Giving for Optimal Social Impact: How Much to Give, How, and When?

Sean at Tactical Philanthropy in an article he wrote for The Financial Times:

Your two main choices for a philanthropic vehicle are a private foundation or a donor-advised fund.

I would put it this way, your key choice is whether to give now or later, for impact now or later.

1. Give now/Impact now = direct gift to the charity of your choice
2. Give now/Impact later = set up foundation, donor advised fund now, make grants from it later.
3. Give at death/Impact forever = testamentary foundation, with grants in perpetuity
4. Give at death/ Impact then = bequest to charity

Even my version simplifies things, but you can see how important it is to ask not only when you want to send  the money in a philanthropic direction but when you want the money to arrive where it will have social impact. Moving money to foundations and donor advised funds is, technically, "philanthropic," and you get the tax benefits, but the money does not begin saving the planet or curing AIDs, or helping battered women, or whatever your cause might be until the dollars reach the nonprofit partners.

Start by thinking about what you want to preserve or change in the world. Then consider the timing and amount you can afford. What does the nonprofit partner need when? What can you afford when? The strategies and vehicles that are right for you and for your cause will come out of that analysis.  Financial managers will generally default to funds, as in foundations and donor advised funds, that they manage. This is how we in the financial trades are trained and generally how we are compensated. That is why you may want to involve your nonprofit partners in the conversation.

For maximum social impact: Consider a current direct gift, as large as you can afford, even if your financial manager blanches at the thought.

Caveat: All fact and circumstances come into it. For example, if you have kids you want to learn philanthropy and direct grants after you are gone, that would argue for a donor advised fund or a foundation. But in the mix don't neglect to ask about social impact now or later. It is a key question, one that financial advisors too seldom ask.

 

Comments

[MIchelle]

The accountants always have us immediately discount bequests and future gifts. Money tomorrow buys much less than money today.

Of course, as Phil says, today's buying power isn't always the most important consideration.

But I'd gladly pay you Tuesday for a hamburger today....

[Gerry]

I wonder if it is discounted at the same rate that it will grow in the foundation vehicle?

[phil]

The accountants can do the math right, the issue is how the social problems grow if neglected. Will nipping a problem in the bud now we be a better use of funds, or is it better to let the problems proliferate as we hoard the money in a foundation?

[Gerry]

Indeed. A foundation might never actually give away the principal, and if the financial managers get good returns and give 5% away per year, they are also making an every increasing return for managing the funds.

Even more important than measuring the effectiveness of non-profits is a global assessment of the level and types of need. Without a map of the needs, the magnitude of needs and a logic model that relates those needs to the social situation, it is hard to even ask whether you are being effective. With such a map you could make collective decisions about what needs to target at what scale and in what time frame. Without it we are just shooting in the dark.

I don't even mean to imply that good work on such a map and understanding of the field is not already on-going, but it certainly isn't well known where the key leverage points are. Instead we have ideologically inspired think tanks providing competing visions, and no forum where collective decision making processes can be carried out. No way to establish the truth value of statements about the field without the taint of propaganda.

[Sean Stannard-Stockton]

Phil, I really like your advice in this post. I believe that one of the most important things for donors to understand is that the cost of containing/eliminating social problems increases at a faster rate than the returns to financial markets (I believe this to be true, but have been unable to find evidence. Please let me know if anyone can point me to a good study). Highlighting this fact is advice I've given to Anne Ellinger at Bolder Giving (who I mention in the FT column).

That being said, I have never run across a donor who wanted to give today all of the money that they will give in their lifetime. There is a good impact maximization argument that says people should do this, but I don't think it fits most people's personalities. They want to stay involved in giving throughout their lifetime.

Given all of that, I encourage people to try and figure out what their total lifetime giving will be and (if they can do so without jeopardizing their own financial security), move that total amount into a philanthropic vehicle as described in my column. Doing so does not preclude making a very large direct gift.

If I could point to evidence that social problems grow at a faster rate than financial markets, I'd consider writing an FT column about the subject.

Thanks for expanding on my thoughts from the column. You've added importantly to what I could discuss with my 800 word count limit.

[Lucy in the Sky with Diamonds]

Whatever you give away at death for the Lord's sake you give because you cannot take it with you. Give now to the true Savior, while you are healthy, whatever you intended to give away at your death.

[Josh Millard]

Without a map of the needs, the magnitude of needs and a logic model that relates those needs to the social situation, it is hard to even ask whether you are being effective.

and

I don't even mean to imply that good work on such a map and understanding of the field is not already on-going, but it certainly isn't well known where the key leverage points are.

