Raising the Philanthropy Question

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Kudos to Jim Coutre from The Philanthropic Initiative for his recent article on the importance of financial advisers discussing charitable giving with their clients. He cites studies showing that wealthy clients expect the conversation (or will go elsewhere for it) and that the conversation will increase long-term client retention. Community foundations and other nonprofits that work with professional advisers will also gain insights.

Jim also posted the article with additional links in three blog posts in March of 2013.

Connecting Family Philanthropy With Social Giving

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A couple months ago, PhilanthroGeek founder Nathaniel James, ioby co-founder Erin Barnes, and I set out on a small adventure to answer two questions:

  • How do we describe the new trends in social giving to the family philanthropy world?
  • What do family foundations make of the opportunities and challenges in these trends?

I’m describing some results of our adventure in this post. Nathaniel and Erin will be adding their thoughts in future posts at PhilanthroGeek and elsewhere. For ease of writing, I’ll use the term “family foundations” to be inclusive of foundations, donor-advised funds, trusts and other forms of family philanthropy.

Framing “Social Giving” (vsn 1)

We started our adventure with the rapid rise of crowdfunding sites and grassroots giving circles. Both tools help donors of any means directly connect with and support ideas, projects, and organizations. Both tools allow donors and requesters to bypass traditional intermediaries ranging from record companies to community foundations. Not all raise money for traditional charitable purposes and very few crowdfunding sites are sponsored by charitable organizations.

The term “social giving” is sometimes narrowly used to discuss online fundraising. We purposely used a broader definition that emphasized the “social” aspect, as not all giving circles are online and both tools truly succeed when people reach out to their offline and online social networks to make great things happen.

Our overview of the field of social giving showed that the tools share three common traits and have at least four trends driving their growth.

social giving graphic

Erin created a matrix of a larger variety of tools for giving, showing how they compare in the proximity of donors to recipients and how driven the tools are by technology.

matrix of social giving tools

Family Philanthropy’s Reaction (vsn 1)

Session picForty or more people attended our session at the 2013 Family Philanthropy Conference. They represented different generations and roles in family philanthropy. Few had direct experience with crowdfunding sites or giving circles.

After our overview of social giving and some quick case studies, we asked small groups of attendees to discuss how social giving trends and tools might complement or distract from their family philanthropy work. Discussion topics came from the National Center for Family Philanthropy’s Pursuit of Excellence framework for assessing family foundations:  legacy, vision, and mission; governance; family roles; program development and grantmaking; and finance, administration, and responsibility. You can download notes from their responses at the end of this post, but I wanted to comment on four reactions from the small groups.

“[We would] need assurance about proper due diligence and legal issues. This adds a layer of complexity to grants.”

Grantmaking – Every small group brought up challenges with supporting crowdfunded projects and giving circle award recipients that aren’t IRS-approved charitable organizations. Many projects provide community benefit, but create the burden of exercising expenditure responsibility. Crowdfunded support for small businesses, even socially-minded ones, likely don’t qualify as Mission-Related Investments, but this could change over time.  In the meantime, organizations such as ioby, Donors Choose, Global Giving, and Social Venture Partners’ chapters are public charities, providing easy testing grounds for grantmaking.

“[Social giving] can be a glue that brings family together – a family foundation exists for more than just grantmaking.”

Family giving culture – Most founders of family foundations want them to be tools that bind family together over time. Family foundations already use storytelling, family legacy documents, and other tools beyond grantmaking to build cultures of giving. Family offices and some family foundations will assist family members with giving beyond grants made by the foundation. Social giving tools can be a terrific means of family members discovering and acting on their philanthropic passions, either individually or in groups. And, because many social giving projects are short-term in nature, families can learn quickly from the experience and decide what did and didn’t work for their culture.

“[Social giving tools] meet Next Generation members ‘where they are’…They add new dimensions of giving from younger trustees.”

