiscal sponsorship fees). In other words--assuming careful portfolio management--the more funds you steward, the closer you may get to 100% cost recovery and the less reliant you may need to be on direct philanthropic subsidy.

Many (possibly most) fiscal sponsors support large numbers of start-up and grassroots organizations, which definitely is an enduring area of growth on the nonprofit landscape. Whilte core to the mission of many sponsors, organizations of this nature tend to be volunteer driven (initially or permanently) and limited in their ability to forecast income, if there is any substantial income to be generated at all. At the same time, start-ups require a great investment of effort from sponsor staff, in balance making them high-cost and low-income, from a sponsor’s perspective. Start-ups and grassroots organizations require more direct philanthropic subsidy, or a portfolio model that relies on larger more established projects for most of its cost recovery. Whether by intention or accident, fiscal sponsors often engage in a kind of internal cross-subsidy: large project fees subsidize the cost to support smaller-budget projects. Consistent portfolio review and understanding the “elasticity” of the portfolio relative to income and support expenses is important.

Capitalization is key to managing right sizing, both up and down, in particular when it comes to the investments needed in people and systems. The bind for sponsors always comes in the need to invest in systems and people in advance of taking on a large or complex new project (or projects), knowing that cost recovery once the project is on board will take time. This is where working capital comes in. But like most of the nonprofit sector, we know anecdotally that many sponsors operate with only thirty days of unrestricted funds on hand. And most of those funds are needed for existing cash flow management, not investment in impending growth.

Building and maintaining a healthy balance of Liquid Unrestricted Net Assets (LUNA), if possible 90 days or more, is one approach. This can only happen with consistent budgeting (at the project and fiscal sponsor levels) and attention applied to stocking cash reserves. While not a standard practice, more fiscal sponsors may want to consider a fractional increase in their allocation rates to contribute to cash reserves. Restricted fundraising for a board-designated Capital Fund is another approach. Both are hard for many fiscal sponsors. Despite a decade of growing awareness in the funding community over the lack of capitalization in the sector, there are still very few grants available for capital reserves development. This highlights the potential need for shared revolving capital, privately assembled and/or through commercial lines of credit, for the fiscal sponsorship community in general, a topic we have addressed in past member conversations. We remain interested in this idea and are exploring the potential to gather a group of sponsors to pilot a fund model.

Confronting the infinite horizon of mission - how to draw the line?

It’s not always easy to wake up every morning and confront the infinite potential of your nonprofit mission and vision. Most days (we hope!) it’s inspiring work, but it can also be overwhelming. Even in the case of missions focused on more quantifiable needs, such as the number of kids in a given school district in need of a healthy lunch, there is always more than can be accomplished. For missions with less quantifiable bounds, such as supporting the creative vision of artists, advocating for social justice, or nurturing a faith community, the potential for growth is infinite.

Yet making the hard decisions to define our scope of impact at any given time is essential to being able to describe and demonstrate impact. Otherwise, we live in a state of constant over-promise and under-delivery. Essential to this task is thinking about scale and impact as having both qualitative and quantitative dimensions. It’s as much about how much as it is about how well or comprehensively we deliver our work. In a world obsessed with numeric and financial metrics for scale, arguing that we want to serve fewer students, but more immersively can sometimes be hard. But growth and scale can be determined by the depth of services offered, as much as by the number of people served.

Finally, setting boundaries, being focused, and cultivating the fine art of saying “no” are essential to maintaining our morale, life-work balance, and overall mental and physical health. Five hundred years ago, scholars and philosophers in the West began writing about melancholia (the origin of our word melancholy), a mild depression or sense of unease brought about by contemplating the vastness of the universe and the divine. In like manner it’s easy to succumb to the weight of the water we carry in the nonprofit sector. The enormity of the problems we seek to address can often overwhelm. But rest assured that in applying intentional consideration to the questions of scale and defining our limits at any given moment, we can chart a path to organizational health and impact, one step at a time, one scope at a time.

Shifting and Sharing Power - Peer Governance and the Question of Stewardship

Power Shifting and Sharing

Central to our ongoing reckoning with racial, social, and economic justice and equity is the question of how power and authority is shifted and shared within and among nonprofits and the communities they support. The latter notion of power sharing is the focus of this post, in particular as it pertains to fiscal sponsorship and the sponsor-sponsee relationship.

First, it is important to understand the difference between power shifting and power sharing. Power shifting in a racial equity context entails, in part, lifting up organizations and leaders of color, alongside replacing white management and governance leadership with leaders of color. Power shifting has rightfully been a substantial focus in the discourse around racial equity concerning the nonprofit world, since the majority of leadership and governance in the sector remains white. The Daring to Lead reports of 2006 and 2011 of more than 3,000 nonprofit leaders found that 82 percent of respondents were white. BoardSource’s 2015 Leading with Intent report of nonprofit boards found that 89 percent percent of respondents identified as white.

While we don’t have data on how many fiscal sponsors are predominantly white-led from the standpoint of board and management, it’s likely that sponsors reflect the same majority white leadership that currently marks the sector. As an ally organization, Social Impact Commons maintains that if the nonprofit sector wishes to equitably support BIPOC and other marginalized communities, we need more fiscal sponsors with majority management and governance representing these very communities. We need more BIPOC-led fiscal sponsors.

In addition to the hard work of power shifting, we also need to think about power sharing within the structures of nonprofit organizations and with the communities our organizations serve. By power sharing, we mean creating structures (legal and otherwise) and apportioning decision rights that share substantial authority and decision making control with/to the people we are serving. In most cases, this means ceding control from traditional centers of authority (executive management and boards) to non-executive staff, core constituents, and beneficiaries.

Traditional nonprofit structures, including fiscal sponsors, tend to be top-down, “vertical” structures, where policies, practices, and management decisions happen at the top and are handed down to staff and beneficiaries. Over the past few decades, with changes in generational values (greatly influenced by the open-source culture of the tech industry) and expanding theories of how corporations and organizations function, there has been increasing interest in more horizontal or “holocratic” structures for managing together.

Source: Brittany Hunter, “Holocracy and Democracy”, May 8, 2019, futurefrontiers.co

Notions of decentralized and distributed organizational structures may appear “innovative” when compared to traditional vertical and centralized cultures popularized by the 1950s image of top-down corporate power lampooned in the Coen Brothers’ 1994 masterpiece The Hudsucker Proxy. In truth, we have had structures and practices for shared or distributed authority for a very long time, as seen in the ancient idea of commoning at the focus of Impact Commons’s work and, since the early Industrial Revolution, in the form of cooperatives. Both commoning and cooperatives place an emphasis on beneficiary-led governance or ownership. The people who are sharing the benefits of a commons or cooperative resource, should also be the ones calling the shots, or at least have substantial participation in ongoing stewardship.

Fiscal sponsors of all kinds are models for nonprofit resource sharing among multiple semi-independent missions. We commonize staff, systems, legal structure, tax exemption, etc. As such, we hold the potential to adopt more peer-governed or commoning approaches, where project representatives participate and have real say in conversations about substantial strategy, pricing, policies, and practices. Power sharing can also be manifest in how we draft legal agreements, our choice of legal formations, as well as operating and management policies and practices. It’s not just about governance.

Why share power?

Sharing authority and power in a sustainable and effective way, in our opinion, must be grounded in a clear sense and definition of community, built around shared values, worldviews, identity interests, mission focus, etc. Your community should be “defined but open”, meaning there is a clear identity that underpins belonging, and those who identify accordingly are welcome. This is the essence of intentional community building. Before you share power, you need to be sure that you share enough core values and views of the world to ground and build trust. From Impact Commons’s vantage, there are three main benefits to power sharing.

• Foster equity and trust. Since effective power sharing is predicated on trust and shared identity and purpose, a virtuous cycle is the hopeful result. The more authority you share, the more trust is built. Power sharing also means power distribution, which can mitigate some of the forces of inequity, in particular in white organizations seeking to be better allies for communities of color. Such forces might include the influence of a single leader’s or a board’s implicit bias, practices rooted in white supremacy, and so on. Even BIPOC-led fiscal sponsors can themselves fall subject to the very forces of inequity they are trying to address. Peer governance can keep things in check and hold managers and systems accountable.

• Manage more effectively and efficiently through relationships, not regulation. With trust and intentional community should come mutual care. If members can help each other out from time to time and we can leverage the collective wisdom of our communities, we may find more efficient paths to problem-solving and impact. Years ago, when I was first introduced to the coworking community (before it became commodified by WeWork at the like), the mantra was consistently “build community first, then space and resources”. Coworking was about intentional community, not fancy workspace with hip decor. Spaces that had cultivated strong community identities found they didn’t even need management staff; care for the space was assumed (and embraced) as a collective responsibility, sort of like how a family cares for its home and property. While that may not be a practical solution for fiscal sponsors, managing relationally and not transactionally through regulation with your members can alleviate many roadblocks and ease bumps in the road.

• Develop organizational resilience. Fiscal sponsors operate in a very dynamic environment, marked by ebb and flow of capacity demands and a constant stream of challenges and opportunities from member projects. It is the nature of the work. If we build a firm foundation of trust and power sharing, however, mistakes can become learning moments (not “service failures”) and there is more mutual care and understanding during the messiness of problem solving and growing pains. This is especially true in times of extreme crisis, such as at present, with the compounding forces of the pandemic and economic troubles battering our communities. Strong community cohesion allows for more a swift and coherent response.

How can we mitigate risk?

The notion of power sharing may seem attractive, if you subscribe to the above goals. But the barriers to change in our nonprofit structures are substantial (organizations tend toward status quo, not change), and nonprofit executives and boards tend to see more risk than reward in sharing power and control. And rightfully so. Power sharing is hard to do well and requires some other substantial commitments, if it’s to be done effectively and sustainably. The more you share power and authority--the more “horizontal” your culture and decision rights are--the more critical ongoing learning, trust building, transparency, and clear structures and processes for decision making become.

• Ongoing group learning and dialogue. Just because someone may be the beneficiary of a shared resource, such as the Project Director of a sponsored project, it doesn’t mean they are intrinsically endowed with the knowledge to make informed management or governance decisions that affect the greater community. The more you share decision making with a group, the more critical it is to engage in ongoing, intentional learning about how commonized resources are managed. Jessica Gordon Nembhard, in her landmark study of the history of the Black Cooperative movement in the U.S., Collective Courage: A History of African American Cooperative Economic Thought and Practice, underscores the critical importance of “learning circles” in the history of healthy cooperatives. Cultivating common understandings, perspectives, and knowledge about patterns of practices is essential for a group to manage well together.

• Trust building through transparency and social cohesion. Closely related to and part of the above ongoing learning process is the fostering of social ties and trust, both through regular communication and interaction, as well as through a commitment to transparency. There is nothing hidden behind the curtain or conducted in the back room. Candor is key, and trust should afford an atmosphere of safety where people can make mistakes, learn, and not worry about penalties. Sociologist Adam Grant who studies the behaviors of teams and organizations notes in his book, Think Again, that one of the key attributes of effective teams and leaders is the ability to create an atmosphere of safety where mistakes and candor are rewarded, not punished. Without that such an environment, innovation and learning become stifled.

