Philanthropy: You’re doing it wrong

By Felix Salmon
December 26, 2012

Merry Christmas! Maybe it’s because of some vestigial religious undertones to this holiday, or maybe it’s because the end of the tax year is rapidly approaching, along with the urgency of maximizing your annual deductions. Either way, this is a particularly philanthropic time of year. And since I’m personally feeling very charitable right now, I’ve decided to do you all the favor of telling you that when it comes to philanthropy, you’re doing it wrong.

Interestingly, philanthropy is one of those areas where the richer you are, the more likely you are to be doing it spectacularly wrong. So to make you feel better still, this is aimed mainly at the mega-philanthropists: the people who give away millions of dollars and feel fantastic for doing so. These are the people at the heart of the debate over capping the mortgage-interest tax deduction: they receive an outsized proportion of its costs, on the grounds, to quote Bob Shiller, that

charitable giving can substitute for a good part of the things that the government would otherwise be doing itself, a factor that is rarely introduced into budget calculations. Indeed, in many cases, individual philanthropy may be more effective than government expenditures.

Being “more effective than government expenditures” is a pretty low bar to hurdle. But that doesn’t mean it’s reasonable to assume that most philanthropic donations hurdle it with ease. Remember John Paulson, with his $100 million gift to the Central Park Conservancy: I think I’m entirely safe in saying that the government, in the form of the New York City Department of Parks & Recreation, spends its money a lot more carefully and effectively, despite the fact that it has to divvy up its budget across 5,000 different properties, including Central Park.

And the much bigger problem is that Paulson is no exception here. Let’s run down the list of things you’re likely to be doing wrong, if you’re a rich philanthropist:

You meddle in the internal workings of the charities you donate to, even though you’re not on the board.

If you’ve done your homework, then you’re giving to a certain charity precisely because you admire the way it gets things done. If you don’t admire the way it gets things done, then you should find a different charity: there are many very good ones out there.

What’s more, your experience in the for-profit world is not nearly as valuable as you think it is. The executives are probably good at flattering you by asking you for your advice: the slogan in the non-profit world is “if you want advice, ask for money; if you want money, ask for advice”. Once again, be humble. They live these issues every week; they know them better than you do.

Remember: the things which work in your business aren’t necessarily a good idea in your philanthropy. One of the reasons why so many rich businessmen give money to microlenders is that it’s a model they’re intuitively very comfortable with. Even if there’s very little evidence that it actually does much good.

You set up your own foundation.

The classic waste of money and resources. Foundations are expensive things to run, both in terms of overhead costs and in terms of opportunity costs. A well-run foundation will be staffed with qualified philanthropic professionals; such people are not easy to find, and if you do find them, the fact is that their talents could almost certainly be put to better use elsewhere.

The main reason why people set up foundations rather than just giving their money to the needy is that foundations are a have-your-cake-and-eat-it-too form of philanthropy: you get to say that you’ve given your money away while at the same time continuing to have ultimate control over that money. That’s great for your own personal power and influence, but it’s almost never the most effective way to spend your money.

Personal foundations are also the easy way out: a way of saying “I know I want to give my money away, but I can’t be bothered to actually do it yet.” If you’re committed to philanthropy, that’s not good enough. You’re trying to improve the world, rather than trying to create a tax dodge which gives away the bare minimum every year.

You give your money to Harvard, or any other large endowment.

The Harvard endowment currently stands somewhere north of $30 billion. If it grows at 5% a year, that’s $29 million per week. The marginal utility of your donation is probably smaller here than anywhere else. The general principle here is this: giving money to a well-endowed institution is just another way of not actually spending your money.

You fund architecture.

It’s generally easier to raise money for a new building than it is to raise money for continuing operations, which is one reason why charities often embark on huge capital campaigns. But such campaigns often end in tears, with cost overruns which necessitate staff cutbacks or even high-level resignations. Leave the ego-infested world of architecture to others: your money can always be better spent elsewhere. Mission-building is more important than edifice-building.

You encourage mission creep.