I know very little about philanthropic research, but I find the idea here of a needs-mapping really intriguing. What work is being done in this area? Can you recommend any good starting points for a curious civilian?

[Gerry]

Advise them to engage in giving as a citizen, and donate as they see the need with the advice of financial people about how to structure significant financial gifts. Show up as a person, not a pocketbook and get engaged in the problems as you see them. If you can, hire domain experts and consultants.

Do not assume that either giving it all now, or letting it grow is the right path. I think you are right that the damage can grow faster than any investment, and in fact suggests a way to think about gifts as investments for all-of-us. Not all damage is quantifiable, but I think if we quantify the flows that are quantifiable and make them visible for meditation and analysis, the more subtle flows will take care of themselves.

[Gerry]

That was a reply to Sean.

I don't know where to start. My intuition is that very little of it is done, and what is is not shared very widely.

What do you think of the possibility of a project to create that sort of thing collaboratively on-line? How would you go about doing it?

I have a question for you. In your experience with social networking sites, do any of them have the features necessary to debate truth value in a public forum? I think it is an area open for experimentation. I don't think anyone has a solution of any depth yet.

[Nonprofiteer]

Well said, Phil. As one who works daily with the charities who are trying to heal the world on pocket change, I think giving--at least on the scale done by people who aren't Microsoft Mega-Millionaires--doesn't really count til the cash is in the hands of the service providers.

Needs mapping is doubtless an intriguing idea, but there's an extent to which demands for a comprehensive picture of world need (or a complete evaluation of charitable effectiveness) are mere excuses for delayed giving. You can always have better information tomorrow, or next year. But right this minute any donor can decide what's important to him/her; who works on that; how much those people need; and how much s/he can afford to give them, right now or over the course of a lifetime. There may be sectors of the charitable world that are over-funded, but I don't actually know of any; so it doesn't really matter to me whether on some absolute scale the world needs AIDS drugs more than contraception. It needs both; I care about the latter, so that's where I give my money.

Is there some reason that this analysis is fundamentally different for the people you guys are advising than for someone like me (in the top 1%, though not the top .1%, of income in this country)? And if so, what is it?

[Josh Millard]

What do you think of the possibility of a project to create that sort of thing collaboratively on-line? How would you go about doing it?

I think it'd make for a wonderful experiment. And I have no idea if it would be successful.

Questions that leap to mind:
- Where do you get the data from?
- Who is providing it?
- How do you draw the line between data that's good enough and data that isn't?
- Who do you find to draw that line, and how do you get them on board?
- What's the methodology for converting varying types of data into some homogenized final format/metric?

Answers to those would shape the project fundamentally; I think they (and surely some others that I haven't thought of) would need to be answered before work on such a project could really begin, if the hope was for anything more than an ad hoc experiment.

That said, an ad hoc experiment as a demo might be exactly the sort of thing to get folks interested in a more robust project.

If the data is available; if the various data sources can be normalized to some final baseline format; if there are some experts willing to put in the time (pro-bono? or is there funding?) to vet the data, or coerce it in the first place: then, yes, I think it could work.

"Collaboratively" is a very fuzzy word right now, on-line; it evokes for me everything from 2authors1blog on up to wikipedia-scale projects.

This strikes me as something that would be more easily accomplished with quality at a smaller scale -- that's based on my presumption (wrong?) that a big challenge is locating and gathering the relatively sparse extant data, not in amassing a very large number of data sources. If you've got few things and they're hard to find, you're likely to do better with a skeleton crew of passionate investigators.

A big crowd of more casual members works great for, say, collecting trivia (look at imdb.com, or the CDDB music database) but isn't always the best resource for careful work. But! More below...

I have a question for you. In your experience with social networking sites, do any of them have the features necessary to debate truth value in a public forum? I think it is an area open for experimentation. I don't think anyone has a solution of any depth yet.

What I thought of first is the big trend in the last few years toward prediction markets; the wikipedia article has a good roundup of some of the big names (Intrade is practically a household name on most of the sites I frequent). I said above that a large, casual crowd may not be a great way to gather "hard" research, but as far as truth value, this may be one answer: when money hits the table, people get a lot more careful about their bets.

Would that fit something like the hypothetical needs-mapping project above? I don't know. Running a market to gather truth-value metrics might be taking a machine gun to a housefly. Or it might be a good fit, depending on the scope of the project; and the existence of a lot of competing prediction market sites/platforms might make it reasonably easy to "outsource" a lot of the work.

