How to ensure your philanthropy has the most impact
Betty Pettine, director of philanthropic consulting for the Callan Family Office, explains the nuances of engaging in the business of philanthropy.
Philanthropy is a passion for most high-net-worth families. Yet just because it’s a passion, doesn’t make it any less of a business. As such, whether a donor is highly experienced or a novice, it’s important to approach philanthropy as you would any investment — with proper research, diligence and the right approach. Here are several steps we recommend to our families to help them maximize their philanthropic efforts.
RESEARCH MANY CHARITABLE OPTIONS
Philanthropic giving starts with making sure the donor is aligned with the mission, vision and values of the organization. Whether it’s climate change, social justice and/or education, deciding what causes matter to you can be a challenging and personal decision.
Donors should ask themselves the following:
- What are the issues I care deeply about?
- What do I want to accomplish with my philanthropic efforts?
- Where do I want to make an impact?
Some donors even consider causes that can be addressed through means beyond traditional grant-making, such as programs that are eligible for microlending, recoverable grants, impact investing and program-related investments.
Even if a donor’s cause is clear, with more than 1.4 million charities in the U.S. alone, narrowing the list to focus on those organizations that are best-positioned to carry out their stated mission can feel overwhelming.
When thinking about possible causes, donors should research a variety of organizations to ensure their contributions will go to the most successful nonprofit. They should learn about the organization’s history and mission, research any relevant financial information and consider each charity’s track record. Additionally, they should understand how their donations will be used as well as where and when the funds will reach their intended destination.
To enhance these efforts, donors should seek out advice both within and outside of their network, speaking with experts — through online news or social media feeds — who have expertise within these areas.
CONDUCT THOROUGH DUE DILIGENCE
A great place to begin researching charitable organizations is to understand how transparent they are in sharing information. For example, the degree to which budget information, 990PF (tax returns for nonprofits) and other financial data is shared publicly can vary widely. By choosing to work with an organization that is open about its finances and spending, donors can ensure their gift will deliver maximum impact.
The diversity and talent of an organization’s leadership team, including the board, are also important. Most donors want to see that the organization’s constituency is represented — that is, that decision-makers at the organization have a stake in the community it serves because of their lived experiences.
Donors should focus not only on how organizations use donations but also their track record in achieving promised results, as well as their approach to accomplishing their goals. For example, has the charity been successful in its past initiatives? Do they depend on and/or collaborate with entities with whom you also share values (government funding or political officials)? Are key stakeholders easily identifiable?
In addition to financial data reported to the IRS or disclosed in audited financial statements, nonprofits may also report policies, procedures or other internal information that can be helpful to a donor’s decision-making. A donor should consider whether an organization has a whistleblower policy in place for the staff, board or others to detect potential internal or external fraud. Furthermore, it may be helpful to know what percentage of the board supports the organization through personal philanthropy, to better determine their engagement.
While many of these data points are self-reported, they can be as important as mandated information when considering the overall health of the organization. For example, viewing this information in a public setting can help donors gauge a nonprofit’s willingness to share information as well as the organization’s dedication to these important details.
Before making a gift, some donors conduct a site visit. When doing so, donors may want to speak to a member of the leadership team and/or a board member whose responsibilities include knowing the organization’s mission, purpose, strategic priorities, strengths and financial needs. Additionally, their commitment to the organization and willingness to meet with funders speaks volumes about the strength of the overall board and the organization as a going concern.
Keep in mind that while most organizations are open to site visits, either virtual or in-person, potential donors must also be clear about their objectives, such as observing operations and seeing the good work being done in person, and limit any disruptions and/or follow-up reporting to what’s necessary to making an informed decision. If a potential donor still has questions, that person should consider volunteering to engage more deeply.
HOW TO CONSIDER THE TYPE OF DONATION
Finally, families should consider what type of donation they intend to make to the organization and whether they’re satisfied with how it will be measured. Will they contribute to the overall budget or restrict the gift to a specific program, project or capital campaign? Recently, many funders who typically make restricted gifts were asked to pivot during the pandemic and give toward general operating funds to support nonprofits whose needs, supply chains, staffing and fundraising were significantly impacted for obvious reasons.
Philanthropy can and should be a fun and rewarding experience that can lead to lasting relationships — all while contributing to something bigger than any single person.
And yet contributing to positive change comes with great responsibility. Considering what causes are most important, thoroughly researching prospective organizations and keeping open lines of communication are all mission-critical to the philanthropic process. Additionally, donors must also think critically about the various ways they can help those in need, making sure that their contributions have the most positive outcome possible.
Examining all the resources and ways in which individuals and families can become more knowledgeable — such as engaging experts — can be instrumental in better understanding “the business of philanthropy.”