Two alumni working in philanthropy talk about the craft of giving well, and what the most effective donors are doing.
How do you measure the effectiveness of giving?
VIRGINIA MCNALLY: Ironically, one key principle of measuring effective giving is that we should not be too obsessed with measurement. The effective altruism movement is very focused on quantifying the best solutions to the world's problems. This sounds good on paper, but can lead to a concentration of efforts that, if taken too far, neglect basic elements of our common humanity.
I think a really basic way to measure effective giving is centered on two things. First, did the project you support accomplish its goals? For example, if you supported a program to teach job skills to homeless communities, did the program do that? If so, did it meet or exceed the specific objectives? Second, did the accomplished goals of the project have their intended and desired impact? Following the previous example, did the trained program beneficiaries use their job skills training to obtain employment?
JOSHUA DE GASTYNE: The professionals never agree, especially groups who believe their charity is biblically grounded and theologically driven: like the National Christian Foundation and The Gathering. During my year as a philanthropy researcher, I used EIG’s internal tool called the Analytical Overview to collect 180 data points each on 170 different 501(c)3 organizations. We looked at basic three-year growth/decay trends in donor base, profit margin, and staff on payroll but it was always difficult for nonprofits to quantify their "clients served" or "key activity." Arguably, that's the most important thing to track. How many strawberries did you grow on the farm in Zambia? How many scholarships did you give for seminary in Europe? How many clients did you litigate for in U.S. appellate courts?
We helped mission-driven institutions not only answer this question once, but build automation processes or train staff to continue collecting this information into the future. Some reluctantly agreed, others flatly refused. Refusals came on grounds of both spiritual conviction ("how dare you restrict ministry to a number!") and lack of resources ("our 2.5 staff are already stretched too thin"). For such standoffs, the nonprofit needs a careful guide who can empathize with personal difficulty, see the bigger picture, and communicate it calmly but directly. Eventually we would reach a consensus in terms of the popular buzzword “social impact.” We closely track statistics for baseball and football in order to improve athlete performance; so why wouldn’t we want to closely track statistics for our philanthropy so that we can improve giving performance? To paraphrase John Wesley: “Do all the good you can. By all the means you can. In all the ways you can. In all the places you can. At all the times you can. To all the people you can. As long as you ever can.”
What does good or bad giving look like?
VIRGINIA: There are two key areas that can influence whether giving is "good" or "bad." Good giving isn't limited to succeeding in these two areas, and bad giving isn't limited to failing in them, but they are important, and I think we have seen some growth in these areas recently. First is overhead costs. These are the indirect, operating, administrative costs that go along with running an organization - keeping the lights on, so to speak. It used to be that donors evaluated projects solely on how low program overheads were. We have all probably heard this - "97 cents out of every dollar donated reaches a child in need." Sounds efficient and responsible, right? Well, if an organization is only using 3% of all donations to invest in strategy, infrastructure, professional development, salaries, and other costs, then things are going to deteriorate quickly. Donors are now more willing to fund overhead costs, and this is a good thing. Organizations are able to do better work as a result.
Second is unrestricted funding. This is funding that is not limited to supporting a specific project with projected outcomes. It can support program innovation, research to develop new programs, pilot program work, or other processes that are essential for any organization to improve and do the best possible work. Unrestricted funding means that as a donor, you will need to have confidence in the organization as a whole, not just a specific program or project. So, it requires a little more homework. But, in the end, it can be the most helpful to a non-profit, and it allows a donor to come on as a true partner and investor in the organization's broader mission.
JOSHUA: Philanthropy profoundly affects both the Giver and Receiver. Only God really understands the effect on the Giver, and everyone has an opinion about the effect on the Receiver.
Let me explain.
Philanthropy: the word itself means love (philo) of man (anthropos). And from working with our millionaire and billionaire family foundation clients at Excellence in Giving (EIG) from 2014-15, I've seen firsthand that its effect can be more profound on the giver than the receiver. Imagine a Houston oil magnate who gets more pleasure from giving away his fortune in five hours a month than from making the fortune at work 50 hours a week. Imagine a Denver power couple who get more fulfillment from donating to underprivileged charter schools than from buying BMWs for their trust-fund kids.