I'm not sure I've seen anything like a strong truth-testing architecture in any non-market site I've encountered. The social networking area is still sort of finding its feet, in my opinion -- there are more sites than there are established needs, and new ones are popping up (and failed ones withering away) pretty much every day, so I think folks are still mostly fighting for viability and stability. The market may just not have matured enough for anyone to see value in something as specific as this.

[phil]

Josh,

Thank you for your interest and enthusiasm around this question. I would point to three landmarks:

1. The Fith Discipline by Peter Senge on systems. Each social need is one element of a complex system. Hence to map the system and the "ecology" around any given need might be step one.

2. Beyond Success by Randall Ottinger discusses how Michael Milken reduced prostate cancer deaths. His first step was to map and convene the various players in the ecosystem around prostate cancer and mandate that, if they wanted a grant from him, they had to collaborate and share info.

3. The KINS Method or Tipping Point network methodology developed by Susan Davis. Google those and you will find a recipe for convening the players in an ecosystem.

The role of technology is supporting this has not been well explored. Goes back to our conversation about open and closed. Those who say don't know and those who say don't know. The real work in philanthropy is done behind closed doors on an invitation only basis. Mr. Karnofsky fought that. But he was bucking the system.

So, an aspect of online collaboration would probably have to be "closed invitation only spaces" (intranet kind of thing) as well as public space.

[phil]

Sean,

Interesting that you say your clients do not give a large percentage of net worth away during lifetime to charity. My experience working with professional advisors is consonant with yours. However, note that Bolder Giving, the site referenced in your article, is devoted to the case studies of many people who have done exactly that. Furthermore, the authors of that site had an earlier work, a book called, "We Gave Away a Fortune." In it they profiled many heirs who had given away their inheritance. Among them was your friend and mine, Tracy Gary. Some of this may come down to first generation versus inherited wealth. The people I work with are advisors to first generation wealth, and they tend not to "splurge" on life time giving, unless counseled towards it, unless it is all prudently planned. Second Generation, though, may be emotional. They make decisions based on not wanting to elitists, cut off from life, idle rich, or wanting to save the world now, for example. Much to be said here, but go back and look again at Bolder Giving. You will see what I mean.

[Josh Millard]

Thanks, Phil; that'll give me something to chew on.

[phil]

Thank you, Josh. As you can see the topic at hand is my obsession, so I very much welcome any thoughts, comments or queries you may have about getting the conversation of giving to go online, so it can be more open, more public, and, well, less top down, one way, and elitist - more democratic.

[Sean Stannard-Stockton]

Phil, sorry for not being clear. I definitely did not mean to imply that my clients and people I've interacted with do not give away a large portion of their net worth during their lifetime.

I was trying to say they do not give away the bulk of their lifetime giving "today". In other words imagine you had someone with $10 million in investable assets. Assume that an analysis of their financial wants/needs and their desire to give showed that they could and would like to give away $6 million over the course of their life. Imagine that all of the tax issues have been handled and the donor is free to give purely in the way that follows their altruistic motives (one of the reasons for organize your giving cited in my article is to separate the tax planning from the altruistic motive).

What I'm saying is that I rarely run across people who would choose to give the $6 million away today and then giving nothing else for the rest of their life. Instead, most people want to give over the course of their life. I think that while there may be a impact maximization case for giving everything asap, that most people want to give over their life and that that choice is OK.

In this scenario, I would suggest (and this is the point of my column) that the donor put the $6 million into a foundation or donor advised fund now. Then give to nonprofits over the course of their life as they see fit.

Obviously I've simplified a lot of the financial issues in this comment. But I hope you understand. My point: If you are going to give to charity over the course of your life and not every penny right now (as is the case with almost all donors), you should give as much as possible right now to a giving vehicle to maximize tax benefits (which can let you give more if you want) and organize the process.

[Gerry]

Interesting. In thinking about a financial investment, is that how you think? I can see the practicality of establishing a foundation even if you do deploy the money more quickly. If the donor is engaged in the causes that interest them first, they may or may not deploy it immediately depending on the opportunity for impact, just at the investor deploys all funds that can be productively invested at a reasonable risk. Yes the investment of time would be spread out, but the money might deploy immediately. The money might also be used to leverage more donations to the targeted area as the donor engages her family and/or peers.

