Giving Done Right: 10 Ways to Avoid Philanthropy Fumbles

Here are 10 ways to give with examples and approaches to help you avoid philanthropy fumbles.
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By Dennis Stearns, CFP®

There is a reason spouses often have disagreements around where to make more sizable charitable donations. Often, one spouse is leading from their heart, and the other is more focused on measurable impact. Each person must decide for themselves what’s important. Many would do well to consider a more middle-ground approach to major charitable giving.

Dennis Stearns

Dennis Stearns, CFP

I recently discussed this issue and more with Phil Buchanan, the CEO of the Center for Effective Philanthropy, who advises major foundations like Rockefeller, Ford, and McArthur, but also spends lots of time at the pavement level helping non-profits figure out how to solve societal problems. Phil’s book Giving Done Right debunks some of the myths about the non-profit sector and is chock full of ideas on how to make your charitable giving, whether of time, treasure or talent, more effective.

The U.S. is one of the most charitably engaged countries in the world. Most people don’t know how critical these organizations are to the infrastructure of a healthy community. And most don’t realize just how good a job most local non-profits do.

Over the years, there are many “giving done right” challenges our clients at Stearns Financial Group have had, including determining which causes they want to support with their time, treasure, and talent. Some want to volunteer but have found they don’t get satisfaction from the position their favorite community groups have available. Some want to govern while others want to be where the action is.

Some want to write a check and know the money will be put to good use. Some want to find out what the needs are of the organization and provide targeted help. In the pandemic, some are looking for special areas to help. For example, our firm is doing more with East Durham Children’s Initiative, an organization that helps feed low income children – the pandemic has caused 1-in-4 children to go hungry in the world’s richest country.

Here are Phil’s 10 Keys to Ineffective Giving, some of his research findings, along with examples from our work over the last three decades in better giving approaches and helping clients avoid philanthropy fumbles:

Mistake #1 – Thinking that most non-profits are poorly run and staff are overpaid

Turns out there are quite a few non-profits in every community being run by strong, successful leaders who could make many times the money in the for-profit sector. The solution? Take time to know the leaders of any group you’re contemplating making a large gift of your time or money.

Ask some simple questions, such as “what is your mission?”, “what is your strategy for accomplishing your mission?”, and “How do you determine if you’re successful?”

Phil’s book provides some great ideas on how to listen to the answers and sort out if this group merits your attention.

Mistake #2 - Believing in the need for a non-profit to find a unique goal or niche

Some experts in this space believe more money has been wasted trying to be clever than has created new and better ways to meet mission goals. Many of the best, most effective non-profits are not re-building the wheel – they are using time tested techniques to solve a community issue, often in collaboration with other local organizations.

One of our clients asked us to interview the executive director of a non-profit that seemed to be struggling. After much research and interviewing the non-profit’s leaders (one by one), we determined their strategy was well-founded but they needed better internal tools and leadership training. Our client funded new computers and software, with advanced training on the software, and funded leadership training at the Center for Creative Leadership, a worldwide organization that is community-minded and did world-class training at 10 cents on the dollar. Rather than re-build the wheel, our client’s money created a turbo-charged wheel that leveraged their philanthropy dollars by a factor of 10X in the key metrics they track.

Mistake #3 - Thinking of strategy in a competitive context

Keeping trade secrets close to the vest is typical in the for-profit world. That’s not a good approach in the non-profit world. The best non-profits share good ideas with others locally, regionally, and nationally.

I recently led a discussion with a group of foundations in North Carolina where the sharing in the room of best practices was remarkable. A mastermind group was created which meets monthly and is helping non-profit leaders not only share ideas on how to be more effective but is also creating collaborations to solve problems.

If you’re considering a major gift during life or at death, perhaps your own mastermind group can help you shape and define the gift.

Mistake #4 – Believing there will be a “quick fix” innovative solution that will fix societal problems

Our firm has received many awards for being innovative and future oriented, but we’ve found that some societal problems require solutions to stop the current bleeding while other organizations work on longer term solutions. You can do a tremendous amount of good focusing on pressing needs versus fixing root causes.

Our research in the Super Trend Convergence, the intersection of technology, globalization and demographics, has shown us how these powerful forces can auto-fix some problems while creating others. One good example is teenage pregnancy. I’m a trustee on a health care foundation that has seen this mission goal of lowering teenage pregnancy plummet over several decades. While I wish we could say it was due to our efforts, it turns out this problem self-corrected as a new generation of young women became smarter about the potentially negative economic impact of an early pregnancy.

