Monthly Archives: October 2006

Omidyar.net & The Aspen Institute

Readers Seth Mazow and Tarek Rizk both point out online resources that use technology to increase collaboration in the grant making process:

Seth points to Omidyar.net and specifically their effort to let the community decide how and where to make grants. Today they kick off their 4th Quarter Funding Project.

From the announcement:

Omidyar Network plans to launch a new funding project with the omidyar.net community on October 30. In this project, we’d like the omidyar.net community to help us distribute $5,000 each to nine nonprofit organizations.

Phase 1. General Discussion and Preparation

Phase 2. Create a Funding Proposal

Phase 3. Vote for Top Three Funding Area Proposals

Phase 4. Vote for Specific Nonprofits in the Winning Funding Areas

Phase 5. Funding the organizations

Seth, by the way, manages the Interplast Blog, which has been a great example of how nonprofits can use a blog to connect with donors in ways that were unavailable until recently.

Tarek, the associate director of the Aspen Institute’s Global Interdependence Initiative, emails to point out their Continuous Progress tool, which helps both sides of the grant making process work together.

Technology is bringing many changes to the world of philanthropy. Probably most importantly, it is helping stakeholders with various interests work together more closely.

The Seamy Underside

The vast majority of work done by nonprofits is work that they are proud to tell their donors about. However, there are some aspects of the nonprofit sector about which insiders whisper, "Don’t Tell The Donor". For those donors who want to see behind the curtain, there is the aptly named blog Don’t Tell The Donor.

Duke Smith has joined the philanthropy blogging community with his Donor InSite blog. I gotta say that any philanthropy blog that manages to work Marvin Gaye lyrics into a post during its first month wins a place on my daily read.

New Center On Philanthropy Survey

Bank of America and The Center on Philanthropy released the results of a new survey today. The survey focused on the how wealthy individuals practice philanthropy and what their motivations are. The survey defined high-net-worth households as those with incomes of greater than $200,000 or assets over $1 million. Such homes represent 3.1% of U.S. households, but contribute two-thirds of household charitable giving, donating $126 billion in 2005.

I think the results are important and speak to some of the reasons why The Second Great Wave of Philanthropy is unfolding.

Key Findings:

"There is a surprising correlation between donations of time and dollars. While a popular stereotype holds that the wealthy simply "write a check" to discharge their moral obligations, the Bank of America study appears to dispel that notion. Instead, those who write checks are also likely to volunteer their time, and, the more time volunteered, the bigger the check. Survey respondents who volunteered 1-50 hours annually gave an average of $31,092, while those volunteering 51-100 hours gave $92,717 and those over 201 hours gave 132,086.”

People who give are passionate about the causes they support. It is important to dismiss the idea that major donors simply want a tax break. This is important for nonprofits to understand when they decide how best to convince a donor to make a large gift (hint: leading with the tax benefits is not the best idea!). It is also important for those of us practicing tactical philanthropy to understand. Too often, financial advisors, estate planners and accountants believe that tax planning is driving their clients giving. They often reinforce this concept by steering their clients towards tactics that produce the highest tax benefit, but may not have the charitable impact that the donor is trying to achieve.

“Even major tax policy changes would not impact their giving. Wealthy donors report that tax considerations are far less important to them than is commonly assumed. For example, more than half the respondents (56.1%) said their giving would stay the same even if the estate tax were repealed. Similarly, 51.7% said their giving would stay the same even if there were zero income tax deductions for gifts to charity. In another demonstration of resiliency unrelated to taxes, households with "dramatic decreases" in wealth still gave an average of $121,216 in 2005 to charity, while those with "dramatic increases" were only slightly higher in donations at $141,298.”

It is my experience that major donors do not pay nearly the same amount of attention to the tax ramifications of their giving as they do to their retirement planning. While tax planning should not drive charitable giving plans, donors need to recognize that by not utilizing the most effective tactics that achieve their charitable goals, they are diverting money away from the very charity they seek to support.

In addition, I believe that while tax breaks are not the major motivation for giving, they do create an incentive to take action. This is why such a large amount of charitable giving is executed in November and December. While donors have every good intention to give, the year-end tax deadline creates an incentive to act now, rather than waiting until they get around to it.

