Harvard Business School has a wonderful post titled “How to Give Your Money Away More Effectively”. The text is below, or feel free to access the original article.
“No one gives away money as intelligently as they made it,” declared Andrew Tisch at a recent meeting of the Board of Advisers to the Harvard Business School Social Enterprise Initiative. That observation neatly encapsulates the biggest challenge facing the non-profit sector in the decade ahead.
FORTUNE magazine’s July 5, 2010, cover article describes how Warren Buffet and Bill and Melinda Gates are recruiting billionaires to take the Giving Pledge, a promise to give away at least half their net worth. If, however, too many of these donations are directed so that the donors and their family members can join prestigious Boards of Trustees or if the money gets widely dispersed to a myriad of under-performing local nonprofits, then society will not enjoy the full benefits from the funds expended and the sad truth of Andrew Tisch’s observation will be re-affirmed.
But if all the billionaires’ bequests were to be effectively deployed through charitable organizations committed to performance measurement and accountability for outcomes, this huge wave of philanthropy could transform large segments of society.
It’s not an impossible challenge. As we’ve described in a recent HBR article the Gates Foundation, for example, conducts due diligence and subsequent monitoring of the performance of the charitable organizations it supports just as any good investment manager would. That is why Warren Buffet directed that his own enormous bequest be deployed and administered through the strong processes already existing at the Gates Foundation.
Beyond the likes of the Gates Foundation, we see an emerging type of charitable organization modeled on venture capital funds, such as New Profit Inc. of Cambridge, Tipping Point Community and NewSchools Venture Fund in the San Francisco Bay Area, Venture Philanthropy Partners in Washington D.C., and Sea Change Capital in New York City. These funds pool large donations from contributors (tellingly referred to as “investors”) and distribute them to a relatively few nonprofits selected through a rigorous due diligence process that identifies organizations capable of delivering outstanding social outcomes on a wide scale. The funds offer their grantees large, multi-year commitments complemented with strong governance and active support for the nonprofit’s executive leadership team, board of directors, and operational management.
Thanks to these Venture Funds, several nonprofits are attracting sustainable funding for programs that have clearly demonstrated an ability to effectively address social problems long considered intractable. Take Youth Villages whose programs help young people, previously mired in bureaucratic state social service systems, achieve a productive life. Its programs have a success rate three times greater than those of state-run programs, achieved at one-third of the cost. It delivers this nine-fold advantage consistently across the seven states in which it operates.
But even with a recent $40 million grant from the Edna McConnell Clark Foundation, Growth Capital Aggregation Fund, Youth Villages receives substantially less than 1% of the $20 billion dispersed annually by philanthropists and governments on youth services despite offering demonstrably superior results than hundreds of similar but less effective deliverers of services to the same populations.
Youth Villages is not unique. Citizen Schools, an after-school program, Nurse Family Partnership, a health program for pregnant women, and Jumpstart, a program that raises the performance of kids in Head Start by an average of 30%, are but a few of the nonprofit organizations that could effectively deploy a great deal more money to extend the impact of their innovative programs.
As things stand, the CEOs of these high-performing nonprofits spend much of their time going cap-in-hand to raise money each year. Why aren’t the donors seeking these winners out? Society would surely be better served if the exemplary CEOs of these effective programs could spend much more of their time leading their organizations to deliver better services to more recipients.
Some people from the non-profit sector object to the financial market-inspired approaches that we espouse in our article on the grounds that the “spirit” of the capital markets somehow runs counter to the spirit of the nonprofit sector. But although the private sector is not perfect, as the global financial crisis has painfully revealed, many of its practices can be productively deployed to produce a far more effective and efficient voluntary sector.
The voluntary sector continually pleads for more funding to solve the nation’s long-standing social problems. Their case would be far stronger if the large sums of money already deployed to this sector year were better directed to organizations, such as Youth Villages, that consistently delivered the most value for the money.