Given that as many as 50% of the jobs in America may change roles or be eliminated in the next 20 years due to these powerful forces, fixing the problems to come will require determined people and focused solutions.

Mistake #5 - Seeing market-based solutions and hybrid organizations of social enterprises as the best solutions to societal problems

Many problems can’t be solved by free markets or they would have been solved by now. Jim Collins, one of the premier thinkers on how to be a more effective capitalist, tackled the non-profit arena and determined through his rigorous research that what works in the for-profit world often impedes progress in the non-profit arena. Measuring outcomes is different.

You can learn more about this by reading Jim Collins’ non-profit follow up to his classic business tomes (including Good to Great and Built to Last), Good to Great for the Social Sector. I led a workshop for a major non-profit using this easy-to-read book – our goal was getting 55 stakeholders in this non-profit on the same page and reduce internal bickering over strategy. It worked and the team rowing together, rather than in circles, was instrumental in the organization surviving and thriving through the Great Recession of 2008/09.

Mistake #6 - Seeing non-profit grantees as implementers of their vision and seeking to track how grantees spend every dollar

One of our clients struggled with this issue: They had a vision of what problem they wanted to solve that didn’t quite match the local non-profit’s vision, so they arm-wrestled with the organization for years trying to align the vision. Ultimately the client made no more than token gifts to this non-profit and died recently having not fulfilled an important goal.

On her death bed, she lamented the fact that her need for control, an issue that plagued her much of her life, had blinded her to the simple truth that she could have made a difference while she was here to enjoy the impact, even if it wasn’t exactly the original vision she had.

Mistake #7 - Looking for one-size-fits-all performance ratios like administrative overhead cost

Some donors get caught up in how to measure a non-profit’s effectiveness or efficiency. Some metrics don’t tell the entire story, so take measurements like the overhead ratio as only one of many factors to consider.

Phil describes the “cost per life touched” as another modern metric that is dubious as a good benchmark for non-profit success. If you touched a million children with a food program, but only helped with 1% of their daily food needs, is that more successful than providing 25% of the needs of 40,000 low-income children?

We are living in a social media world where lots of people share their opinions on charitable giving on the Internet, but surprisingly few have really studied their topic and know it well enough to have an informed opinion that you should listen to.

Mistake #8 - Believing in reinventing philanthropy with a new approach

As already mentioned, reinventing the wheel is part of America’s DNA, but isn’t always wise in solving societal problems. Phil says that there are several wealthy technology gurus who seem to think that “new and improved” should be every non-profit’s mantra. Sometimes yes, but oftentimes implementing more of the things that already work is better than blowing up existing systems and inventing something new.

Mistake #9 - Seeking credit and attention for its own sake.

Is giving about helping those in need or about ego? We’ve seen a few people get confused by this. They want a legacy that is viewed as important, and sometimes carrying on their name long after they are dead. While there is nothing wrong with naming rights, don’t lose sight of the prime directive of helping mitigate or solve a societal problem.

Mistake #10 - Holding a clear and fixed idea of how to help those they want to help without doing good homework and talking to enough end recipients

This is one of the top mistakes we’ve seen over the years. It takes a lot of research at the pavement level to truly understand the scope and issues of a major societal problem. If you’re considering a major investment of your time, treasure or talent, peel the onion deeper. Stay humble in the process and recognize that the talking points of your friends or family or political parties for that matter rarely consider the entire picture.

Whatever your charitable goals, this is a great time to consider how to be more effective in your giving of time, treasure or talent.

About the author: Dennis Stearns, CFP®

Dennis Stearns, CFP®, is a financial planning practitioner at Stearns Financial Group (SFG) (www.StearnsFinancial.com), with offices in Chapel Hill and Greensboro, N.C. and clients around the country. Dennis has been called “One of the leading scenario experts and futurists” by the Financial Planning Association. His latest book is Fourth Quarter Fumbles: How Successful people Avoid Critical Mistakes Later in Life. SFG is a member of Hightower Advisors. Hightower Advisors, LLC is a SEC-registered investment adviser. Steans has also won two national community service awards, one for the YMCA of Greensboro and one for Leadership Greensboro.