Trustee preparation – Attendees easily linked social giving tools to the interests and behaviors of young philanthropists described in the recent #Nextgendonors report. Family foundations often struggle with finding meaningful ways to involve teens and Millennials in foundation grantmaking processes. Involvement in a giving circle or crowdfunding campaign can be a valuable experiential learning opportunity. In a giving circle, a family member can learn about evaluating ideas, projects, and organizations without the pressure of conforming to foundation processes or parental expectations. Often, participants in giving circles lend expertise to grant or award recipients – another chance a for family member to practice volunteering or learn leadership skills. Foundations could encourage trustees to pitch their favorite giving circle or crowdfunding projects to other family members in an environment that would likely have lower stakes than pitching an official grant proposal.

“[Social giving is] a great way to bring family foundation work to the people, to make it understandable.”

Community relations – Welcome to the magic of crowdsourcing ideas. Nathaniel, Erin, and I hadn’t thought of this in our session preparation. A few years ago, the Philanthropy Awareness Initiative reported that 60% of people in community leadership roles felt they didn’t understand how and why foundations work. Only 15% could describe a foundation’s impact in their community. Everyday people presumably knew even less. In this era of government budget cuts and tax reform conversations, I think this lack of understanding can only hurt traditional foundations. (See my previous post on the topic). Family foundations could use social giving tools to learn about community opportunities, solve community problems, and provide financial support alongside everyday members of their communities. Family foundations have already been providing matching grants to encourage support of projects through ioby and DonorsChoose. And, the Geraldine R. Dodge Foundation seems to be the first foundation to have a curated page on the crowdfunding site Kickstarter.

Your Thoughts?

You can download our session handout (including the graphics above) here and a summary of the small group notes here. Erin, Nathaniel, and I would welcome your feedback:

  • What do you think of our first stabs at condensing the key concepts into a couple graphics?
  • How do you see social giving trends and tools complementing or distracting from your family’s philanthropy?
  • Who do you think will be the first foundations savvy enough to include social giving tools as part of their family engagement and grantmaking work?

Feel free to reply to this post, email me, or reach us on Twitter at @tonymacklin1, @erinargyle, and @Pg33k.

 

Is Family Philanthropy Ready for “New Giving” Tools?

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(updated from my post on the Council on Foundation’s re: Philanthropy blog)

“Crowdfunding. Social giving. Unsectored solutions. Hacker and maker cultures. Citizen-led social innovation. These ideas and others are shaping new pathways for giving. Will they complement your family’s philanthropy or distract from it? Join us for a fun, honest discussion of new frontiers in giving.”

That’s the blurb for a 2013 Family Philanthropy Conference session that I’m co-hosting with Nathan James (consultant and founder of PhilanthroGeek) and Erin Barnes (co-founder and Executive Director of ioby).

In her new Philanthropy and the Social Economy: Blueprint 2013 report, philanthropy scholar Lucy Bernholz continues her assessment of the “social economy,” defined as  ”private capital used for public good.” She writes about the growing influence of mobile giving, networked action, crowdfunding, and other ways people choose to accomplish social goals outside of the traditional donor/funder-nonprofit relationship.

Nathaniel, Erin, and I have also been thinking about this social economy issue. Erin and Nathan are working daily to grow and connect new pathways for generosity and I guess I’m bringing the “seasoned philanthropy geezer” perspective. At our session, we’ll discuss potential intersections between traditional family philanthropy and the new wave of giving tools enabled by technology and fueled by problem-solving approaches of Millennials, entrepreneurs, and everyday citizens. Some of these tools include:

Here’s where you come in!

These tools are rapidly evolving and rapidly expanding their reach. So, we’d love to tap your curiosity, wisdom, and concerns to bring the freshest thinking to the session:

  • What questions would you want answered by this session?
  • Have family members brought any of these tools up as ways for the family to give? What experiments have you tried?
  • Do you know a foundation that has helped grantees use these tools for friend-raising and fundraising?
  • Do you think these tools would aid your family’s philanthropy or distract from it?

How you can respond

Erin, Nathan, and I encourage you to join the conversation in any of these ways:

We’ll promise to summarize the results of the responses and session discussion on the Council on Foundation’s blog, our blogs, and other places. Thanks in advance for your responses!

Are Philanthropists Doing It Wrong?

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Last week, financial writer Felix Salmon published a blog post entitled “Philanthropy: You’re doing it wrong.” His post particularly takes to task the practices and behaviors he sees in wealthier donors.

