But the end of one chapter is always the beginning of another. Starting in March, I’ll be launching a monthly column in the Chronicle of Philanthropy titled Tactical Philanthropy. While my Financial Times column often focused on nuts and bolts issues in philanthropy since it was geared towards a mass media audience, my Chronicle of Philanthropy column can assume the audience is well versed in philanthropy.

So as a reader of this blog, what issues would you like to see me explore in my new column?

The Second Wave of Giving Will Roll On
By Sean Stannard-Stockton
Published: February 10, 2009 | Link to Original Financial Times column

Between the dismal economy, crashing financial markets and the Madoff scandal it would be natural to assume that philanthropy was out for the count. But while these difficulties might take the wind out of the sector’s sails for a while, we are in the midst of a second great wave of philanthropy.

Even though baby boomers have seen their retirement accounts take a dive, they have spent the past 30 years accumulating wealth and are now entering the part of their lives where they spend and give away their assets. At the same time, Generation Y, who spent their high school years volunteering to beef up their college applications, now find they love being engaged in social action and have continued to volunteer in record numbers.

Add to this potent mixture of financial and human capital web-based technology, which empowers everything from micro-loans to entrepreneurial women in India, record-shattering fundraising campaigns together with a thriving online conversation about philanthropy and social innovation.

While the current economic situation is unique in many ways, it is still useful to see what happened to philanthropy when the dotcom bubble burst in 2000. Even in the face of the Nasdaq falling 78 per cent from 2000 to 2002, charitable giving rose 11 per cent from $211bn to $234bn. But while philanthropy was resilient in dollar terms, its public prominence and cultural importance took a beating.

In July 2000, Time magazine, which has a reputation for putting hot trends on its cover just as the trend peaks, ran the cover story “The New Philanthropists: They’re Hands On. They Want Results”. But in 2001 and 2002, the reputation of “new philanthropists”, especially the “venture philanthropists” who were getting so much press in the late 1990s, was diminished as public interest in philanthropy faded.

However, that fading interest proved to be a cyclical phenomenon, not a dying trend. Today, Social Venture Partners, the leading association of venture philanthropists, counts more than 2,000 members in 25 chapters – up from fewer than 700 members in 11 chapters in 2000. I am certain that we will see a similar dip and rebound in the years ahead.

The fact is that the philanthropy trend is real. It is driven by the dual impact of retiring baby boomers and a socially engaged Generation Y. It is the result of the amazing wealth creation of the past 25 years and the emergence of innovation as the engine of the American economy. Just as technology is resulting in a globalized world economy, it is also allowing the community about which donors care to expand dramatically.

While charitable giving may well dip as we slog through the worst recession in decades, it will rebound when the economy recovers. The amount of money given to charity online jumped 23 per cent in December. Online social impact groups such as GlobalGiving.org, Facebook Causes, DonorsChoose.org and Change.org are growing quickly by tapping into a hunger in Americans to make a difference and create change.

In 2006, Bill Gates announced he would be leaving Microsoft to work at his foundation full-time. A few months later, Warren Buffett announced that he was abandoning his long-held plans to give away his money at his death and instead give 85 per cent of it to the Bill & Melinda Gates Foundation, as well as joining the Gateses as a trustee of the foundation.

While much of the media coverage of these announcements focused on the enormous sums of money involved, something far more important had happened. A 50-year-old corporate superstar, the richest person in the world, decided that spending his time on philanthropy was more important than running the corporation he founded.

At the same time, the world’s second richest person rejected the historical tradition of making his largest charitable contribution at his death and instead embraced the emerging trend of “giving while living”. These decisions model a new set of behavior that defines success in America.

We are in a tough economy. The net worth of Americans has taken a tremendous hit from falling financial markets and home prices. But like all things, this too will pass. Philanthropy will survive this downturn and re-emerge stronger, more robust and more innovative in the years ahead.

The second great wave of philanthropy is alive and well.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

Sacrifice notion sabotages our non-profits
By Sean Stannard-Stockton
December 30, 2008| Link to Original FT.com column

As we finish 2008 amid the worst recession in decades, many Americans are sacrificing some degree of personal comfort to support a charitable cause. But while sacrifice may be a noble personal virtue, the concept of sacrifice is sabotaging the non-profit sector.

When Americans give to charity, they want their donation to go directly to “the cause”. The non-profit organization, it seems, is viewed as nothing more than a bureaucratic entity whose cost of existing should be minimized as much as possible. Non-profits are expected to be run on a shoestring, their employees are supposed to live on modest wages, and all costs are expected to be kept to a bare minimum. The grandest claim that most non-profits can make in a fundraising pitch is the declaration that 100 per cent of donations go to the program. At the root of this mentality is the idea that doing good is best executed by those willing to sacrifice.

This mentality hurts the very causes that donors seek to help.

The fact is, great organizations are run by talented people, powered by cutting-edge technology and based on the best research. All of these cost money. Rather than asking non-profits to starve themselves of resources, donors should look to invest in the best non-profits and give them license to use the money to build outstanding organizations.

Together with sacrifice is the fixation on giving to non-profits in “need”.

Donors give to non-profits in response to expressions of need. Even large, sophisticated foundations will often stop funding a non-profit when they feel the organization no longer needs their money. In many ways, this is the same as a doctor who discharges a patient just as the person recovers enough to no longer need life support, instead of providing the care and nourishment that the patient requires in order to thrive. For the same reason that such a patient will end up returning time and again to the hospital, many non-profits find themselves back on life support every time they hit a bump in the road. We do not want a non-profit sector that is simply stable; for the sake of the very causes we seek to support, we want non-profits that thrive.

