Today's high-net-worth donors are rejecting the passive and obligatory ritual of charitable giving in favor of a more interactive and customized philanthropy that reflects their passions and interests.
Customized Philanthropy
The
philanthropy marketplace for the ultra-high-net-worth individual is
growing exponentially. There are more than 70,000 private foundations
in the United States with assets of more than $550 billion.1 In the
past 15 years, the asset size and the amount of giving from foundations
have tripled.2 Likewise, the growth in donor-advised funds has been
dramatic and now represents approximately $23 billion.3 There has been
a 25% increase in the amount of new assets to donor- advised funds in
2007 alone.4 Not all of these resources come through an individual or
family philanthropic entity. The new philanthropic investor often
collaborates with other like-minded donors in "giving circles." There
are an estimated 500 to 800 giving circles nationwide.5
The customization or personalization of philanthropy extends beyond traditional grant-making. An emerging cottage industry incorporates the experience of philanthropy into luxury travel for the high-net-worth individual. For example, the Ritz-Carlton recently launched The Give Back Getaways program allowing guests to participate in a humanitarian or environmental project near various Ritz properties throughout the world.
Tangible Results
The
philanthropic investor increasingly dislikes the idea of joining a
group to help the greater good. Those who are in Generation X or
younger are 50% less likely to support a membership-based nonprofit,
such as an art museum membership, as did those in prior generations.6
The philanthropic investor does not want to join the United Way in his
hometown simply because it is the right thing to do. He prefers the
immediacy of knowing specifically what he has purchased with his
philanthropic dollars.
The nonprofit sector faces a Darwinian struggle for donations. Even as Americans give nearly $300 billion7 to charitable organizations annually, there has been an exponential growth in the number of nonprofits competing for these donations each year. The most successful of the nearly 1.5 million nonprofit organizations in the United States have found a way to appeal to the new donor as an investor rather than as a contributor.
For example, Internet-based nonprofit Kiva.org makes micro-loans to business owners in the developing world in order to alleviate poverty. It became so popular in 2007 that it had to limit new donations to $25 increments. Few charities can imagine having to turn away donors because of overwhelming demand. This example is emblematic of what donors are hungry to see in their philanthropy.
Take PlayPumps, a part water pump and part merry-go-round championed by AOL founder Steve Case. More than one billion people worldwide do not have access to clean water. PlayPumps addresses this overwhelming social problem in a measurable and accessible way for donors-one pump at a time. Likewise, Nothing but Nets allows donors to make a dent in the public health scourge of malaria by focusing just on the cost of providing mosquito nets at $10 per net. The blue-chip charities with well-respected brands have taken notice and have begun to adapt their message to the new donor preferences.
The Do-It-Yourself Philanthropist
Adapting
the rules of entrepreneurship to philanthropy has engaged a new
generation of donors. Venture philanthropy adapts a market-based
approach and the language of venture capital to the nonprofit sector.
The idea of incubating a nonprofit venture and building its capacity
over time appeals to today's donor.
Home Depot co-founder Bernie Marcus, one of the country's most successful business entrepreneurs and philanthropists, embodies this "hands-on" approach to philanthropy. He reportedly requires all of his foundation staff to watch a video describing in detail what he does and does not want his philanthropy dollars supporting. This new breed of donor does not wait for others to get things done. When Marcus wanted to create a new aquarium for the city of Atlanta and a resource center for autistic children, he built them himself.
Billionaire entrepreneur turned philanthropist Philip Berber is another example. Dissatisfied with the state of international non-governmental organizations (NGOs), he created his own nonprofit, A Glimmer of Hope, and set about creating change more efficiently for the people of Ethiopia. Likewise, we see this entrepreneurial spirit in the X Prize Foundation developed in the 1990s by a group of billionaires. Each X Prize encourages innovation through competition in order to address many of the world's most important challenges.
Demanding Accountability
Where
is this donor attitude shift coming from? Often it can be traced to the
simple question "Do my contributions really make a difference?" Too
often the act of mailing a check to a charity and receiving the
obligatory thank-you note and tax receipt is the end of the dialogue
between nonprofits and grant makers. The new donor is demanding a
continuous dialogue with the nonprofit-as a business partner and mentor
rather than as a distant patron. In the same way we measure our
investment returns versus transparent benchmarks over time, the
strategic philanthropic investments we make need to be scrutinized to
determine if they have been successful or not.
