Back to the Future of Philanthropy

I received a kind email from Erik Anderson, of the Donor Dreams Blog, suggesting I take on the subject of The Future of Philanthropy for this month's nonprofit blog carnival. Easy peasy, right? Well maybe not.

In Erik's call for Future Philanthropy blogs he links to a TED Talk from 2007: Katherine Fulton on You are the future of philanthropy. I've watched the video a couple of times now, and Ms. Fulton makes some great points on several philanthropic trends (and I recommend you also watch it), but it didn't really help me answer the question of what I viewed the future of philanthropy to be.

Ms. Fulton begins her exploration with the establishment of the modern foundation form in the U.S. at the end of the 19th century by the Rockefellers, Carnegies, et al, but, indeed, the concept of philanthropy goes back to ancient Greece, meaning "love of humanity," and encompasses the giving of time, heart, and soul, as well as currency.

Even the story of "modern philanthropy" predates Rockefeller by at least 150 years, with the establishment of the Foundling Hospital in London. Established for the "education and maintenance of exposed and deserted young children," the Foundling Hospital is considered by many to be the first modern charity.

Wikimedia Commons

Not long after, "a group of London merchants and gentlemen" met to "discuss a plan to supply two or three thousand seafarers for the navy," founding the Marine Society. They, of course, sought sponsors and donors to support their efforts. Certainly that qualifies not only as philanthropy, but as professional fundraising, and maybe even crowd-funding.

Ms. Fulton references Warren Buffet, and another of her slides bears the image of Richard Branson, but what really differentiates these modern philanthropic leaders from Rockefeller and Carnegie, or even from the gentlemen who founded the Marine Society? Is it their motivation, is it their philosophy, or is it their tools?

Ms. Fulton describes the philanthropy of 100 years ago as "closed-small-slow-fragmented-short" and contrasts that with the "open-big-fast-connected-long" world of today's philanthropy.

"Closed-small-slow-fragmented-short" may seem a somewhat apt description of old philanthropy from today's perspective, but there's no evidence that it was seen as such in 1905, or that it was meant to be "closed-small-slow-fragmented-short" by intentional design.

What draws that comparison is not any change in the concept of philanthropy, it is all about the tools. 120 years ago, Andrew Carnegie building libraries across America was very open, connected, big,  long, and somewhat radical (okay, it probably wasn't "fast," but what was then?). Today his approach might be to distribute iPads to students instead, but his philanthropic ideals would likely be the same.

Even the much vaunted "democratization of philanthropy" is nothing new. If you read my blog, you know I absolutely love crowd-giving sites such as Benevolent, etc., but at their core, they are simply using new tools to expand upon the giving circles of previous decades that were, themselves, just updates of the old mutual aid societies that go back at least 250 years.

I guess what I'm saying is, the impulse to philanthropy is as old as society itself, and that the forms it takes always includes both, the "small and informal" (mutual aid to crowd-funding), and the "large and influential" (Carnegie to Gates). What evolves are the methodologies and tools.

There are certainly trends - I've lived through several: money for technical assistance, money for programs only, highly focused outcomes, more data, less data, forcing mergers, encouraging cooperation, and a few others - but those are changes in bureaucracy, not philanthropy.

So, I suppose my predictions for the Future of Philanthropy are as follows:

• New developments in technology - particularly communications technology - will continue to drive changes in how nonprofits and donors discover each other and build relationships.
• Trends in giving will continue to be driven by "thought leaders" emerging out of the currently dominant business sector (IE: Carnegie's steel then, Gates' high tech now).
• Despite the attention given to the "thought leaders" above, the real work of creating social change and improving the lives of ordinary people will always come in the form of peer-to-peer giving and assistance.
• Solutions-based philanthropy will continue to lose out to empathy-based charity (IE: eliminating poverty versus assisting the poor) as long as total giving remains at only 2% of GDP.

Solve that last problem, and then we can talk about real change and a brighter future.

The Business of Philanthropy - A Rant

I apologize in advance that today's posting here is going to be more of a rant than a helpful article, but I hope you will sympathize with my frustration. This comes from two articles I read yesterday that left me shaking my head, wondering if the world's gone crazy.

