Giving to charity: new thinking

Charity giving has changed from “spray and pray” policies to wealthy investors having targeted strategies…here’s a guide to the new approach.

Summary: Philanthropy in Australia is moving away from ad-hoc, reactionary giving towards more structured and strategic approaches to social change. To get the most out of this type of giving, grantees should ensure they develop a clear plan about the change they’d like to make, establish open communication with the stakeholders involved, and understand where there project fits in the wider scope of non-profits in the sector they are giving to.

Key take out: Those who develop a plan and are prepared to evaluate this as needed tend to be more satisfied with the contributions they make to causes they care about.

Key beneficiaries: General investors. Category: Economics and investment strategy.

What are the challenges and how do you overcome them when your philanthropy becomes less about “giving money away” and more about the social impacts you can achieve?

Globally philanthropy is changing as exemplified by the world’s largest foundation – The Bill and Melinda Gates Foundation.

Initially, the Gates Foundation practiced philanthropy the way most wealthy families do: setting up a tax-advised charitable structure, diligently hiring staff, and responding to the myriad requests for donations to worthy causes. However, Bill Gates was profoundly moved by an article citing the heartbreaking statistic that each year half a million children die from a disease called rotavirus – the most common cause of severe diarrhoea in children in developing countries.

As a result, the Gates family shifted the Foundation’s approach and committed to a vision in which premature death is eradicated, disease managed and poverty greatly reduced in the developing world. Its philanthropic vision includes partnerships with governmental and non-governmental organisations serving the developing world.

Brief note on terminology

In addition to “strategic funding”, there are many terms used to describe the shift in philanthropic practice, including: Strategic Philanthropy, Engaged Philanthropy, Social Investment, Catalytic Philanthropy, Social Impact Investing, Venture Philanthropy, Social Venture Philanthropy.

For SVA Consulting, the term, “strategic funding” is useful in that “strategic” conveys that the shift entails strategic thinking and planning, and “funding” contrasts with “giving”.

This change in approach so impressed Warren Buffett that he merged his foundation’s $31 billion into the Gates Foundation. The Rockefeller and Soros foundations, to name just two others, moved in the same direction.

This shift has reached Australia’s philanthropic sector where philanthropy is increasingly less about “giving money away” and more about focusing on achieving social and/or environmental impacts.

In late 2008, the CAGES Foundation (CAGES) – a Private Ancillary Fund (PAF) set up by the Salteri family as the vehicle for its children to practice philanthropy – approached SVA Consulting about developing its funding strategy. The Salteri family fortune is based on the Transfield and Tenix companies. The Salteri children were asking themselves “which organisations should we be giving to?” They each had projects or organisations they had heard of or had contact with and as well as different interests.

In the first meeting, we encouraged Paul Salteri and his daughter Gemma to reflect on what difference they wanted to see in the world rather than who they should give money to. Gemma shared that she had travelled around Australia some years earlier and was profoundly impacted by the plight of Australia’s Indigenous children, particularly those in rural and remote Australia. Gemma said that as a child of privilege, she felt a strong ethical pull to support Indigenous children to have the same opportunities.

Following further reflection and discussion, CAGES decided to look at how it could play a role in enabling Indigenous children in rural and regional NSW to build the skills to live fulfilling and productive lives. CAGES now has a strategic approach to funding which clearly aligns the family’s values and interests with the needs of the community they serve.

Since then, SVA Consulting has collaborated with The Wyatt Benevolent Institution, IBN Aboriginal Corporation, The Trust Company and Movember, among others, to develop their funding strategies. The common theme across all these collaborations has been a shift from an ad hoc, “spray and pray” approach towards a focused strategic funding model. Our experience is that making this shift is seldom straightforward. This article will discuss the challenges foundations commonly encounter during this process, and the best ways to manage and overcome them, so that the transition is a success.

Ad hoc giving or strategic funding?