• Clear decision making structures and process. Lastly, clear decision making structures and processes are essential to ensure that progress is not halted by conflict or stalemate. Clear provisions (bylaws, meeting protocols, roles, and responsibilities) need to be designed to resolve conflict or ambiguity when it comes to collective decisions. Many shared authority and decision making structures employ alternatives to conventional consensus-based processes, where the decision is between “right” and “wrong”, as determined by majority rule. In contrast, for example, systemic consensing processes help a group assess attitudes and relative “resistance” to a range of possible solutions while lifting up all voices of a group. The goal is more to prioritize a range of solutions, so that they can be explored in a particular order, rather than picking the “best” solution or path and discarding the rest.

As the old saying goes, with great power comes great responsibility. More horizontal, power-sharing structures place greater burden and responsibility on all parties to cultivate the skills to manage and husband resources together.

It is worth noting that the above ideas surrounding distributed and shared power within organizations are not right for every case or community. For these concepts to work in practice, you need broad-based commitment, which can take considerable time and effort to build. Many sponsors engage with these ideas in “lighter”, but meaningful ways. For example, a sponsor may allow in its bylaws for its members to nominate and elect voting members to the board. Some sponsors are entirely member-governed, which is common in the nonprofit sector, in particular among alliances and trade associations. Whether you are a fiscal sponsor or a single-mission nonprofit, it’s healthy to think about whether and how to engage your staff, board, and constituents in decision making. Does this support or not support your mission and values?

Sharing authority and decision rights is the difference between collective stewardship and traditional management. The former is collective, participatory, and empowering. The latter is top-down, regulatory, and often disempowering. Whether you apply them lightly or go all in, the above practices take time and real commitment to implement. But when practiced with intention and consistency, the returns in organizational resilience and overall wellbeing can make it well worth the effort.

The power of words - Strengthening fiscal sponsorship through commoning

What are commons and commoning?

A commons is constituted of a defined, but open group of people who actively build and steward (govern) a shared resource for the benefit of the group. “Open” here means that there is some unifying objective or identity to the group, but it remains open to new and additional participants; it’s not closed. So, a commons is very much (if not exactly) like a cooperative. And like cooperatives, pretty much any kind of resource can be “commonized”: land, teams of workers, buildings, technology, money, intellectual property, equipment, natural resources, etc.

Commoning is the activity of stewarding, or governing commons, which is done by the people or “commoners” who benefit from the commons. There is a frequent misconception that a commons is just the resource itself, i.e., the pasture, park, or piece of software. As David Bollier, one of the leading thinkers and advocates for commoning states, “there is no commons without commoning”. It is an active process in which human stewardship and shared values are in many ways more critical than the “resource” in question.

Commoning has three core constituent ideas, as crystalized and asserted by the research and writing of David Bollier and his fellow commoning scholar, Silke Helfrich. These three aspects, the “commoning triad”, as described below and elsewhere on this website, are lightly adapted in terminology and presentation from the work of David and Silke.

Commons Resources: The resources that are being developed and stewarded need to be clearly identified, including how they are cared for (developed), and accessed by beneficiaries, or commoners. For fiscal sponsors, this is being clear about the services and resources we are offering our projects, as well as the financial and other operating and business terms that guide the relationship.

Community & Learning: A thriving commons relies on a commitment to intentional, peer-to-peer learning among commoners, as well as active involvement in developing social ties among constituents. For fiscal sponsors, this concerns how you bring your project teams and staff together to build a sense of community cohesion and collective learning and growth.

Peer Governance: Finally, peer governance can take many forms, but at its core, there is substantial representation by and accountability to the beneficiaries of the commons, not just proxy governance (governance by people not directly participating in the commons). For fiscal sponsors, the degree to which you engage with peer governance relates to how much you're willing to share authority and power with your projects, and most critically, the degree to which your projects participate in governance of your organization, not just their own work.

How does commoning relate to fiscal sponsorship?

Fiscal sponsors, in particular “Model A” practitioners, are essentially managers of cooperatized or commonized resources: management staff, corporate formation, tax status, technology, systems, etc., shared among multiple “projects”. Hence our coinage of management commons as an alternative term for fiscal sponsorship. Though many sponsors likely do not think of themselves in this way, we see a number of benefits to thinking of fiscal sponsorship as commons management, which fall under three broad categories.

1. Commoning centers the projects and constituents and ways to more equitably share authority and governance responsibility with them. While there are certainly risks to sharing authority with constituents, this issue is at the heart of conversation around equity in our sector. Nonprofits are predominantly white-led and governed. If we want to have a serious conversation about equity and power shifting in the sector, ceding and sharing power with historically marginalized communities is where we need to begin.

2. Commoning centers the value of social ties and informal networks and can help a community of projects manage through tough times and flourish collectively. It is a perennial challenge of sponsors to facilitate relationships or build community and collaborations intentionally among projects. I would offer that this difficulty may be owing to the frequent dissonance between cultures that are very top-down and transactional and the culture of shared values and intention needed to actually build community. Tighter community bonds and cohesion can help a sponsor navigate growth and change, as well as weather external crises, such as the current pandemic. They can also establish a network of trusted relationships that may better support collaborations that require less facilitation by the sponsor.

3. Commoning centers relational over transactional or “other-centric” ideas, practices, and language. This idea is not only essential to supporting the above two observations, but can also be the “gateway” to start shifting internal culture and thinking toward a more collaborative and intentional community approach to fiscal sponsorship.

If the recent events in our country have demonstrated anything, it is that words matter and are deeply powerful, a tragi-comic understatement at best. Advocates for commoning practice talk about an “ontological shift” in thinking from a largely private-sector, free-market, and transactional way of viewing the world to one that is more mutual and relational. There is no “us” and “them” (“sponsor” and “project”), there is only “we”. This notion has deep and ancient roots in many non-European cultures, which modern free-market capitalism has largely occluded. Perhaps most notable is the Bantu word “Ubuntu”, which has cognates in many cultures and languages in sub-Saharan Africa, and roughly translates “I am because we are”. In other words, we are all in relationship with each other and have mutual responsibilities and obligations, a notion that is anathema to the radical individualism of contemporary, American neoliberalism.

The power of language.

Part of engaging in such an “onto-shift” (to use Bollier’s term) toward a Ubuntu approach to the world concerns language itself and the intentions and framing words communicate. Seemingly small changes can express dramatically different ideas and relationships. For example, consider the wide use of the word “fee”, as in “fiscal sponsorship fee”. Fee implies a transaction, a quid pro quo, and is a trapping of consumer culture. It immediately positions the sponsors as a “supplier” of resources to the project as “consumer”. While there is a value exchange between sponsor and project, the transactional connotations of fee undermine any sense of we, and reinforce “us” and “them”. We can apply a similar analysis to terms like “client”, “case”, “partner”, and so on.

The absence of focus on relational values and language can quickly form a foundation of mistrust and dysfunction. There are false but persistent perceptions that fiscal sponsorship is just a scheme to extract money (“You’re charging me a fee.”) from projects for little to no value in return. While these perceptions (hopefully) are the result of fiscal sponsorship done badly, the commercial and transactional language that dominates fiscal sponsorship doesn’t help the situation. The extractive and free-market denotations and connotations of language can become particularly amplified and sensitive for project leaders of color, even if the sponsor is BIPOC-led and governed.

So, what’s the alternative? We should consider building and adapting the language of commoning into fiscal sponsorship.

A step forward on the road to a more relational, Ubuntu approach to management commons, may be to reconsider the very language and terms we use. Instead of “fee”, how about “allocation” or “contribution”, both of which lean more toward a cooperative notion of relationship. Instead of “client” or “partner”, how about “member” or “beneficiary”, or even “commoner”? In a commoning universe “competitor” becomes “collaborator”, and “capacity building” becomes “community wealth building” (meant here to apply to more than money). None of these sample comparisons represent an official lexicon of commoning, but are offered to illustrate the very different universe and framework for relationships that mere words can evoke. They can change the conversation, literally.

In closing, we need to acknowledge that the term “fiscal sponsorship” itself is one of the biggest barriers we encounter in advocating our field on a day-to-day basis. What does it really mean? There’s something about money in there (“fiscal”), and “sponsorship” implies some manner of transactional relationship. (Is it charitable or commercial?) It comes across wonky at best and certainly doesn’t capture any sense of values or mutuality in the sponsor-sponsee relationship. Perhaps it’s time to reconsider the very name of our field. While certainly not perfect, management commons, to our ears, communicates more of the nuance and nature of our work as stewards of shared capacity and resources for the nonprofit sector.

Bridging the Gap - Wage Equity and Fiscal Sponsorship

The Problem

Starting with the tax policies of the Regan era our country has doubled down deeply on neoliberal, free-market economic policy over the past 40 years. The result: skyrocketing pay for CEOs, stagnant wages for most everyone else, consolidation of most of this country’s wealth by a tiny fraction of our populus, and one of the greatest wealth and wage gaps in modern history. According to the Economic Policy Institute, CEO compensation in the private sector has grown 940% since 1978, in contrast to the rest of the workers whose compensation rose only about 12% in the same period. Average CEO pay in 2018 was about $14M. In 1965 the ratio of typical CEO to worker compensation was 20:1. Today it is 221:1.

One of the greatest—if the the greatest—contributor to the growing social and racial inequities in our country is economic and income related. Poverty is rampant. While racism, white supremacy, and free-market capitalism have somewhat divergent historical origins, their stories are intimately and inextricably intertwined in the late 20th and early 21st centuries. Though economic inequality affects a broad cross section of our citizenry, it disproportionately affects communities of color and other marginalized groups. According to Harvard Business Review, Black and Latina women average a loss of roughly $1 million in compensation over a 40-year career, when compared to white men.

But the nonprofit sector is different, right? Unfortunately, the answer is yes and no. The nonprofit sector may not see the eye-popping numbers above, but the cultural issues that lead to such great inequity in compensation have deeply infected our sector. This is yet another example of private-sector thinking and assumptions poisoning the well of the commons sector, starting with the assumption that nonprofits “compete” with the for-profit sector in salaries, especially management compensation. Really?

According to a Nonprofit Quarterly article, a 2016 Charity Navigator study revealed that the average CEO salary in the nonprofit sector was $123,162. The same article touted the policies of fiscal sponsor Resources for Human Development (RHD) in Philadelphia, which strives to maintain an internal compensation ratio of 14:1 among their 6,000 employees. Now 14:1 starts to sound reasonable when compared to 221:1 in the private sector! But don’t let that fool you; there is still ample cause for concern.

The nonprofit sector suffers from wage ratio distortion, which is owing to the fact that smaller ratios become less meaningful when they are applied to number ranges at the bottom of the compensation spectrum. Having an organizational compensation ratio of 2:1 is no great shakes, when the compensation ranges from $20,000 to $40,000!

In the fiscal sponsorship community, we often hear about the tremendous impact that grassroots, all-volunteer projects have on their communities, thanks in part to the support of the sponsor. But if that impact is predicated on volunteer (uncompensated) effort, is that really a success? Moreover, is it sustainable? Likely no, in both cases. Of course, volunteerism and zillions of dollars worth of sweat equity will remain a mainstay of our sector, as we wrote in our last post. This is both how we carry on in such adverse funding and economic conditions. But it also means we need to push all the more toward fair and individually sustainable compensation—not just settling for “living wage” as defined by the government or policy wonks. We all know such wages are rarely conducive to “living”.