"Entrepreneurs are especially generous donors. In comparing household donations by sources of net worth, entrepreneurs stand apart for giving, contributing an average of $232,206 annually. The next highest donors were those who inherited wealth, giving an average of $109,745, less than half the total of entrepreneurs. Yet that was still higher than those whose net worth came from savings ($84,882 donated), return on investment ($69,978) or real estate ($11,015).”

The last 20 years has seen a massive decline in the percentage of wealthy individuals who inherited their wealth and a massive increase in the percentage who are self-made. This shift combined with the higher level of giving by entrepreneurs has been an important element in driving The Second Great Wave.

"Charitable giving increased over the last five years. When asked about the level of their charitable donations, nearly two thirds (65%) of wealthy donors somewhat or dramatically increased their charitable giving over the past 5 years. Less than 12% of high net worth households decreased their contributions.”

Some people may dismiss the growing buzz around charitable giving as being driven by a few high profile gifts by the likes of Warren Buffett. However, with 65% of wealthy donors increasing their charitable giving over the past five years, we know that we are seeing a broad change in cultural norms.

"Wealthy donors support a broader array of causes. High net-worth households differ from the general populace by supporting a broader array of charities.”

I define Tactical Philanthropy as being concerned with “organizing and optimizing the transfer of philanthropic capital”. While I generally speak about the structure of philanthropic capital transfers, the number of organizations that receive these transfers is also important. I generally agree with Trent Stamp that donors should consolidate their giving. I recently commented on Trent’s blog regarding this concept:

“I think focus is very important. Just like superior companies focus on what they do best rather than try to provide many different products and services, most donors should figure out what is most important to them and spend the majority of their time, money and energy on these topics. However, just like there are successful conglomerates, some large grant makers can tackle numerous issues at once.”

(Boy, wait until Phil at Gift Hub sees my “application of business logic” in that comment!).

Fast Company for Philanthropists

Mass media interest in philanthropy has accelerated a lot this year. The dramatic Warren Buffett and Bill Gates collaboration brought philanthropy onto the front page, but the interest seems to have have legs.

In the new issue of Fast Company, there are two philanthropy related articles. New Profit, by Cheryl Dahle profiles Good Capital’s social enterprise fund and the review of The New Capitalists talks about the growing power of individual investors to spur social responsibility at public companies (both articles require a subscription until next month).

A more striking example is Wired Magazine’s July issue coverage of Google Foundation CEO Larry Brilliant. In the article they proclaim:

"Larry Brilliant has the coolest — and hardest — job around."

In other words, a magazine that covers technology believes that the CEO of Google’s Foundation has a cooler and harder job than the CEO of Google the company.

NetSquared

While the concepts behind Web 2.0 are changing the way that philanthropy is practiced and will have a broad affect over the coming decades, the impact is being more strongly felt today in the nonprofit community. Nonprofits are finding that by utilizing the two way nature of internet driven communication, they can more strongly connect with their donor base.

The NetSquared conference held in May showcased a number of the people and organizations that were implementing Web 2.0 concepts into their nonprofit. You can keep tabs on some of the developments coming out of this community on the NetSquared Blog. A number of individual blogs are also coving these topics, such as Have Fund * Do Good, ext337, and Beth’s Blog.

I believe that the Web 2.0 social networking phenomenon is more of a cultural event rather than a technological one. As I discussed last week, the hierarchical systems of the 20th century are collapsing and flat organizations which rely on many, many participants to make decisions are rising in importance. This trend is not restricted to technology. I believe that this is a natural evolution for all forms of human organizations and builds on the best aspects of free markets and democracy.

As this blog develops over time, I will be highlighting some of the budding attempts within the philanthropic sector to utilize these new organization systems. If you have a good example of Web 2.0 technology being used to enhance the grant making process (rather than the fund raising process), let me know.

Web 2.0 & Philanthropy

Reader Dan Bassill, who blogs at the Tutor Mentor Connection, recently brought up the importance of the internet in changing the way that philanthropy is practiced. I think he is exactly right.

While the democratization of philanthropy is occurring about 10 years after the democratization of the stock market, philanthropy has the benefit of coming of age during the rise of Web 2.0. Like most new technologies, when the internet first went mainstream it was used mostly to facilitate old forms of business and communication. Most of the great companies of Web 1.0 did things like sell books (Amazon), or “send letters” (Yahoo’s email). Some companies actually used the new technology to create entirely new businesses like person-to-person auction based marketplaces (eBay), but for the most part the internet made old business/social/information systems work more efficiently.