Many donors who seek out “efficient” charities that keep expenses low do so out of a desire to give in a more businesslike way. However, no less an authority on business thinking than the Harvard Business Review argues in its December 2008 issue that demanding non-profits cut expenses to the bone is counterproductive. In the article Delivering on the Promise of Nonprofits, consultants Jeffrey Bradach, Thomas Tierney and Nan Stone of The Bridgespan Group argue that donors should “invest in good overhead.”

“B-level leadership teams will not deliver A-level results. Yet donors are inclined to fund programs while minimizing overhead, including essential expenses such as basic infrastructure and leadership development,” the authors of the article write. “Donors must be willing to invest in capacity building for the organizations they support and hold them clearly accountable for generating results.”

It is in the last line that the link between robust organizations and the ability to affect a cause is made clear. Today donors to non-profits are demanding more and more evidence of results. Accountability is a good thing, but if donors want to demand results they must also deliver the resources required to build strong, healthy organizations.

Is it possible that individual donors will begin to embrace the idea of helping build great non-profits?

Or will they remain stuck on demanding that non-profits keep expenses low?

One reason for hope is the recent announcement from Charity Navigator, the charity evaluation website that launched in 2001, of its push to move past a rating system that rewards non-profits for keeping organizational expenses low and begin to incorporate measures of the actual results that non-profits achieve.

Having hired Ken Berger as its new chief executive over the summer, Charity Navigator is preparing to start educating its 5m annual visitors that there is more to a great organization than low expenses.

Charity Navigator might be the big gorilla in terms of the number of donors it reaches, but until it rolls out new evaluation criteria, donors who want to embrace personal sacrifice but support great non-profits might want to consult the websites of GiveWell.net, SmartLink.org, PhilanthropyCapital.org and GreatNonprofits.org before they make their next donation.

Community foundations in the US are at risk of becoming irrelevant unless they can transform into trusted donor advisers.

Since the founding of The Cleveland Foundation in 1914, community foundations have raised charitable funds from a community and distributed the money back to that area’s non-profit organisations. But a new role is emerging. In the near future, community foundations could supplant large private foundations as philanthropy’s leading voices and, in the process, change how individuals engage in philanthropy.

One of the core services of community foundations is offering donor-advised funds. These accounts allow donors to give money to the community foundation, but retain the right to advise which non-profits receive it.

Fidelity Investments launched the first low-cost, commercial donor-advised fund in 1991, and since then community foundations have not been competitive in the donor-advised fund marketplace. Today, commercial donor-advised funds hold the top three spots on the list of biggest donor-advised funds. But rather than competing, community foundations should see this low-cost administration as enabling a golden age for community philanthropy.

When Charles Schwab launched discount stock brokerage services in 1975, most stockbrokers saw it as a threat. Instead, while the role of full-service stockbroker has largely disappeared, a new industry of fee-based investment advisers has emerged, mostly created by former stockbrokers. These advisers outsource money management administration to low-cost providers such as Schwab and Fidelity, but command hefty fees for advising clients.

While the transition will be difficult, community foundations now have an opportunity to quit the business of offering donor-advised fund administration. These foundations should entirely outsource the administration of donor-advised funds and instead build world-class donor-advising services.

While many community foundations will argue that they already offer this service, the truth is few donors view community foundations as the “smartest people in the room” or “masters of the universe”, the way that investors view the best investment advisers.

In an online world where donors can find discreet information about non-profits, the “masters of the philanthropic universe” will be those people whom philanthropy adviser Lowell Weiss calls “synthesising generalists”. Mr Weiss has been a speechwriter for former president Bill Clinton, a grant-maker and advocacy specialist at the Bill & Melinda Gates Foundation, and right-hand man of super philanthropist Mario Marino.

In July, Mr Weiss launched Cascade Philanthropy Advisors. His concept of the “synthesising generalist” captures the idea that most good philanthropy draws on a range of knowledge. Community foundations, with their historical focus on a total community, not individual issues, are well positioned to help donors make the best possible philanthropic investments.

The donor-advising business is booming. New entrants such as The Hopewell Group and Cascade Philanthropy Advisors have joined established groups, including Arabella Philanthropic Investment Advisors and The Philanthropic Initiative.

It is hard work to end homelessness, save the environment or heal traumatised children. It should not be assumed that just because a non-profit sets out to tackle an issue it will have any success. But the best non-profits are making a difference and a tough analysis of the field by expert advisers would channel more resources to these top performers.

Community foundations should not simply be aggregators of philanthropic dollars, but instead become high-impact, philanthropic investment advisers.

In their groundbreaking report in 2005, On the Brink of New Promise: The Future of US Community Foundations, authors Lucy Bernholz, Katherine Fulton and Gabriel Kasper wrote: “Community foundations will face a far greater challenge than they have in the past to define and act on their distinctive value to their communities.”

Community foundations can make this change. They can emerge as the leaders of philanthropy in the 21st century. Donors deserve skilled advisers to whom they can turn for advice on how best to support the causes about which they care.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

‘Blood money’ that became a force for good

By Sean Stannard-Stockton

Published: August 12, 2008 – Link to original Financial Times column

Like everyone who lost a loved one on 9/11 Steve and Liz Alderman were devastated when their 25-year-old son, Peter, was killed in the World Trade Center attack. Like many, they chose to honor their son’s memory by creating a foundation in his name.

Of the 303 non-profit organizations launched in response to 9/11, only 27 were still operating five years later, according to a study by the NonProfit Times. What has kept the Peter C. Alderman Foundation going is his parents’ focus on maximizing the impact of their foundation through rigorous analysis. In the words of Peter’s father, Steve: “We will abandon anything that doesn’t work.”

When the Aldermans received $1.4m from the September 11 Victim Compensation Fund, Liz thought of it as “blood money” and almost turned it down. She told me recently that she used to lie awake at night thinking about the people she wanted to kill to avenge Peter’s death. But, with Steve’s encouragement, they accepted the money and launched a private foundation to help victims of terrorism and mass violence round the world.

