October 17, 2009

The Apples & Apples of Due Diligence

I've been thinking about a number of conversations I've had with funders recently who are intrigued by the idea of grassroots grantmaking but are a bit nervous.  And the source of their jitters?  Due diligence.

I'll take a guess at what you're thinking.  The due diligence associated with making a grant to an unknown, unproven group (such as a group of neighbors who are getting together with a good idea) takes more time than the due diligence that goes with funding a proven, non-profit performer that you've made grants to previously.  So perhaps these funders are nervous because they're wondering about the time that will be required of an already over-busy staff.

No - that's not it exactly.  Instead, over numerous conversations with numerous funders, whenever due diligence comes up as a concern, I can usually spot one of these two assumptions behind the jitters:
  1. It's inappropriate to think about due diligence when it comes to grassroots grantmaking - that grassroots groups play by a completely different set of rules that don't mesh with the idea of due diligence and that it's not fair or right for a funder to approach a relationship with a grassroots group with due diligence in mind.  So grassroots grantmaking will require us to do away with due diligence and fly by the seat of our pants.
  2. Good due diligence will eliminate all grassroots groups from the running; grassroots groups just can't measure up.  We'll put the invitation out there and then be the bad guys when we turn everyone away.
    Here's an example of a recent conversation.  I was talking with a funder recently who is intrigued by the idea of grassroots grantmaking but a little nervous.  Somewhere in the conversation, the funder said something like this:  "But we're known for our due diligence.....that's an important part of the value added that we offer our donors.  If we aren't seen as responsible in this area, we'll lose credibility (and donors)".

    When I first started noticing due diligence as an obstacle to grassroots grantmaking, I was confused at first. And that's because in my mind, of course due diligence is in the grassroots grantmaking picture!  I don't mince any words when I talk about the essential role that staff play in effective grassroots grantmaking programs.  Enough staff time from the right person in the staffing role.  And enough of the right staff has a lot to do with due diligence.

    And I think I'm target. Just to be sure, I checked in on some common definitions of due diligence. This one from Wikipedia, selected on purpose as the most basic definition I could find:
    With origins in the private-sector world of business and finance, the term “due diligence” [in philanthropy] refers to the process through which an investor (or funder) researches an organization’s financial and organizational health [and capacity] to guide an investment (or grantmaking) decision. The decision to fund or not to fund is based upon a balance of objective data analysis, insight into the general state of organizational health and stability, and intuition. A sound and thorough due diligence review is the process through which all the factors that make up that equation are uncovered and understood. It is the process in which a program officer seeks the “truth” about an organization.
    But then it occurred to me that I may be thinking about due diligence in a different way. Maybe we're talking apples and oranges.

    I'm not thinking about due diligence as limited to what you do to qualify an applicant and develop an informed recommendation on a grant decision. It's that plus what you do to increase the chances that the funding investment that you are making is effective. And if capacity building is your goal and grants are just one tool that you have in your capacity building toolbox, due diligence isn't just about the transactional side of grantmaking. It's also not working down an established checklist that applies to all groups and all situations.

    So how do I think about appropriate due diligence for grassroots grantmaking?  What would due diligence include? Here's my opinion:

    It is indeed about what you do before a grant is made. But it's not just about qualifying and researching.  It's about qualifying, researching, and increasing the chances that you receive good applications from the types of applicants that you are seeking. So it's about effective outreach and pre-application assistance so that your reach into the community is deeper than the usual suspects and you demystify the grant process for those who may have never applied for a grant before.

    It's also about giving careful thought to how you might reframe questions that you ask and what support information that you request. For example, instead of asking for a copy of an audit or last year's budget, you might ask for evidence that the group has a bank account established in their name. Instead of asking to see who is on their board of directors, you might ask for copies of minutes from a meeting where neighbors talked about the idea that is being proposed and voiced their support for seeking grant support. Instead of making a judgment about the group's ability to do the project on the basis of the budget they submit, you might use the initial budget as an entree for a discussion and as information about what technical assistance might be appropriate after the grant is awarded.

    I believe good due diligence also requires careful thought about how decisions are made on proposals. The insights and information that you and members of a grantmaking committee need to make an informed decision might not be in the written proposal; my experience has taught me that a site visit or a casual interview are invaluable supplements to the proposal and well worth the extra time and effort.

    Good due diligence also requires training for grantmaking committee members so that everyone is on the same page about your approach to due diligence and what should be considered in making a decision.  I've seen people turn into checklist fanatics during grant review processes - insisting in the name of due diligence that there are checks in all of the boxes, that an organization should have absolutely all their ducks in a perfectly straight row before funding is awarded.  I've also seen people back away from expecting anything from a grassroots group other than passion.

    It's also about establishing the trusting relationships that are needed for a grantee to talk with you about challenges that could derail or may be derailing their efforts rather than pretending that everything is just fine. It's about knowing when to challenge and when to cheerlead. It's art and science. It's checking up and checking in, but more importantly, it's being comfortably in an ongoing conversation that is more about joint learning and pulling together than it is about judging success or failure.

    I've also been wondering if some of the angst about the relationship between due diligence and grassroots grantmaking isn't really about due diligence at all.  Maybe it's more about what gives you confidence and who you trust.

    If we trust tried and true nonprofits and see the indicators of services provided as evidence that your money is well spent, then our due diligence is going to be oriented to assess an applicant's "fit" with our understanding of what makes a nonprofit tried and true. If that's where we spend most of our time and where we are most confident that we are on top of our game, that's where we're naturally most comfortable. And the "we" I'm talking about is staff, donors, and board members of funding organizations.

    If we're open to the possibility that tried and true nonprofits are really good at some things but not all things, we may be more open to developing trust - and the due diligence approaches, tools and measures - that fit with grassroots organizations and the world of active citizens.

    So I don't think it's apples and oranges after all.  I think it's apples and apples.  It's still due diligence.  It's still important for it to be done well.  It's still something to lift up to donors as a value added.  It's still fundamental to effective work.  Done right, it can be incredibly useful to everyone involved - grantmaker and grantee.

    It's just that it's not one size fits all.  It's a different kind of apple.  What do you think?  Post a comment and join the discussion.

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