Today we are seeing the rise of Web 2.0 (Web 2.0 is somewhat of a controversial phrase and it means different things to different people. I will use the term to refer to internet applications that leverage the two-way communication aspects of the web rather than facilitating one-way communications). These technologies are extremely important to the rise of the Second Great Wave (or Philanthropy 2.0 if you’re feeling overly cute). Web 2.0 technologies are most useful when a situation needs the input of the community at large. Since philanthropy is by definition about individuals focusing their attention on the community around them, Web 2.0 is a perfect platform for The Second Great Way.

Web 1.0 dropped the operating costs of traditional philanthropy, distributed information about strategies, tactics and needy causes, and facilitated transactions. Essentially, it made the philanthropic “marketplace” more efficient. These are the same types of changes we saw in the financial markets during the 80’s & 90’s. With Web 2.0, we are seeing not just a more optimized version of Philanthropy 1.0, but instead the emergence of a radically new philanthropic marketplace.

Unlike the Rockefellers, Carnegies and other early foundation founders who created entities that mirrored existing institutions, the structured philanthropic vehicles of the 21st century will create a tradition similar to the emerging Web 2.0 companies. Rather than concentrated pools of money which imitate existing institutional structures, the new philanthropists will be smaller, widely distributed agents of change who co-create the social sector that they support.

What is Philanthropy?

Thanks to Phil Cubeta for highlighting my new blog today.

In my earlier definition of Tactical Philanthropy I stated:

"Philanthropy is at its core a series of financial
transactions."

Phil takes (polite) issue with my definition, saying instead:

"Let me say that to me philanthropy at its core is a personal, moral,
and political (in the largest sense of serving the polis or community)
act, virtue, or way of being in the world.  Sometimes philanthropy is
financial. But giving can be of time, attention, talent, or even of
one’s own blood, as in giving blood, or shedding blood in a good
cause.  Philanthropy at its core is a civic virtue. That said, unacted
virtue, or virtue that acts ineffectively, is imperfect. Financial
giving is indeed a financial transaction, or set of tools. The tools
are tactical. They should answer strategic ends, and the strategies
should answer to vision. And the whole ensemble should create life,
energy, and disproportinate results, as when a gift sparks a cultural
movement, or inspires a whole community to come together around an
issue.  Giving, indeed, "transforms reality."  Some of that is
"results," in the sense of metrics. But reality also changes when a
businesslike donor who is all about money, metrics and results, puts
her glasses on the table, looks out the window, and says, "You know, I
set out to set others straight, to fix others, to help them. And now
after these last few months face to face with those in need I see how
blind I was, how out of touch, and how arrogant.  I have learned more
and gained more from those I help than they ever have from me.  I only
wish I could do more. Can I?"

I think that Phil is right, that philanthropy is not simply a financial act and that any financial tactic must serve a strategic need. You may be able to execute a highly leveraged financial gift, but if it goes to an inefficient nonprofit, or one that does not support your world view, the tactic goes to waste.

The word Philanthropy is a word whose definition is somewhat vague. The Merriam-Webster dictionary defines it as:

"Active effort to promote human welfare"

The blog Giving Back posted a good discussion of the definition back in August that looked at both expansive and more limited definitions. I should probably be clear about my definition.

To me, philanthropy describes the practice of passionate giving of capital resources. When I use the word, I’m not referring to volunteer work. But don’t take that as any slight to volunteers. I’m an owner of a small business and so I know full well that success in any endeavor requires both capital and labor resources and neither is more valuable than the other since neither resource has any value at all without the input of the other.

When I think about my business, I don’t think of it as a "series of financial transactions". I’m not in business simply for financial reasons, and my goals are not simply financial goals. Too often when people analyze businesses they fail to fully understand that business is more than just financial transactions.

Philanthropy faces the opposite problem. Too often people fail to realize that giving is a financial transaction and instead focus on the greater purpose for which they give. When I state that philanthropy is at its core a series of financial transactions, I do so to remind people that no matter how much you care about a cause you can help them far more if you tactically approach the gifting process and recognize it as the financial transaction that it is.

However, let us not lose sight of the greater purpose of of philanthropy. It is not only a financial transaction. It is certainly not just a tax deduction. A philanthropic gift is a exercise in being human. It is a action whose most important purpose is to make the world a better place.

