By Sean Stannard-Stockton
March 26, 2009|Originally published in The Chronicle of Philanthropy
I have a daughter in public school and a son who will be there in a couple of years. As a parent and citizen, I care about the quality of the public schools both for the sake of my children’s education and for that of our nation’s children. Millions of other parents just like me also care about education and are making charitable donations to benefit it.
But only a tiny minority of those donors know how their contributions can best improve education and make a real difference.
Given how many professional grant makers work on improving education, it is a shame that a parent who wants to support education does not have easy access to their accumulated knowledge.
This lack of information about what works and what does not is a major obstacle to the most-effective nonprofit organizations of all types receiving the money they need.
After all, for-profit investors don’t make decisions to invest major sums without good information. But philanthropy will need to create an entirely different information-sharing system than in the for-profit world.
In for-profit investing, if you come across a great investment opportunity, you do not run around telling the world about it. You make the investment yourself and hope to make a profit.
In philanthropy, however, the value of information increases as it spreads.
Unlike in the for-profit market, nobody wins when just a few people know about a good idea. Instead, the more people who know about opportunities to give money to an effective charity or project, the more effective philanthropy as a whole will be.
That is why everyone in philanthropy needs to capitalize on the ways technology has made it easier and cheaper than ever to share information.
For grant makers, both institutional and individuals of any size, it has become incredibly cheap to share what they know about making a difference. Social-networking tools, often referred to as Web 2.0, offer numerous ways for lots of people to contribute information about specific issues.
It is not just data that will form the information base for the social-capital markets that are evolving to finance nonprofit groups. For social-capital markets to truly thrive, they must be supported by participants who see sharing knowledge not as a regulatory or moral requirement but as a way to get the most out of every dollar spent.
What that means is that big foundations should view communications as a main element of their approach to grant making. The key is to recognize that information that enhances the ability to make smart grants is the real currency in philanthropy. It is the unit of value that converts financial capital into real-world results. By identifying these units of value and making them broadly available, grant makers can exponentially increase the good they do.
In the past year or more, a growing number of organizations have taken steps to build that kind of network of support for donors. Among them are groups like GiveWell, an organization started by hedge-fund analysts to figure out whether nonprofit groups are achieving their intended results. GreatNonprofits asks clients and others who have encountered an organization to share their thoughts, almost like restaurant reviews.
This month GuideStar, which collects the federal tax forms of charities and puts them online, added GreatNonprofits reviews to the information available to donors — another step in the growing sophistication of the donor-information marketplace.
Other groups that used to focus mostly on providing financial data are also starting to offer donors information about results. Charity Navigator, an online charity evaluator with an ambitious new chief executive, Ken Berger, has recently started focusing on the results a group achieves.
Professional grant makers control only a small minority of the financial capital put to charitable use each year. But making a difference does not require ownership of financial capital. Difference comes when financial capital is deployed in a knowledgeable way.
While no magic formula or ranking system will ever exist, the big opportunity for professional grant makers is to share their knowledge so that individual donors, who control the vast majority of charitable capital, can really make a difference with their giving.
But unfortunately when people in philanthropy talk about disclosing information to the public, they focus on demands from regulators and others to provide the kind of information that guarantees nonprofit groups are operating accountably.
Instead, we must reimagine openness and information sharing as key elements of effective philanthropy.
Let us not get bogged down in the details of exactly what information should be shared. There are valid debates to be had over what information can be usefully shared and what information might do more harm than good if it became public.
It is time to recognize the reality that the core unit of value in philanthropy is not financial capital, but the knowledge needed to transform making a donation into making a difference.