A Guide to Charitable
Giving, Part 3

Navigating The Charitable Map (Thoughts About Human Failures and Hopes for a Better Future)

What kind of cause resonates with you? If you’d asked me this question when I was in my forties, I would have given you an unequivocal answer: humanitarian relief. No doubt my sentiment was tinged by my backpacking trip through horribly impoverished areas of Africa and Asia.

But over time, I gained new perspectives. And my preferences continue to evolve. A big part of the ongoing changes in our granting patterns is related to top-down considerations. Some time ago, my daughter Melissa confided that she would never allocate the lion’s share of our donations to Doctors Without Borders. Humanity seemed a failed experiment, she declared—much better to help distressed animals. I considered her position, but the miserable memories of the Bangladesh war victims I had been destined to see in my early twenties crowded out any images of rescue animals I could evoke.

My wife Caroline also affected the course of our giving. Why not spend more on “boosting human potential”, she proposed. Without a more compassionate society, the suffering around the world would continue forever.

Before long, we all became less dogmatic and widened our scope. Caroline’s input led me to the discovery of a superbly managed after-school program, “Beyond 3:30”, which, in turn, focused me on educational initiatives as an obvious hope for the future of the human race. We started paying attention to other causes too, from food banks to clean water projects to social justice and environmental causes and, yes, animal welfare.

Bit by bit, our family foundation’s granting allocations changed. Out of dozens of segments (from cancer research to homeless shelters, universities and veterans’ support), we chose a handful that really resonated with us. Humanitarian relief still ranks high, but it now represents about a third of the causes we support—down from twice that much a few years ago.

Not long ago, I invited everyone in the family to tell me how they would allocate funds between the five segments we favour, without talking to each other. The responses were eerily similar and closely reflected the targets I had written down myself:

Humanitarian Relief (shelter, medical, food) 35%
Community, Education, Human Potential 35%
Animal Welfare 10%
Environment 10%
Better Giving (charity analysis) 10%

It seems that what we’d all learned is that there was an urgent need for help on more fronts than we could have imagined. The challenge now was to find the organizations that could put our donations to work most efficiently.

There was another lesson we’d learned: supporting the “Better Giving” segment could produce extraordinary results. Why would we want to allocate 10% of our donations to something like charity analysis, we’re often asked. The answer is quite simple: donor surveys reveal that the vast majority of users change their giving after reading charity reports. What that means to us is that supporting a good analysis service will cause thousands of others to abandon poorly run organizations and favour worthy ones.

Here are two fascinating charts from a study done in 2020 by a group of researchers. Max Roser of Our World In Data subsequently captured the results in visual form. The first illustration shows how most potential donors don’t think that the effectiveness varies much between charities. Yet when the researchers asked renowned global experts, the results were dramatically different. The specialists, it turns out, feel that below-average charities don’t accomplish much at all, and those to the very left of the graph actually harm people.

As you may have noted, this study targeted health related charities, but in my experience the difference between the poorly managed and efficiently run organizations is equally huge in every segment of the charitable universe.

 

Do you have to become an expert to give better? No, but resorting to informed analysis helps a lot. Here are some data that from Charity Intelligence’s 2022 survey that speak for themselves:

  • 89% of respondents find that charity reporting informed their giving. Across all information categories donors find Charity Intelligence’s research ‘very useful’. ‘Very useful’ responses were three times higher than ‘useful’.
  • 70% of respondents change their giving after reading a charity report. Their giving changes to charities with higher impact and higher star ratings. Underlying this change, our impact scores have greater influence than the overall star rating.
  • Donors double the impact of their giving when their giving changes. In moving support away from charities with low or fair impact to charities with good or high impact, giving picks up in its social return on investment.

For the full survey, check the following link:

https://www.charityintelligence.ca/research-and-news/ci-views/33-donor-giving/735-2022-giving-insights-charity-intelligence-s-donor-survey-results

 

The question I keep asking myself: could it be that $1,000 given to Charity Intelligence could bring more money to one of our favourite causes than if we gave the same $1,000 directly to it? Let’s assume that the charity in question had a five-star rating, which inspired thousands of donors to redirect their grants from two-star and three-star rated causes? Take another look at the charts above–if the most effective charity in a given segment is about 100 times as effective as the average charity, then the impact of such a shift in donor behaviour would be monumental!

Would it really work that way? I’ll never know, but I believe it’s a strong possibility. And that is why a 10% allocation to the charity analysis segment makes eminent sense to me.

 

The Good, the Bad and the Ugly (Four Easy Steps to Avoid Supporting Zombie Charities)

When I come across a charity that seems worthy, I usually take a three-step approach. I first compare it to its peers operating in the same segment, then take a close look at the organization’s website and sometimes engage with its staff. Finally, I examine what the rating services have to say. And all along, I keep the following criteria on top of my mind:

 

IF DONATIONS DON’T GET TO THE CAUSE QUICKLY, THERE IS NO POINT IN GRANTING

In other words, the causes I support have a justifiable reserve/program cost ratio. Money that can be used on the charity’s programs should not be sitting in the bank. Here are my preferences. On the one hand, I want to make sure that reserve funds should be able to cover at least six months of the organization’s charitable work. On the other, if an organization has cash reserves more than 2.5 times its annual program expenditures, I stay away.