“Using the money for a good cause was the best revenge,” Steve told me. “The only way for us to counteract great evil was with great good.”

Today the Peter C. Alderman Foundation, in partnership with Harvard University, builds mental health clinics and provides local doctors with the tools they need to treat the emotional wounds of victims of terrorism and mass violence in places such as Cambodia, Uganda and Rwanda. Its work has attracted partners such as the US Department of Health and Human Services and the pharmaceutical company, Eli Lily.

When I spoke to the Aldermans about their foundation, I was struck by the fact they, unlike most philanthropists who talk about the grants they have made, talk about the effect they have had. With an annual operating budget of $500,000 they have set out to help people across the globe. Liz and Steve found that, to have the impact they were seeking, they had to identify outstanding partners and find ways to leverage their giving.

“Starting a foundation was like starting a small business,” Steve said. “Our daughter, Jane, even got her MBA when she realized that we didn’t know enough about business.” She is now the foundation’s executive director.

The Aldermans represent the vanguard of philanthropy – individuals who have recognized that philanthropy is not defined by the act of giving but by the achievement of impact. It is both an emotional act of love by the giver as well as a strategic investment in our social fabric. The Aldermans have discovered that the most emotionally satisfying philanthropy is a gift that has impact.

Unlike many relatively small foundations, the Peter C. Alderman Foundation has an in-depth strategic plan. Through its mental health clinics, the foundation has reached 65,000 people with traumatic depression. Many grantmakers simply measure themselves by the scope of their activities, but the Alderman foundation goes further and documents that it has seen 80 per cent of the people it has treated return to productive lives.

In Cambodia, where the legacy of the genocidal Pol Pot and the brutal Khmer Rouge still grips the populace, the Aldermans have proved they can treat traumatic depression. Demand has been so large that the foundation created a second clinic to eliminate the 14-month waiting list. Importantly, the Aldermans have shown they can achieve their mission cost effectively; the Cambodia clinic system provides services at a cost of $50 a head.

The Peter C. Alderman Foundation is not the first to have a strategic plan, strong partners and demonstrated impact. But it is part of an emerging group of relatively small family foundations that are demonstrating how to use effectively these tools.

The Aldermans have shown that the most effective way both to help people and soothe their own emotional wounds is through a focused strategy and measurement of impact.

I was struck by how the Aldermans talked like seasoned social action experts with impact data and leverage statistics dominating our conversation. But, in the end, the Aldermans are grieving parents trying their best to make sense of a devastating loss. “I’ve realized that you can’t cry when you’re working on the computer,” Liz said. “You get the keys all wet.”

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

Invest in the best to make an impact
By Sean Stannard-Stockton
Published: June 28, 2008 (link to original FT.com column)

Giving money to charity does not necessarily make the world a better place. Nevertheless, most donors believe that donating qualifies as “doing good”. In fact, the gift of money is only the first step in a chain of events that might achieve the elusive goal of creating social impact.

For-profit investors understand this issue. Making an investment does not guarantee a profit; this comes from what a business does with its capital. A result of the belief that the donation itself produces an impact is the idea that non-profit organizations should spend as little as possible on their infrastructure. We see this belief manifest itself when we hear people complain about charities “wasting money”, when press reports grumble about the high salary of an executive director, or when donors are encouraged to focus on a charity’s overhead expenses as a deciding factor on where to give.

Of course, we have a radically different way of thinking about for-profit entrepreneurs. We celebrate the idea of a few people in a garage, with limited resources, inventing the next big thing. We are enamored of the concept that in dorm rooms at Stanford and Harvard, the next Ebay or Facebook is being developed. Implicit in this ideal is the idea that business profits are a product of brilliant people with creative ideas, figuring out how to be successful.

In both business and non-profit work, the critical factors of success are people, ideas and passion. Everything else is secondary. As a nation of stock market investors, we understand this. We are attracted to investment opportunities because of the people leading the company, the ideas for new products or services, and the way the company seems to throw itself at opportunities and relish the chance to compete.

Google lets its engineers spend a day each week working on whatever project catches their interest, and feeds its employees gourmet food in free cafeterias. Google’s stock is up more than 500 per cent since going public less than four years ago. But can you imagine the outcry if a large non-profit let its employees spend 20 per cent of their time on interesting “side projects” or gave them fancy free meals? Never mind that non-profit employees are shamefully underpaid compared with their for-profit counterparts (certainly no stock options for these “do-gooders”). If a non-profit followed Google’s business practices, donors would flee, the media would write exposés and Congress might even investigate.

What a disgrace.

Americans give more than $300bn a year to charity. It is time we reframe what we expect from the non-profits we fund. Let us ask for more innovation, more creativity, more impact. But as a nation of philanthropists, we can not make this demand without holding up our end of the bargain. We need to expect non-profits to hire the best people, and support our donations being spent on competitive salaries. We need to encourage non-profits to take risks, and understand that risk-takers fail sometimes (even frequently). We need to believe that non-profit leaders know best how to achieve their mission, and just as investors do not tell companies how to spend their investment dollars, make the majority of our donations for general operating support.

Imagine the way we could remake our world if non-profit organizations were backed by investors who encouraged them to hire the best people, to poach employees from Silicon Valley and Wall Street, and to bump shoulders with Fortune 500 recruiters at Ivy League career fairs in the fight for the best talent. Imagine the good we could achieve if landing a job at the United Way or the celebrated Teach for America inspired the same joy that getting a high-tech or investment banking job provokes today.

But that will cost too much! We cannot afford it! How can we possibly pay non-profit employees the same rate as for-profit employees?

Here are the facts. According to the Urban Institute, public charities collected $1,600bn in revenue in 2005 and held $3,400bn in assets. These numbers do not include the more than 800,000 small non-profits that are exempt from reporting.