A Few Pathways Forward

So what are we to do as fiscal sponsors? There is no quick and easy path. But in our position as intermediaries and capacity builders there is a fair amount we can do, if we apply the time, resources, and intentionality to fostering wealth and wage equity among our projects.

Set Wage Ratio Standards - Despite the above criticism and notion of wage ratio distortion in the nonprofit space, it is nonetheless important to think about ratios, as many nonprofits—including fiscal sponsors—do not. Given that we’re dealing with the bottom of the earning spectrum, it might be more effective to think about how we are lifting up everyone in your organization (project and sponsor staff alike) to a baseline flourishing wage, not just a subsistence-level “living” wage. This flourishing wage will naturally vary depending on where you are working, based on cost of living and other factors. San Francisco and New York are a world apart from Peoria and Philadelphia.

Conduct Pay/Employer Equity Audits (PEAs) - There is growing awareness and practice in the nonprofit sector of conducting Pay Equity Audits, a fancy term for periodically checking your organization on how it’s doing not just on compensation baselines, ratios and the like, but also on employee benefits, equitable hiring practices, and other individual wealth building support for employees. There is a growing and ample body of literature on implicit bias and other historically exclusive employment practices and how employers can avoid them. There is no excuse today for not following these practices when building your team as a sponsor and in the policies you set for your projects.

Overcome the Tyranny of Job Title - Though often left out of conversations around equitable employment, we need to challenge the traditional vertical notion of organizations and the attendant job title-salary tether and think more fluidly and horizontally. That means possibly giving more weight to length of service to the field or sector (not just “seniority” in your organization) above a specific skill set or experience in determining compensation. It could also entail developing shared skill sets within and across your team, that would permit a change of job/role (“up or down”) without affecting income negatively. This might lead to more variety and job interest among your team members, as well as help you plan for more resiliency and job coverage when you find yourself down a few hands.

In the late 1990s The Andrew W. Mellon Foundation conducted a landmark study of American symphony orchestras. They found that despite the fact that most full-time symphony musicians were much higher paid than their freelance compatriots, they exhibited astonishingly low job satisfaction. The reason: lack of variety in day-to-day work activity. Having reached the pinnacle of their professions, players in even the finest orchestras fell victim to the monotony of the job. What if an employee simply wants to do something different in your organization--even something that would be considered a “lesser” job title—just to change things up for a bit? They should be able to step into that role, assuming they have the knowledge and skill, without a pay or benefits cut. In other words, we need to stop tethering compensation so tightly to a hierarchical set of job titles.

Rethink Benefits & Hire from Within - Offering employee benefits is a perennial challenge for nonprofits. I get it, money is tight. But in addition to traditional benefits, there are many benefits you can offer that have real cash equivalency to your employees and those of your projects without necessarily high cost to you as employer. For example, some organizations offer (whether you pay for it or strike an in-kind deal) individual financial planning support, something many nonprofit workers assume doesn’t apply to them; they don’t make enough. But the tighter your finances, the more important it is to plan and strategize. You can help your team set themselves on a path of greater financial health. In that same category are a host of other supports that in many cases may be obtainable through a partnership, in-kind contribution, or the time to set up the benefit. These include childcare, public transportation subsidy, pet sitting, among others. Finally, lowering thresholds for benefit eligibility so that part-time employees can access benefits as well should be strongly considered before dismissing such an idea as contrary to convention and “business best interests”.

One of my favorite benefits—though still somewhat uncharted territory—is Unlimited Paid Time Off (UPTO), which has been popularized by the tech community of Silicon Valley. We all know that most folks in our sector are driven not by the money but by the mission. This means that it’s probably safe to leave people to set their own schedules, provided they are meeting team and other work responsibilities. This is likely a greater motivator of productive work, as well as a benefit unto itself—more freedom and individual agency. In fact, the limited literature on this model cites that the main problem is that under UPTO most workers never take any time off! As a counter-balance, many UPTO employers offer “wellbeing allowances” to encourage spending on vacations and the like; some even require as a term of employment that staff take time off.

Lastly, and perhaps most importantly, whenever possible, hire from within. There is an entrenched nonprofit culture, in particular when it comes to “senior” management positions, to conduct a formal search, often with an outside consultant. The assumption is that the best solution always awaits in the marketplace. If you have been supporting and developing your team with intention, the best candidate should be one of your existing team members. This practice of avoiding hiring from within costs the sector countless dollars in on-boarding and training up. And it is one of the chief barriers that keep leaders of color from advancing in income and career development.

Move from Opt-in to Opt-out Benefits - On the more traditional benefits side, such as retirement savings, long-term/short-term disability insurance, life insurance, and others, there is human behavior to consider. Multiple studies from the field of applied behavioral economics have shown that people are very resistant to opt into something, even if it is beneficial to them. And they are also unlikely to opt out of the same benefit as well. The simple act of having to make a decision to contribute to your retirement fund is what keeps most people away from saving—not a limited wage. The truth is, even at our sector’s low wages, we could all be better at saving. Offering employer/employee retirement contributions (and other like benefits) as an automatic (but opt out) benefit can help overcome this human barrier to adopt and set your team members on a healthier financial path.

These are but a sampling of ideas and things to think about. We look forward to collecting more and imagining further.

‘Tis the season for thinking of others, after all.

The Case for Debt Capital - Expanding Financial Resources for Fiscal Sponsors and their Projects

Why now? What’s at stake?

As 2020 draws to a close, the pandemic rages on, though with some hope in sight. The federal Payroll Protection Programs (PPP) and related relief funds, however, are about to run out for most nonprofits, with the path to a new package from congress still unclear.

The coming months are likely to be dark and hard, both for the mental and physical health of our communities and for the financial health of nonprofits. Despite the many challenges our sector has faced to date, we are only beginning to see the real financial and other impacts of the pandemic on organizations. Prior to COVID, the Nonprofit Finance Fund reported that roughly 40% of all nonprofits have less than 30 days cash on hand. More recently, La Piana Consulting has tracked a surge of interest in mergers and restructuring, and Candid study reports that between 3% (best case) and 38% (worst case) may fold as a result of pandemic stressors.

The smaller nonprofits that make up the vast majority of our sector are and will be the hardest hit, as they have little in the way of safety net, both in staffing and finance. Nearly 900,000 of the estimated one million nonprofits operate with budgets below $500,000. And contrary to popular assumption, these small organizations do the vast majority of our sector’s work.

Despite the dire circumstances and extreme pressures on the sector, we predict that our losses in the will skew toward the more optimistic end of Candid’s assessment. There are two reasons.

First, there is already a lot of positive “churn” and activity in our space. The pandemic, climate change, and the general assault on human rights and social justice waged in recent years has led to the creation of myriad initiatives, led by new generations of nonprofit leaders. So, while some organizations will disappear, many others are stepping into the fray.

Second, the greatest single resource of our sector is the people who drive it—mostly (and unfortunately) through contributed (uncompensated) time, energy, skills, and knowledge. I would estimate that the value represented by the donated time and knowledge of our nonprofit workers is far more valuable than all of our philanthropic endowments, individual donations, and government funding streams combined. This fact is both a wellspring of hope and cause for despair. It gives us hope, as people will be the reason the work of our sector survives the pandemic. We despair, because we must ask ourselves: at what human cost?

Nonprofits end not when the money runs out, but when the motivation runs out. Prior to our current crisis, the money-for-time balance in our sector has long been severely imbalanced--not enough money to cover the true cost of delivering impact. Now I fear we’re witnessing a period of extraction of uncompensated human effort on an unprecedented scale. And once spent, the cost of time cannot be recovered. We need more finance, and right quick. Enter capital into the conversation.

Getting our terms straight.

Most nonprofits raise and/or earn the money they need to cover core operating expenses. (At least, that’s the idea.) Anything left over that is not restricted to a special purpose is capital. In the for-profit world, this would be called “profit”. But since nonprofits can’t profit, they’re just net assets. (Oh, the power of words!)

These net assets are also sometimes called capital, as in “working capital”--funds you can use to manage bumpy cash flow, or save for the proverbial rainy day. “Capital” is distinct from “normal” operating revenue and expenses. It is the money you need to invest in additional staff, new technology, R&D for a new program, etc. toward the end of building capacity. Those new investments will help serve more people or generate more income, hopefully. Capital funds are also a form of insurance: they can help weather external impacts (like COVID), recover from unpredictable losses, and other negative events. In addition to net assets, capital for nonprofits most frequently comes in the form of restricted gifts or grants under the moniker of capacity building. In fact, this grant capital is the form that our field (funders and nonprofits alike) find most amenable. Capital and capacity building are joined at the nonprofit hip.

The terms “capital”, “assets”, and “investments” come from the extractive (and often exploitative) world of free-markets and private interest, in other words, capitalism. For this reason, in the commoning world, we don’t talk about capital, but commons resources. These are the resources (money, real estate, equipment, land, etc.) a commons brings into its embrace to steward for the benefit of a defined, but open community. For the purpose of this post, though, commons resources, assets, and capital are synonymous. While the free-market overtones of capitalist lingo are undesirable, shifting language is a slow process!

It’s all about timing and options, and we need to include debt in the mix.

Responsiveness in capital funding and finance has always been a critical weakness of our sector, and will become even more so in the months to come. We need more sources and streams of money or “supply of finance”, to use a fancy phrase. And we need it when our organizations need it, not when the suppliers (funders, donors, lenders, government agencies) want to supply it. This has always been and remains perhaps our sector’s greatest structural problem. While grant funding prevails as our chief form of capital, it has a number of problems discussed below. Low- or no-interest loans (short-term, revolving credit, and such) need to be added to the picture. As we look to increasing cadence of capital needs, we cannot afford to turn away from debt as a form of capital. How are nonprofits using loan capital? Research by American Nonprofits, a “small-cap” lender to nonprofits in California yields some insights.

BRIDGING – Providing temporary cash flow relief against contracted receivables (grants or service contracts) or anticipated income (from proven programs or services).

The Ecosustainability Project has two government contracts and a grant totalling $250,000 that they have yet to receive, but need to make payroll next week. They can borrow against these contracted receivables and make sure their people are paid on time!

RECOVERING – Funds for retiring debts and liabilities that resulted from broken business models or external events, assuming a sustainable business path forward has been defined and committed.

Very Experimental Theatre Company was hit hard by the pandemic, having to cancel a whole season. They need some funds to take care of aging payables and keep their core staff employed, while they pivot to virtual programming and plan for future live events. To get through, they want to borrow funds at no interest, with the potential to convert some to outright grant, if they cannot fully repay the loan.

SCALING - Funds for investment in staff and infrastructure capacity in advance of new or increased revenue streams and demonstrable external demand for/interest in growing programs.

Community Healthcare Partners, a “Model A” comprehensive fiscal sponsor, has several large new projects waiting to spin in, but must invest in staff and systems before bringing them onboard. To move quickly, they want to secure a low-cost loan, leveraged against anticipated income from the new projects.

PIVOTING/INNOVATING - Funds for supporting organizational change or innovation in advance of new or increased revenue streams and/or savings and cost efficiencies.

The Advocacy Project has been working on its social justice advocacy and has developed a bold new online platform and fundraising campaign strategy, but needs to invest in implementing it ahead of projected income. They would like to explore low-cost debt as a quicker path to finance. Time is of the essence!