May we all leave the world a better place than we found it and may we all make use of the most effective techniques when we choose to give back so that our passion is not diluted by inefficient actions.

Philanthropy’s Growing Pains

In the current issue of The Chronicle of Philanthropy there is an excellent article (subscription required) about the conflicts that are arising as community foundations try and compete against the national donor advised funds (such as the Schwab Fund for Charitable Giving and the Fidelity Charitable Gift Fund).

The article describes the Greater Green Bay Community Foundation’s efforts to expand their historical focus on advising donors on which nonprofits to give to and to begin advising nonprofits on how to raise money. But the creative arrangement has some serious conflicts of interests that need to be address.

From the article:

"It is an unusual role for a community foundation, and one that elicits
mixed reactions from philanthropy experts. On the one hand, the
foundation’s work can be seen as blatant "double dipping" — it is being
paid by charities to raise money at the same time that it is being paid
by donors for advice on how to give money away."

Lucy Bernholz who blogs at Philanthropy 2173 is quoted in the article as well:

"You’re setting up a dynamic by which a nonprofit could expect that if it pays for this advice, it gets a grant."

The whole idea of advising both sides of the fund raising table reminds me of the conflicts in the investment banking industry, where banks get paid to advise public companies while their research department advises investors on which companies to invest in.

As The Second Great Wave of Philanthropy unfolds, we’re going to experience a lot of growing pains. The framework for facilitating the transfer of assets from individuals and companies to nonprofits will need to be constantly evaluated. Lucy wrote a great book a couple of years ago called Creating Philanthropic Capital Markets, which addressed some of these issues. Currently Phil Cubeta is discussing the same issues on his blog Gift Hub. This evolution of the philanthropic industry will be a critical component of The Second Great Wave.

Until the evolution is further along, donors will have to fend for themselves to some degree. Luckily there are many innovative nonprofit and for profit ventures which are hurrying to assist the new tactical philanthropists. Over time, this blog will highlight a number of these services and I encourage anyone who comes across a service they like to let me know.

Charity is Selfish?

The philanthropic world is still buzzing from a summer of
incredible generosity from Warren Buffett, Bill Gates and Jackie Chan (yes,
the one who does all his own stunts!). But while many, including myself, have
seen these developments as "the
starting line in the super-hyped transfer of wealth”
, some people have seen
fit to complain. Bloggers around the world argued that Buffett and
Gates 1) really should have given even more, 2) were just exploiting a
"tax loophole", and 3) would not end up giving the money to the "right" causes.

Financial Times columnist Tim Harford recently argued over at Slate.com
that "Charity Is Selfish".
Harford seems to believe that giving back to your community isn’t really
admirable unless you get no joy out of the gift. This kind of world view is
something that we need to overcome as a society for the Second Great Wave of
Philanthropy to really get going. The fact is giving IS joyful. Anyone who has
ever given money or time to help someone else knows that no matter how
"selfless" the act may be, the giver often gets just as much out of
the gift as the receiver. The joyful nature of giving is something for us to celebrate, not try and avoid.

Baby Boomers Changing Philanthropy

The Baby Boomers are beginning to retire and they are doing
it in a way that no generation ever has before. The combination of extended
life expectancies and increased wealth mean that the Baby Boomers will be
retiring with as much as 30 or 40 years of retired life ahead of them. Are they
going to be content buying RVs or moving to Florida?

In Prime Time: How Baby Boomers Will Revolutionize Retirement and Transform America, author Marc Freedman puts forth the thesis
that “a new kind of aging” is before us, as Baby Boomers continue to be
actively involved in civic life after they retire. With the wisdom of a full life, new time on
their hands and the wealth to finance their lifestyle, Baby Boomers will have
an unprecedented chance to engage in volunteerism and other acts of
philanthropy.

During the stock market boom of the 80’s and 90’s, Boomers
were in their peak saving years. Retirement accounts became a feature of many
Americans’ financial lives. This came about from a combination of increased
wealth, technological innovation and creative individuals. These same trends are
affecting philanthropy today as Boomers move from saving for retirement to post-retirement lifestyles. How long might it be before donor advised funds and other philanthropic vehicles become as common
as a 401k? Gifts from donor advised funds already eclipse the giving of Warren
Buffett and Bill Gates combined.
With a steady stream of retiring baby boomers entering their “giving years”,
the philanthropic landscape is on the verge of massive change.