In reframing our understanding of the non-profit sector, we must recognize that we cannot afford not to hire the best people. Fortunately for us, the non-profit sector is teaming with passionate individuals who are innovative enough to figure out how to do their job in such a backward system. Imagine what could be achieved if we transformed our dysfunctional understanding of charity.

As we face the myriad challenges of the 21st century, we must focus our examination of the social sector on identifying the very best people and organizations. We must champion these leaders and invest heavily in their ability to achieve an impact. Just as businesses turn investment dollars into profit, non-profits turn philanthropic dollars into social impact. It is not enough to simply do good, it is time to start funding the best.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

Givers: go out and see for yourselves

By Sean Stannard-Stockton

Published: May 31, 2008 (link to original Financial Times article)

I recently left behind my office, with its constantly ringing phone and glowing computer screens, to visit some of the non-profits funded by Philanthropic Ventures Foundation, a public charity founded and led by Bill Somerville.

As we stood in line at a soup kitchen in our dress slacks and collared shirts, the other men and women turned curious eyes our way. “I’ve brought people here in the past who worry that these people won’t want to be stared at,” Somerville said, “but as you can see, it is you and I who are the ones sticking out.”

A nationally recognised expert in creative grantmaking and author of the new book, Grassroots Philanthropy: Field Notes of a Maverick Grantmaker, Somerville has spent the past 17 years as the head of PVF. There he has replaced the bureaucratic shackles that hamper much foundation work with creativity.

Earlier that day, we went on a “field trip” to North Fair Oaks, an unincorporated area of San Mateo County mid-way between San Francisco and Silicon Valley where many newly arrived immigrants make their home. As we travelled from a new, privately funded school for immigrant children and their mothers, to a Catholic Workers house where a young family battling drug addiction had recently found refuge, we passed a seedy motel.

“I stayed there one night before an early morning trip to collect food for the soup kitchen,” Somerville told me. “By the time I woke in the morning the police were pounding on the door trying to figure out why I was staying there!”

In Somerville, I found a risk-taking, venture philanthropist fused with a roll-up-his-sleeves social worker. The mixture is a philanthropic force of nature.

In Grassroots Philanthropy, Somerville describes in engaging prose how to be an effective philanthropist. With no agenda other than his need to set things right in the world, he lays out a series of principles that can be adopted by both endowed national foundations and those with lesser means, providing they have an urge to use their wealth to improve the world.

Recently, a lot of effort in the philanthropic world has gone towards analyzing non-profits via an examination of their financial results. By separating how much an organization spends on “overhead” versus “programs”, some people hope to identify the non-profits that most deserve funding.

But Somerville never discusses this concept in his book. Instead, he urges readers to “locate outstanding people doing important work”. To accomplish this, he suggests visiting non-profits to evaluate the people working there. Every community has people who accomplish amazing social missions on limited funding. Just as mutual fund manager Peter Lynch once told individual investors they had an edge over Wall Street in knowing what products were the hot new thing, it seems to me that individual donors have an edge over foundations in knowing who the outstanding people are in their community. To remedy this, Somerville suggests that foundation program officers should spend at least 30 per cent of their time away from their offices getting to know the people they are interested in funding.

Individual donors who are used to writing checks in response to a fundraiser’s appeal may not realise that many foundations take six to nine months to respond to a grant request. In the chapter asking donors to approach grantmaking with “speed and grace”, Somerville admits an “intense aversion to pointless paperwork” and tells the story of PVF’s “fax grant” program.

When a donor gave the foundation $100,000 and asked it to tackle California’s education problems, Somerville knew that the amount of the grant could not address the large structural issues behind the state’s education woes. But he could help teachers pay for much-needed supplies and field trips. Thus was born the foundation’s “immediate response” grantmaking program whereby teachers could fax in requests for funding to buy such things as science equipment, make-up for the theater department, or funds to take students to the zoo.

By responding to requests in a shockingly short 24-hour timeframe, the foundation was able to deliver money directly into the hands of the people responsible for educating our children. To date, PVF has given out $3.5m in immediate response grants.

“Take risks. Move quickly. Get out of the office and into the field.” The philanthropy practiced by Somerville is energizing, creative and clearly effective to anyone who spends a day visiting the people he funds. In a philanthropic world being revolutionized by new approaches to giving, Somerville is both a throwback to simpler times and a leap forward towards high-impact, efficient giving that embraces imagination and risk-taking.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

The Foundations of Tax-Efficient Giving
By Sean Stannard-Stockton
May 10, 2008: Link to original story on FT.com

Many people think of charitable giving as an item in their annual budget, and measure it as a percentage of income. But if you own financial assets such as real estate or a portfolio of stocks and bonds, you should consider an endowment approach to your philanthropy.

Ultra-wealthy philanthropists have long created family foundations, which they fund with a single, large gift. From then on, their charitable giving is done out of the foundation – typically at a rate equal to about 5 per cent of the assets in it. Today, the falling costs of administering a foundation, or the alternative vehicle known as a donor-advised fund, mean that anyone who gives at least $500 a year to charity should consider taking a similar approach.

The tax benefits of endowing your charitable giving are significant. Donors receive an income tax deduction when they make a gift to a private foundation or donor-advised fund. This means that by “front-loading” your charitable giving by shifting assets equal to multiple years of expected donations into a charitable vehicle, you obtain multiple years’ worth of income tax deductions today.

The concept of present value says money received today is worth more than equal amounts delivered in the future (for instance, you would rather I gave you $100 today than promise to pay it in 10 years). By endowing your charitable giving, you will pull the income tax deduction that you would normally receive in the future into the current tax year.