As the above suggests, there is “good debt” and “bad debt”. Good debt is debt with a thoughtful and viable plan, low/no cost, favorable terms, and means of repayment. It’s solving a short-term problem with a clear path forward, not plugging an unaddressed structural deficit or operating failure. Bad debt is the latter: loans without a clear exit or high cost and punitive terms that threaten to burden the nonprofit with crippling cost and added risk.

There are some roadblocks and smaller nonprofits suffer the most.

Small to mid-sized nonprofit organizations and projects, such as those that often find a home in fiscal sponsors, are particularly disadvantaged when it comes to responsive financial resources. Calls for emergency support go unheeded. Opportunities are lost to bad timing.

Racial Equity & Access: Communities of color and other marginalized groups are most frequently excluded from accessing loans, and underwriting models are rife with negative racial biases. According to a May 2020 study by Echoing Green and Bridgespan Group, African American small business owners are 5.2 times more likely to be denied a loan than their white counterparts. Black and Brown-led early stage nonprofit organizations also exhibit disparities in income as compared to white-led organizations: 24% less revenue and 75% fewer unrestricted net assets. Among those examined in the study African American-led start-ups received $20 million less than white-led organizations and only 11% of “big bet” philanthropy investing in social change initiatives went to organizations of color. While these latter stats concern income and grantmaking, the well-documented and historical disinvestment in and exclusion of leaders of color and their organizations contributes to a vicious cycle of severe undercapitalization.

Awareness & Debt Aversion: There are sector-wide cultural prejudices against nonprofits taking on debt, and related, lack of awareness or knowledge of how to think of debt as a solution (not just a “problem”) in the context of nonprofit finance. Funders and donors are quick to look askant at debt on a nonprofit balance sheet, usually assuming the worst. Unfortunately, they are often right to assume the worst, as much of the debt we see in our sector is the result of structural deficits, unforeseen events, or the natural operating fragility of any organization, regardless of size. In fact, we see most carried nonprofit debt as the direct result of the undercapitalization, not mismanagement. It’s a negative cycle. Lack of capital means lack of any margin for operating error, which leads to the incursion of debt, should a financial assumption not pan out. The preponderance of “accidental” debt in our sector has made debt into a four-letter word. We can’t start to add this form of finance to our toolkit, until we can wield it with greater positive impact and more knowledge and facility.

Lack of Supply of Finance: There is a virtual desert of “small cap” lending, which generally runs between $10,000 and $100,000 per loan. This realm of lending sits between micro-lenders like Kiva (though Kiva will write loans greater than $10,000) and other more conventional lenders, who start in the $100,000+ loan range. Research by American Nonprofits, has shown tremendous need for short and medium-term loans between $10,000 and $100,000 among small and mid-size nonprofits. That is the sweet spot.

Foundations and government are slow to make grant decisions and respond to complex needs and situations. Smaller organizations tend not to have major donors capable of five-figure (or larger) check writing. Micro-lenders, such as Kiva, often employ crowdfunding for generating loan capital, greatly limiting responsiveness. Other nonprofit lenders, such as Community Development Finance Institutions (CDFIs) may be a bit faster and more responsive and have higher appetite for risk, but also have high lending thresholds and high loan costs as a result. Most CDFI’s and national nonprofit lenders, such as Nonprofit Finance Fund, won’t lend less than $100,000 (or more). And these days, nonprofits can practically forget getting a loan from a commercial bank.

Collateral & Creditworthiness: Finally, lack of collateral assets and reliable cash flow to secure operating loans hold smaller nonprofits back from borrowing. Most nonprofit lending still follows commercial banking culture and favors loans secured by assets with established markets, such as real estate, cars, and machinery. Even when nonprofits have assets to offer, such as endowments or real estate, the charitable nature of those assets prevents them from being viable collateral. A bank doesn’t want to foreclose on a homeless shelter! And small nonprofits (in particular the 88% of organizations operating below $500k/year) are seen as too financially fragile to take on any amount of debt, though this may not always be the case.

Fiscal sponsors, as commons managers, can change the loan-to-grant capital game.

Fiscal sponsors are uniquely positioned to address the challenges above and change the capital game both for themselves and their projects.

Distributing Authority: Just as philanthropy is re-examining who makes decisions and how in an effort to dismantle white supremacist structures in grantmaking, there is the same urgent need in nonprofit lending. Underwriting and risk assessments should be made by local community stakeholders with close knowledge of and relationship to the organization or project. Micro-lender Kiva has demonstrated that locally held, social and interpersonal connections (their “trustee” model) make the best loan management relationships. This has led to a more than 95% repayment rate for Kiva’s loans. Similarly, fiscal sponsors could organize and facilitate community-driven criteria and underwriting/grantmaking processes for their capital funds.

Sharing Risk & Increasing Access: Fiscal sponsors are structures for sharing risk, which can result in increased access to loan capital for projects that one their own would look too risky. For “Model A” sponsors, the sponsor is the true borrower on behalf of its projects, allowing smaller projects and start-ups access to lending through leveraging the sponsor’s net assets and greater scale of cash flow, among other potential positive underwriting factors. This presumes, of course, that the sponsor is capitalized and demonstrates a healthy overall financial position. By leveraging scale and the collective capacity of the sponsor, and engaging in thoughtful and intentional financial analysis with project leaders, smaller, start-up, or more vulnerable organizations might access more responsive and low-cost capital for their mission needs.

Ensuring Responsiveness & Ongoing Education/Support: The close relationship between sponsors and projects enables rapid risk assessment, data gathering, and decision making. Much of the delay in grantmaking and lending alike is owing to the challenging process of accurately assessing risk and feasibility from afar. Fiscal sponsors not only have ready access to the financial and other data they need to assess whether capital is warranted, they also know the people behind the project. This is perhaps the most critical factor in assessing creditworthiness and risk. Do you trust the project director to make good on the loan? As we saw with many sponsors in the early days of the COVID pandemic, sponsors have a bird’s eye view that permits them to evaluate vulnerability in their community of projects quickly and set in motion stabilization efforts at scale. Lastly, and very significant, ongoing technical support and financial knowledge sharing is built into the fiscal sponsorship relationship. Sponsors should be in a position to help projects and their leadership overcome “debt aversion” and apply the appropriate analysis to make an informed financial decision. Once a loan is made, if the project or “sub-borrower” runs into trouble, there is a ready hand to help solve the problem.

Leading Fund Development: Most critically, fiscal sponsors can lead the way in developing internal and cooperative loan funds with a mix of outright grants, “recoverable grants” (a.k.a. no-interest loans), and low-cost debt. Already, some larger fiscal sponsors fortunate enough to have developed cash reserves or commercial lines of credit provide a vital cash flow management function to those projects reliant on reimbursable government funding. Some of our oldest fiscal sponsors, such as TSNE MissionWorks and Urban Affairs Coalition have long held their ability to provide collective revolving capital to their communities as a major area of positive impact.

Undercapitalization has been a topic of conversation in the funding sector for several decades, with little progress in addressing the problem at scale. Fiscal sponsors offer a potential pathway to providing capital--both loan or grant funds--at scale by raising capital that effectively capitalizes all of their projects through one loan-to-grant fund: collective capitalization. This can make for a compelling argument to funders: in providing a fiscal sponsor (or group of sponsors) with capital to lend and grant, they are capitalizing tens or hundreds of organizations at once, instead of one at a time.

Working on the Cloud - The Challenge & Opportunity of Enterprise Technology for Fiscal Sponsors

Enterprise Resource Planning (“ERP”) or “enterprise technology” is one of the perennial challenges of the nonprofit sector, and especially so for fiscal sponsors. ERP is defined as the core software and systems used to manage business and organizational processes.

Despite the many benefits offered by discount or “strategic sourcing” models like TechSoup, true ERP solutions come rarely (if ever) cheap and out-of-the-box. There is finding the right product/vendor (sourcing), customization and set up (configuration), and ongoing licensing costs, staff training, and support. All of these add up to substantial time and direct costs for any organization. There are three general paths an organization (or community of organizations) can take in standing up a robust ERP.

(1) Engage in managed services. You have a contracted vendor or in-house manager (i.e., resident tech guru) to manage multiple independent systems that may be local (desktop or locally hosted) and on the “cloud” (web-based). Often these systems are not integrated—they do not “talk” directly to each other. For example, you may have DonorPerfect for your donor data, MailChimp for your email campaigns, Quickbooks for finance, and Zenefits for HR. Efficiency can be a challenge with all of your systems uncoupled, not to mention duplication of human effort and the potential for error. Despite these shortcomings, managed services are often seen as the best solution for smaller organizations or those that do not have to manage a lot of complexity.

(2) Build it yourself. The high costs of enterprise solutions and the need for greater customization has, from time to time, driven the nonprofit community to develop its own home-brewed tech solutions. Notable examples include Fractured Atlas’s recently suspended platform artful.ly and django. But what you might gain in bespoke design for needs unaddressed by the commercial market, you lose on other fronts. This approach has not, on balance, yielded lower cost or more sustainable solutions (in our opinion). If you develop software, you become a software company, with all of the accompanying costs of ongoing investment and management responsibilities. Despite the trillions in philanthropic capital out there, it has been impossible for the nonprofit (philanthropy) community to match the capitalization and innovation investment of Silicon Valley and Wall Street when it comes to technology.

(3) Integrate existing solutions. You select the best solutions for your range of needs from commercial, third-party providers and integrate them through Application Programming Interfaces (APIs) that allow one software to talk to another. In this arena, there are two basic choices: go with a one-stop solution, like Netsuite, or pick and choose among more focused products, like Sage Intacct for accounting, Salesforce for Consumer Relationship Management (CRM), and integrate! On the one-stop shop side, there is the reality that no one company can specialize in all of the functions that you need (despite what they say), so this solution is likely to have its strengths and decided weaknesses. On the plus side, you may not have to deal with as many integration roadblocks. When going the integration route, you pick and choose the best of the best (within your budget) for each piece of the system, but then you have the challenge of getting them all to work together and dealing with multiple vendors and cost structures. Pay your money, take your choice, as they say.

The Challenges

The challenges that fiscal sponsors face in developing their ERP technologies are the same as those confronted by any organization, for-profit or nonprofit. But there are some distinct nuances to the challenges faced by fiscal sponsors. Let’s look at the big four.

Research, Pricing, Configuration, & Integration - To start, there is a daunting task of searching the marketplace for the right solution, weighing functionality, vendor values, price, and customer friendliness, among other things. For fiscal sponsors, pricing and integration are particularly challenging. Most enterprise systems charge two types of licensing fees: core systems or “modules” and user access. In other words, you pay for the system and for access to it. For sponsors, the user access can be a larger cost relative to overall budget than you would typically encounter in a single-purpose organization, if you want your projects to be able to access your system directly, for example. In multi-entity systems, the costs for entities and user access for all of your projects can mount quickly. You may have a budget of $2 million, but, because you carry out your mission by administering many projects, you find yourself running a system worthy of a $50 million company, with all the attendant costs. Configuration and integration is also costly and time consuming, but more so for sponsors when you factor in the needs of projects and their constituents. You’re not just building for one mission and team, you’re building for many.