If an organization is doing great work in Cambodia, don’t offer it a large amount of money to do the same thing in Nicaragua. Donations with strings attached are bad; donations which essentially force a non-profit to do something it never particularly wanted to do in the first place are much, much worse. Examples would include most cancer wings at hospitals; or a dedicated yoga center at a university. (I’ll come back to that example.) Charities are under constant pressure to move away from their core mission and towards where the money is; don’t be part of the problem.

You kid yourself that your mere presence on the board, or your “celebrity endorsement”, is valuable.

It’s your money that’s valuable — the money you give to the organization, and the money you can persuade others to give to the organization. The main value of your presence on the board is the implicit or explicit financial commitment that comes with it.

You are a rich and important person, but no one is going to give money to this organization just because you did.

You’re a tease.

Charities are forced to put a lot of effort into buttering up donors and potential donors. Don’t be part of the problem: don’t waste their time. If you’re going to give money, give money. If you’re not, then say so, clearly.

You confuse philanthropy with social climbing.

Philanthropy is one way of feeling better about yourself; buying the admiration of your friends and peers by ostentatiously giving money to their favorite causes is another. Do not confuse the two.

You think that going to to charity balls constitutes charitable activity.

Some people actually enjoy these things. If you’re the kind of person who likes to dress up in black tie spending an evening in an orgy of rubber chicken and self-congratulation, then by all means go to as many of these things as you like. But if you’re not that kind of person, and you feel that you can’t politely decline, then just take the money you would otherwise spend on a table, and donate it to the organization directly. That way the charity gets all of the donation, and you get four hours of your life back.

Amazingly, charity balls aren’t even the most inefficient way of giving to charity. Paul Sullivan recently glowingly profiled Cindy Citrone, who went to Sotheby’s and spent $425,000 on “a small, pink-diamond ring and diamond bracelet that had the word love written on it in rubies.” That was probably near the market price for those jewels, and in any case, given that this was an auction, there was certainly an underbidder willing to pay almost as much. So even though the auction proceeds were going to charity, the marginal benefit of Citrone’s $425,000 was pretty tiny. And yet, somehow, Sullivan managed to write a column implying that this was a good way of giving money to charity. Donating the jewels was a genuine charitable act; buying them, not so much.

You put your name on a building, or anything else, for that matter.

Why?

You transactionalize your giving.

The world of non-profit fundraising has become increasingly transactionalized: everything’s a tit-for-tat operation, these days. Give a small amount of money and you get a yellow wristband; give a large amount of money and you get to rename the entire organization you’re funding after yourself. It’s an invidious trend, and the only way to reverse it is for prominent philanthropists to refuse to play the game. The Jewish charitable tradition of tzedakah calls out anonymous gifts for especial praise: philanthropists and charities alike should take note.

All too often, meetings between fundraisers and donors turn into a kind of bargaining session: if you give us this, we’ll give you that. The conversation ignores the important — how the charity will use the money to improve the world — and concentrates instead on the banal: what the charity can do to publicly thank the donor.

In one particularly odious recent case in New York, two foundations which helped pay for a big new FDR memorial on Roosevelt Island went all the way to the state’s Supreme Court to ensure that their names appeared so prominently as to damage the whole architectural construct. In their minds, the quality of the memorial itself was less important than the conspicuousness of the thank-yous.

It’s incredibly easy to find examples of all of these sins, but one in particular jumps out at me for the way it encapsulates many of them at once. Here’s Andrew Rice, talking about the way that the University of Virginia’s Teresa Sullivan tried to get money from one of its richest alums:

One of Sullivan’s most promising targets was Paul Tudor Jones, a Virginia alumnus, billionaire hedge-fund manager and philanthropist. Though he had given away countless millions, Jones considered his brain to be his primary asset: he was fond of saying that “intellectual capital will always trump financial capital.” He had already given large sums to his alma mater, and he told Sullivan that he and his wife had an exciting new idea: endowing a center for yoga.

“I thought, Oh, man, people are going to be very cynical about this,” recalls Bob Sweeney, UVA’s fund-raising chief. So Sullivan convened a dinner at her home with professors of religion, medicine and other disciplines. “I said, ‘O.K., let us think about it a little bit,’ ” she said. “We began talking about, wait a minute, it’s not just yoga.” The group swiftly produced a proposal for a multidisciplinary Contemplative Sciences Center, which was vetted by Jones’s paid yoga consultant. In April, Sullivan announced the $15 million gift, one of the largest of her tenure.