Once in a charitable vehicle, your assets are shielded from taxation (assets in donor-advised funds owe no taxes on capital gains, dividends or interest and assets in foundations pay only a 1-2 per cent “excise tax”). Just as IRAs and 401ks allow individuals to save for retirement in a tax-advantaged account, endowed charitable vehicles give a similar benefit to philanthropists. But if, instead, you keep your assets in a taxable account and make annual gifts to charity, you will have to pay taxes on the capital gains, dividends and interest generated each year.

Endowing your philanthropy makes it much easier to follow the golden rule of tax-smart charitable giving: always donate with your most highly appreciated asset. When you give cash to a charity, you receive an income tax deduction. But when you give an appreciated asset (shares of stock that have gone up in value, for example, or a piece of real estate bought years ago), you receive the same income tax deduction and avoid capital gains tax on the appreciation.

You can also achieve this advantage simply by replacing your annual cash gifts to charity with transfers of appreciated assets. But if you make numerous charitable gifts each year, or your most highly appreciated asset is not something you can easily give fractional interests in (such as real estate), then using a private foundation or donor-advised fund will make following the golden rule much easier.

Using a charitable vehicle also means that you can separate the tax aspects of your giving from the personal and emotional reasons that drive philanthropy. When endowing your giving, you can work with your accountant and financial adviser to select the assets that make the most sense to fund your donations with and to time the gift for the highest financial benefit.

Once your charitable vehicle is funded, the gifts you make to non-profits will not have tax consequences. You will be free to make your donations in the amounts and on the timeline that does the most good in the world.

For maximum financial advantage, you should fund your charitable vehicle with 20 times the amount of your annual giving. However, if your asset base does not allow for a gift of this size, donating any amount greater than one year of giving will enhance your financial situation.

The suggestion of funding with 20 times annual giving comes from the fact that if the assets in your philanthropic vehicle are invested to achieve 8 per cent annual returns, you will be able to make annual grants of 5 per cent (one 20th) of the assets and increase your giving by 3 per cent each year to keep up with inflation. Barring unexpectedly bad investment performance, your charitable vehicle will be able to sustain this level of giving forever, without any additional funding from you.

Most people find that endowing their giving has many non-tax related benefits as well. With a private foundation, for instance, you can name relatives to join the board and make it part of your family tradition to come together and talk about what charitable causes are important to you and why. By organizing your giving, you may also find that you focus it on a smaller set of causes that are deeply important to you. Focused giving is a trait that most philanthropic advisers encourage their clients to adopt to maximize impact.

While at its core philanthropy comes from the heart, by being financially savvy you can reduce the cost of your giving and do more good in the world.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

By Sean Stannard-Stockton

Published: March 1, 2008

Philanthropy is undergoing a transformational shift. While most donors continue to give in the same ways they have for 100 years, the vanguard of philanthropy is busily reforming the fabric of the charitable sector.

Often referred to as the “social capital markets” and characterized by a model of giving that mirrors the financial markets, this emerging model is still in its infancy. Since you can create only that which you imagine, I thought I would take a quick trip 25 years into the future to see what philanthropy might become.

For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write checks to charities and devote the bulk of their giving to non-profit organizations in their community.

But for some donors, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.

These exchanges compete for non-profit listings. Exchanges include big national networks with some international organizations, down to small local exchanges.

The business of giving money away is particularly different for large private foundations and smaller “impact-oriented” foundations. Instead of expecting non-profits to solicit them for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations.

While the cost to non-profits of conforming to the exchanges’ information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on “donor relations”. They market the non-profit by attending “road shows” where they have the chance to make their case.

In the early days of the social stock exchanges, many funders and non-profits worried that the passion and joy of giving would be swept away, given the exchanges’ resemblance to financial markets. But the truth proved to be something else entirely. As funders became comfortable with the idea that sharing information with other donors provided greater social impact, a sense of community and camaraderie developed that set the social exchanges apart from the traditional financial markets. Non-profit presentations at the regular “road shows” were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of each non-profit and canvassed for other people to join them in sponsoring their favorites. Working together, funders often organized big public funds that they would then direct at specific social problems. The non-profit competition for these funds was fierce but even those not funded felt the competition had helped them to improve.

Now in 2033, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor-advised fund, since all big banks offer a zero-minimum, no-fee account that can be linked to your checking account. A quick search on Google Finance gives individuals access to multiple third-party evaluations of exchange-listed non-profits. International giving is even coming into vogue for the small donor now, so many “donor funds” managed by the largest foundations offer low-cost access to a basket of top-rated non-profits with particular causes.

The early 2030s are a good time for funders and non-profits in the US. Funding innovations are featured by the financial press and for-profit firms are constantly working to develop products and services for the social capital markets. But recently there has been some consolidation among the exchanges and some local non-profits fear funding will dry up for organizations without national scope. The default on a $1bn bond issued by a non-profit offering vaccines in Africa has sent shockwaves through the markets, and other non-profits have seen the availability of credit dry up. There are challenges in 2033 but it is an exciting time to be a philanthropist.

Are you a hot-tip donor? If you are reading this newspaper, you are probably sophisticated enough not to chase the stock of a company that your friend’s sister’s husband says has a hot new product.

But if you are like most people, you decide which non-profits to support using the recommendations of friends and family or solicitations from non-profits themselves.

In the case of identifying local charities that support your community, using your personal network probably is a good way of finding great non-profits. When the employees, volunteers and people served are all located in your community, it is often clear to friends and neighbours which organisations really make a difference. But what about national organisations that tackle broad problems such as education reform, environmental protection or poverty?

Donors often give based on a non-profit’s cause rather than the effectiveness of the organisation. Investors rarely make the same mistake. If a person wants to invest in the computer business because he believes that more and more people will need multiple PCs in the coming years, he will realise that selecting Dell, Hewlett-Packard or Apple can lead to very different outcomes.

Likewise, selecting a cause is only the first step in choosing a non-profit to support. Next, a donor must try to distinguish between the various non-profits working on that cause and select the one that most effectively deals with the issue in a way that matches the donor’s beliefs.