Data Architecture & Segregation - Whether constituent, financial, or other data types, data architecture presents a number of difficulties for sponsors. Most enterprise systems are designed for single purpose (entity) companies where data is tied to one “entity”. While access to kinds of data can be restricted by user, it’s harder in many softwares to segregate basic types of data, such as customers (donors) and vendors, from project to project. Your projects don’t want their financial or constituent data accessible by each other; they want to feel like they are operating independently with respect to data. Things get even more complicated for constituent data. A single donor, Jane Q. Richperson, may have relationships with several projects, but the nuances of that relationship may be hard to parse out from project to project with just one data record for Jane. What if one project has permission to have her private cell phone and another does not. A single data record, even in a “relational database” may not work for a multi-entity environment.

Project Stakeholder Access & User Adoption/Experience - Most fiscal sponsors cater to a staggering array of users, with respect to tech familiarity, cultural background, language, and, frankly, patience and willingness to adapt to new systems. It’s challenging enough for a regular company to get its employees on board with a new system; it’s another matter entirely for a sponsor to convince project staff to use a new system. In fiscal sponsorship land, projects may be beholden legally and otherwise to the sponsor, but they typically see themselves as customers or quasi-independent agents, meaning that convenience and user friendliness cannot be ignored. In the software marketplace fiscal sponsors frequently face the challenge (and paradox) that they need the robustness of an enterprise solution such as Abila or Sage Intacct (which are built for accounting/fundraising professionals) with the simple user experience of a more lay-market product with less functionality like Mint.com or YNAB (which are built for anyone to use). The market is largely divided along user types (i.e., professional vs. lay), which makes finding solutions for fiscal sponsors a challenge.

Transitioning & Sustainability - If you rely on “legacy systems” (i.e. outdated systems that are still in use), there will likely be challenges in moving from your current system to a new one. This is particularly true today as everyone is moving from desktop and locally hosted solutions (servers in a closet in your office) to the Magical Cloud in the sky. There is data clean up and migration, which can be especially challenging if we’re talking about constituent or financial data. Often overlooked or discounted is the fact that any new technology requires training, orientation, and inevitable changes in your human systems, policies, and practices. Changing technology means changing your approach to management.

The Opportunities

Despite these challenges, there is reason to be hopeful, if we work together as a community to develop enterprise solutions for the fiscal sponsorship field.

Negotiating Leverage and Time/Cost Savings - Working together, we have strength in numbers to negotiate more favorable costs and better packages with commercial software companies. Market share, social impact, and other leverage points are all on the table. The promise of addressing the growing fiscal sponsorship market has been key to negotiating very favorable rates for our Sage Intacct instance, for example. We also can stop reinventing the wheel, spending mountains of money to create the same solution over and over. The advent of the cloud makes sharing technology solutions easier and cheaper. For example, as Social Impact Commons was developing our Intacct instance we were aware of two other fiscal sponsors doing the same. Together our three organizations spent more than $1 million(!) in configuration costs alone to build a similar cloud-based system three times over. We could have spent about $300k, and then simply shared the model, which is precisely the logic behind our partnership with Sage. Just think of the savings!

Graduated, On-demand, and Self-guiding User Experience - Tech as “TA” - What if you could graduate the user experience to accommodate advanced users and newbies (or the very impatient)? How often do you struggle with having your projects comply with policies and procedures that are often contained in sponsorship agreements, guidebooks, and manuals that nobody really reads or absorbs? (Rhetorical question.) What if those policies and processes were simply integrated into a comprehensive and self-guiding cloud-based system, supported by Artificial Intelligence (AI) features that help automate further? What if all data could be accessed by projects on demand 24/7? Well that day is upon us. We have the technology. To pick a stupid example: if your policies require receipts for all reimbursements (or a missing receipt affidavit) and the upload window for your ERP doesn’t permit your project director to submit without them, the technology is basically monitoring compliance with what might otherwise be a written policy requiring human oversight. Voilà.

Common Data Models & Field Learning - Lastly, but perhaps most significantly, building and sharing ERP solutions could facilitate greater commonality of data standards and integrity across our field. This, in turn, would open powerful opportunities to gather data and learn about everything from community needs, management practices, and cost savings achieved through fiscal sponsorship, to ways we need to hold funders and policy makers accountable and generally advocate for the virtues and impact of the field as a whole. Without common data architecture built on shared systems, these opportunities remain elusive at best, impossible at worst.

In conclusion, there lies tremendous potential in working together as a field to design, capitalize, build, and maintain ERP solutions for fiscal sponsors and their projects. Social Impact Commons, with its announcement of our SIAP partnership with Sage Intacct and the American Institute of Certified Public Accountants (AICPA), has taken one big step down the road toward a field-sharable solution. We envision this as the foundation stone for a larger, more robust comprehensive ERP integration with custom user interface and single sign on, capable of providing fiscal sponsors and management service organizations their accounting system, CRM, Human Resource Information System, and a host of related functions and useful systems; some of which may not even exist at the time of this writing.

We have decided to name this integration project Flourishment. As the name suggests, we hope our solution doesn’t just alleviate the pain and pathos of technology, but rather sets our field on a path to flourishing through collectively-designed, human-centered technology in the 21st century.

Stay tuned. Here’s to the road ahead.

Making the Case - Challenges Facing Shared Impact Models for Fiscal Sponsors

Not everything that counts can be counted, and not everything that can be counted counts.

-- William Bruce Cameron

Whose impact are we talking about?

Why do we need a shared fiscal sponsor-specific impact model? Answer: in addition to tracking your own success there is a value to common case making, whether advocating to current and future projects, board members, or donors/funders. The fiscal sponsorship field has yet to develop a common data model or any shared impact metrics that would allow us to communicate the impact and advocate as a field to policy makers, funders, and the public writ large. We would argue this is one of the main contributors to the persistent obscurity of our work and continued skepticism about its virtues and value. For our field to grow and flourish, this needs to change.

When asked to describe their impact, fiscal sponsors look to the diversity of their projects and find numerous examples of success. This project provided housing to 300 low-income families last year. That project welcomed 1,000 underserved families to their first theatre experience this year alone! Inspiring stories abound. 

But can fiscal sponsors claim the impacts of our projects? Do these anecdotes and case studies describe the impact of the fiscal sponsor or the impact of its programs or projects? The answer is yes, both...and no, not really. It’s complicated.  

There is a question of bragging rights. 

Our many project success stories do, of course, tell a valid story about impact. But following the conventions of the field, fiscal sponsors are co-managers with their projects. There is a division of labor and responsibility, and along with that, bragging rights. Let’s look at this issue of who “owns” mission-related impact from a few different angles.

• What the lawyers and tax experts might say: “You’re ultimately responsible and liable for the projects you sponsor, so your impact as a sponsor is the impact of your projects.” Since the sponsor is liable and responsible from a fiduciary standpoint for the charitable activity of its projects, the attendant impacts “belong” to the sponsor--perhaps even more so than the project. This is the strange balancing act of fiscal sponsorship: we want our projects to have some autonomy (in letter and spirit), but at the end of the day (and especially for Model A folks) the sponsor holds ultimate responsibility and authority. 

  From an Internal Revenue Code standpoint fiscal sponsorship services (back office supports) by themselves are not considered charitable activities. In fact, services such as accounting, are considered commercial in nature. Thus fiscal sponsorship services alone are not the reason for your tax exemption. Rather, it is the charitable purposes of the projects you support that permit your 501(c)(3) status. Therefore, like the legal/fiduciary argument above, the impacts of our projects must ultimately be claimed by the sponsor to be a viable public charity. A fiscal sponsor is nothing (and likely not tax-exempt) without its projects, if fiscal sponsorship is the sole focus of your organization.

• What project leadership might say: “As our fiscal sponsor, you’re essential to supporting and enabling our work, but these impacts belong to my project.”  Project leaders, in particular founders, may (and do, in our experience) hesitate to share credit with their sponsor. While there is no concept of ownership (in the private sense) in the nonprofit arena, nonprofit leaders and teams understandably develop a strong emotional identity connection to their work. This often leads to a sense of authorship, pride, and concern over agency with regard to their work and mission, and impacts. So while the sponsor plays a critical role in enabling the project to do its work, there may be some hesitancy from projects to share the limelight. This may be particularly true for sponsors where there are significant race and identity divides between sponsor leadership and project leadership.

• What your staff and board might say: “Without our support these projects would not be able to operate, so we celebrating their impact together.” Sponsor staff and board always have a more detailed and extensive understanding of what it takes to provide a strong backbone to nonprofits. So, we would expect sponsors to feel no hesitancy in claiming project impacts. But given the frequent gulf in understanding between the front-of-house and its work (the project) and the back-of-house, we also have to keep in mind that this sense of ownership may not be shared by your projects. 

• What funders and donors might say: “Our funding went to support your Miraculous Social Good Project, based on the case its leaders presented, and we view the outcomes and outputs as theirs, not yours as fiscal sponsor.” Fiscal sponsors get this a lot from donors and funders, who emotionally (and mission-wise) connect with the project and tend to see sponsors as critical, but more mission-agnostic parts of the equation--vital behind-the-scenes, but not on the front line. (This is also the way many sponsors intentionally position themselves, so there is some validity to this perspective. There is also a persistent (and overly generalized) view of sponsors by funders as “mission surrogates” or transitional housing for charitable projects on their way to become independent (read, “real”) organizations. These perceptions might cause some project funders to look askance at sponsors staking claim to project impacts.

There is the challenge of aggregating collective impacts among diverse projects.

If you are home to lots of different projects, you are likely to have just many different models and metrics for impact—as many models as you have projects. Perhaps the greatest challenge to any sponsor (let alone the field of fiscal sponsors) summarizing or aggregating the impacts of its projects is the sheer diversity of missions, models, and theories of change that find a home in fiscal sponsorship’s broad embrace. Even for a sponsor with very specific field focus, such as water conservation, arts and culture, or addiction recovery, there are likely (we hope!) to be different approaches to solving such complex problems, as well as different desired outcomes. So, how could you roll this up into one impact metric or model? 

There is the growing challenge of human-centric vs. institution-centric impact models.

Reflecting the dramatic shift toward freelance work models away from traditional corporate and institutional models, the question becomes increasingly urgent: what metrics are we tracking? Are we gathering metrics that describe the work of individual change makers and social good entrepreneurs, or are we describing the work of organizations and institutions? In other words, should we be tracking the impacts of individuals acting for social good, or institutionalized versions of the same (that tend to “dehumanize” the activity)? 

Fiscal sponsors allow either to be possible, and with the Age of the Institution seeming to be on the wane, this question becomes paramount. It is true that organizations are constituted of people, but to measure an organization’s impact vs. the individual and collective impacts of the specific humans that make up that institution are two different things--two different ways of framing what might be the same ultimate impact. The framing matters. How many of the nearly 900,000 organizations operating below $500,000 annually are just a nonprofit corporate “store fronts” formed to enable the work of a particular person or small group? (Probably all of them are, to some degree.) And for those small organizations, which is more likely to endure, the “organization/brand” or the person behind it? I would bet on the latter. So, might we get a better picture of long-term impact tracking the work of the individuals that make up our sector instead of the transient storefronts they occupy? Perhaps, but our sector has not even begun to grapple with this fundamental and looming structural question, precipitated by the tectonic changes we are experiencing in how work is done.

Finally, there is the challenge of “sex appeal” - that is, for your metrics and impacts.