 

A HIGH STANDARD OF FINANCIAL ACCOUNTABILITY IS A MUST

Many years ago, as a young executive of a financial institution, I was the head of the charitable action committee. My fellow board members were in the habit of enthusiastically supporting political campaigns, but had limited interest in charity. I decided to change that and convinced my peers that we should give away $100,000 once a year. So, every fall I sent out 500 letters informing the recipients that we might choose their cause for a serious donation—our top pick would get $50,000, while five others would each be granted $10,000. All we needed to enter them in our contest was a brief description of their merits and audited financial statements. The replies were gushing with praise for our initiative, but fewer than 10% were willing to share financial details.

Little has changed in the charitable universe, on their side or mine. In the U.S. and Britain, the regulators’ websites feature each charity’s audited financial statements. In Canada, they are not publicly disclosed and, sadly, many organizations still won’t allow routine access to their financials. My view hasn’t changed during the past 50 years: I still detest charities that don’t share detailed and audited information, ideally on-line.

 

AVOID CHARITIES THAT HAVE EXCESSIVE ADMINISTRATIVE/FUNDRAISING COSTS

Of course, different organizations carry different administrative burdens, but in general the combined total should not exceed 30% of total revenues. If in doubt, I look at the results of several candidates operating in each segment. For example, comparing the administrative or fundraising expenses of local foodbanks may help in choosing the most worthy cause.

 

EXECUTIVE SALARIES SHOULD BE JUSTIFIABLE

As a rule, the size and complexity of an operation should be considered. Interestingly, I have found that excessive management compensation is more often a problem with small charities than with large ones. My advice: take a close look at salary levels and use your judgment.

 

IMPACT IS EVERYTHING

Arguably the most important measure of excellence is to achieve high impact. Just consider: even if money goes to the cause quickly, and administrative, fundraising and compensation costs are kept low (which are all measures of efficiency), is the charity you’re supporting effective? Or expressed differently, what resources have been put into place to address a specific problem and what tangible results do they achieve?

Let me resort to at a couple of real-life examples. A few years back we compared two charities devoted to the fight against malaria. We wanted to know how many mosquito nets could be delivered if we donated $1,000. The result of our analysis was stunning: the first organization incurred a cost per net of over $60, while the second could do the same thing for just under $15.

More recently we studied the results achieved by programs designed to keep children in challenged neighbourhoods off the street during the critical hours between the end of the school-day and their parents’ return home from work. Both charities did a reasonably good job keeping the kids occupied, but one (“Beyond 3:30”, managed by the Toronto Foundation for Student Success) could demonstrate a considerable improvement in the grades of the children who were signed up for the program. That’s the kind of outcome I want to see.

Measuring social impact is not only a key to choosing a deserving cause, but also one of the most challenging parts of a donor’s homework. Fortunately, some of the better charity analysis services provide answers, although talking to the people inside the charity you are considering can provide you with additional insights.

 

“Life’s most persistent and urgent question is: What are you doing for others?”

Martin Luther King, Jr.

 

BEWARE OF “PHILANTHROPATHS”

I’m sure you’ve come across marketing messages or complimentary media coverage of charitable foundations founded by former politicians or corporate tycoons. Sometimes, such entities are worthy and even positively reviewed by rating agencies.

Yet, when digging a bit deeper and examining the origin of donations and where the grants go, we quickly learn that the intention behind some of these organizations is not charitable at all. Some engage in influence-peddling and political agitating, while others seem to be intent to change social or cultural dynamics. I’ve even come across examples where the charity was used to create business opportunities for the founder. I call such people “philanthropaths”, and I’m sure most readers know of at least two or three figures who fall into this category.

Fortunately, the world has benefitted from the actions of true philanthropists, as well—people whose intentions were pure and whose commitment never wavered. In this context, I may as well mention Chuck Feeney, who made a fortune as the founder of the world’s largest duty-free retail chain. By the late 1980s, as the financial press described him as the twenty-fourth richest American, Feeney had quietly transferred his wealth to his foundation, Atlantic Philanthropies, anonymously funding worthy charitable causes in the U.S. and around the world. By the time Feeney died in 2023, his charity had given away all its funds and closed its doors, having disbursed more than US$8 billion.

 

ONE MORE TIME: USE THE THREE-STEP APPROACH

Let me end this chapter with a word of caution. Some of the criteria I’ve mentioned lend themselves to an absolutist assessment. For example, if a charity can’t get donations to the cause in an expedient manner or if it suppresses financial information, then yes, you have every reason to be critical. Another essential element is that we want to see demonstrable social impact. Yet, when it comes to other metrics, such as administrative costs or salaries, it can get more complicated. After all, things like staffing requirements, building maintenance or communications expenses vary enormously between a symphony orchestra, an animal shelter and a hospital.

That is why, as I mentioned above, I recommend you take three important steps when first considering a donation:

  • Compare the charity to others that are active in the same segment—i.e., a food bank should be compared to another food bank.
  • Learn about the organization on its website, which should feature all relevant information. If you need to inquire further, engage with the staff. Well managed charities welcome your questions.
  • Check what the analysts have to say, but be aware that most rating services focus their research on large and medium-sized organizations. That means many well-run small charities aren’t covered. In that case, the government-operated websites can give you most of the details you need (see ‘A Guide To Charitable
Giving, Part 6‘).

Over the years, I’ve found that this methodology allows me to form a balanced and informed view.

 

Reprinted from Peter Cavelti’s “A Guide To Informed Charitable Giving”, copyright 2023. Published by the Author. Content may be reprinted with proper attribution.