Both Environmental Defense and Defenders of Wildlife are non-profits that work on environmental issues. Both have been cited by multiple sources as top-performing non-profits. But that does not make them interchangeable.

Environmental Defense seeks to “protect the environmental rights of all people”, while Defenders of Wildlife is “dedicated to the protection of all native animals and plants”, with a focus on predators. Donors who want to protect the environment must decide whether their desire is rooted in protecting the rights of humans or the rights of animals.

To further its mission, Defenders of Wildlife primarily uses education, advocacy and compensating ranchers for livestock lost to wild predators. Environmental Defense is known for partnering corporations such as McDonald’s and FedEx to reduce their environmental impact. It also seeks to harness market forces for environmental progress.

Next time you are solicited to donate to charity, research why the non-profit has its mission and how it seeks to achieve its aims. You can perform initial research relatively quickly with a couple of searches online and a phone call to the organization. Not only will you know that your money is supporting something you believe in but also that it is being used in a way that makes sense to you. By identifying non-profits that fit your values and beliefs, you will find giving much more satisfying and may well want to become even more involved.

Most people tend to find new non-profits through their personal network or direct solicitations from a charity. However, a number of websites have sprung up that seek to match donors with non-profits and projects that match their unique outlook.

Kiva.org helps donors connect with, and lend money to, entrepreneurs and small businesses in developing countries. By engaging in this sort of microfinance, donors hope to enable the working poor to move towards economic independence.

DonorsChoose.org connects donors to public school teachers with specific needs in their classroom. By searching through the DonorsChoose database, individuals can find specific teachers with needs that resonate with them.

GlobalGiving.org calls itself a marketplace for goodness. Donors can use the site to find grassroots charity projects round the world. After funding a project, donors receive regular updates from project leaders informing them of the progress they have made. GlobalGiving even guarantees that donors will have a positive giving experience. Unhappy donors receive a refund in the form of a certificate that they can use to make a gift to another project.

We are in the early stages of philanthropic capital markets. Donors do not yet have access to the sophisticated screening tools, professional research and robust marketplaces that help individual investors approach money management strategically. But resources are available to donors who seek them. By finding non-profits that further the causes you care about through strategies to your liking, you can take a large step towards becoming a high-impact donor.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

Time to take a hard-nosed look at giving

By Sean Stannard-Stockton

Published January 5, 2008|Available on FT.com

Every end is a new beginning. Having said goodbye to 2007, now is the time to look forward to 2008 and decide what kind of philanthropist you want to be. Are you satisfied being part of the majority of Americans who rush to fulfil their philanthropic obligations in a flurry of year-end giving? Or will this be the year that you get organised and maximise the impact of your philanthropic capital?

Recently, the Financial Times reported on the growing ranks of “hard-nosed philanthropists”. These donors are “part of a new breed of wealthy charitable donors: strategic philanthropists, passionate about their causes, who want to ensure their philanthropic dollars have the greatest return – and impact – possible”.

How can you become a hard-nosed philanthropist in 2008? The first thing to do is to create a philanthropic vehicle so you can separate the tax implications of your giving from your altruistic motivation. When you fund a philanthropic vehicle such as a private foundation or a donor-advised fund (a kind of “charitable checking account” similar to a private foundation), you receive a tax deduction at the time the money goes into the account. This means you can move money into your philanthropic account on the timeline that fits your tax situation while making gifts to non-profit organisations when it fits your charitable goals. An amazing 50 per cent of all charitable donations are made between Thanksgiving and the new year. By setting up a philanthropic vehicle, you will free yourself from the year-end scramble and maximise the tax benefits of your giving.

Most people simply write cheques to the non-profit organisations that they support. But hard-nosed philanthropists know the first rule of tax-smart giving: always give with your most highly appreciated assets. When you write a cheque, you get an income tax deduction for the value of your donation. When you make a gift of an appreciated asset (such as a stock that has risen in value), you get both an income tax deduction for the full value of the asset and avoid paying capital gains tax on the appreciation.

Unfortunately, if you make multiple donations each year, it can be cumbersome to re-evaluate your asset base to identify your most highly appreciated assets and then complete a transfer to each non-profit you support. By setting up a philanthropic vehicle, you can work with your financial advisers to identify the best assets to use for your giving and transfer them in a single transaction to your philanthropic account.

Your two main choices for a philanthropic vehicle are a private foundation or a donor-advised fund. A donor-advised fund generally makes sense if you give $500 or more to charity each year. A private foundation may be cost effective if you give at least $25,000. Beyond cost considerations, choosing between the two rests on the way you like to give, the type of appreciated assets you plan to give, and the level of your family’s involvement.

Foundations have more flexibility to let you do things such as lend money to non-profit organisations, give internationally or “invest” in philanthropic projects. However, only gifts of cash or common stock to a foundation qualify for a full market value income tax deduction. A donor-advised fund is more tax efficient for donors whose most highly appreciated assets include items other than stocks.

Finally, while a family can be involved in the decision-making process of which non-profits to support from a donor-advised fund, only a private foundation allows for the creation of an official board that family members can join.

Most donors have never taken a “hard-nosed” look at how much they can afford to give. From a tax standpoint, it makes sense to move as much of your total planned lifetime giving into a philanthropic account as you feel comfortable committing to. The benefits of this strategy include realising tax deductions sooner and allowing your assets to increase in the tax-advantaged philanthropic account.

One good resource is Wealthy and Wise by Claude Rosenberg. In this book, Rosenberg gives statistical models that demonstrate most people can afford to give far more to charity without unduly risking their financial security. Another source for donors is a group called Bolder Giving. Founded by Anne and Christopher Ellinger, authors of We Gave Away a Fortune, Bolder Giving seeks to help donors give at their full potential.