The charitable sector has always been plagued by Sally Struthers Syndrome. If you’re of a certain age (and if you’re not, hop on YouTube) you might recall Sally Struthers’s ad campaigns for Save the Children from the 1980s. Her repeated line--always following a cut-away to images of starving children, mostly of color--was, “For just pennies a day, you can save a starving child.” This campaign (and approach in general) has since garnered much deserved criticism by nonprofit practitioners for reducing complex and catastrophic problems to middle-class noblesse oblige and the White Savior Complex. But so much charitable work still gravitates to direct human impact statements when it comes to making the case. If donors and funders can feel the pain they are alleviating, all the better. 

In the above context, fiscal sponsorship feels awkward and unsexy. (Sponsor raises hand: “But we do the accounting that helps to save those children’s lives!”) Funders and donors acknowledge the need for, but generally don’t like to fund “overhead”, thanks to the many myths and pejorative images that have been painted by the charity watchdog industry. (These are thankfully being redressed today by such initiatives as the Overhead Project.) Still, it is generally far more attractive and compelling to talk about the impacts of projects than the technical, legal, and financial support at the core of fiscal sponsorship.

How can we address the above challenges and build a shared impact model for the field?

The above issues make defining and tracking collective impact, both quantitative and qualitative, for the fiscal sponsorship field complex, to say the least. In closing we offer a few provocations that are inspiring and informing our thinking about a common impact model for the field of fiscal sponsorship.

What if we move the focus of our measurement from the institution to the most fundamental denominator: the individual doing the work? 

In a world in which individual change makers are driving impact alongside old-line (and new-line) institutions, the one “common denominator” is the individual human doing the work. If we were to take the work of individuals as our focus and determinant of metrics, we would be able (for instance) to compare the impacts of an organization against those of a single change maker--apples to apples--working on the same problem or in the same field. Given where things are going, this might have great advantages over the institutional focus of impact metrics that prevails in our sector today.

What if we move the “location” of impact from the project-to-beneficiary relationship up to the sponsor-to-project relationship? 

Finding common ground among the impact metrics for projects under a given sponsor may be an exercise in impossibility. But the nature of relationship and kinds of supports offered by fiscal sponsors to their projects tend to be relatively common from sponsor to sponsor, as well as mission or field agnostic. Accounting is accounting, HR is HR, regardless of the field of work in question. So what if we were to focus on measuring the impacts of the sponsor-to-project relationship in all of its dimensions as our chief scope of impact, leaving the specific project impacts to be as diverse as the visions we support?

With these two moves, we may come one step closer to defining a Common Data Model and Shared Theory of Change/Impact for the fiscal sponsorship field. And if we, as a community of practice, can work to define this Shared Impact Model, the resulting impact that would have on our field and the nonprofit sector in general would likely be profound. 

Who’s up for the challenge?

Stabilizing Exempt Organizations through Fiscal Sponsorship - Tools for a COVID World

Why work with established organizations?

• Lend a stabilizing hand to organizations struggling with the economic impacts of the pandemic or other challenges.

• Provide a strategic strengthening and capacity building hand to organizations poised for growth and/or pivot.

• Grow and diversify your community of projects (“portfolio”) as a fiscal sponsor: collective capacity building affords strength in numbers.

• Provide a platform for transformation or wind-down, preserving valuable resources that may continue to benefit communities.

The economic and social repercussions of the COVID-19 pandemic are destabilizing the nonprofit sector. Of the nearly one million nonprofits nationwide, 88% operate below $500,000 and according to the Nonprofit Finance Fund’s annual survey, 50% had no more than 30 days of cash on hand--and that was before the pandemic. Candid, a nonprofit data firm, estimates that at least 11% of all nonprofits will go out of business, and 13% of all nonprofit staff were laid off by the end of July. But these organizations, despite being the most vulnerable, do the lion’s share of the work for our sector and represent the most local reach and greatest diversity in mission and communities served.

We may be only beginning to feel the impact of pandemic, which will likely set in more acutely as 2020 winds to a close. The federal Payroll Protection Program (PPP) expired in July, just over two months ago. And smaller organizations are often slow to declare a state of emergency. For better and for worse, the operation of smaller organizations remains predominantly driven by passionate people, who work tirelessly for meagre (frequently below-market) compensation, owing to the cash-strapped nature of the sector. This tremendous human drive is a strength: nonprofit workers likely contribute as much or more value in sweat equity than all philanthropic giving combined. As long as there is someone willing to get up in the morning and carry the flag for one more day, the work goes on, regardless whether there is money in the till. Grassroots initiatives and smaller nonprofits don’t fail when they run out of money. They fail when they run out of will. This economic reality allows organizations to hold on longer than they should in the face of economic challenges. Often, when the alarm sounds, it is too late for a rescue or the cost of recovery is simply too dear.

Fiscal sponsors can help our sector restructure for greater resilience and sustainability. While it’s not a new practice for fiscal sponsors, in particular Model “A” providers, to share their infrastructure with established nonprofits, it’s not exactly a widespread practice or well understood. Moreover, our sector is still focused on conventional mergers and acquisitions (“M&A”) between single-mission nonprofits as the approach to restructuring; fiscal sponsors are rarely included in the repositioning conversation. M&A may be a great solution for two or more larger organizations, say above $5 to $10 million in budget. But for smaller organizations, the emotional and financial costs, as well as the burden of the process may be prohibitive, in particular in a state of diminished capacity. As our community confronts the economic fallout of COVID, it’s time to re-examine the role that fiscal sponsors can play in providing structures for greater resilience and impact, focused on the 88% of organizations operating at small but impactful scale.

Fiscal sponsors have a number of ways in which they can support the needs of established, tax-exempt organizations in uncertain times, offering the same backbone support that they provide to “informal” projects that have never incorporated or sought their own tax exemption. These shared services include accounting, financial management, insurances, compliance, risk management, legal, HR, project management, and other capacity building support, such as marketing and fundraising.

The Models

Following Gregory Colvin’s taxonomy, the approaches best suited for supporting exempt organizations span Models “A”, “L”, and “F”, (and variations thereon), as well as a “new” Model “O”, described below. Though different in nature, structure, and impetus, these four models have a common value proposition for organizations: they are means of sharing critical back-office support. Below is a brief overview of these four models and how they can be used to provide shared resources to nonprofits. More details on the specific structures, as well as pros and cons of each model and what might drive the choice of one over another will be the subject of a forthcoming primer from Social Impact Commons, “Working with Exempt Organizations: A Field Guide for Fiscal Sponsors”. An overview deck with more details and schematics of the models described below is available for download here.

Model “F” Technical Assistance Relationship is an arm’s-length relationship between sponsor and sponsee in which any number and amount of services may be delivered to the organization (sponsee) by the sponsor for a fee. Both organizations remain completely independent, with a basic service agreement defining the relationship. This is of course a widespread service arrangement and not unique to fiscal sponsorship. In this relationship the both organizations maintain separate insurances, HR, and compliance obligations.

Model “A” Comprehensive or Direct Project Relationship entails the operations of an organization being transferred, in whole or in part, into the sponsor and then run as a project of the sponsor. The organization’s legacy entity (its original legal formation) may be left in place in a minimal operating state (filing an IRS Form 990-N), and thus carries little to no compliance or insurance costs, allowing all of these expenses to be assumed and managed by the sponsor. A percent of revenue or expense is allocated by the sponsor to the new “project” to cover the costs of core back office support, including such things as insurances, compliance, etc. In this structure the insurance, compliance and all back office staff supports are the responsibility of the sponsor, just as in any Model “A” relationship.

Model “L” Disregarded Entity or Sole Member LLC Relationship entails the operations of an organization being transferred, in whole or in part, into a wholly owned subsidiary LLC (“disregarded entity) under sponsor and then run as a project of the sponsor. The legacy entity can be treated in a similar fashion to the Model “A” case above. In most cases, the service suite and financial (cost allocations) mirror those of Model “A”, leading this model to sometimes be called Model “A-L”: it’s Model “A”, just with the project housed in a separate entity under the sponsor. This structure is useful for segregating liabilities and transactional relationships, and other benefits, but still taking advantage of the share compliance, insurance, and HR infrastructure. The LLC’s finances are operated separately, but consolidated into the sponsor from a reporting and compliance standpoint.

Model “O” Sole Member Organization Relationship entails a very similar structure and concept to Model “L” above. Except instead of using a sole-member LLC and having to transfer assets from the legacy nonprofit into a new LLC controlled by the sponsor, the entire legacy nonprofit corporation is simply brought under the sponsor by adjusting the bylaws and corporate articles to allow sole or majority member control by the sponsor. This is a change in legal (governance) control, not a transfer of assets. This model, which is relatively new and not part of Colvin’s current taxonomy, is being practiced increasingly in the healthcare field, as it has undergone great consolidation in recent years. Like Model “L”, the services and “business” arrangement are often essentially that of Model “A”, so one could also call this Model “A-O”.

Important Considerations

• Establish sound due diligence, risk assessment, and a clear strategic framework for wanting to work with established organizations.

• Assess your internal capacity as well as the readiness of your team, key partners, and vendors before entering into this work.

• Define a clear stance on how equity considerations will influence the choice of which organizations to work with and how to structure the relationship.

• Develop a strategy for what kinds of organization cases you want/can take on: i.e., stabilization may be more labor intensive than strategic growth.

Despite the practical utility of these approaches as triage responses to a crisis, there are substantial considerations and perils when one considers the needs of culturally specific and BIPOC organizations. These are especially critical considerations, if the origins and majority leadership/constituent base of the sponsor are not of the community being served. Such considerations include:

Maintain community “ownership” and control while satisfying legal and practical needs to share authorities as part of sharing resources. Perhaps the most critical potential barrier for BIPOC organizations in working with fiscal sponsors is the importance of independent formation and exemption for many organizations of color. Even though there is no nonprofit concept of “ownership” in the private sense, forming and receiving exemption for a nonprofit organization is often imbued with particular meaning for founders of color: it marks a moment of triumph over a system that is largely stacked against them. And if the organization holds any major assets: real estate, equipment, intellectual property, there may be strong hesitation to transfer these just to enter into a fiscal sponsorship relationship.

So to ask a founder of color to entertain sharing any authority or responsibility over what they’ve built, as in the case of Models “A”, “L”, or “O” (moreso than Model “F”), may understandably be a non-starter. But there are ways to address these concerns in the cases of Models “A”, “L”, and “O”, such as carefully balancing authorities, approvals, and exit provisions in sponsorship agreements, such that organizations do not cede too much control. Using trust forms (in the legal sense) as opposed to corporate forms to house program activities can take advantage of unique capabilities in trust law that provide for more control by the project than corporate law affords. Finally, allowing for retention of the organization’s legacy formation and exemption (or providing for clear legal detachment of the corporation under Model “O”) while under fiscal sponsorship provides a path to exit. Maintaining the legacy organization, while having programs operate under the fiscal sponsors allows certain assets (real estate, collections, or intellectual property) and liabilities to remain in the legacy formation and thus not under the direct control of the sponsor.

Be open to concepts of “capacity building” that may not be core to fiscal sponsorship or conventional management practices. Understanding that many conventions of management are Western and adopted from for-profit, corporate culture. These may not often translate into the immediate needs of nonprofits working in communities of color, which may be struggling with very specific traumas of disenfranchisement or culturally specific capacity needs beyond “business” interests defined by Western management practices.