First, yesterday morning, I read Poor customer service at charities 'a key reason for high attrition rates', about a report released by Donor Voice called Donor Churn - How to stop it before it starts and why current approaches prevent this from happening.

Actually, I very much agreed with the thrust of the article and report, that you need to pay attention to your donors, and be responsive to their questions, before they drop you from their giving, not trying to make up after. The line that got me frustrated was this:

"Service in the non-profit sector is too often relegated to some distant corner of the organization and/or treated as a cost center."

Well, yes. It is a cost center! Donor relations is not free. The folks at Donor Voice know that - they make their living selling donor retention services to nonprofits. Not only is this not free, it is not program related either. It is overhead, and that's where my frustration lies.

With all the attention given lately to the overhead myth - the idea that looking at a nonprofit's ratio of overhead to program expenses is the best way to judge "effectiveness" - I found it baffling that this report could say their research finds donors want organizations to be more responsive to their inquiries, without mentioning that donors apparently don't want to cover the cost of that response.

If you've removed your phone number from your website to reduce inquiry calls (a finding of the report), explain why. If it was to save on overhead, say so! Or, just answer the phone, and educate your donors about the true costs of running your organization, and why your overhead is what it is.

But that article was just a minor irritation. What got me angry enough to write this rant was this:

Yesterday evening, I read the news about Lincoln Center getting set to rebuild - and rename - Avery Fisher Hall, the home of the NY Philharmonic. Fine. The hall was built in 1962 and renovated (and named) in 1973. I was built in 1961 and I could use a little renovation as well.

It turns out, however that the Fisher family isn't giving up their naming rights quietly or cheaply. While their original gift in 1973 was for $10 million, the ransom they will receive to release the Philharmonic from the deal will be $15 million (plus other perks).

Patricia Illingworth has summed up the situation perfectly:

"... Philanthropy is understood as the giving (and sometimes volunteering) for the love of humanity... The fact that the family required $15 million (plus other things) in order to relinquish their rights underscores that this is business and not philanthropy..."

The Fisher family received four decades of worldwide recognition, publicity, thanks, and kudos for their investment. Now they're also getting a 50% return on their money.

Not a bad deal for them. But what about the donors to the new hall? Who will be making the $15 million donation that won't produce a single note of music, and won't lay a single coat of paint on the rehabbed building, but will go entirely to the Fishers? Would you like to be the one making that pitch to one of your donors?

And what does that say to all of our potential donors about how our arts organizations (and other nonprofits) are being run? What does it say about how we manage our money or negotiate deals? No wonder donors are curious about our overhead rates and want to keep them low!

It's almost enough to make you want to remove your phone number from your website and stop responding to donors altogether.

Or, maybe, we could stop fearing our donors, stop babying them and trying to protect them from the realities of our world, and stand up to them when they have ridiculous demands that make a joke of philanthropy.

The Rational Aspect of Irrational Philanthropy

A few weeks back I was at a social gathering and, in conversation with another attendee, wound up talking about the use of crowdfunding to help low-income people over hurdles on their way to self-sufficiency.

She found it very interesting, and asked, "What country are they aiding?"

My reply, "Well, um, here. The U.S., including groups down the street, right here in Berkeley!"

She was a bit surprised, but pleased. Because we were talking about small dollar amounts, she had assumed that the donations were going elsewhere, where there would be more "bang for the buck."

Put your money where there will be the greatest impact, right? Isn't that what the big philanthropists do, and the example that they encourage us "everyday donors" ($25-50) to follow?

I remembered this conversation this morning reading Hewlett Ends Effort to Get Donors to Make Dispassionate Choices on Giving on the Chronicle of Philanthropy. Hewlett had been a major funder behind encouraging better and more effective philanthropy through the use of results- and impact-driven data.

Not that this focus on charitable ROI (return on investment) didn't have its critics. William Dietel, a philanthropy adviser and former president of the Rockefeller Brothers Fund, decried it as an "instant-gratification strategy driven by young, tech-savvy philanthropists."

