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I recently read the book With Charity for All – Why Charities Are Failing and a Better Way to Give With-Charity-for-Allwritten by former NPR CEO Ken Stern.  It is an interesting read, at once depressing yet oddly optimistic about what “could be” in the philanthropic world.  To those who are not philanthropy geeks, much of what Stern flags as issues may come as a surprise – a fair number of so-called “charities” act far more like profit making businesses than not-for-profits and if examined closely, may not pass for charities by anyone’s objective measure.  For example, he cites the nation’s many large, well-endowed not-for-profit hospital systems which, in terms of services provided for the poor, are virtually indistinguishable from their for-profit brethren.  For details and statistics supporting this conclusion, I suggest you read the book, but in summary, his points are clear:  “The issues….have substantial economic consequences.  Hospitals are the single largest component of the charitable sector and the value of tax incentives is enormous…..While estimates vary, the value of local, state, and federal tax incentives to nonprofit hospitals almost certainly exceeds $20 billion a year……Since charitable hospitals return only a fraction of that in charitable care, it raises the possibility that the public would be far better served by removing or reducing the subsidy and using the savings to buy better health care from the best and most efficient providers.  And it raises the question:  when a charity stops being charitable, does anyone notice?”

At the other end of the spectrum, Stern is also critical of charities which, unlike health care delivery systems, do not perform critical social functions.  He cites the various college football “bowl” games that have proliferated around the country stating:  “It is no doubt puzzling to most Americans that this string of open-air parties, football games and corporate promotion events have the same charitable designation as Habitat for Humanity, Teach for America, of the local food bank.”   It was not only puzzling for me, but a complete surprise!

This is just a small taste.  As I said, the book is frequently depressing, especially for optimists like me who believe that well run charities can truly change the world.  But it is also well written, easy to read, extremely thought provoking and well worth a few hours of your time.  While there are certainly things we as a society can do to better police abuses in the charitable world, there are also many things we can all immediately do to have an impact, and Stern gets prescriptive about this in the final chapter of the book:

  • Resist the old ways.  Think of charitable giving more in terms of investing for social impact.  Ignore overhead and administrative ratios or at least put them in proper perspective.  Focus on the end customer of the charity and whether s/he is being served by that charity.  Base charitable giving not on personal connections and relationships but on objective evidence of effectiveness (admittedly, hard to find).
  • Look for indicia of quality.  Identify top performing organizations not just by looking for four star ratings on Charity Navigator, but by finding those that are crystal clear about their goals and transparent about their research results on their websites.  Look for growth.  Look for charities that worry less about overhead and more about results.
  • Do the work.  “Average Americans spend more time watching television in a single day that they do on their charitable contributions in an entire year.  Like financial investing, social investing takes work: researching charities, reviewing websites and published reports, and sharing information among friends, peers, and other like-minded givers.”
  • Follow the leaders.  Signalers in the financial marketplace exist; they exist in the philanthropic marketplace as well.  People swear by the Oracle of Omaha (Warren Buffett) as the messiah of investing, so why not Bill and Melinda Gates as the bellwethers of philanthropy? Or organizations like GiveWell (a research organization), New Profit (venture philanthropy), and the Robin Hood Foundation, all of which are committed to careful research and analysis.
  • Pool donations.  This is an interesting concept – the idea of a philanthropic “mutual fund.” Pool the funds and let the professionals do the heavy lifting.  While options for this retail approach are extremely limited right now, it may be an idea whose time has come.

For those who are serious about philanthropy, it is advisable to think of the private foundation or donor advised fund not as a charitable pocketbook but as an investment portfolio that needs to be tended on a regular basis.  We chastise politicians who think that the solution to most problems is to throw money at them, yet many of us approach our own philanthropy in just that manner.  Perhaps the family foundation of the future will build its own infrastructure for more effective assessment and monitoring of the charitable projects in which they invest.  Perhaps the philanthropist of the future will become more coldly calculating in his/her approach, looking for solutions instead of stopgap measures.  And why not?  We do it in business all the time, relying on creative destruction to take us to the next economic level.  Perhaps what the charitable world needs right about now is its own little bit of creative destruction.

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