Measuring Philanthropy's ROI
Nonprofits
are increasingly adopting outcome measurement and business metrics to
appeal to donors. Some might argue that measuring the return on
investment (ROI) of philanthropy is laudable while others believe that
complex social problems do not fit neatly into business metrics.
Business author Jim Collins makes the argument that "We must reject the
idea-well intentioned, but dead wrong-that the primary path to
greatness in the social sectors is to become 'more like business.' ... In
business, money is both an input (a resource for achieving greatness)
and an output (a measure of greatness). In the social sectors, money is
only an input and not a measure of greatness."8 Collins goes on to
say that nonprofits should be measured by their outputs even if they
are difficult to measure.
The proliferation of online rating services such as Charity Navigator has led some to criticize the criteria used for the rankings. These nonprofit ratings are based on financial efficiency ratios, such as the amount spent on overhead as a percentage of program expenditures.
Clearly, if a nonprofit is spending an egregious amount on overhead, these ratings can show that abuse to donors. However, the debate lies in classifying thousands of nonprofits with the same efficiency metrics, as they may have radically different budgets and operating models. The IRS has recently updated the tax return that nonprofits must file annually, the 990, in an effort to promote transparency and accountability.
Although carefully evaluating nonprofits is essential to good grant-making, statistics must not be examined in a vacuum. Strategic philanthropy is part art and part science, and measuring the ROI of a philanthropic investment is best approached with a thoughtful eye.
Creating And Preserving A Philanthropic Legacy
The
philanthropic investor cares a great deal about control and
preservation of her intentions. She is concerned about the delicate
balance between ensuring that specific donor wishes are followed and
providing flexibility for future generations and a changing world.
Recent cases involving Princeton, Tulane, Fisk University and the Barnes Foundation have brought the issue of donor intent into the spotlight. Historically, once a donor made a completed gift to a nonprofit organization, she often had no recourse if she later became unhappy with the ultimate use of the funds. Typically, only the state attorney general would have standing to sue a nonprofit corporation. More recently, however, some donors have adopted the practice of creating a gift agreement. This is a contract between a nonprofit corporation and a donor that clearly defines expectations up front as well as donor recourse if things do not work out as expected. It can be an effective tool to help ensure a successful outcome.
Donors need to create a mechanism for due diligence and governance for themselves and for those who will work to implement their philanthropic investments, especially for philanthropic entities that will continue beyond the donor's lifetime. Creating a philanthropic mission statement, grant-making guidelines and an application process are good first steps. Donors should conduct site visits, talk to other donors and evaluate past grants in an effort to learn where their own philanthropic investments are seeing the most success. Personal letters to family members detailing the stories and reasons for giving and not giving are excellent tools to preserve a donor's wishes. Sharing what you have learned with those who will be responsible for preserving your philanthropic legacy is critical.
Looking To The Future
The
impact of this fundamental shift from philanthropy ascharity to
philanthropy as an investment will be far-reaching and have both
intended and unintended consequences on donors and nonprofit
organizations. For example, we will see more giving circles,
foundations and donor-advised funds, greater use of mission-related
investing and more interest in the business of philanthropy. There will
be a continued blurring of the lines between for-profit and non-profit
ventures. The philanthropic investor has challenged the way we think
about philanthropy and the nonprofit sector and will continue to do so
in the future.
Elizabeth R. Snyder is director of philanthropy of GenSpring Family Offices, an affiliate of SunTrust Banks Inc. (NYSE:STI) and one of the nation's premier wealth management firms for ultra-high-net-worth families. With nearly $15 billion under advisement, GenSpring, including its affiliate GenSpring International LLC, has been chosen by more than 600 families to manage their wealth for generations. GenSpring is headquartered in Palm Beach Gardens, Fla. and has local family offices in Atlanta, Charlotte, Greenwich, New York City, Miami, Orlando, Palm Beach, Tampa Bay, Sarasota, Washington, D.C., and Phoenix. For more information, please visit www.GenSpring.com.
Footnotes
1 The Foundation Center, 2007
2 The Foundation Center, 2007
3 "Growing Concerns and Assets," The Chronicle of Philanthropy, May 29, 2008
4 "Growing Concerns and Assets," The Chronicle of Philanthropy, May 29, 2008
5 Forum of Regional Association of Grantmakers and the Giving Circle Network
6 Brooks, Arthur C., Who Really Cares: The Surprising Truth About Compassionate Conservatism. New York: Basic Books (2006)
7 Giving USA 2007
8 Collins, Jim Good to Great and the Social Sectors 2005