Tuesday, March 27, 2007


The new ideas animating philanthropy are creating more awareness of the importance of accountability (have a strategic plan and report on it annually), transparency (post your work on your website annually, including your financial summaries), and effectiveness (report on your results and show how they are connected to your mission in your annual report) for nonprofit organizations asking you for money to support their work.

A very good thing.

Higher-Impact Philanthropy
Applying business principles to philanthropic strategies
Thomas J. Tierney
February 14, 2007

Philanthropy is a growth business. Over the past two decades, the number of foundations has increased nearly threefold; some 1,300 were established in 2004 alone. A recent survey of donor-advised funds revealed a 21 percent increase in their collective grant awards between 2004 and 2005. Single gifts exceeding $5 million used to be unusual; in the past five years there have been at least 1,054 such "big bets." Total foundation assets in America now top $510 billion, and this is just the beginning.

The healthiest and wealthiest generation the world has ever known is now entering philanthropic prime time. As the baby boomers age, they will be part of a massive onetime wealth transfer estimated to amount to at least $40 trillion (with a possible upside of $88 trillion). This wealth can flow to only three possible destinations: family members (through inheritance), the government (through estate taxes), or nonprofit organizations including foundations (through gifts and bequests). So there will surely be even more philanthropists and more foundations, with even greater assets, giving away more money. Will this influx of philanthropic capital yield dramatically more social impact?

Considering that most donors already want their dollars to make a difference (and certainly don't want to see their hard-earned money go to waste), it's reasonable to wonder why such a question even needs to be asked. After all, leading foundations have long invested in formal evaluations to assess the impact of their grantmaking.

Today, more and more grantmakers (individuals and institutions both) are pressing their grantees to develop metrics to quantify the results of their programs. Grantmakers themselves are wrestling with what it means to give "strategically." Nevertheless, this question holds for two reasons.

First, and perhaps most obvious, not all philanthropic giving is motivated purely by the desire to achieve results. Donors often make gifts based on perceived community obligations ("doing my share"), personal relationships ("can't say no"), giving back, returning a favor, or felt responsibility ("we need 100 percent participation from the board"). Such gifts may be relatively small (given one's circumstances), as in purchasing a table at a charitable event. Or they may be enormous, as evidenced by the large number of seven- and eight-figure gifts given to universities each year. Either way, the motivation behind the gift is primarily personal, based on private beliefs and individual priorities. When people choose to donate their time by volunteering, they are allocating a scarce resource to a cause or organization they care about. The same is true when they give away money (although, for many, time is the more scarce resource). Impact matters, of course, but impact is not the driving force.

Second, achieving and measuring impact is exceptionally difficult with certain types of philanthropy. In the complex world of giving away money, tangible philanthropy--constructing a new medical center, preserving acres of wetlands, endowing a senior center--is as simple as it gets. As donors, we can take pride in our contributions without the nagging suspicion that somehow we didn't get exactly what we paid for.