Everyone who gives substantial amounts of money away faces a basic choice: give a little to a lot of people, or give a lot to a few. Is it best to go “wide and shallow” by engaging in ad hoc giving, or go ‘narrow and deep’ by engaging in strategic funding?

Both approaches have their merits. The Gates Foundation’s efforts to eradicate malaria in Africa requires a highly strategic approach involving the development and distribution of vaccines, control of mosquitoes, research and advocacy, and partnerships with a large number of government and non-government players. Ad hoc giving would be unlikely to achieve the same level of focus, and subsequently impact. On the other hand, philanthropists gave generously following the Black Saturday bushfires in Victoria, a tragic and unforeseen event that falls outside a planned approach to funding.

Most of the philanthropic clients we have worked with have ultimately decided to do both. They view the adoption of strategic funding as expanding their approach, rather than as replacing ad hoc giving. They welcome the flexibility, ease and spontaneity of giving small amounts on an as-needed basis to issues or causes that resonate with them. On the other hand, they deeply value striving to contribute to specific, observable social change, and find the process of engaging over an extended period with designated areas and organisations rewarding and satisfying.

Figure 1. Ad hoc giving v. strategic funding. Source: SVA Consulting

A simple way of accommodating both approaches is to introduce separate pools of funding – one for ad hoc giving and another for strategic funding. Using this approach, IBN Aboriginal Corporation focused on five key needs while retaining a discretionary pool of money to accommodate urgent requests. The Trust Company retains ‘variety’ as one of its philanthropic principles and ensures that some of its funds are given on an ad hoc basis.

Challenges in strategic funding

Those who wish to adopt a strategic funding approach must address the following questions:

·         What social issue do we want to tackle and what impact do we want to have?

·         Who else is addressing this issue, and could we have the most impact by helping them?

·         What is the best way to help?

·         How will we provide help?

·         How will we execute the plan?

·         Is the plan working, and are we having the intended impact?

In the figure below, we illustrate the planning process that can be used to focus attention and support the transition to a strategic funding approach.

Deciding purpose

Given the plethora of social needs, it is no surprise that it can be difficult to reach agreement on which needs to focus on. Diverging opinions about what should be prioritised can lead to attempts to satisfy all parties, which dilutes the resources of the foundation across too many areas, or leads to a deliberately vague focus in order to avoid conflict.

Identify gaps in the sector

It is challenging to identify the most appropriate grantees. Some potential grantees may be considered too small to effectively use funds, while others are too large for a funder to be certain that its contribution will achieve the desired impact. Discovering grantees in the right geographies can also be challenging. Many philanthropists struggle to find organisations that they would consider investing in. It takes significant time and effort to track down and get to know organisations. In some instances the fall-back is to create a new entity which only serves to add inefficiency and confusion in the sector.

Decide what to provide

Foundations often forget that the skills, expertise, access to networks and other in-kind resources they can provide in addition to money, can be as valuable to non-profits as cash funding. We have observed that many funders are concerned about which resources to provide, and are unsure about the legal or tax implications of using their philanthropy to fund advice, or the overhead of the grantee. They are also concerned about whether they should enter into a long-term agreement up-front, or start with a one-off grant.

Develop giving plan

The relationship between funders and grantees can be delicate, and hard to manage. Funders are often not convinced that they have a right, be it legal or ethical, to ask for reports or measures of success. Many find the process of structuring support (in terms of timing, restrictions, resource allocation) and the expectations for reporting, to be an uneasy experience. When it comes to managing grantee relationships, all funders grapple with the same question: how can we help without encouraging reliance?

Implement giving plan

New methods and mechanisms for giving are needed in the shift from ad hoc to strategic funding. More often than not this will impact existing grantees. Discontinuing support for existing grantees is never enjoyable, and can be especially awkward where stakeholders have personal relationships they wish to maintain.

Evaluate plan

Instituting sound evaluations of grants is integral to strategic funding. Funders sometimes underestimate this need, assuming that it either falls outside of their ambit of responsibility, or will unduly pressure already strained non-profits. The actual mechanics of evaluation is a mystery to many funders, and they fear expensive research is involved. At the same time, funders may not know how to evaluate their own performance as strategic givers, or struggle to decide upon measures that will create meaning and excitement for their stakeholders.