So what does giving well look like? The Apostle Paul tells the Corinthians that giving is a matter of the heart: namely, do it cheerfully and bountifully. C.S. Lewis affirms in Mere Christianity that there might be no hard-and-fast rule other than: "give more than we can spare." And in Amoris Laetitia, Pope Francis reminds us that concern for justice cannot be disembodied, but rather should follow the principle of subsidiarity: proximal, nearby, demanding local attention. The combined effect of giving locally and giving sacrificially is essentially spiritual growth. It makes you not just a better donor, but a better human being. Jesus explicitly warned about the opposite with a parable: don't be the fool in Luke 12 who stored wealth in bigger and bigger barns, planning to enjoy it one day, then suddenly died.
What kind of feedback should donors or foundations demand from recipients?
VIRGINIA: Reporting to donors or foundations is important, and it can actually serve two purposes. Reporting holds an organization accountable, and it gives the organization the opportunity to track data to evaluate its own progress. However, it can also be burdensome, and sometimes organizations are asked to track data that may not be relevant or tied to program success.
As a donor, the process of developing reporting requirements should be a conversation with the recipient. Start by understanding what data the organization already tracks, what it would like to track, and what is possible to track. Do a little homework - what do other organizations doing similar work report? Ask the organization that you are thinking about funding what they think about reporting standards in their specific field. And finally, be willing to provide a little extra funding (think overhead costs!) if you are a donor who really likes reporting and data. It takes time and money to gather data.
JOSHUA: At least expect a “thank you.” Ask up-front for progress updates every three months. But don’t threaten to cut off funding with every misstep. Charity should still aspire to be unconditional. Love is messy, and most nonprofit workers are trying their best.
At EIG, we included a specific clause in every memorandum of understanding for foundation gifts greater than $5,000: an expectation of quarterly reports from the nonprofit. Follow-through on this agreement quickly sorts out stewards: the good, the bad, the ugly, and the entitled. If a cash-strapped 501(c)3 can send multimedia presentations with personalized video from elementary schools in Zimbabwe, then your nonprofit can at least send a thank-you letter with an updated number of clients served. And ideally, since we’ve already identified giving locally as a virtue, there would be a chance to meet in person. Most people already know not to indulge pride and showmanship in their charity (Mark 12), but also beware the desire for flawless efficiency in giving. Minimizing marketing expenses to less than 15% of the annual budget is prudence, but the modern movement of “effective altruism” leads to what George Orwell characterized as the dangerous Gandhi Syndrome: giving entirely based on utilitarian moral radicalism.
How does giving compare to investing in a for-profit?
JOSHUA: There's no difference, really. Similar tools, same choices. I have plenty of experience with both (personally and professionally), and at the end of the day, there's not that much difference between for-profit investing and non-profit investing. Your disposition means far more than your method, and either one can depress you or encourage you. The time, treasure, and talent you invest in a 501(c)3 versus an LLC or REIT are drawn from the same limited resource pool and the same motives in your heart. You can use either mechanism for the praise of man or the glory of God. You can use either to destroy the good, true, and beautiful or to make the world a better place. Decide to be humble, then become good, then grow wise — everything else will follow.
VIRGINIA: I work for a company founded by two billionaire investment managers who were looking for professional philanthropic services that were on par with their investment banking standards. Their effort illustrates the blurred lines we are now seeing between the traditional for-profit and non-profit sectors. Many are considering for-profit investments to be philanthropic, especially if they can be classified as impact investing or investing at a below-market return in exchange for seeing better social outcomes. There are increasingly more similarities between for-profit investing and philanthropy. I think that the core difference between the two is that they should meet different kinds of needs. There are some areas of development where it will be impossible to make progress if there is an element of profit to preoccupy organizations. Think emergency aid - in the aftermath of a disaster, should we limit interventions to support for for-profit organizations? Of course not. Should we take the local economy into account and make sure that our interventions aren't harmful to local industry? Absolutely, but this doesn't mean that philanthropy doesn't have a vital role to play.
About the Participants
Virginia McNally is a consultant at Geneva Global, a philanthropy consulting firm, working with major donors and foundations to develop partnerships in global health and development.
Joshua de Gastyne studied neuroscience at Emory, statistics at Oxford, and Arabic in Morocco. Today he runs two iTunes podcasts on healthcare innovation and startup investing: The Ultimate Doctor and InSITE VC.