01 Dec 2015
Navigating modern philanthropyRe: Shaan-Chirag Gandhi (MBA 2015); Esby Master (MBA 1980); Norm Boone (MBA 1977); Herve Pourcines (GMP 3)Topics:
The philanthropy economy is booming. Last year, America’s charitable giving totaled $358.38 billion, equaling 2.1 percent of GDP—a number last attained in prerecession 2004. With that growth have come a number of new options, including social impact bonds and crowdfunding. We asked Susan Wolf Ditkoff (MBA 2001), a partner at The Bridgespan Group—nonprofit advisor to mission-driven organizations and leaders—and author of “Galvanizing Philanthropy” (Harvard Business Review, November 2009), to help alumni make sense of the modern world of giving.
How would you go about choosing a cause if there are many things you’re passionate about? There’s a lot written about choosing specific projects or charities within a cause, but what if you’re interested in doing good, and there are many causes that speak to you?
—Shaan-Chirag Gandhi (MBA/MD 2015)
DITKOFF: You might approach this question in a spirit of inquiry; don’t feel pressured to narrow to one cause too quickly. Begin by picking a few causes that you find yourself drawn to and then create a 12-month learning agenda for yourself. Learn about the best and most innovative organizations in each field. Read as much as you can, meet leaders and beneficiaries, and experience the work firsthand as much as is practical. Then assess: For the amount of money you want to donate or the time you want to spend, what kind of results could you create in each field? What really resonates for you? Where do you find yourself wanting to learn more and spend more time? At an early, highly personal phase like this, the best learning will be experimental, not analytical.
For personal giving, do you favor a community foundation (advised giving fund) or setting up one’s own foundation? (Tax advantages? Record-keeping? Control?)
—S.B. Master (MBA 1980)
DITKOFF: Your first stop is probably a lawyer or tax advisor to analyze the financial impact on your specific portfolio. Your next goal is to find high-impact organizations that you care about. Luckily, you can make high-impact investments through both vehicles. But if you’re looking for a simple, anonymous, flexible giving vehicle with little administrative burden, you’re likely to end up with a donor-advised fund (DAF). Setting up a foundation is a larger and more permanent undertaking—in terms of impact, legacy, and operations. It usually involves establishing your intent as a donor, setting strategic priorities, hiring staff, and managing compliance, administration, and governance. It typically makes more sense for families looking to invest millions of dollars over many years to establish a long-lasting legacy and to employ a wider and more innovative approach to giving than writing checks to 501(c)(3) charities. It’s not an either-or; in fact, at high wealth levels, many individuals and families use both DAFs and private foundations for different purposes.
Foundations, DAFs, and other vehicles are most often, in my experience, “pass through” entities wherein the donor uses the benefits of tax planning and simplicity of donation to give the money and then, over the next few months or years, distribute the funds to desired charities. Investment returns are not a major aspect of the decision. That makes impact investing (which is usually more illiquid and a long-term commitment than the typical portfolio) complicated—it’s hard to know what its appropriate role is. Where and under what circumstances is impact investing best used, and what guidelines might you suggest?
—Norm Boone (MBA 1977)
DITKOFF: At Bridgespan, we define impact investing as “investing capital to generate social impact in a way that also provides monetary returns.” As you can see, a broad spectrum of activities fit under this umbrella. Impact investing is a means not an end, and it has proven successful in some fields but less so in others. You might start out by asking, “For the issues I care about, is impact investing a value-added tool?” After that, getting started in impact investing will entail identifying the options available to you given your philanthropy and financial holdings, as well as your personal philanthropic and investing priorities. Practically speaking, if your philanthropic assets are in a DAF, your investment options will be limited to those that the sponsoring institution offers you; if you set up a private foundation, you are allowed to make program-related investments (PRIs), which “count” against your 5 percent annual payout requirement.
I am developing an educational project that will require an investment in several Eastern countries in excess of $300 million. What would be the best way to tackle funding? Do I need to come up with an info memo, a business plan, a market study, and a sort of road show?
—Herve Pourcines (GMP 3, 2007)
DITKOFF: As in business, philanthropists typically want to see proof of concept before investing at a large scale. In the initial years, a clear launch plan will be critical. All of the regular rules apply: a data-driven fact base establishing both need and demand for your project, a clear rationale for why and how your intervention will create the social impact you’re promising at scale, trends and competitive positioning, launch team, operational plan, and financials. Your key impact and operational milestones will need to include the ability to adapt your strategy as you learn more about what is actually creating impact and what will appeal to future rounds of funders. Private philanthropists will often invest risk capital in an entrepreneurial idea, but philanthropy alone typically would not support a single $300 million project.
Class of MBA 2001, Section D