As illustrated, the process of shifting from ad hoc to strategic funding is complex and may highlight areas of confusion, disagreement, and lack of capacity. This leaves many funders overwhelmed and ready to admit defeat.

Six principles for developing and implementing a strategic funding plan

To assist foundations, we have developed six principles to underpin the process for developing and implementing a strategic approach to giving.

Following these six principles ensures that the challenges are managed, ameliorated or, in some cases, avoided entirely.

Principle one: Understand the perspective and influence of stakeholders

Funders frequently have multiple stakeholders (eg: family members, staff in a corporate foundation) with multiple perspectives, which pull the foundation in different directions. Managers, or those tasked with governing the foundation, often feel exasperated by the conflicting demands, while stakeholders can feel frustrated that they are not being fully heard.

These problems can be managed or ameliorated by interviewing the foundation’s stakeholders at the start of the planning process.

When the Trust Company (a trustee and financial services provider) devised its philanthropic program, it committed time up-front for SVA Consulting to conduct one-on-one interviews to understand stakeholders’ passions, ideas and perceptions. The different points of view were drawn out in a way that ensured that the stakeholders felt heard. We then presented an aggregation of the interview findings to the internal stakeholder group, which allowed everyone to see – many for the first time – what others truly thought. This enabled the Trust Company to develop a strategic approach to funding that took account of the range and variety of perspectives of the stakeholders.

The family-run CAGES Foundation was influenced by unexamined and differing stakeholder perspectives. Face to face interviews with key family members clarified these perspectives, and enabled the members to align behind a specific and focused mission for the Foundation.

In collaborating with IBN Aboriginal Corporation, we found that members of the Indigenous communities they represent were not only very vocal in airing their views, but many had close ties with the board, effectively making them stakeholders. So, we organised large community workshops so that those with concerns could share their views and used newsletters to maintain engagement after the workshops.

Gaining, and then sharing, the views of all stakeholders in a way which enables them to be heard is vital, not only to developing a strategic funding plan, but also to its ongoing implementation.

Principle two: Develop an appreciation of the benefits of strategic funding as well as ad hoc giving

Whenever we make changes, we encounter resistance. While many of our clients were seeking to make the shift towards strategic funding, there were voices opposed. Some stakeholders were wary of the cool logic inherent in strategic funding, and preferred to stay with ad hoc giving, on the grounds that it is cheaper, easier and can create just as much benefit as strategic funding.

It was important for proponents of strategic funding to be articulate about the rationale for it, and about some of the limitations of ad hoc giving. In general terms, ad hoc giving can be reactive, scattered, and result in foundations missing opportunities to create lasting and meaningful social change. Strategic funding can result in the improved allocation of scarce resources; deeper relationships with partners; an increased awareness of opportunities to provide non-financial support; and the ability to create meaningful and measurable social impacts.

Principle three: Embrace complexity

Funding smartly is not straightforward. It requires clarity of purpose, careful planning, thoughtful implementation and proper evaluation of funding strategies.

In taking foundations through the planning process, we have encouraged them to accept the complexity that comes with seeking to achieve social goals. To manage this complexity, we made use of direct and indirect research, and conceptual frameworks such as matrices, decision-trees and program logic to clarify the nature of problems and find ways to resolve them.

For the Wyatt Benevolent Institute, finding the right balance between internal and external drivers was necessary to determine who to fund and why. Using the organisation’s updated mission statement –

“Wyatt offers opportunities for South Australians who are poor or in reduced circumstances, so they can lead satisfying, productive lives and participate more actively in their community” – we first identified that there were two dimensions of relevant target groups: those with the potential to lead satisfying and productive lives, and those who had once contributed to society, but for whatever reason found themselves financially and socially excluded from continuing to do so. The next step was to map the potential target groups and their needs onto two matrices, exploring each dimension against a schematic “scale of need”. In this way, Wyatt was able to make an informed and thoughtful decision to focus on five major target groups. Just as significantly, the same process enabled Wyatt to choose not to focus on certain groups.