Though Salmon doesn’t use the term, much of his column pushes back against donor “hyperagency.”  In The Modern Medici,  Boston College professor Paul Schervish described hyperagency as “the enhanced capacity of wealthy individuals to establish or control substantially the conditions under which they and others will live.” Schervish wrote that very wealthy people have the inclination and ability “to be producers rather than simply supporters of philanthropic projects.”

I agree with some of Salmon’s thoughts, especially those that encourage philanthropists to give with a light footprint. Donors should always be mindful of the limited resources most nonprofits have, especially for daily operations and operating reserves. Paul Shoemaker, Executive Connector and Director of Social Venture Partners Seattle, provided similar advice in his “10 Things We’d Like to Tell Every New Philanthropist” posts for PhilanthroMedia in late 2008. (I’ve collected those into one PDF here: 10 Things to Tell Every New Philanthropist).

But, some of Salmon’s advice misses out on the many motivations that drive giving (Schervish’s paper called them determinants of charitable giving). Salmon seems to favor altruistic giving that efficiently maximizes social impact, but doesn’t favor common motivations such as legacy, opportunities for family philanthropy, emotional and social affiliation, or gratitude.

He also sees setting up a new foundation as a likely waste of financial and human resources. This sometimes can be true. However, he doesn’t mention the many inexpensive ways donors can establish and run foundations, and doesn’t mention that sometimes a foundation or donor-advised fund can be the best option for a large one-time financial event such as the sale of a business or a large inheritance.

Like many pundits in the philanthropy press and blogosphere, Salmon believes philanthropists are doing it wrong. Unfortunately, like those pundits, he defines “wrong” as “doesn’t match my personal values, interests, and worldview.”

Who Will Stand for All of Philanthropy?

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What comes to mind when you hear the word philanthropy?

Most of us know the Greek origin of the word suggests an altruistic love for mankind. Many of us were taught Robert Payton’s elegant definition: voluntary action for the public good. For philanthropoids, philanthropy consultants, and donors who want to keep up with the cool kids, the word has picked up the expectations of “strategic” and “better than charity.” (Check out this post from the Alliance magazine and just about any talk by Bill Schambra for more on the last point).

I’ve been mulling these definitions over after reading about Rolling Jubilee, the new Occupy Wall Street spin-off. The 501(c)(4) nonprofit uses crowdsourced gifts to buy up distressed consumer debts for pennies on the dollar and then forgives the debts. Progressives and Conservatives have both lauded and both questioned it (I’ll take that as a good sign).

But, does Rolling Jubilee sound like “philanthropy”?

Donors who voluntarily give out of compassion for the less fortunate? Check. Donors who choose to stand with a cause? Check. Donations made without regard to tax deduction? True for most of history and most of the world, and true for 70% or so of U.S. taxpayers who don’t itemize. Donations made without questioning if the strategy is effective or if it produces the best outcomes for the beneficiaries? Very true.

To me, Rolling Jubilee sounds like the basic definitions of philanthropy. Why does that matter? Because of a bigger question:

Who will stand up for the broader definition of philanthropy?

Imagine these scenarios*:

  • Congress proposes to force Rolling Jubilee, Awesome Foundation chapters, and Kickstarter to submit names of their donors so that gift taxes can be imposed on contributors.
  • The IRS investigates StartSomeGood and other for-profit crowdfunding platforms dedicated to the public good, and then suggests new, burdensome reporting regulations.
  • A state chooses to strengthen laws designed to protect donors but actually harms recipients that aren’t traditional nonprofits and even limits donors’ choices for voluntary action.

Would the Independent Sector lobby against these changes? Its values and vision would seem to include all forms of philanthropy but its mission narrows its work to nonprofits. The Council on Foundations recognizes the “importance of philanthropy toward the public good” but its public policy agenda serves traditional grantmakers. The Alliance for Charitable Reform works to preserve the rights of donors but only for “vigorous private giving to charities.” The national groups organizing efforts to protect the charitable deductions really only serve those donors who itemize and 501(c)(3) public charities. (OK, they also serve estate planning attorneys, wealth planners, and savvy insurance salespeople, but that’s beside the point.)

