Why GiveWell Matters

GiveWell and its co-founders Holden Karnofsky and Elie Hassenfeld are suddenly media darlings. Not many people are written up in both the New York Times and the Wall Street Journal on the same day.

Stephanie Strom at the New York Times writes up a great profile in “2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy”:

Their efforts are shaking up the field of philanthropy, generating the kind of buzz more typically devoted to Bill Gates and Warren E. Buffett, as charities ponder what, if anything, their rigorous approach to evaluation means for the future…

Read the full article here.

Sally Beatty and Rachel Emma Silverman at the Wall Street Journal discuss GiveWell in their article, “Doing Due Diligence On Your Donations”:

Donors can readily compare charities from a financial perspective: how much an organization spends on administrative costs or fund raising, for instance. But givers, especially younger, business-minded ones, now tend to want more information on how successful a charity’s programs are in addressing the issues the charity sets out to resolve, from feeding the homeless to securing employment for the disabled. That’s especially important as the number of charities continues to grow, with about 1.4 million to choose from…

… And there are a growing number of groups whose aim is to make charity-effectiveness evaluations open to the public. GiveWell, for instance, was started this year by two former hedge-fund researchers who were frustrated by the lack of available information on charities’ results and impact. They research and grant money to organizations in specific topic areas that the group deems effective and post the results on their Web site. For example, when researching job-training charities in New York, GiveWell asked groups to provide data on how many people took advantage of the programs, what skills they were taught, what percentage of clients found jobs, what kind of jobs they found, and how long workers kept their jobs, says 26-year-old co-founder Elie Hassenfeld.

The article ends with this advice,

It’s also smart to see if the charity’s progress has ever been evaluated by a third party, rather than just the charity itself. Check the charity’s Web site or annual report for specific details on how it gauges its results. If the information isn’t there, call the charity and ask. Be wary about giving, however, if a charity doesn’t answer your questions or provide annual reports or other filings.

When the Wall Street Journal tells donors to be suspicious of nonprofits who won’t provide details of how they gauge their results, you know there’s a sea change coming.

When I first wrote about GiveWell in February and said, “Why are the young members of the GiveWell project doing more to improve our shared knowledge base than The Ford Foundation?” and when I wrote in April that, “Fringe players like Holden (Karnofsky) are actually the real change agents (in philanthropy).” I never thought that by the end of the year, the New York Times would be quoting a GiveWell team member saying:

“There are huge foundations out there whose job it is to find great organizations doing great things,” said Robert Elliott, a club member who is now the Clear Fund’s chairman, “but when you call them and say you’d like to leverage the information they’ve already collected to make a smart donation, it’s a closed book.”

The IRS is focusing more and more on accountability and efficiency in the philanthropic sector. But with GiveWell being featured in the New York Times, Wall Street Journal, Chronicle of Philanthropy and Chicago Tribune in the last week, you have to start thinking about the cultural norms that these reports are creating.

When the LA Times wrote about the Gates Foundation investment policy earlier this year, the article created more movement on “aligned investing” in the foundation world than the IRS would ever accomplish through years of committee meetings.

Will the next LA Times exposé question why foundations are not sharing their philanthropic knowledge with the public and why two 26-year-olds with no philanthropic experience and a tiny budget seem to be doing the most to help donors?

12 Comments

  1. Sean,
    I also think it’s great that GiveWell is getting that attention, not just about themselves, but the need for donors to know how to evaluate a charity’s performance. But I also think the repeated knocks and broad indictments against foundations are unfair…especially since the same WSJ article you cite does refer to several foundations that are sharing their information:

    “Another option is to visit Web sites and piggyback on the work of so-called venture-philanthropy firms, such as New Profit Inc., in Cambridge, Mass., Social Venture Partners in Seattle, and Venture Philanthropy Partners in Washington, which do much of the legwork needed to assess the effectiveness of their charitable giving. Or, donors can check out charities that get money from foundations that put a premium on effectiveness, such as the Edna McConnell Clark Foundation in New York and the Annie E. Casey Foundation, based in Baltimore.”

  2. Kevin Jones says:

    creative destruction is a force that should be unleashed in philanthropy. glad to see it happening. now we need to get rid of the bifurcation of asset thinking from giving to investing.

  3. Right on Kevin. Here’s a question for you. Giving money away is the same as a -100% return. So is getting 1% of your donation back still a gift? Is giving $100 and getting $1 back different than giving $99? If they’re the same then is giving $100 and getting back $99 a gift? What about giving $100 and getting back $110?

    Is there any bifurcation between giving and investing or is it purely a mental contruct?

  4. Amit Patel says:

    I think the difference between investing and giving is that with investing, you are primarily concerned with the return *you* receive, and you ignore the consumer and producer surpluses. Whereas with philanthropy you are primarily concerned with the total return, whether it goes to you or to others, so you want a measurement of that consumer/producer surplus.

    If we call return to society W (not counting what the investor got back), the cost to the investor C, and return to investor R, then investing occurs when R > C (actually R/C has to be greater than other investments), ignoring W. However, with free markets we believe W >= 0, so the total effect W + R is greater than the money put in, C.

    Traditionally with charities we think of R = 0, and we *hope* that W > C. Unfortunately, unlike with business, where R < C leads to businesses closing, a charity can operate with W < C indefinitely. Therefore W + R < C, and society as a whole is losing.

    GiveWell’s argument seems to be that we need information about W, so that we can evaluate organizations and choose those that have a high W/C ratio. It’s very hard to know W, but at least having an estimate helps with comparisons.

  5. Kevin Jones says:

    not surprisingly, sean i think the definitions of investing and giving are outmoded social constructs, myths we’ve inherited that no longer do the job.

  6. Kevin Jones says:

    that is to say, either/or definitions no longer fit; you could consider them Newtonian artifacts in a quantum, multidimensional and non linear world where risk return and impact are part of the equation around how you use your money in the world. There is a third dimension of impact; we all know externalities can no longer be kept off the balance sheet. the melting icebergs are a leading indicator that we need to change our ways, much less our accounting methodology.

  7. Bruce,
    I believe foundations have every right to not share their reasoning for funding their grantees. I just think they should want to share it because doing so will produce higher social returns on other donors money. Classic leverage.

    Certainly there are some foundations that are exploring ways to talk more about their internal thinking. EMCF is doing some great stuff. But I think a “broad indictment” is actually perfectly accurate. Since the field as a whole does very little to make their institutional knowledge available to other donors.

  8. Amit,
    Love the analysis. Traditional econ recognizes externalities (W) to show that R>C can produce products in a free market even when W+R

    I like the idea of thinking of R as an externalities and focusing on W.

    Thanks for the input. I’d like to write this up as a longer post soon.

  9. Chris says:

    There’s an interesting development concerning Givewell going on over at metatalk. Basically Holden got caught spamming and trashing other charities:
    http://metatalk.metafilter.com/15547/GiveWell-or-Give-em-Hell

  10. Incredibly stupid move by Holden. You can find his comments on the situation here.

  11. Matt says:

    Don’t miss the part where he offers to donate to Metafilter. That’s priceless.