All posts by amandagold78

The next step in corporate philanthropy

Why do corporations aim to optimize all aspects of their business besides giving?

The end of the 20th century saw a clear pivot in what society expects of corporations. In addition to conducting ethical business practices, society increasingly wants to see corporations playing a key role in addressing intractable social problems like poverty and climate change. Corporations responded. Charity Navigator shows that corporate giving grew from $12.7 billion in 2006 to $18.5 billion 2016, a 45% increase.

With this increase, many corporations have seen meaningful benefits to their bottom line. Literature on the value of corporate philanthropy to the business itself and how to measure corporate philanthropy has multiplied in line with society’s increased expectations. What is missing, however, is a clear business case for investing in the systems and processes required to do robust impact measurement.

I recently concluded a project with the biotech company Genentech where I helped to define a framework and metrics to understand the impact of their charitable giving. A critical accompaniment to the tangible framework, outputs, and outcomes was making the case for investing time and resources in a more robust impact measurement approach. While information exists about the importance of and how to design a strong corporate responsibility program, little exists about why it is important to measure the impact of giving and charitable efforts.

It may seem like an obvious next step to being able to articulate the impact of giving, but few corporations do it well. As part of the project, I benchmarked several companies—peer biotech companies and those who are considered leaders in corporate philanthropy—and I found that the vast majority only conduct the very basics of measuring dollars donated, charities/people touched, and employee hours dedicated. Many that I spoke with are only now beginning to think about how to develop a more robust measurement system.

Why the disconnect between corporations who seek to optimize all aspects of their business, but not measure and learn from their philanthropic efforts so they can give more effectively? To many corporations, philanthropy or responsibility programs remain a “nice to have” rather than a “need to have.” Executives rarely field questions about corporate responsibility practices from investors directly and do not hear the questions about philanthropy that staff receive or are embedded in ranking surveys for publications such as Fortune’s 100 Best Companies to Work For.

Treating corporate responsibility as a “nice to have” is rather short sighted. Employees—and especially millennials who will increasingly comprise the workforce—prioritize companies who give back to the community. In fact, Project ROI found that 80% of millennials want to work for a company that cares about how it impacts and contributes to society. As Terence Lim from CECP said, “To realize meaningful benefits, philanthropy cannot be treated as just another ‘check the box,’ but rather must be executed no less professionally, proactively, and strategically than other core business activities.”

The future is clear – corporations will need to be able to show how their efforts make a meaningful difference in society. This means more than publicizing dollars given or even people touched. It means investing in robust measurement approaches to show how efforts are changing behaviors and making a dent in intractable social issues. We currently have the resources to understand how to do this, but the first step is missing – making the case to decision makers to invest in thoughtful measurement. Until corporate philanthropy teams have this support from the C-suite, philanthropy will remain a “nice to have.”

Creating a private foundation is but one approach to philanthropy

“I want to give back and make a difference in the world. I’ve been supporting my favorite charities when they ask for years now, but am I approaching my philanthropy in the smartest way?”

I’ve heard variations of this sentiment from donors numerous times. They reflect on their giving and question whether the approach they have been using to give back is the best for both themselves and the issues that are dear to their heart. Navigating the pros and cons of potential philanthropic vehicles can be confusing. Wealth managers and estate planners do their best to describe the income and tax considerations of giving as an independent donor, or through a private foundation, or by opening a donor-advised fund (DAF). But what about the fine print? Each option has its own strengths and weaknesses that are readily understood only through lived experience.

The easiest approach and where many philanthropists begin is as an individual donor. Even before one thinks of themselves as a philanthropist, they are often giving to their friend’s causes and to organizations in their community, such as schools and hospitals. As assets grow and a desire to give back deepens, it is financially smarter to consider a DAF or creating a private foundation. Both options have important elements to understand.

A private foundation is a great option for larger estates—above $3-4 million—due to the administrative costs required at the outset and to ensure compliance throughout. If it costs significant money and time to have a private foundation, then what are the main benefits? Private foundation leaders emphasize the following as most valuable to them:

  1. Expanded giving opportunities: Unlike individual donations, foundations can use funds for which they have already received a deduction to give to individuals, non-US nonprofits, and for-profit companies
  2. Control: As trustee, they remain in control of how assets are invested and which organizations to support
  3. Opportunities to invest in addition to grantmaking: Private foundations engage in “impact investing” – or investing in companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return (Global Impact Investing Network (GIIN) is a great resource on the topic)
  4. Engaging the family: Private foundations provide a way to include the broader family in philanthropy

The two main concerns voiced about having a private foundation are: (1) It is not always easy to engage family, especially when family members are not involved in identifying which issues the foundation will address. (2) Secondly, private foundations have to payout a minimum of 5% of the value of their endowment. While donors want to give, this immediate requirement can cause stress if they have not identified the causes and charities they want to support at the creation of the foundation.

To give donors time to plan their giving while still providing immediate income and tax benefits, many wealth advisors and estate managers will tell clients to open a DAF, often at a community foundation. Unlike a private foundation, donors with a DAF do not need to payout 5% annually. Being part of a community foundation also provides two benefits that can help donors give smarter: (1) donors can tap into the dedicated staff’s local knowledge of issues, and (2) they can connect with like-minded philanthropists to learn from each other and potentially pool resources for an issue. On the other hand, many DAF fundholders are frustrated when they cannot manage their fund’s investments with the same independence as before. While some community foundations allow you to keep your investment manager, many do not or have limitations. Second, most community foundations only allow one (maybe two) generation of successor advisors. This means that very often, your children can inherit and give from your fund, but not your grandchildren.