Build trust and honor different cultural practices and values while working to ensure compliance with historically white systems and institutions. If imbued with sufficient trust and understanding, fiscal sponsor relationships can be “translators” of culturally specific organizational practices that may not be seen as “best” or even compliant with Western notions of management--allowing an organization to meet funder, legal, or other demands and accessing resources while not relinquishing identity or values. For example, the frequent importance of family relationships and involvement in the leadership of organizations of color can run afoul of conflict of interest laws if not managed carefully. A fiscal sponsor can help navigate such issues without requiring the organization to give up an essential cultural approach to management or deeming that approach “incorrect” or “inappropriate”.

Finally, there are a number of operational considerations in using any of the above models to support established organizations. Chief among them is capacity to deliver. Established organizations often come with greater (or different) complexity and capacity demands than start-up or younger initiatives. And the transition into supporting an existing organization may require a significant increase in staff and capacity needs for the sponsor. Closely allied with this is added legal complexity and acumen, as well as the risk management due diligence required to restructure and co-manage nonprofit assets, if you are working with Models “A”, “L”, or “O”.

In closing, there are caveats that we should offer, as we encourage closer consideration of the role that fiscal sponsors can play in stabilizing our sector amidst the tumult of our times.

Restructuring to stave off failure is a moral and practical imperative, not necessarily a best practice. We would be remiss if we didn’t point out that highlighting this opportunity for fiscal sponsors does not necessarily mean we’re defining a “best practice”, but rather a practical response to a likely and unfortunate period of crisis in the sector. We have observed that smaller nonprofits consider repositioning (mergers/acquisitions, joint ventures, and other solutions) most often in the face of some looming failure or organizational weakness. It is a way out of trouble. In contrast, larger nonprofits and the for-profit sector view repositioning more as a strategic response to opportunity--a way to augment impact, market share, or positioning. It is far more constructive and healthy to view restructuring in this way, instead of as a path of last resort. Fiscal sponsors need to be realistic and set clear criteria in helping to stabilize other organizations in their community; we can’t save everything.

We must challenge and decry the Darwinian “thin the nonprofit herd” response to economic moments like this. In every moment of crisis, as we witnessed the wake of the 2008 market crash, many leaders in our sector (in particular funders) are quick to point out that times of trouble present great opportunities to “thin the herd”. The weak will fall away and the strong will prevail. The application of this biological metaphor, describing a tough but ultimately “healthy” practice, is not just wrong, but profoundly oppressive, if you consider the full implications of our national reckoning with social injustice. BIPOC organizations may be strong in will and vision, but are more likely to be financially weak, owing to decades of neglect, disinvestment, and systemic racism, largely on the part of the institutions and systems that support nonprofits. To invoke Darwin today in the nonprofit sector is an unabashed gesture of racism and white supremacy. Stabilization must be rendered through the lens of equity.

In the end, our sector will make it through this crisis. We always do, but at what cost? The vast ecosystem of small organizations that drive our sector are both resilient and vulnerable. We will need to bring as many resources to bear as we can in the coming months to ensure that resilience prevails and our sector continues to grow as a force for social change in our country.

Breaking through Boundaries: Fiscal Sponsors & Equity in Fundraising

A “Reimagining the Sector” Conversation Reflection

On September 17 we held our first “Reimagining the Sector” conversation with a group of our members concerning the topic of equity, diversity, and inclusion in fiscal sponsorship practice. The previous post of September 16 was shared as a provocation prior to the convening.

The subject is all-encompassing and complex, infusing all aspects of our work and conversation today. And since inequity pervades the nonprofit sector at the systems level, it resists reduction to a set of tasks or tools. There is no checklist. However, within the narrow scope of fiscal sponsorship, we can gather and share patterns of practice (frameworks) and questions which can guide equity-based thinking and decision making for fiscal sponsors.

Our conversation about equity on the 17th quickly turned to fundraising and overall resource development for projects, as fiscal sponsors have stepped up during the pandemic to be more involved in active fundraising with and for their projects. For example, Local Color discussed targeted fundraising support with their artist partners, and Seattle Parks Foundation shared successes they have had with cohort-based fundraising among projects, in particular those with less capacity to do this work themselves. Though not in attendance on the call, we had heard the day before from Rainier Valley Corps (RVC) that their projects are thriving despite the pandemic, in large part because of direct fundraising work RVC has been undertaking with their constituents. RVC has been leaning into active fundraising with their projects, well beyond their own direct fundraising efforts as a sponsor. And this is one of the ways in which they actively foster greater equity of opportunity and access for their community.

Fiscal sponsors generally draw a clear line when it comes to fundraising for their projects: it’s the projects’ responsibility to generate resources (engage in prospecting and cultivation and being the “face” of the ask”), with the back-office, administrative support of the sponsor. To act otherwise--to step from behind the curtain and prospect or cultivate relationships for particular projects or to sit across the table from the funder during the pitch--is to step over a line in which the sponsor starts to “become” the project. In that moment, a fiscal sponsor starts to “own” key resource relations as opposed to serving as a connector or capacity builder.

This is about where critical relationships are built and held. Fiscal sponsors try to remain behind the curtain with the projects out front. The boundary can get fuzzy at times, but is generally pretty clear. Relationships with funders, donors, clients, beneficiaries, and other key project stakeholders are held by the project. The sponsor provides guidance and assurance that basic management and compliance processes are being well executed. At least that’s convention.

Three reasons for this convention stand out. First, sponsors want to honor the sense of autonomy in purpose, vision, and constituent relationships that projects demand. This means keeping out of key decisions and relationships. Second, sponsors need to be careful about their own capacity. In “becoming” the project, it’s easy to get sucked into a vortex of work well beyond the core responsibilities of a fiscal sponsor. This might jeopardize the health of the sponsor or create friction among projects that think they are receiving less attention. Third--and perhaps most cited--is the matter of equal treatment for all projects. Many (not all) sponsors try to maintain an equal standard of treatment of all projects, though in proportion to size and operating demands. Making sure that there are no “favored children” helps ensure stability and a sense of fair treatment within the community of projects. This is accomplished, for example, through maintaining fixed cost allocations (fee rates), such as a 10% base cost allocation for all Model A supports; or policies that may be uniformly applied to all projects, regardless of age or size.

But equality and equity are wholly different ideas. Equal means equal--the same portion given to each constituent. Equity is actually the opposite; it often entails unequal action or apportionment. It means giving some projects more support than others (not equal amounts) in order to lift them up to a level of capacity enjoyed by projects that may enjoy greater privileges, such as better-connected leadership. This idea is famously captured by the image below which was first developed by Interaction Institute for Social Change with the help of the artist, Angus Maguire. It also likely means that in the face of limited capacity, fiscal sponsors today might accept a project by and for a BIPOC community to the exclusion of another project that is white-led, regardless of the good intent or worthiness of the latter’s mission and purpose.

Image created by Angus Maguire for the Interaction Institute for Social Change

With the tremendous battle for racial and economic equity in our country, it’s certainly time to break barriers and conventions. To advance equity in our work as fiscal sponsors, we need to consider how our support should be allocated to leaders and projects that, for example: do not have funds (or access to funds) when then show up at our door; do not conform to received (white) notions of impact, excellence, professionalism, etc.; or may not hold traditional “business” or “management” practices as key to their success.

Below is an initial (not comprehensive) set of self-assessment questions and incitements that center equity and begin to chart a path toward great diversity and inclusion for fiscal sponsors.

Equity

• Do new projects have to have a certain amount of funding, experience and a fully developed model day one, or do we provide space to test assumptions, explore new solutions, and learn?

• Are we open to management practices and approaches to support, impact, and change that challenge largely white, established norms and standards?

• Do we actively and intentionally allocate more of our resources as a fiscal sponsor to BIPOC-led projects over white-led projects?

Access

• Are we developing our internal staff and board, both in diversity and skill set/awareness to reflect and be welcoming to BIPOC leaders and innovators?

• Do we actively assess our intake and management processes, program offerings, pricing, tools, and other resources to ensure the broadest access while ensuring the vitality of our community?

• Do we communicate, externally and internally, in ways that are culturally sensitive and accommodate diverse languages, cultures, and learning/cognitive processes?

Authority

• How do we foster a greater sense of intentional community and social cohesion among projects, sharing values with constituent program leaders and the people we serve?

• To what degree is project leadership involved in or even leading intake/spin out decisions, as well as active and empowered participation in policy making/governance?

• How do we manage shared risks (legal, financial, social), knowing that we need to support projects that must engage in extraordinary risk to further social justice?

Attunement

• Do we embrace empathy and sympathy in our orientation to our projects and orient our team and projects in trauma-informed and culturally attuned practices?

• Is communication and “rapid candor” (opportunities for regular, frank feedback) welcome among our team members and in our relationships with our projects?

• Are communication opportunities regularly offered in both formal and informal ways, and how do we show up when things go wrong: corrective/punitive or restorative?

Again, the above is not a definitive or comprehensive list of questions. But these are questions we have encountered, thankfully, with greater frequency in our field. We welcome additional points and provocations in the comments below, or feel free to contact us otherwise.

Fiscal Sponsors & The Question of Equity

The field of fiscal sponsorship, from its origins in the late 1950s and Civil Rights Movement, has had a strong grounding in equity, inclusion, diversity, and social justice. For example, Philadelphia’s Urban Affairs Coalition (UAC) was founded in 1969 by the city’s Black and Brown leaders in response to the assassination of Dr. Martin Luther King in 1968. It’s purpose: to build the strength, access, and the resources of Philly’s communities of color. Today, UAC serves a wide array of community, health, and human service missions, largely of, by, and for BIPOC communities. 

In more recent years, Local Color was established to support the needs of artists and cultural organizations embedded within the diverse communities of San Jose, CA. Local Color offers an array of artist supports, including studio and workspace, and actively commissions and facilitates public art projects. Fiscal sponsorship has always been among the supports offered, but on a more informal and occasional basis. Over the past year, Local Color has been working with Social Impact Commons on developing a more robust and sustainable fiscal sponsorship program to complement its legacy programs and further support its community.

Fiscal sponsors, like their close cousins, cooperatives, are approaches to building and sharing resources among an intentional community. As tax-exempt organizations and cooperative-like business models, fiscal sponsors can offer an alternative economic and social structure to the alienating and disenfranchising forces of market-driven capitalism and the private sector. 

Economic historian Jessica Gordon Nembhard maintains in her book, Collective Courage: A History of African American Cooperative Economic Thought and Practice, that in times of extreme social and economic disparity, marginalized communities reach for alternative economic models. This trend has marked the history of African American cooperatives in the U.S., which blossomed during the Jim Crow era, and are witnessing a renaissance today for frighteningly similar reasons. It may not be a coincidence that we are seeing increased interest in fiscal sponsorship as a means of combating current economic inequities and social injustice.

Despite this history, how is fiscal sponsorship sizing up today, in particular amidst the perfect storm of our country’s social justice reckoning and the Covid-19 pandemic? 