This year, make your new year’s resolution a decision to become a hard-nosed philanthropist. Next December, when others are breathlessly writing cheques before the tax year ends, the hard-nosed look you took at your giving earlier in the year will be paying off.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

Originally Published: November 24, 2007 in the Financial Times

Thanksgiving is a time to “give thanks”, but giving thanks well is harder than you think. We are in the middle of Giving Season, that time of year when many Americans donate time or money to their favourite non-profit. Most people give reactively to a variety of causes that catch their attention for one reason or another. There is a better way to celebrate the Giving Season.

This year, when you are making your holiday gift list, consider one of these excellent books that will show you and your family how to “give thanks” well and find a deeper meaning to financial success.

Tracy Gary is a philanthropist and donor adviser extraordinaire. Born into a very wealthy family, Gary decided at the age of 25 to give away all of her money. Now in her 50s, she lives on $45,000 a year. She spends her time teaching donors how to give well and recently published a new edition of her book Inspired Philanthropy: Your Step-by-Step Guide to Creating a Giving Plan and Leaving a Legacy.

Inspired Philanthropy is about how to move from reactive giving, giving to the charities that ask, to pro-active giving, giving to the non-profits whose missions match your values and beliefs. It is full of practical suggestions, and simple worksheets, and even includes a CD-ROM full of tools to make you a better philanthropist. Unlike a tax or estate planning book targeting the very wealthy, Inspired Philanthropy gives relevant advice for people who volunteer their time, donate $100 a year or $1m.

In addition to covering such nuts and bolts territory as creating a mission statement, how much to give and where to give, Inspired Philanthropy covers advanced areas that even experienced philanthropists will find instructive. Sections covering concepts such as engaging effectively with the non-profits you support, networking with other big donors and planning for your heirs will help big donors ramp up their impact to a higher level.

There are hundreds of books explaining how to spend, save and invest money well, but only a few that teach how to give effectively. Inspired Philanthropy was first published 10 years ago, and the newest edition is updated and is still the best book on the subject. Personal financial planning expert Suze Orman wrote the introduction and a new section on legacy planning was written with financial and philanthropic adviser Phil Cubeta.

There are only four things that money can be used for: spending, saving, paying taxes or giving away. I believe the tools and strategies employed to address these objectives should not be viewed in isolation. In the book Beyond Success: Building a Personal, Financial, and Philanthropic Legacy, author Randall Ottinger makes exactly this case.

A successful high-tech executive from a wealthy family, Ottinger interviewed a who’s who of successful Americans for Beyond Success. Through relating these conversations and presenting short stories of people who have moved beyond financial success to create a meaningful intersection of wealth, family and philanthropy, Ottinger leads the reader to a broader understanding of success.

Ottinger weaves together the various stories he tells to provide a road map for crossing a terrain he sees as made up of metaphysical mountains and valleys, where people get lost in their search for significance, leadership and success. Eight common practices of people who complete the journey are described at length as well.

Research shows that amazing benefits result from teaching children about philanthropy at a young age. Philanthropy provides an ideal venue through which children can be engaged on subjects such as investing, responsibility and family values. There is probably no better book for young givers than A Kid’s Guide to Giving by Freddi Zeiler. Zeiler was just 14 when she wrote this book to help other kids learn about charitable giving. With many tips and tricks for leveraging donations (from throwing a bake sale for charity to getting a local business to sponsor a matching gift), this accessible book is a great introduction to philanthropy. It is so well written that many parents will find themselves reading it when their kids are done.

This holiday season, give the gift of giving well. The books above will delight the budding or experienced philanthropist on your list. By helping them give well, you’ll be “paying it forward”, as your gift turns into an investment in a better world.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

I don’t write the headline of my columns, so I laughed out loud when I saw the headline writer had titled my column “Children need not be taxing”. As a father of two young kids, I can tell you that statement is objectively false!

Children need not be taxing
By Sean Stannard-Stockton
October 26, 2007

An old philanthropic planning technique is ready to explode in popularity. Parents have long used charitable lead trusts to make tax-free gifts to their children while using philanthropy as a way to prepare them for wealth. But as life expectancies rise and people become wealthier sooner, this obscure trust is enjoying a renaissance among young millionaires.

Affluent families used to either inherit wealth or earn it over a long career. Today, most wealthy individuals are self-made and an important subset, especially in the technology sector, is making millions before starting a family. Those who inherited wealth in the past often did so while building their own financial security. Now, some do not receive their inheritance until…

they are comfortable or even retired.

Most people know that the Internal Revenue Service provides an income tax deduction for charitable donations. However, astute philanthropic planning can help minimise or avoid gift and estate taxes, and allow parents to pass assets on to their children during life in a tax-efficient way.

A lead trust allows a donor to put assets into trust and promises to make gifts from the trust to charity for a number of years. At the end of the trust term, the donor’s children receive the remaining principal. The longer the trust and the higher the percentage given to charity, the lower the gift tax due on the transfer to the children.

Families can use these trusts to make large gifts to their children while they are still young. A trust set up on a child’s fifth birthday could be designed to transfer $1m or more on the child’s 25th birthday – free of tax. Many people find this far more useful than transferring money at death.

Many lead trusts name a single charity to receive the annual gifts. These grants may replace gifts the donor was already making or add to the amount of their annual giving.
One technique is to make the annual gifts to a donor-advised fund, a “charitable checking account” from which the donor can direct gifts to non-profit organisations of their choice. This set-up works well if the parents want to involve their children in the philanthropic process. Research shows that children involved with their parents’ philanthropy from a young age handle money more responsibly. The time spent discussing which non-profit organisations are important to the parents and which causes the children care about are an opportunity to share family values.

Another twist on this technique is to let the gifts accumulate in the DAF and then put the child in charge of the fund at the same time they receive the disbursement when the trust terminates.

