A Guide to Charitable
Giving, Part 4

How Many Causes Should We Support? (Why We Cut the Number of Favoured Charities)

For most of us, the practice of charitable giving is not something that follows a defined set of rules, but rather something that continuously evolves.

Before I started our family foundation, I supported no more than two charities. Once we operated through a larger platform that changed. Before long, we had a dozen or more organizations with whom we “got our toes wet”, and as many we were committed to but which weren’t among our top choices. Then, in each segment we supported a “star charity” who received a more meaningful grant.

Why such complexity? I confess I can’t think of any one compelling reason. Perhaps it’s my intellectual curiosity which led me down this path, or maybe it was my background in investment management, where diversification is a guiding principle. Quite likely, the fact that each of our family members had different preferences contributed as well.

Either way, after a few years we decided to move toward a simplified model, which looks like this:

  • We support no more than ten charities, whose work and practices we are very familiar with.
  • In each of the five segments we focus on, at least 50% goes to our top pick.
  • If we come across a previously unknown charity that intrigues us, we typically allocate a small amount to it and learn what we can.

I’m frequently asked whether it’s even necessary to “diversify” when it comes to your giving. I firmly believe that it’s not, although granting to two or three causes can provide you with more study material and allow you to learn from comparing results.

Here is another consideration. If you donate as an individual or are the sole decision maker in the context of a foundation, giving all to one charity can make complete sense. If you run a family foundation and want others involved, it gets more complicated.

As individual donors or family foundations evolve, so do charities. The environment in which they operate changes, as does the leadership. During my four decades in the charitable arena I’ve seen committed idealist leaders replaced by dull technocrats, and I’ve witnessed the opposite. One persistent problem is that many sizeable organizations deliberately recruit corporate executives to their board, both due to the “tit-for-tat” principle and the need for administrative skills. That can seriously subvert charitable ethics. On the other hand, once an organization reaches a certain size, the kind of governance skills required are usually not met by idealism alone.

Keeping a close eye on the causes you support is key. Be proactive in making connections within the charity, be inquisitive, and if needed be bold in your criticism. Like all institutional constructs, charities learn as much from listening to informed outsiders as from their own interpretation of the failures and successes they undergo.

 

Operating Charities and Public Foundations (Why do I Need an Intermediary?)

Few donors realize that there are “operating charities” and others which are often referred to as “public foundations”. The difference is material.

As the Canada Revenue Agency sets it forth quite clearly, “Registered charities are allowed to operate in two ways: (1) by carrying their own activities, and (2) by giving resources to qualified donees”, which include other registered charities.

So, what is a public foundation? It’s an entity that does not directly engage in a given activity, but distributes your donations to one or several other charities. It is, in simple terms, an intermediary.

I never took an in-depth look at this reality until the Covid pandemic hit. Due to the lockdowns and inflation caused by supply chain problems, large numbers of people ended up with food challenges. We decided to allocate a percentage of our grants to food banks.

Once I got to know the sector, I realized that some organizations never acquired or distributed any food. Their charity model was arranged around logistical and administrative knowhow—they were collecting money and passing it on to operating local food banks. Now I had a new problem. I’d long learned that in every segment of charity (as in every manifestation of human activity) there are a few organizations that excel, a more sizeable number that deserve a passing grade, and quite a few that consistently disappoint. Now, applying this principle to food banks, was I now supporting mediocrity?

In talking to the public foundations (or as I like to call them, intermediaries) I first learned that their main talent is to make the donating public aware of a given need, which from the perspective of the local operators who usually lack marketing skills, is of immense advantage. There was nothing negative about that.

But when I examined the granting done by these intermediaries, the negatives became more discernible. One of the humanitarian relief charities prided itself as giving 81% of donations to the cause. What that meant was that the intermediary organization spent 19% on administration and fundraising expenses before passing the rest on to the operating charities. A closer look revealed that among the dozen or so sizeable organizations receiving funding, several had unacceptably high administrative and fundraising ratios of their own, and some achieved notoriously low impact.

Many donors favour intermediary organizations, because they make giving to a variety of ‘good causes’ so simple. The problem, of course, is that some of the supported causes may not be good at all. In other words, donors believe that the intermediary ensures that its favoured charities are efficient, accountable and achieve high social impact, but that assumption is often tragically wrong.

Here is how we dealt with this problem. We contacted the public foundations that we felt were enabling unworthy causes and informed them that we could no longer help them. Instead, we explained, our grants would go directly to one or two of the worthiest operating charities they had supported. Why, after all, would we want to donate through an intermediary, which had its own set of expenses? They didn’t like that but found it hard to argue against it.

 

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