[phil]

Thanks, Sean, for the clarification. I agree with your perspective. Most people don't want to just cut loose of the money, the big bundle, the ultimate gift, until late in life, since they actually enjoy the giving and may want to be actively engaged. Also, if you do give all at once to XYX charity, and you are then tapped out, will XYZ send roses on your birth day a year from now? You lose leverage, also, in giving the bundle at once, rather than doling the money out against progress and results on the things you care about.

Obviously the factors to be weighed are many. Thanks, Sean.

[MIchelle]

Phil's last remark is vital to note, and it's something we see constantly on the inside. This is where the transaction becomes a relationship. Our donors do want the birthday flowers, the mentions in the newsletter, the gradual, long-term, and consistent shaping influence that keeping their recipient on a sort of allowance creates. Every day we see the many ways the donation relationship creates personal meaning and belonging. Were the gift made outright, with no future expectation on either side, the donor would risk the disappearance of a relationship - in many cases an important, self-defining one.

I love the needs-mapping idea and will look into the resources you mentioned to Josh as time allows. One thing I'm curious about in the broader conversation is how 'need' is defined (I'm sure those authors will discuss this). Are the arts a need? Is literacy? Advocacy for or against things like female genital mutilation or economic self-sufficiency? It would seem to me that not only are geographic and demographic data needed, but that such a project must start with a definition of 'need' or varying 'needs' and perhaps even a hierarchy (run! Maslow's coming) or at least means of layering the types of need to be found in any given area. For instance, an area lacking food and employment and plagued by disease is probably (but not necessarily) an area lacking in educational or artistic opportunities, too. In thinking about what a global (or regional) needs map might look like, I'm envisioning a layered map with some depth, as the distribution of each need will be unique.

[phil]

Start, Michelle, with any end in view, say, the stopping genital mutilation of young women in a given country. Assume this social end in view matters to a donor. She would, if she really wanted to end that practice, to have a map of the whole social system around the practice. She would need to see what factors contribute to the perpetuation of the practice. Who is working on the ground to change it. How government has or could intervene. What effect education, literacy, religion, income levels, etc. play. Who else funds the work? What success have they enjoyed? Who has a repository of data? Who studies this? What universities have experts, etc. That might be a map of the field. Then where are the impact points ("Theory of social change."). From there maybe you get to a convening of key stakeholders (activists, experts, funders) to create a tipping point network? You create communications channels, repositories of findings, best practices, etc. You create a learning community around the on-going efforts? All this takes critical mass, and that is the point of organizing it based on a "map" of the field, though the map might follow upon the convening. ("Wiki" might be an analogy, or a technology actually used.)

[MIchelle]

Wiki is an excellent model to example, though of course I envisioned what you suggested: an issue-specific graphic model of need with tags and external links. It's a brilliant idea.

Can you get it funded? ;)

[Gerry]

Can you write a grant proposal? (just kidding)

My guess is that a number of people have thought of this, and their may be some wiki's already around that start to do it. It would not even be that expensive since it takes a smaller staff to guide a digital community than to do it all yourself. Gathering critical mass in spacetime to get the ball rolling, then it is self-sustaining.

[MIchelle]

Absolutely - I can write that grant proposal. In relative terms, it's not that expensive. First, I'm going to need a few days' research time to identify some funders, and we'll hope I haven't missed their annual cycle. Then I'm going to need you to spend a couple hours on the phone with me, providing some intellectual architecture. And can you fax over the institutional boilerplate - you know, self-descriptions, mission, recipients served, budget summaries? Got any mockups you can provide me? Screenshots, conceptions? Can you compile some of the data showing that you have constituent demand for this and that it will help meet mission better - oh, and satisfy the grantmakers' parameters for giving? And can I use your Xerox machine and postage meter?

In real terms, cash on the barrel is what makes this sort of thing happen. Hire a project coordinator who can give you 10-20 hours a week on the development, and you've got it. On deadline.

A theme of the philanthopy conversation lately has been the idea that the nonprofit world gets what the donor market supports. Who's willing to support this?

Sure I could write such a grant. Who'll pay for the time for me to write it? If no pay is forthcoming, I have other volunteer commitments to deliver on, and this cannot take priority.

If no one will pay, is it so very necessary?

Or will a noble volunteer, well supported via work in another sector, step forward to make this sort of contribution in lieu of cash donation?

Or will it be entrusted to a young and hungry sort with little experience, who will make some progress in establishing something that didn't exist before, but fall short of expectations elsewhere due to lack of experience?

How do we approach this challenge, given a market model?