This was all part of a multi-year buttering-up campaign, of someone who is convinced that just by thinking about the University of Virginia in the right way, he can do more good than by giving it money. The University, of course, knew exactly what it needed money for, but Paul Tudor Jones wasn’t interested in what the University thought: he had his own ideas — and his own paid yoga consultant.

When someone offers you $15 million, and a very large part of your job is to raise money, you can’t just laugh and say their idea is ridiculous. Instead, you have to spend an inordinate amount of valuable management time, across multiple university faculties, and eventually construct a white elephant that no one actually wanted in the first place.

And so the lesson here is pretty simple: Don’t be Paul Tudor Jones. Instead, have some humility. Here’s one idea: for every dollar you spend on overhead and payroll at your foundation, make sure that you donate a dollar earmarked for overhead and payroll somewhere else. Those are the funds which are always the hardest to raise, after all.

If you did that, you would be helping to counteract one of the most corrosive and invidious memes in the nonprofit sector: the idea that it’s incredibly important to look at the “overhead ratio”, and give only to charities which spend a small proportion of their money on overhead, and a large proportion of their money on program activities. It really isn’t. But partly because a lot of people think that it is, this year I gave to DNDi, the Drugs for Neglected Diseases initiative, an amazing nonprofit which is basically all overhead. Its job is to coordinate the work of organizations all over the world, from non-profits to pharmaceutical companies to multilateral organizations to national health ministries, and to get them all working together to create drug cocktails which can cure devastating diseases in some of the most forlorn parts of the world.

What else should you do? Well, if you’re one of those extremely wealthy people who has pledged to give away most of their money, then follow the spirit of the pledge, rather than just the letter. It’s not enough to set up a foundation which will receive most of your wealth when you die: that’s, quite literally, a cop-out. Instead, embrace the concept of front-loading, and give the money away right now, as much as you can. In a world which is getting richer, your money is best put to use now, rather than in the future. And in a world with many vicious cycles, an increase in up-front investment can prevent enormous damage down the road. You’re not building a business with permanent equity capital, you’re trying to make a difference. And if you think that the world would be better off if you invested the money, made a huge return, and then gave away that much larger sum — well, that’s just your hubris at work. Remember, in philanthropy, you’re meant to be the humble one. The graveyards are full of people who dreamed of giving away hypothetical future riches. Much better to give away real present ones.

What’s more, if it turns out that you really are very successful, and that your wealth is going up rather than down, increase your giving commensurately. This is a tough one: even very large-scale philanthropists like George Soros have found it very difficult to make a serious dent in their wealth by giving it away. But it is possible. Do it.

Finally, there’s something that all of us can do, whether we’re dynastically rich or really rather poor: volunteering. But weirdly, volunteering is harder for the rich, who can more easily afford the time commitment: they often think that time spent volunteering is wasted.

The logic, after all, is simple and clear. The value to the charity of my labor is $x; so if I just donate $y>$x then the charity is better off. What’s more, the value of my time is $z>$x, so in a way I’m destroying value by volunteering.

The problem with this logic is that it ignores the enormous value to the volunteer of volunteering. Volunteering is the best and most effective way of piercing the bubble that all wealthy people live in every minute of every day, and of giving such people a gut-level understanding of the problems the charity is trying to solve.

On that level, volunteering is much more effective than some fact-finding poverty tour, where a bunch of rich donors or potential donors jet in to observe the Great Work Being Done in some far-flung country. The logistics involved in organizing such tours are substantial, and the good they do is minuscule. So if you want to see for yourself what an organization is doing, find out by doing that work yourself.

But volunteering is also worthwhile for its own sake. It gives an extremely valuable perspective on life, one that’s hard to find elsewhere. And it can be incredibly rewarding, in ways both expected and unexpected. Find time to do it: almost nobody ends up regretting the time they spent volunteering.

The theme here is humility, mixed with seriousness. Giving away money effectively isn’t fun or easy, and although it can be rewarding, it’s important to keep your eyes on the job at hand, rather than on maximizing those rewards. Philanthropy has always been self-serving in large part, and that’s never going to end. But there’s no good reason why you should be part of the problem.

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