But the woman I was speaking with at the party was not a young, tech-savvy philanthropist. She was a 50-something sculptor with empty pockets. Such is the extent to which the message of "effective philanthropy" has permeated the culture.

Of course, even with this mindset being promoted, there were still many donors (particularly smaller donors) who didn't bother with the research and just gave "from the heart." And that's how the debate was framed: giving from the heart versus giving from the head.

When Hewlett started the effort in 2006, then-president Paul Brest wrote, "Personal philanthropy may sometimes be so profoundly emotional as to be invulnerable to rational analysis."

And here's where we get to my problem with this so-called "rational analysis." As part of the whole, "nonprofits need to operate more like businesses" meme, the means for analysis are primarily market-driven tools for evaluating programs that exist because of market failures.

Anti-poverty programs are a direct response to the realization that the operation of a free market society will always create a certain number of citizens who fall between the cracks - who are not economically viable. Culture and arts programs, too, exist as nonprofits where and when the free market cannot or will not support them as businesses, so how can you evaluate them as if they were held to the same market principals?

So, why help one person in poverty in the U.S. when the same investment can help ten people, or maybe even 100,  in poverty elsewhere?

The "rational" person, using their head and all the correct data, knows that the third-world philanthropic investment will give them far better ROI and results. Effective Philanthropy Achieved!

The "irrational" person, using only their heart and a little common sense, knows that they are part of a community, and that if they allow poverty to grow around them it will become a cancer, raising crime, lowering property values, and decreasing that immeasurable thing called "happiness."

Yes, we need to evaluate our programs, and yes, as nonprofit professionals we need to be as effective as we can be with the limited resources at our disposal. But the idea that one can eliminate the heart from philanthropy is one that I'm very pleased to see fading.

How Philanthropy Destroys Charity & More on Volunteer Giving

I have two short items to blog about today. The first is to point you to an article in the Guardian (UK) called "Why business won't save the world," in which the author talks about efforts, such as the Gates Foundation's work in vaccine development, and asks some very good questions about the effect on nonprofit work when a few wealthy individuals drive the nonprofit sector's agenda.

At the heart of the issue is the "philanthro-capitalists' desire for data and control" taking precedent over considerations of need. As the author states:

Investing in new vaccines against malaria is great, but there's no vaccine against poverty, inequality, violence or corruption, areas in which there are no "short-term returns on investment", only a long, hard slog through politics and social change. Does that mean only the easiest causes will be funded?

This is something I've felt and feared myself for some time, as the agencies I work with strive "to reach their numbers" and potentially loose sight of the individuals those numbers represent.

The other short note I wanted to post was to share a comment Monica posted on a previous blog here, "Money Follows Involvement." In that post, I restated my conviction that volunteers have already shown their dedication and interest in your cause, and that not asking them for donations was leaving money on the table.

Monica wrote (in part):

I have been volunteering with one specific organization for over a year and they have yet to ask me to donate... If this organization has not asked me, I bet that they haven't asked other volunteers either - effectively missing a large pool of constituents.  ... Hank Rosso suggests that the most likely potential donors have three characteristics – linkage, ability, and interest. Since the volunteer is involved it is clear that linkage to the organization and interest in mission are already in place. The remaining characteristic is ability. Often an organization will know if their volunteer has the ability to give, if the organization doesn’t know, the only way to find out is to ask. ...

I usually think of the "linkage, ability, and interest" equation as the "Triple A Qualifications: Ability, Affinity, & Access." Whichever terms you use to remember this by, it's excellent advice. And thank you, Monica, for sharing your story.

100 Incredible Philanthropy Blogs

No, I'm not going to give you the list of 100 incredible philanthropy blogs, I'm going to tell you where you can find it, and brag that this very blog is part of it!

The list of "100 Incredible Philanthropy Blogs" is posted at Bible College Reviews, and breaks the 100 down into the categories of General Philanthropy, Individual Ways to Make a Difference, Group-Based Philanthropy, News and Commentary, Fundraising, Charitable Organizations, Nonprofits, Social Entrepreneurship and Innovation, and Faith-Based Philanthropy.

I was pleased with the comprehensiveness of the list, and have found some great new resources from it. I look forward to visiting many of the "other 99" as I dig in deeper. Meanwhile, I thank the folks at Bible College Reviews for including me, and wish you all happy surfing.

