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.