My most recent column for the Financial Times:
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.