Market failure and collusion in the philanthropic marketplace

That's a bit of a heady title, but stick with it and humor me for a minute or two longer. I'm going to use a lesson from basic economics 101 to explain why nonprofits are unnecessarily forced spend too much time and energy chasing dollars instead of achieving their missions.

Cast your mind back to college days. and remember that intro to economics class. Remember how the supply and demand curves are supposed to work? In a functioning market, each are at least somewhat elastic. When demand outpaces supply, shortages occur and prices rise till supply can catch up. When supply outpaces demand, prices begin to drop. In each case, the correction (either dropping prices or increased supply) brings the market back into equilibrium. Ta daa! The invisible hand at work.

When these forces fail to bring the market back to a working situation, for whatever reason, the resulting state is called a market failure. One possible cause of a market failure is collusion; where a number of players one side of the equation agree to withhold either supply or demand in order to manipulate the market for their own ends.

Okay, so now let's look at the market for foundation grants to nonprofits. It is an accepted fact of life that the demand far outpaces the number of grants awarded. We know that the rule of thumb is that only one in twelve proposals will be funded (some of us do somewhat better than that, but it's balanced by those who do worse), and that none of us who have been at it long can boast of a perfect record of every proposal funded.

Because of a low supply of grants from foundations, nonprofits pay a higher than market price for searching out, applying for, and managing what few grants are available to them. Economics 101. That higher price nonprofits pay to receive grants has to come from somewhere, so it comes from programs; from mission.

This would suggest that there's a shortage in the supply chain of charitable dollars. But that's simply not true. Foundations are sitting on massive endowments that could satisfy most any nonprofit's needs. These dollars have already been earmarked for charitable purposes and the donors have already received their tax benefits at the expense of the public treasury. So why are they not being distributed?

And that's where the collusion comes in. While the IRS requires that foundations spend out a minimum of five percent of their endowments each year, the majority of U.S. foundations have taken that five percent to be the industry standard (a few notable exception spend at higher rates, and they are to be commended).

In the face of a contracting economy, with rising demand for the social services provided by the nonprofit community matched with fewer dollars to pay for it, this collusion of foundations has become the single largest impediment to nonprofits succeeding at their missions and a danger to the public safety, health, and societal well-being.

Alright. Maybe I'm going a bit too far here. I like to exaggerate to make a point. But the fact stands: In tough times the community of foundations have the ability - and I would argue social responsibility - to step up to the plate and increase the flow of grants.

And, while we're at it, maybe they can cut some of the administrative burden associated with the process. Oops. I know. This time I've really gone too far.

Donors Versus Nonprofits

My postings on fundraising fees and rates get a lot of hits, and sometimes some heated discussion. My recent posting Yet more on percentage-based fundraising was no exception.

While some people have agreed with me that, "it's about time that donors put the needs of nonprofits ahead of their own," others have taken great exception to that. One such person is Barbara Ruth Saunders, who this morning wrote:

Aren't nonprofit organizations, in fact, supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS? The board should be determining how the organization can serve the goals. The staff should be executing the programs that support those strategies. But, I have a huge problem with the notion of nonprofits as being a means for a handful of grandiose people to exercise their social aims with other people's money!

That said, the immediate client of the fundraiser is the organization; the fundraiser helps the organization assure the DONORS that it is aligned with the DONORS' ultimate intentions.

To which I replied:

Thank you, Barbara, for your impassioned post, but I do respectfully disagree with your assertion that "nonprofit organizations [are] supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS."

I'd put phrase it more like, "Nonprofit organizations are supposed to be the vehicle by which a COMMUNITY achieves the goals that are socially important to it."

If a donor finds that particular nonprofit is doing work that he/she/they/it believes in, they should support that nonprofit.

But when the donor becomes the focus, nonprofits drift from their missions and only chase the money. Program decisions are made, not based on what is most needed or most effective, but based on the question, "What's fundable?"

Donors need to actually trust the professionals within nonprofits to know how to best achieve their mission. If donors don't trust nonprofits, they should simply invest their money elsewhere.