My point, and I do have one…
I think those organizations – and the rest of us who work in the philanthropy field – should consider going back to the definitions of philanthropy espoused by the ancient Greeks and Bob Payton. Voluntary action for the public good (aka the altruistic economy or financing social good) is taking on many new forms, accelerated by technology and how Millennials choose to do good. And, generous people are choosing to act as free agents, bypassing traditional work with nonprofits and foundations.

Advocating for public charities and traditional foundations misses out on too much of the voluntary giving action. It leaves out the large majority of generous Americans who don’t itemize or even file taxes. It leaves out your kids, your neighbors, and your grandparents – people who care about others and deserve not to have their philanthropy seen as somehow less important than “real philanthropy.” They should be concerned about current laws and policies impacting charitable giving and we nonprofit and philanthropy professionals should be concerned about regulations that would impact our neighbors’ and relatives’ abilities to give, regardless of deductibility or organizational form.

I’m convinced the whole field of philanthropy has to stand together or we’ll be quickly pitted against each other in future debates about local, state, and federal tax revenues.

But will we stand together?  What do you think?

 

* If these questions get your philanthropy geek juices flowing, check out the ReCoding Good Project at Stanford University’s Center on Philanthropy and Civil Society and its series in the Stanford Social Innovation Review.

Transparency in Grantmaking

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If you’ve written a grant proposal, you know the drill. You send it off to the funder. If you’re lucky, the funder asks you some questions after reading the proposal. If you’re really lucky, the funder comes on-site to see your great work in action. They’ll also likely drill you for details of your financial health, evaluation methods, and/or governance practices. It might not be painful.

And then…silence.

The walls go up around the funder’s decision-making process. They’re reinforced by soundproof curtains, unstated locations, and maybe an armed guard or two. You’re hoping the decision-makers are kind to you and that maybe they’re having good snacks so they don’t get too surly. You sweat and wait for a call or email from your contact on the inside. When the news comes, it’s a crap shoot as to whether or not you understand why the funder made its decision.

It doesn’t have to be this way, and a government agency is the inspiration.

I had the recent pleasure of serving on a grants panel for Cuyahoga Arts & Culture (CAC), a county agency charged with distributing a one-and-a-half-cent-per-cigarette tax. State and local arts agencies have a rich history of transparency in their grantmaking. I’ve experienced this first-hand in Indianapolis and Pittsburgh as a staff member running the process, a volunteer panelist, and a board member of a nonprofit applying for money.

At minimum, arts agencies’ grant review meetings are typically open to the public. But I think the CAC did a great job of going beyond the “letter of the law” in transparency and accountability to its constituents:CAC Twitter Feed

  • CAC’s panels met at the Idea Center at Playhouse Square, a cool downtown space with easy transit access and streetfront window views into the panel. Anyone could walk in and listen. (I’ll admit that it was the last warm day of the fall so we likely didn’t attract an audience beyond grant applicants).
  • The Idea Center’s staff streamed the panel conversations live on CAC’s web site and the recording will be available to anyone for later listening.
  • CAC’s staff used Twitter and Facebook to keep the public posted on the panel’s progress.
  • Applicant organizations and members of the general public were invited to provide feedback on the process at the panel conversation and via email or social media. They could also submit factual corrections in case the panelists said something incorrect about the organization or proposal.
  • The panel’s scoring criteria were clear, transparent, and provided to applicants up-front. Forty-five percent of the score was weighted to public benefit, with an eye to how the applicant actively engaged the community in planning the arts programs and host the applicant thought about community accountability.

I’m sure not all applicants were excited about the process. They couldn’t sell the panelists or staff members on their proposals’ merits. They had to listen to sometimes tough assessments of how their projects didn’t meet the scoring criteria. The panelists weren’t from Cleveland and only knew what we read about the organizations and the communities they proposed to serve. The application process probably took too much effort for grant awards under a thousand or two thousand dollars. But, it was likely tough to beat the fair shot the applicants received at obtaining money and obtaining feedback on their proposals.

