Strategic Charity

Thinking through charitable giving as a strategic goal is possible, yet often poorly done.

End of year charitable giving is a traditional pastime. Many take the rest of their charity budget and spread it around those they can connect to in some way.  Not very strategic.  A little like buying ten shares of every company in the auto industry.  Diversification should have a strategic component.  Sometimes concentration would be more effective.

The strategic view starts with some questions.

Why do I want to do it at all?

  1. Build a legacy.  The name on the wall matters.
  2. Help others accomplish goals that I value.  Most of us can spend money with less effort than we can spend time.  It is efficient for some to supply the money and others to do the specialized work required.
  3. Tax saving is usually a fruitless goal.  Absent some scheme that will likely be challenged in court, you give a way a dollar to save fifty cents.  With no other purpose, it seems futile.

To whom should I direct my gift?  Some charities are better at their work than others.  There are several metrics that you can assess.

  1. Fundraising efficiency is the share of the donations on average that are actually available to the charity.
  2. Charitable commitment is the percentage of total revenue used for charitable purposes.
  3. Another is donor dependency.  This represents how badly the charity needs your money.  A high percentage usually means that their only money is new money.  Some charities prefer to rely on investment income from old capital donations and thus have lower donor dependency.  Given the ever growing number of charities, these may well be the only long term survivors.  Consider capital gifts too

There are some caveats.

Comparing charities in different sectors sometimes makes little sense.  It is difficult to compare an art gallery or a school to disaster relief.

Most charities allocate overhead to projects and thus it is charitably spent.  There are some charities where the de facto charitable cause is to provide lifestyle for executives.

Some charities have a different philosophy than others.  Does the charity try to solve a problem or just ameliorate it.  The Gates Foundation and the Skoll Foundation, for example, will spend a great deal of money to solve a problem and little or nothing to treat the symptoms of a problem.  Their “charitable commitment” value can vary from year to year.

Solving the strategic charity problem is like solving a murder. Remember Colombo.

Three conditions must be present.

  1. Motive
  2. Means
  3. Opportunity

As a donor, carefully examine your motive(s) and once done, look to means.  Some techniques are immensely more valuable to a charity and can be had at little or no cost to you.

If you are a charity, you might follow the motive, means and opportunity triad to find and assist donors.  Use means and motive to find them and a carefully designed opportunity package to connect them to you.

Some charities assume that people know what the charity does, how badly it needs the money to achieve ongoing and potential goals, and the ways the donor can help.  Never assume!

Donors want and can use both clarification of purpose and guidance to implement.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: don@moneyfyi.com  

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