Your notion that nonprofits are "a handful of grandiose people [exercising] their social aims with other people's money" is simply insulting and only demonstrates your incredible disdain for nonprofit staff.

Was I out of line here? Have concepts of charity and philanthropy become so antiquated that there is no longer even a pretense of the donation being a gift?

Do donors really think that it is their place to mold nonprofits in their image and that the people who've dedicated their careers and their lives to serving their communities require such direction and babysitting from people who've never done such work?

Apparently so. Personally, I've had just about enough.

The soul of philanthropy: when giving becomes receiving

Michael L. Wyland of Sumption & Wyland consulting has written an op-ed piece on Argus Leader (dot-com) under the unassuming title of "Accountability changes philanthropic landscape" that perfectly expresses what I'm sure so many of us have been thinking for years.

The opening paragraph reads:

"There has been a major change in philanthropy in recent years. Accountability and impact are increasing the demands placed on charities because the purpose of charity from the donor's perspective has changed. It's become acceptable, in the name of accountability, for philanthropy to be about receiving rather than about giving. Hypervigilant and misapplied accountability risks killing the soul of philanthropy upon which charities rely for support."

I will add to that the charge that this hyper-vigilant accountability is killing the ability of small, local, and grassroots nonprofits to operate at all. The costs of compliance are out of line with the costs of providing needed services, leaving these organizations no options but to either merge with a larger organization or close their doors.

As Mr. Wyland states, the IRS, and all the various nonprofit watch-dog groups that analyze our IRS filings, all base their evaluations on data that is "overwhelmingly financial in nature... As long as every transaction is documented and as long as no one's enriching themselves at the charity's expense, the IRS and the watchdogs are satisfied."

But what happens to the small nonprofit whose administrative expenses seem too high only because of an effort to comply with all the data collection, analysis, and reporting requirements of their funders? The same funders who will then use that nonprofits' high administrative expenses as a reason to discontinue funding them.

In another recent post here, I called out Paulette V. Maehara (president and CEO of AFP) for admonishing nonprofits to "put the needs of donors first." I believe that we've coddled and begged and babied the donor foundation long enough. We need to educate them about the needs of our clients, and how they are best served by locally provided community-based nonprofits, and, perhaps, on the true definition of the word "charity."

"Charities are more than financial statements"

PND (Philanthropy News Digest) today has an article on making the case for funding administrative costs that quotes Bennett Weiner, CEO of the Better Business Bureau Wise Giving Alliance, as saying:

Charities are more than just financial statements, and people shouldn't make donation decisions solely on financial statements.

If a charity spends 80 percent of its expenses on programs, it doesn't necessarily mean that it is doing a better job than one that is spending 70 percent.

As refreshing as it is to read that quote, it is not, however, how most donors think about overhead costs. Donors - individuals and foundations - prefer to fund programs for a number of reasons. First of all, it's far "sexier" to say your money is saving children rather than making paperwork more efficient. Additionally, according to a study by the Center for Effective Philanthropy, "It's easier to track funds allocated to program[s]."

So, how do you make the case for administrative costs funding? Eric Schwarz, CEO of Citizen Schools, Boston, says:

The key is you don't call it overhead. Talk about metrics. Show that to get even better results and expand to reach more kids we need to invest in our team.

It's hard to save the world when you're sitting in the dark without any lights or a computer or coworkers. It may not be "sexy" but it is necessary.

How generous is your state?

Thanksgiving is done with (hope yours was peaceful and happy), and we're now officially into the Holiday Season. That means plenty to each of us personally, of course, but as nonprofit professionals it also means quite a bit work-wise as well.

As you hope for the best return on that holiday pitch you should have already prepared, and as you get set for those final big asks of the year, you might want to see where your state stands in the new state-by-state assessment of charitable giving.

Prepared by the Boston College Center on Wealth and Philanthropy, this second annual survey takes into consideration such factors as each state's religious and ethnic group mix, the existence of nonprofit organizations, and the local cost of living and tax burden, "including changes within states that are driven by levels of urbanization-which affects cost of living at the more local level," in order to more fairly index the comparisons.

