Category Archives: donors

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.

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.

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”

The Philanthropy Forecast is Mixed, with a Heavy Chance of Bummer

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Ahhh…June…. Ice cream trucks started rolling. Pools opened. Gardens grew (at least before the heat waves). And the philanthropy world celebrated its annual wave of data geekery. Unfortunately, the data showed a mixed forecast for philanthropy, with a heavy chance of bummer.

Giving USA 2012 reported overall charitable giving only rose 0.9% in 2011 when adjusted for inflation, and the total amount given was still 11% below pre-recession levels. The numbers are likely the best-case scenario. The Giving USA team has revised its previous annual estimates downward after it later compared its forecasts to actual IRS data. Dr. Patrick Rooney, executive director of the Center on Philanthropy at Indiana University, reported that, given the slow economic recovery, it may take a decade for giving to return to pre-recession levels.

Individual donor news

Giving USA 2012 shows that donors’ giving rose 0.8% in 2011 when adjusted for inflation. Three other surveys provided slightly more positive windows into donor behavior.  The surveys relied on self-reported behaviors and intentions of donors. The exact figures aren’t scientifically accurate representations of the population, but I think the overall clues they offer are sound:

  • In the most recent Cygnus Donor Survey, 41% of donors said they increased giving in 2011 and 44% of the donors said they could have given more. Wealthier donors were more likely to have increased their gifts. And, only 7% of the survey respondents thought they’d give less in 2012.
  • The Millenial Impact Report 2012 again showed a generation eager to be involved in good causes and more willing than other generations to engage their friends in volunteering and giving.
  • A small survey by Fidelity Charitable revealed that more donors could increase their gifts of stock, real estate, and other complex assets if their advisors provided better advice about these options.

Dr. Rooney noted in a speech that individual and family giving controls almost 90% of philanthropy when you add together personal gifts, bequests, and giving through family foundations. I suspect the actual percentage is higher as the Center on Philanthropy and other analysts don’t have an accurate read on family giving through donor-advised funds.

Foundation and corporate grantmaking news

The Foundation Center’s annual estimates showed foundation grantmaking in 2011 was flat (adjusted for inflation). It was down 3% if you factored out the Bill and Melinda Gates Foundation. Giving USA 2012 showed foundation grantmaking was down 1.3% after inflation. The Commonfund Institute’s annual Benchmark Study of Foundations showed negative investment returns in 2011 after two years of increasing returns.

Giving USA showed corporate giving was flat in 2011, while the Foundation Center’s report showed corporate giving was up in 2011. Some articles about these reports note that much of the increase in corporate giving may be due to gifts of products, especially in the pharmaceutical industry.

Looking ahead, Commonfund and other investment advisors are predicting weak growth in endowments in the next couple years, echoing Dr. Rooney’s predictions for weak growth in giving. The Foundation Center’s report said that foundation grantmaking will only grow 1-3% in 2012, which means it will likely be flat or down again after inflation. Almost 40% of foundations expect to reduce giving in 2012.

What does this all mean for nonprofits?

The forecast includes:  flat foundation grantmaking; decreased government support for nonprofits; increased corporate and donor money being steered to 501(c)(4) nonprofits to sway elections (also predicted by Lucy Bernholz in her Blueprint 2012); likely changes to the U.S. tax code in 2013; and weak economic forecasts, including a very pessimistic one from Nouriel Roubini (the same economist who predicted the 2008 recession and housing market collapse).

People who know me know that I’m usually an optimistic guy. But it’s tough to remain optimistic in the face of the gloomy forecasts for philanthropy in the next 2-3 years. In many communities, it’s likely going to honestly feel like a philanthropic drought.

The best advice I’m seeing from fundraising and nonprofit consultants shouldn’t be new news to anyone.  But too few nonprofits have been diligent about disciplined implementation of the advice.

1. Individual donor cultivation and stewardship. Nonprofits will have to become even more focused on recruiting and keeping donors, whether those folks give through their checkbooks, donor-advised funds, or family foundations.  Giving USA, the Cygnus survey, and the Millennial Report all give similar advice for increasing the likelihood of individual gifts in a weak economy. Nonprofit websites and appeals should clearly state:

  • The need the nonprofit is addressing
  • How a gift will specifically make a difference and be wisely used
  • What has been recently been accomplished thanks to others’ gifts
  • Especially for Millennials, options for volunteering.

Some philanthropy observers see hope in the rapidly evolving options for crowdsourced giving (or “crowdfunding”) and micro-philanthropy. I’m personally a fan of this movement of grassroots, peer-inspired giving. Unfortunately the movement is still young and dynamic, making it hard for nonprofits to adapt to it. And, the few nonprofits who have successfully adapted to it don’t yet know if those new donors will grow into significant annual givers.

2. Hard-nosed business planning. It’s time to brush off your copies of Jim Collins’ Good To Great and Good To Great and the Social Sectors, read Mario Morino’s Leap of Reason, and/or consult your other favorite management and entrepreneurial resources. The nonprofits that have a better chance of thriving will be those that can back their fundraising strategies with:

  • A business plan based on market data and understanding of the true, full costs of each program or mission area
  • A culture of performance management that continually increases the effectiveness and measures the impact of their work
  • The guts to shed what doesn’t work as well or isn’t as core to the mission as it could be.

I am a donor, a nonprofit board member and volunteer, and a foundation staff member. I’m going to do my best to keep all these things in mind in my stewardship of my own and others’ philanthropic resources. And, I’m going to dig in deeper to support the causes I care most about.

How about you? What’s your reaction to the forecast for philanthropy?

Donor-Advised Fund Growth

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The Chronicle of Philanthropy’s new issue showcases its annual survey of large managers of donor-advised funds (subscription required). The online version features searchable and sortable data for DAFs going back to 2002 – a philanthropy geek’s dream.

The Chronicle compiled data from 62 of the largest DAF managers, a mix of foundations connected to financial companies, community foundations, religious organizations, universities, and others. The top 5 in asset size are in the top 20 of all types of foundations. For the group of 62, from 2007 to 2011:

  • Assets grew 10%
  • Grants to nonprofits grew 17%
  • Donor gifts to DAFs decreased 9% but increased 47% from 2009-11

The Foundation Center’s data on independent, community, and corporate foundations is only caught up to 2009 so we can’t yet make current side-by-side comparisons. But it appears that DAFs will continue to beat other foundations in growth of size and generosity.  In March, the The Chronicle of Philanthropy showed that the top 10 independent foundations’ assets dropped around 25% from 2007 to 2011. Their combined grantmaking held steady, a figure skewed by the Bill and Melinda Gates Foundation’s 47% increase in grants during that period. And its survey of a larger set of large foundations showed that those foundations expected to give the same or slightly less in 2012.

The news for nonprofits remains the same: go where the money is growing and where you can create emotional connections with living wealthy donors, e.g. donors with DAFs instead of the same old list of big funders.