Opinion: Why philanthropy needs reinventing

publication date: Jul 4, 2013
author/source: Eric Friedman

We have an unhealthy relationship with charitable giving. The causes that receive the most donations are not necessarily the ones that make the greatest impact. Instead, the personal whims and preferences of donors determine where dollars flow regardless of need or impact.

Many donors do not know how to define a “high performing” nonprofit, let alone how to identify one or assess whether there are more worthy charities. The donor community has a reputation for responding to inspirational anecdotes in professionally-written fundraising material rather than asking for meaningful evidence of performance. Yet simultaneously, they express concerns about high overhead costs and program effectiveness.

Philanthropy is broken, and it needs to be reinvented.

But how? Three key areas can create a domino effect of improving charitable giving.

Greater honesty about motives

Today’s dominant paradigm of giving is that donors give to the causes they care about and have personal ties to – the university they attended, the illness that touched their lives, or the nonprofits promoting the type of art or music they enjoy.

The dishonesty here is that so few people acknowledge those personal preferences or how dramatically they reduce the impact of the donations. While these are “good” causes, this type of giving is very different from supporting the organizations that are most effective at helping others.

Is philanthropy about helping those in need or pursuing the personal passions of the donor? If it is the former, then shouldn’t a central tenet be to try to provide the most help possible? In this case, such donor-driven strategies should be widely regarded as failed philanthropy.

Not every good cause is equally good, and not every donor is equally deserving of praise. As long as the philanthropic community views those who donate millions to their favorite opera houses to be as generous as those who help the poorest people in the world, there is a lack of honesty. We should reserve the highest public praise for donors with the most altruistic motives and better understand our own reasons for giving. Such honesty would lead donors to be less whimsical and more thoughtful about their giving choices.

Better evaluation tools

Although there are several charity rating agencies, their weaknesses are often so glaring as to make them virtually useless. Most focus almost exclusively on financial metrics such as the percentage of donations going to fundraising and overhead costs. This is far from a good measure of performance. Just because a charity only spends 10% of its gifts on fundraising and overhead costs doesn't mean the programs funded by the remaining 90% are effective.

Even among the charity rating agencies that have advanced beyond pure financial measures of performance, most give their top ratings to hundreds of extremely different charities, effectively watering down the value of their ratings and expressing little conviction about what really works best. These rating agencies can be counterproductive to their own missions, as they give donors a false sense of confidence when providing high ratings for charities that may not be very effective.

More of these evaluators, as well as a higher profile for the existing ones, would go a long way to make charitable giving more effective. Such charity evaluators will develop and thrive as donors express more interest in them.

More donor attention to impact

According to a study by Hope Consulting, only 35% of donors do any research before giving, and only 9% do more than two hours of research. Instead of giving with all heart and no head, donors must think about what the greatest problems are, and where charities are most likely to make an impact. The irony is that as donors make their giving decisions based less on emotional appeals and more on evidence about what works best, the increased conviction they have in their giving will ultimately provide even greater emotional satisfaction.

A reinvented, better world of philanthropy will not happen overnight. But it can happen gradually, as one donor at a time takes responsibility for their own giving.

Eric Friedman is an individual donor who has spent several years trying to understand how to maximize the impact of his giving, including traveling to Africa to see his giving in action. Read more of his opinions at http://www.reinventingphilanthropy.com.

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