Principle four: Build capacity that supports strategic funding

Foundations shifting from ad hoc to strategic funding need to ensure that their capacities are aligned to this new approach. We suggest that funders first assess the resources they already have at hand, which can be more than they realise. We also suggest they develop networks and skills to fill identified gaps and make a decision on whether to hire expertise to manage giving, or strengthen existing in-house capacity.

The Wyatt Benevolent Institution established expert advisory panels to assist in building Wyatt’s staff’s capacity to execute the plan. These panels bring their knowledge of the latest research and best practice in the area to Wyatt’s work and enable Wyatt to contribute its own experiences to developing knowledge. The advisory panels also assist in strengthening Wyatts’ organisational networks and its role as a leader within the sector.

Sometimes the shift to strategic funding can result in efficiency dividends. For example, The Trust Company found that funding strategically used fewer resources than its previous funding model, where it had to screen 500 funding applications annually.

Principle five: Develop relationships

A shift towards strategic funding will have a tremendous impact on the nature of the relationships between the foundation and its grantees. By taking a strategic approach, the foundation becomes a part of a system, and in this way is able to operate in concert with other funders, and the sector as a whole, to achieve its social goals.

In 2011 we worked with the Movember Foundation to determine the role it played in the prostate cancer sector. The available funding pool was increasing annually due to the runaway success of the “Movember” fundraising campaign. We encouraged it to tap into a broad range of stakeholders across the community and conducted 50 interviews to map the prostate cancer landscape. Movember identified a need to facilitate collaboration and coordination amongst a fragmented sector, and so decided to fund medical and academic researchers on the condition that they collaborate and share results. Movember is working towards producing a national ‘evidence-based’ prostate cancer clinical data platform, and an Australian prostate cancer survivorship “centre of excellence”.

The Trust Company conducted workshops with all its previous grantees over a year-long period to uncover connections within its existing network.

Foundations can find it valuable to review their giving criteria to ensure that they accurately reflect the nature of the social need, and shape their funding strategy to cater for the specific issues faced by non-profits. For example, in order to respond to the relatively low level of organisational development in smaller organisations, CAGES Foundation funded the development of organisational skills and strategy for some of its grant recipients. In the case of one beneficiary, Music Outback Foundation, the funding enabled the chief executive to move out of the trenches of fundraising and program management and, for the first time, engage the organisation in the development of a five year strategic plan – charting the organisation on a path towards growth.

Principle six: Develop your knowledge base

To be effective as a strategic funder, philanthropists need to educate themselves about the non-profit sector and the organisations within their area of focus. The team at Wyatt Benevolent Institute studied profiles of organisations in their areas of interest to learn about the range of non-profits in each area and develop a better understanding of which would fit best with their strategy.

Funders also benefit from taking time to conduct appropriate research into social needs and potential solutions. The intensive research undertaken by CAGES helped it to determine the geographic location of greatest need in its focus area, and informed its decision to employ a program manager to build networks in communities and amongst funders.

Conclusion

Many funders are driven by their hearts – by the strength of their passions, impulses, values, and personal relationships – which then shapes their approach to giving. The shift to strategic funding requires a willingness to lend the mind to the heart, adopting a more thoughtful and considered approach towards achieving specific social impacts.

Shifting to strategic funding necessarily involves developing a strategic funding plan, and this plan needs to involve all stakeholders; be clear about the benefits of strategic funding; embrace complexity, build capacity, develop relationships, and build knowledge.

We have found that funders who shift to strategic funding are much more satisfied with the contribution they are making to the social issues they really care about.


This is an edited article from the most recent edition of the SVA Quarterly, at www.socialventures.com.au.

Visit SVA Quarterly here.

Disclosure: Eureka Report managing editor James Kirby is an advisor to SVA.

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