Financial Times Philanthropy Guest Column

As part of the series of guest columns being published by my editor at the Financial Times (see details about how to submit your own column here), the following article appeared this weekend.

Give with the stars – but make it count
The Emergence Of An Online Philanthropic Marketplace
By Randall J. Ottinger

Celebrity philanthropy is all the rage. Everyone from Bono to Angelina Jolie and Brad Pitt are splashed across the press and appearing on talk shows, raising awareness for their pet causes.

Stars of the corporate world are following suit, focusing on their charitable legacies. And not to be overshadowed, former President Bill Clinton has written a book on the virtues of giving.

The overwhelming growth in the popularity of philanthropy has to be a good thing, right? Not necessarily. The truth is, the popularity of philanthropy has little correlation with the effectiveness of philanthropy.

In 2006, more than 65 per cent of households with annual incomes of less than $100,000 made charitable contributions. Most of the activity, though, is what the professionals call “chequebook philanthropy”. What we are seeing, inspired by the celebrities and buoyed by the benefit of being “trendy”, is philanthropy on demand – giving inspired by request.

Charitable giving today is part social networking, part giving from the heart, but not necessarily thoughtful. It is philanthropy without a plan.

Though there is some good that emanates from this activity, chequebook philanthropy will ultimately be seen as a lost opportunity unless fundamental changes are made. The trillions of dollars of baby-boomer wealth that are expected to transfer to worthy causes will, without some overhaul of the system, be sprinkled around with a troubling lack of focus. It will lead to duplication, fragmentation and waste.

And while the number of non-profits will continue to grow, having more than doubled since 1990 to 1.5m charities, their impact will be hampered. Why?

First, there is precious little co-ordination between these sometimes like-minded organisations focused on similar issues. Second, there are few trained advisers to help individuals develop a philanthropic plan because it is not part of the curriculum for trust and estate attorneys or financial advisers. In addition, information does not flow freely but is held in “silos” and not shared.

As a result, good charities are hard to distinguish from poorly run ones, and can spend 24 cents out of every dollar just to raise money to keep their doors open. Unfortunately, random philanthropy appears to be winning out over strategic philanthropy.

The unprecedented accumulation of wealth requires a new philanthropic paradigm. The time has come for a true global philanthropic marketplace, modelled on the world’s financial marketplace, where sources of capital intersect with top charitable organisations seeking capital.

Although there is no central philanthropic marketplace today, there are signs of one emerging. Efforts are under way to build a Morningstar-like rating system for charities by the Better Business Bureau and Charity Navigator, among others. Industry analysts are studying investment opportunities in global issue areas from malaria to microfinance, and in cities from Boston to Seattle. Just as the world of commerce is flat, as famously pointed out by Thomas Friedman, the philanthropic world will follow suit and the shift will be facilitated by technology that improves the free flow of information.

The trend towards online philanthropy is under way – internet giving increased 51 per cent to $6.87bn in 2006, according to the ePhilanthropy Foundation. In addition, more than 65 per cent of donors visit a non-profit’s website before giving. As a result of improved online information, individuals will be able to more easily identify good philanthropic investment opportunities.

Ultimately, the global philanthropic marketplace will guide individuals and their dollars to organisations and causes that yield the highest and best results for society. And technology will make investment opportunities accessible to the masses.

If history is a guide, in the coming years a handful of players will dominate online giving, just as Amazon dominated online shopping in the 1990s. These organisations will help individuals make better choices about where and how to give. They will connect people who care about the same issues around the globe. They will likely accomplish their mission with a profitable business model.

In the process, they may just turn a hot trend into an emerging market, and help advance the field of philanthropy in an unprecedented way.

The writer is author of ‘Beyond Success: Building a Personal, Financial and Philanthropic Legacy’ and founder of LMR Advisors, where he advises individuals, financial advisers and corporations on strategic philanthropy