Fiscal sponsors are tax-exempt 501(c)(3)s, and justifiably, nonprofits are under intense scrutiny today for their replication of many oppressive structures born of white corporate and management culture: top-down governance and management; favoring optimization and efficiency; Euro-centric concepts of “excellence” and “quality”; privileging of white workplace cultures and practices; and so on. Even fiscal sponsors of and for BIPOC communities are not immune to replicating negative structures inherited from the Western systems at the foundation of the nonprofit sector. A recent post by Vu Le in NonprofitAF discusses the “Highlander Syndrome”--how people of color can become complicit in perpetuating white supremacy.

So if fiscal sponsors are to chart a path toward equity, inclusion, diversity, and social justice, they need also to be agents of change for the sector as a whole and ask...

• How do we practice equity in the design and development of everything from our management and governance to day-to-day practices, processes, and programs?

• How can we foster a greater sense of intentional community and share power and authority with constituent program leaders and the people we serve?

• How do we show up when things go wrong? Is our approach corrective/punitive or restorative?

• How do we incorporate equity at the discernment stage with new projects? When selecting projects to join our community, does practicing equity mean intentionally welcoming certain projects and missions to the exclusion of others?

• How do we balance compliance, shared risks and services with diverse needs of the communities we serve?

To provide a starting framework for thinking about many of these questions, Social Impact Commons has grounded its work in commoning. This is the act of stewarding shared resources that benefit a defined (but open) community. There are three core tenets of commoning, which relate broadly to fiscal sponsorship. These alone do not guarantee equitable practices, but they provide a foundation upon which equitable practices may be built and flourish.

1. Clear definition of the resources being shared and how they are shared.

2. Fostering social connectedness, intentional community, and ongoing learning.

3. Bottom-up, shared governance and authority over resources held in common.

Social Impact Commons has been tracking a few focus points (by no means definitive) that offer paths to implementation for the above general framework. These have surfaced in some of our conversations with fiscal sponsors about the practices or frames that can lead to greater inclusion and diversity, as well as equitable access to resources in the nonprofit space. 

• Accessibility - not just in the sense of Americans with Disabilities Act (ADA) related practices related to language and physical condition, for example, but designing to eliminate or reduce barriers related to cost, lack of knowledge, negative emotional states, over-expenditure of time, such as requiring lengthy applications, burdensome management processes, etc. 

• Empathy, Sympathy, & Affordance - not only engaging in active understanding and compassion for project leaders and staff, including trauma-informed practices, but also thinking about affordances--how the environment we create empowers our projects. Simply providing a resource or solution to someone who does not have the knowledge or experience to engage with the solution provides no benefit.

• Listening & Responsive Communication - engaging in appreciative listening, dialogue, and active learning about the resources and systems that are being shared. One of the striking elements of the history of African-American cooperatives is how essential “learning circles” have been in keeping stakeholders actively engaged with the ideas behind the cooperative structure, not just allowing them to be passive beneficiaries.

• Implicit Bias Awareness - building awareness for and processes to challenge implicit bias in its many and ever-changing forms, in particular considering the inherently oppressive aspects of traditional management practices.

• Discernment - the delicate process of remaining open to new people and ideas entering our community while avoiding conventional or pre-defined assessment criteria (such as received concepts of “excellence” and “impact”). Especially today we are faced with the hard decision--much like funders--about who we accept to share resources that at any given time are finite. 

As we think about measures of impact for fiscal sponsors, we invite our members and the broader community to share thinking and practices that promote greater equity, inclusion, diversity, and social justice.

Fiscal Sponsorship - A Brief History and Possible Future

A Brief History

Fiscal sponsorship is a “new-old” field, just beginning to attain maturity as a field. There are approximately 300 self-identified fiscal sponsors according to a directory maintained by the San Francisco Study Center. Many have achieved notable scale, and there is a large and ever-growing knowledge base of practice. This progress aside, the field of fiscal sponsorship--the ecosystem as a whole--has only recently begun to develop its own collective and capacity building infrastructure.

Fiscal sponsorship dates to 1959, when the Boston organization known today as TSNE MissionWorks started a practice of sharing backbone support with multiple semi-autonomous missions--what would become called comprehensive “Model A” fiscal sponsorship. During this time the practice spread, largely to afford access to smaller, nonprofit, organizations serving marginalized communities that were frequently excluded from government funding and institutional philanthropy. Tides in San Francisco, Urban Affairs Coalition (UAC) in Philadelphia and others with now multi-decade histories started in this formative era.

In 1993 Greg Colvin published the first edition of his landmark book, Fiscal Sponsorship: Six Ways to Do It Right. His text has enjoyed several new additions and remains a go-to resource, but there is still not an extensive literature on the field.

It would be more than 40 years before the field’s trade association, the National Network of Fiscal Sponsors (NNFS), was founded in 2004 with support from the W.K. Kellogg Foundation. The first (and still only) field scan of the fiscal sponsorship landscape was commissioned in 2006 by Tides Center from LaFrance Associates, “Fiscal Sponsorship Field Scan: Understanding Current Needs and Practices”. The IRS issued its first ruling concerning fiscal sponsorship in 2012. Despite these advances, most other areas of human activity today, from dairy farming and social investing to knitting and model train collecting, have vastly more supporting resources for practitioners than the fiscal sponsorship field.

A Possible Future

Collectively, fiscal sponsorship as a field is poised to be a platform to help solve some of the most pressing problems of our time. As hubs for diverse, independent missions, fiscal sponsors can be a vanguard for the change our sector so urgently needs.

Yet we estimate that fiscally sponsored activity represents less than 2% of the nearly $2 trillion dollars spent annually by the nonprofit sector. According to the Study Center’s data, most sponsors today are located in major metropolitan areas, and predominantly on the East and West coasts. Rural areas and most of the interior states appear woefully underserved.

A map of the organizations listed in the San Francisco Study Center directory.

The opportunity to expand the field today lies in the potential for fiscal sponsorship, if practiced well, to move the nonprofit sector along two principal paths of transformation.

(1) Equity, Diversity, and Social Justice: Fiscal sponsors can remove many of the barriers to engaging in social purpose missions, creating more immediate and affordable access to nonprofit infrastructure. A fiscally sponsored project that has yet to raise a single dollar can plug day-one into a sponsor and enjoy the benefits of experienced managers, tax-exempt corporate infrastructure, insurance, and professional administrative staff. Inherent in the fiscal sponsorship model is a kind of pay-for-success approach that lessens or eliminates financial barriers to entry and fixed costs. Projects allocate a fractional percent of each dollar they bring in to the resources they share with their sponsor--paying as they go in proportion to their need. Fiscal sponsors can also be a forever solution to sustaining these backbone resources, allowing the keepers of mission and vision more time to do their vital work.

Otherwise, the barriers to entry and ongoing operation of nonprofits are substantial, which is why more than 80% of all nonprofit leaders today are white. Traditional, independent nonprofit infrastructure is designed for the privileged. If we are to make significant progress on the many urgent fronts of social, racial, and economic justice in this country we must make the tools and resources of the tax-exempt sector available to all. Fiscal sponsorship can place us more firmly and aggressively on that path.

(2) Efficiency, Sustainability, and Impact: Fiscal sponsors can offer greater efficiency and “savings” in back-office operations, allowing more financial and time resources to be tasked to programs and services. Recently Social Impact Commons conducted a study of 475 arts and culture organizations operating below $2 million in budget in Southeastern Pennsylvania using the robust longitudinal data set of SMU Data Arts. We found that the organizations in this cohort spent between 17% and 27% of revenue on the same support that a comprehensive fiscal sponsor, such as CultureWorks Greater Philadelphia, can offer for between 9% and 12% of revenue--a savings of roughly 10%. This may seem like a small number, but on volume, it represents about $5 million in administrative savings just for this study group alone.

Concerning sustainability, our sector is fragmented and fragile, which presents a constant threat to sustainability and impact. There are about one million independently formed nonprofits in the U.S. today. Eighty-eight percent of them operate below $500,000 in budget; 97% operate below $5 million. It is arguable that organizations don’t start to attain optimal efficiency until they reach between $5 million and $10 million in budget. It’s a matter of ratio, proportion, and scale of overhead costs to program delivery. This means that 97% of the sector is likely spending more on back office than it needs to (at least 10% more!), leaving billions in program and service dollars sequestered. Moreover, we know from the Nonprofit Finance Fund’s annual nonprofit health surveys that between 40% and 50% of the sector has less than 30 days cash on hand, which means that a large portion of our sector is very fragile. Contrary to popular assumption the 88% of organizations that are small, perform more than 85% of the overall program delivery for the sector. (It’s not the 12% that are doing all the lifting.)

So, in sum, the organizations doing the most work are the least efficient and most threatened with insolvency on a daily basis. Fiscal sponsors, as engines of resource sharing and collective capacity building, can help us reposition the vast landscape of small organizations for greater efficiency, sustainability, and impact.

Reimagining the Sector - A Call to Action for Fiscal Sponsors

Fiscal sponsors are well positioned to lead our sector to reimagine and reconstruct a more sustainable, impactful, and equitable social good community in the aftermath of the COVID-19 pandemic. Yet the fiscal sponsorship ecosystem is under-built, poorly understood, and struggling with lack of capacity.

In recent weeks, we have heard calls in the nonprofit sector for reimagination and reconstruction, not recovery from the COVID-19 pandemic. “Recovery” implies returning to a previous state. Our sector has long been hobbled by the stress and strain of needless fragmentation and lack of capacity. Even if we could, why would we want to return to that state? It’s likely no longer a choice. It’s time to reimagine. 

As the COVID-19 crisis and its economic aftershocks continue, we know our most vulnerable and marginalized populations are more at risk than ever before. Continued failures in government and resource allocation systems are perpetuating inequity when we need equity and justice to prevail. We see new nonprofit missions emerging--many we may have never imagined to be necessary--and many smaller, but invaluable community-based nonprofits threatened with closure. 

Conservatively, we are likely looking at hundreds of thousands of nonprofit organizations reaching insolvency or closing within the coming months. There are nearly one million registered nonprofits in the U.S. today, of which 97% operate below $5 million in budget, and more significantly, 88% of which have budgets of less than $500,000. And this vast landscape of small-scale, locally acting organizations is responsible for roughly 80% of the expenditures and related activity of the entire sector: childcare centers, homelessness groups, community theatres, legal aid groups, food pantries, and countless other missions.

Before the pandemic, these organizations were fragile, starved for resources, and overwhelmed by demand from their communities: according to the Nonprofit Finance Fund, 86% reported increasing demand for services, yet 57% were unable meet demand; 62% reported that financial stability is their top challenge; and 50% had less than one month of reserves. It is time for us to understand fiscal sponsors not just as a temporary path to independent formation or home for a short-term project, but rather a permanent restructuring solution for the sector, in particular the vast expanse of organizations operating below $500,000 per year.

Fiscal sponsors have always been models for sharing essential backbone resources, such as management staff, policies, systems, expertise, and more. As such, fiscal sponsors are engines for collective capacity building. It is a time for our field to shine. This will mean, however, addressing the capacity strains that fiscal sponsors themselves navigate regularly, now with greater frequency and amplitude. It will also mean reaching out and embracing fiscal sponsors appearing in new corners of our sector. 

Fiscal sponsors are risk managers at heart, helping projects navigate risk, failure, and success. We are expert repositioning technicians, designers of efficient systems. We are trusted intermediaries who can leverage networked relationships and scale.

We can be the vanguard of long-overdue change in our sector. It’s no longer an option. It’s urgent and imperative.