The passionate, altrustic volunteer is so rare as to be almost a fiction. Even the putative standard-bearers in the form of GiveWell were given a $60K-something purse to do the kind of work it takes (unusually excellent wages for a NPO leader, especially under 30). They understood the value of the effort.

No, the work itself isn't very hard at all - but the time it takes consumes the most valuable resource the knowledgeable have: time. Is this idea golden enough to win crowd-sourced volunteer support? What knowledgeable person would oversee it? Would that effort be donated?

The problems are not those of talent, intellect, or experience. They're logistical. It's a matter of either galvanizing that charismatic volunteer coordinator, or paying the charismatic paid coordinator. And the volunteer relationship is contingent upon their interest, passion, and commitment.

It seems so easy, and in reality, assembling a consistent, motivated, talented and knowledgeable group of volunteers and/or low-wage workers to execute a long-term project is really very hard. These are the practical problems that have to be solved. If I had a tax-deductible donation check for every time someone said about a proposed project "It's not that hard!" I'd be heading up the Getty. None of it is hard. The only hard part is finding the money to pay for the needed expertise - convincing a donor that the result will be worth the investment.

We never want to talk about this money thing. We're lucky that so many people in the NPO world volunteer their time and talents. But volunteer support has its own costs - it's variable, situational, unreliable, vulnerable. We don't have many ways to compel volunteers to meet our standards or finish on our deadlines. Sometimes it works, because of the essential good character in some volunteers, because of personal mission. Sometimes, volunteer efforts fail because of the realities of life's power to distract. Serious efforts need serious support.

[phil]

The KINS Method or recipe provided by Susan Davis for a

Tipping Point Network

strikes me as a "proven best practice." She has a tipping point network going right now around progressive philanthropy.

Tipping Point Network

Randall Ottinger wrote Beyond Success, with its account of Milken's learning/funding/doing community around prostate cancer. Randy is also a Harvard MBA. If anyone gets this cause related community thing going in a big way in the next 12 months it will be Randy. He is a visionary with the connections to get money and talent engaged.

[phil]

Sean, one more thought on the timing of gifts. Do people sometimes blow the whole bundle at a young age in one big gift, or giving spree? Yes. That is exactly what Tracy Gary did as did the founders of Bolder Giving and many of the heirs they write up on their site and in their book. Why? Lots of reasons, but factor this in: For some inheriting wealth is a burden. It isolates them, and makes them feel a kind of guilt. The stories in We Gave Away a Fortune point to this. So do the many publications by Barbara Blouin and Katherine Gibson at
The Inheritance Project.

"Liberal guilt" does not characterize the people with main street self made money who are clients of my employer, but it does characterize some liberally educated bi-coastal heirs. I find myself moving in those circles, not that I have money, but maybe because I have plenty of Catholic guilt or too much education in the humanities. The parable of the talents comes to mind. Whether it is money or talent or whatever advantage you have, the need may be there to put it to go account as soon as possible. That obligation may be felt as moral imperative. This is a dimension that planners or "strategic philanthropy" people like Holden sometimes neglect with their results driven "metrics." There is a moral dimension that drives giving in many traditions, not just that of noblesse oblige, but noblesse oblige is an example.

[Sean Stannard-Stockton]

Shouldn't "morally driven" donors (Personally, I'd argue that all donors are driven my morals) want their giving to do the most good? Otherwise they could just give all of their money anonymously to some randomly picked nonprofit. Wouldn't the kinds of donors you describe feel the most fulfilled by giving to a nonprofit that they "knew" was doing a lot of good instead of a nonprofit that was just saying they were doing good?

[Gerry]

Of course they should, its just that impact doesn't always come down to just metrics. If you have a bad theory or model, all the metrics in the world don't get you performance.

[phil]

Sean, you might say that all givers have some mixture or ratio of various motives, and those elements can be many: love, hunger for status and recognition, an emotional bond with a community, a sense of indentity bound up with a cause or community, religious or ethical obligation, supersititious dread, and of course a metrics-minded specfic strategic outcome in mind. My point is that that for donors money is not seen, as you would see it, or most self made people would see it, as a burden or curse. For some donors the giving is a way to break a family curse, the curse of Midas. That position is so counter-intuitive in financial services that I highlighted it. Yes, of course, having decided that inherited wealth is a "dead hand," a temptation, a numbing factor, a curse, the donor would give thought as to how and to whom the gift would go, and to what effect. No doubt. But what drives the people I have in mind is more like narrative than spreadsheets. More meter than metrics.