Now, however you interpret the results, don't make the mistake of calling this a "generosity index." The authors caution:

"Generosity is a moral, spiritual or social psychological characteristic of individuals and perhaps families and households. We do not believe that the term generosity should be associated with our measures, nor any other measures that do not directly study the inner disposition ... of generosity. In truth, every purported generosity index that has ranked states is, in fact, a charitable giving index."

And the top five states for charitable giving are... New York, the District of Columbia, Utah, California, and Connecticut. And, at the bottom, Iowa, South Dakota, Vermont, West Virginia, and North Dakota.

You can download the full report from Boston College at www.bc.edu/research/swri.

Should Philanthropy Go On Forever?

Most charitable foundations in this country operate as perpetual giving machines. That is, they manage their funds and grant making in such a way that they will never spend out their entire endowment. In fact, many manage to grow their endowed base, even while awarding out millions of dollars in grants each year.

The IRS mandates that foundations must spend down at least 5% of their endowment each year, or face penalties. The perpetual foundations usually treat that 5% minimum as their set goal, and rarely give above that. The other 95% stays tied up in investments and helps to grow (or at least maintain) the endowment.

Philanthropists will give you two main reasons for setting up perpetual giving machines.

The first reason most people think of is, "to maintain a legacy." If they can't live forever, at least the foundation bearing their name can. It's usually worded something like, "I want to continue to do good long after I'm gone."

Many in the nonprofit field - who would like to get their hands on the foundation money sooner, rather than later - look at this argument as pure ego. "We have problems that need solving now," we argue, "Why grant out the money 5% at a time, when if you grant it all today we could cure cancer and AIDS, develop renewable energy sources, and end childhood hunger in this generation."

The other main reason for the perpetual foundation is a simple economics equation. By managing endowments in a manner that grows them - even while making grants - more money is eventually generated for nonprofits. Basically, would you rather have $10 million today, or $30 million over time?

It's a sound argument in a strong economy. But all one has to do to argue with it is to remember back just a few years to the dot-com bust, and what it did to foundation endowments (particularly those in my area, which were heavily invested in tech stocks). The means for growing endowments are investments, and there are no guarantees.

More and more, in the last few years, I've seen articles about philanthropists who are saying, "To Hell with posterity," and making plans to give their fortunes away entirely in their lifetimes. The latest of these being Howard G. Buffett (son of Warren).

According to the Chicago Tribune, Buffett doesn't intend to let philanthropy go on forever (get passwords here). As you've certainly heard by now, the senior Mr. Buffet is giving his fortune away over the next few years. A portion of that will be going into the foundations of each of his children, including Howard, who intends...

... to try spending the yearly installments of about $50 million from his father as fast as they arrive. He is not considering having his philanthropy operate in perpetuity but expects to set a distant date at which it will disburse its assets and shut down.

Bravo Howard! Let's see who is the next philanthropist to get on board.

Tags: philanthropy, nonprofits, foundations, charity, philanthropists, Howard Buffet

Fundraising Mistakes That Bedevil Boards

At today's monthly meeting of the AFP Silicon Valley (Association of Fundraising Professionals), the guest speaker was Kay Sprinkel Grace on the topic of Fundraising Mistakes That Bedevil All Boards (And Staff Too). Kay is always a wonderful presenter, and this topic - based on her book of the same title - was particularly well received.

The mistakes that Kay identifies, or in some cases popular myths, include:

• People will give just because yours is a good cause,
• Donors are drawn to organizations in need,
• People dislike giving
• "We can't raise big money, we don't know any rich people,"
• Volunteers don't have to give in order to ask others to give - their time is their gift, and
• It is impolite to ask for specific amount.

Kay diffuses each of these myths with anecdotes and humor and shows us to avoid - or remedy - them in our fundraising practice.

Another important mistake for professional nonprofit fundraisers is to ever believe that our education is complete. I always enjoy AFP luncheons, and always learn something. Even when it's a bit of a refresher, it's good to be reminded of some basics and maybe hear it in a different way.

You can learn more about Kay Sprinkel Grace at Transforming Philanthropy (.org) and find her "mistakes" book on Amazon.com