Board Grant Governance

When considering positive and negative consequences for nonprofits due to expanded government reliance on nonprofit organizations, the effects are usually double-edged. Depending on the context, the consequences seem like benefits for nonprofits, but over time may hurt the organization. Despite whether the benefits outweigh the problems, most nonprofits would still choose government funding over raising all of their own funds. And whether for the effects are positive or negative, government funding brings change.

The primary positive consequence for nonprofits relying on government funding is a decreased reliance on fundraising. It is this benefit that motivates nonprofit leaders to keep filling out grant applications for public funds, despite the potential drawbacks. Unfortunately, decreased reliance on fundraising means the nonprofit agency may not be able to sustain their currently level of programs and services if the grant runs out and is not renewed. This is true with any major source of funding. As the government contracts with more nonprofit agencies, it creates situations where that many more agencies are operating based on a major source of funding. And if the nonprofit agency has been focused on meeting grant requirements as opposed to fundraising, there could be major fallout when all of a sudden they have to seek donors again. As Morduant and Cornforth write in The Role of Boards in the Failure and Turnaround of Non-Profit Organizations, “both the withdrawal of funding, and paradoxically, suddenly receiving large grants are often both triggers for crises in non-profit organizations."

It is in managing the “crisis,” or at the very least the necessary adaptation to relying on government funding, that boards of directors start to change how they govern.
The change in governance may be the least perceived organizational change while it is happening, but could seemingly lead to the greatest negative consequences for nonprofits receiving government funding to deliver services. Once the government/nonprofit contract is formed, government agencies begin to influence board practices to meet the demands of the contract. The government agency directs the nonprofit board in the areas of:  financial monitoring, goals, assessments, timelines, staff requirements, program requirements, clients served, and more. 

While working to meet these demands, the nonprofit board veers from what were likely their most active roles prior to the contract:  financial oversight and fundraising. It is ironic that while the board is at their most engaged, in executing the parameters of the contract, that they become least engaged in their primary governance activities. O’Regan and Oster write in Does Government Funding Alter Nonprofit Governance? that, “Equally troubling is the prospect that some board members may treat government contracts as a substitute for self-governing, giving rise to a form of crowding out of board involvement more generally." 

This switch in board focus and governance roles is an example of what may initially seem like a win-win situation for both the government agency and the nonprofit organization. Board members may be relieved to not have to focus so much of their volunteer service on fundraising, and the government agency is able to make demands but rely on the board and the agency for the execution of those demands. Again, it may be a great partnership until the funding goes away, or until the nonprofit agency realizes they have drifted from their original mission and are no longer spending their energy and resources on what they set out to do. 

Nonprofit boards should go into government contracts with open eyes, but it does not mean they should never accept government funding. It could be exactly what the nonprofit needed to sustain their services and allow them to reach their target population at a level of service and programming they would not have been able to achieve on their own. The key is for nonprofits to utilize their own position of power before contracting, by researching public funding opportunities and selecting those that are best aligned with the nonprofit’s goals, services, staff, and governance structure.