What if…

What if philanthropic foundations did grantmaking the way Cuyahoga Arts & Culture does?  I’ll concede that foundations have the legal right to say little more than what’s published in their IRS 990 forms. I’ll likely even defend the right, in many circumstances, to that privacy and the freedom it can provide.

There are some great efforts in foundation transparency. The Foundation Center’s Glass Pockets project and the Center for Effective Philanthropy are leading the way, and philanthropies ranging from the Knight Foundation to the Omidyar Network are experimenting with sharing more information more quickly. But the efforts are mostly concentrated on answering “Where did our money go?” and “What did it accomplish?” rather than “Why and how did we make our funding decisions?”

 

The Nonprofit Quarterly’s Rick Cohen wrote this summer about the potential benefits of increased disclosure in the foundation community, including better civic engagement in and understanding of philanthropy.  That’s the same benefit the CAC gains from its transparency – everyday citizens understanding how their tax dollars benefit the community and feeling they have a voice in the process.

Foundations aren’t immune from the public’s increasing mistrust of traditional institutions (see here and here for stories on this). And, in the upcoming debates about federal tax reform, it will be an easy populist win for Congress to throw endowed institutions under the bus in favor of direct help to everyday Americans and small hometown charities.

Foundations shouldn’t be legally forced to be as transparent as the CAC. But we’d do ourselves a big favor if we chose to act as transparently.

Right Money, Right Time, Right Purpose

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or…All You Need is Cash

Ages ago, I took economic development finance and nonprofit finance classes. I now can’t run a detailed pro forma if you stuck a loaded spreadsheet to my head. But the basic concepts have been tugging at my brain as I’ve followed news about three issues.

First, the United Way of the National Capital Area recently decided to restrict grants to nonprofits with budgets of more than $50,000. (The National Center for Family Philanthropy summarized some of the reactions here.) Many people argued that the decision would diminish innovation, crowd out small nonprofits, and increase the gaps between the haves and have-nots. Others argued that the decision made sense given the United Way’s roles as a community problem-solver and an intermediary for big donors’ money.

Second, blog posts by Alexandre Lange, architecture and design critic, and Ethan Zuckerman, director of the MIT Center for Civic Media, questioned the use of crowdfunding sites to fund community development and public improvements projects. Lange called it “Kickstarter Urbanism.” They and others worried about letting government off the hook for its responsibilities and also worried about the crowdfunding process leaving poor communities behind. The same arguments have been used for Donors Choose.

Last, a Chronicle of Philanthropy article described how Denver area nonprofits honorably turned away unneeded donations sent in sympathy for victims of wildfires and the mass shooting at the movie theater. The coalition National Voluntary Organizations Active in Disaster (NVOAD – someone get them a snappier brand) has started a marketing push to educate donors on the most helpful and cost-effective giving after disasters.

The articles and blogs are describing situations in which donors, funders, and nonprofits didn’t think through two basic concepts in finance:

1. Cash is King. The King loves sitting on big piles of unrestricted, flexible cash. The King also loves covering the true, full cost of delivering a product or service plus profit. (OK, technically the King loved peanut butter and nanner sandwiches, but I digress.)

2. Right Money, Right Time, Right Terms. Foundation folks sometimes substitute “right terms” with “right purpose.” The most effective money fits all of these criteria. Basic economics defines “right” as the type of money, timing, and terms eventually negotiated by both parties or by the market as a whole.

Janis Foster Richardson, executive director of Grassroots Grantmakers, had an alternate take on the “right terms” concept in her blog post Giftmaking vs. Grantmaking. She wrote about the problematic confusion in philanthropy between giftmaking (an act of generosity with no strings attached) and grantmaking (a deal struck with expectations attached).

In the case of the United Way decision, were the terms of its grants and follow-up reporting really right for small nonprofits? Did its process deliver money in a timely way? Did its grants inspire other donors to give or crowd them out? Is United Way really the right money to spur and support innovation? Just because the money was available, it doesn’t mean it was right for the nonprofits. But I’m guessing the United Way’s critics were wishing its money was more like gifts and less like grants.