Deciding on the best vehicle for your philanthropy is a personal decision that takes into account more than just the size of your assets. It is important to sit down with your advisors and those you want involved in your philanthropy to determine what the best path forward is for you that will help you have the highest impact you want.


For more private foundation advantages, see the Top Ten Advantages from Foundation Source

For more information, Community Foundation of Greenville has a great chart comparing community foundations with private foundations

How much is too much for a nonprofit to spend on itself?

Scandals concerning nonprofits misusing funds, such as the recent one with the Wounded Warriors Project, understandably increase donor’s unease about finding worthy charities to support. Philanthropists want to know that their grants are going to the causes that are dear to their heart. When they hear about nonprofits spending extravagantly on conferences or so their CEO can arrive at events by rappelling down a building, they are understandably outraged. But this shouldn’t deter donors from philanthropy altogether. Instead, scandals like this should remind philanthropists to do the due diligence needed to identify effective and well-run nonprofits.

So how much is the appropriate amount for a charity to spend on itself versus its programs? Better Business Bureau’s Wise Giving Alliance recommends that a nonprofit should spend at least 65% on programs, so less than 35% on staff, communications, rent, etc. This seems reasonable, but in reality, the answer is more complex than applying the same percentage to all nonprofits.

As my colleague, Christine Kendall at SmarterGive notes in a recent blog, if you were investing in a for-profit company you would be concerned if it had not invested sufficiently in its own infrastructure. The amount that a nonprofit dedicates to its own staff, resources, technology, collaboration efforts, etc. (“overhead”) depends on the scope and scale of its work. An organization that is global in scope and attempting to cure an intractable disease, for example, will undoubtedly need to spend more on expert leadership, travel, and partnership efforts than a local food bank or other narrowly focused organization.

The increased focus on evaluating charities based on the percentage of funds that go to programs versus overhead has resulted in nonprofits often being underfunded and sometimes going bankrupt. I am proud of my local San Diego Grantmakers who, along with its peer regional associations of grantmakers in California, has catalyzed a statewide conversation and prompted action to increase understanding about the Real Cost of a nonprofit’s programs and operations required to achieve its outcomes. A healthy nonprofit should have adequate funds to support its programs, its operations (such as staff and infrastructure), and sufficient capital reserves for long-term sustainability. Some funders are moving in this direction and are adopting a full funding approach to their grantmaking where they will invest in the infrastructure and stability of a nonprofit along with its programs. These include PIMCO Foundation, Ford Foundation, and Irvine Foundation. I hope to see more philanthropists, including individuals and families, move in this direction. The question should not be how much is too much for a nonprofit to spend on itself, but rather: what is the real cost of realizing lasting change in some of our most pressing problems?

Donors of all sizes need to consider a variety of factors when conducting due diligence on potential charities to invest in. These include:

  • Does the staff have the necessary expertise in both the issue, approach and management skills to achieve the organization’s goals?
  • Does the organization have a clear strategy guiding its work? Do you agree with that approach?
  • Does the organization have the necessary resources, technology and tools necessary to do its work and scale, as needed?
  • Has the organization partnered with the organizations it needs to in order to do what it says it will do?
  • What do others in the field say about the organization?

This level of due diligence takes time, but it will help ease a donor’s fear of giving to an unworthy charity. It will also uncover needs that a nonprofit might have in addition to supporting its programs. My hope is that funders will begin to take a holistic approach to their support of a charity – investing in programs as well as the organization itself.

Plan your philanthropy as you do your finances

Collectively, Americans gave $360 billion to charity in 2014. Given such a large number, it isn’t surprising that most people automatically think that the bulk of giving comes from foundations or corporations. In reality, however, individuals accounted for 72% of that giving. Your philanthropy makes a difference.

While we have a strong culture of giving, I continue to receive questions from individuals and families about how to understand and be more in control of their giving patterns. When you reflect on last year’s giving, how much of it did you plan ahead for and how much was in response to a request from others? We give for a variety of reasons and they are all legitimate. Understanding your motivations behind each gift will help you give smarter in the future.

Increasingly, researchers are trying to figure out the science behind why people give. At a high-level, it’s easy to bucket giving by altruistic intent – (1) “pure altruism”- giving because you believe in what the charities are doing, (2) “impure altruism”- giving because you like the way you feel when you contribute to making the world a better place, or (3) “not altruistic” – giving because you like seeing your name associated with giving. But, if you are anything like me, your giving is much more complex than this

We are motivated to give by many factors – sometimes because we believe in the cause and other times because we feel obligated to give. Mark Kramer, co-founder at FSG, wrote in article in 1998 about these mixed motivations that still holds true today. He argues that there are three main reasons why people give:

  1. To fulfill obligations to your community: giving to your church, schools, or neighborhood associations
  2. To honor relationships: donating to causes that are near and dear to your friends and family’s hearts
  3. To see change in a social problem: giving to a cause that you care about and where you seek a specific result

All of these reasons are meaningful and legitimate. It’s important to honor your community and relationships as much as it is to give in order to realize change in an area that you feel passionate about. The first step in understanding and being more in control of your giving is to organize your past gifts into these categories. In which area did you contribute the most last year? Determine whether your past allocation mix is aligned with how you want your philanthropy to be, or if you need to make adjustments. You can think of this as you would your financial planning – creating a philanthropic portfolio of gifts across these categories. What percentage of your annual gifts do you want to be to your community? To your relationships? And finally, to the causes that you care most about? When you have a clear philanthropic portfolio, then it will be easier to respond thoughtfully to requests for gifts and plan in advance so you can give how much you want to your causes. You can change your portfolio as you learn and grow in your philanthropy and as your life stages evolve, just as you would when your financial situation changes.

Being more strategic in your giving will help you be more organized and have the impact you want to have – on your community, in your relationships, and on today’s social problems.