Parents are able to use the combination of the charitable lead trust and the DAF to channel both personal capital and social capital to their children, while educating them about how to handle wealth and give back to society.

In Heirs & Values: How Successful Families Are Using Philanthropy to Prepare Their Heirs For Post-transition Responsibilities, authors Roy Williams and Vic Preisser write that their study of affluent families shows that philanthropy holds the key to families remaining unified and financially successful across generations.

Charitable lead trusts are most attractive in times of low interest rates. The lower they are, the larger the value the IRS places on the annual charitable gifts made and the gift tax due on the remaining principal is lower. While the subprime fallout has had many negative consequences, one positive outcome has been a large drop in the interest rate the IRS uses to assess the taxability of charitable lead trusts. The rate is at its lowest since February 2006 and is significantly lower than in past decades.

Today’s climate is ripe for an explosion of new charitable lead trusts. Too often people think of their charitable giving as somehow separate from the rest of their wealth. In fact, if philanthropic giving is an ongoing part of your life, your giving plans should be an integrated part of your wealth management.

By leveraging powerful tools you can give more to the causes you care about while enhancing your own financial wellbeing.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

True measure of giving won’t always add up

By Sean Stannard-Stockton

Our understanding of philanthropy is changing from “giving money away” to “making social investments”. But this admirable shift is leading some donors mistakenly to focus on how charities spend donations, instead of understanding whether the organisations they support are making a difference.

When investors evaluate for-profit companies, they ultimately need to answer one question: how much money will the company make? The non-profit equivalent, the charity’s “profit”, is the impact charities have on their chosen cause. Better living conditions, improved education and a cleaner environment are examples of impact. While these outcomes can be difficult to evaluate, they are the only true measures of whether a charity is a good investment.

Unfortunately, many donors focus on easily measured financial data instead of doing the hard work of trying to understand the impact. Nowhere is this more apparent than at the non-profit evaluator Charity Navigator, which rates charities based on a set of financial ratios. These metrics attempt to convey how financially efficient a charity is, but shed no light on what, if any, social benefit it is generating. Even the claim of measuring efficiency is suspect, since the metrics do not distinguish between wasteful overheads and such worthwhile expenses as good employees and strong technology.

Charity Navigator is well-intentioned, but its ratings ignore the impact of a charity’s programmes. The group’s website states “ . . . we do not currently evaluate the quality of the programmes and services a charity provides”.

Albert Einstein is said to have had a sign in his office that read: “Not everything that counts can be counted, and not everything that can be counted counts.” Non-profit impact experts Heather McLeod Grant and Leslie R. Crutchfield demonstrated this well in a recent article in the Stanford Social Innovation Review: “When we looked at traditional measures of non-profit efficiency, many [high-impact charities] didn’t score well, because they don’t adhere to misleading metrics such as overhead ratios.” Charity Navigator rates Habitat for Humanity International’s “efficiency” as “Meets or nearly meets industry standards but underperforms most charities in its Cause”. But Grant and Crutchfield call Habitat a high-impact non-profit enterprise that built 275,000 homes in 90 countries to house 1m low-income individuals. Those results explain why donors support Habitat.

Looking beyond financial statements takes some work. Try calling your local community foundation. Part of the service they provide is helping donors decide where to give. Call a private foundation that supports the organisation you are considering. Large private foundations have staff who evaluate charities. If you see a foundation listed as a donor to the one you are researching, look up its contact information at foundationcenter.org and ask them why it made the grant. Consider hiring a philanthropy consultant such as Geneva Global, Rockefeller Philanthropy Advisors, The Philanthropic Initiative, or Arabella Philanthropic Investment Advisors.

While non-profit research that focuses on impact is rarely available online, an interesting start-up called GiveWell.net is launching in December. Founded by two ex-hedge fund employees, GiveWell.net is committed to making all its research freely available. The board of directors includes Lucy Bernholz, a consultant to the Bill & Melinda Gates Foundation.

Expert advice is valuable, but just as important is the research you do on your own. If you are considering giving to a charity, even one you have supported for a long time, give them a call and ask why they think what they do makes a difference. If they respond by telling you how important the cause is, gently steer them back to answering the question. It can be hard to measure impact, so ask what outcomes they track to determine if they are doing a good job. If other non-profits work on the same cause, ask them the same questions. The website GreatNonprofits.org is building what it describes as a “Zagat Guide”, where donors, employees and those served by charities can write reviews.

But the most important thing to realise is that some charities are far better at pursuing their mission than others. You would not buy a stock without knowing how profitable the company is, and you should not donate without knowing what kind of impact a charity is having. When you analyse those you support, the joy you get from your philanthropy will grow as your impact becomes clear.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

Bill Gates. Warren Buffett. The massive transfer of wealth between generations. Stories abound about billions of dollars being set aside for charity. Yet there is an even bigger story unfolding; the story of a growing number of everyday individuals who are waking up to the fact that they, too, can engage in philanthropy.

The fact is that philanthropy is no longer only for the ultra-rich. A good rule of thumb is that you should consider philanthropic tools such as transferring stock or using a donor advised fund if you give more than $500 a year. If you give more than $25,000 a year you can consider charitable trusts and private foundations – the same tools utilised by Gates and Buffett. 

You can read the rest of the column on the Financial Times website.

The Financial Times is published in London (you’ll note the British spelling used in my column) but is distributed internationally and has a circulation second only to the Wall Street Journal among financial newspapers.

Readers know how much I like feedback, both positive and negative. Well the editors of the Financial Times feel the same way. So if you liked my column or think my ideas are idiotic, send them an email at letters.editor@ft.com and maybe your thoughts will end up in print.

Lastly, I’d like to point out that the Financial Times has some of the best philanthropy coverage of any major daily. You can find a whole section of their website dedicated to philanthropy here.