In the case of Kickstarter Urbanism, crowdfunding may indeed deliver cash at quicker and easier terms than a municipal government can. But are small gifts always the right money to build and maintain public spaces and amenities? With rare exceptions, crowdfunding sites don’t produce “Cash is King” situations for project sponsors, so who ensures there’s money for cost overruns and maintenance? And, does it matter if the terms of the cash are truly altruistic or come with hopes for tangible, personal returns (e.g. a nicer park next door or iGizmos for my grandkids’ classroom)?

In the case of disasters, donors often send gifts that are heartfelt (bottles of water and used clothes in the first week or two) but they’re the wrong money and wrong timing for the nonprofits. An NVOAD representative put it simply in the Chronicle article: “Cash is best.”

Blurrier Roles for Cash
Figuring out “right money, right time, right terms” often enough to produce consistent net King Cash has never been easy for any enterprise (business, nonprofit, or the hybrids in between). But communities tended to have patterns of where to look for support. A certain foundation was a stalwart supporter of afterschool programs. A well-known donor couple sought out edgy artwork. A certain bank had friendlier lending terms for nonprofit facilities. There were the three congregations that would help pull the rest along around a social service issue.

It’s not that easy now. Recent changes in grantmaking, giftmaking, and investing seem to be creating an ongoing culture of anxiety in people trying to do good work in their communities.

The near-term culture of downsized government and the agonizingly slow crawl out of the recession are forcing tough choices for donors and donees. Will they step in to fill the gaps in direct services, or will they instead direct cash to advocacy efforts that push for re-instituting government support?

Also, the line between “giftmaking” and grantmaking is blurrier. When a nonprofit approaches a donor for a gift, it more and more often is receiving a check through a donor-advised fund or family foundation. Now strings are attached, even if unintentionally. And, more wealthy donors are protecting their interests through restrictions on their large gifts and hiring consultants to write detailed gift agreements. Nonprofits may have to start running scenarios for “right money, right time, right terms” before they even make an ask.

And, the market for funding sources is downright confusing. In the “olden days” (maybe 5 years ago), the nonprofit CEO or social entrepreneur looked for charitable donations, grants, and earned income opportunities, sometimes taking loans. Now she has a rapidly evolving set of other options – crowdfunding, microgiving, social giving, impact investing, social innovation bonds, and more. If she truly understood them all, she’d have no time to manage her mission. She’ll also find that individuals and informal groups use many of the options to do good on their own, bypassing her nonprofit or social enterprise entirely.

The Big Question
How do communities develop new maps of how they choose to finance social good* – how financial resources are used for community benefit?

I know, I know, the idea of mapping how money is spent to benefit the community sounds wonky, boring, and difficult. But, the real-life consequences aren’t.

  • If your community’s United Way stops funding small organizations, will family foundations pick up the slack or should the nonprofits try to turn out donors through social media campaigns? Or do the small groups just die in a sort of natural selection process?
  • If creative citizens choose to launch their own public art projects, will the arts council and wealthy arts patrons support that grassroots momentum or squash it because it doesn’t match their own long-standing priorities?
  • Can intermediaries like United Ways and arts councils still add value? In the face of expanded and blurry cash sources, can they still create valid community plans for services or organize around the currently-popular collective impact model?
  • Foundations and banks often manage their giving and investing in community development projects based on assumptions about government investment in infrastructure and public safety. When government limits that investment, what should the foundations and banks do?
  • Crowdfunding sites, Awesome Foundation chapters, and other grassroots giving efforts can launch dozens of cool ideas. Some ideas could even be remarkable innovations or healthy signs of renewed civic activism that need nurturing. Will the idea sponsors be able to find the right money at the right time and terms to replicate and expand?

There will never be a unified vision or master plan for financing social good in a community – there never was. Communities will always be wonderful messes of people, organizations, and money committed to good intentions. But, given the increased blurriness of financing options, I think communities would benefit from honest and open discussions about their values and aspirations for “right money, right time, right terms.”

Sometime, soon I hope, a bright person or consulting group that will develop an effective way to facilitate answers to those questions and more – to develop 21st century answers to the right King Cash for social good. When you find that person or group, send them my way. I know at least my adopted hometown of Pittsburgh could use them.

*Thanks to Lucy Bernholz for the first reference I saw to the term “financing social good”