Becoming the Best Possible Philanthropist
Figuring out how to leverage your knowledge against the largest pool of capital possible is the path to being the best possible philanthropist or investor.
I’ve long advocated for foundations to embrace impact-focused transparency. While many people want foundations to be more transparent for the sake of accountability, I just think that foundations should share more as a way to achieve impact.
In the wake of the Japanese disaster, GiveWell, a charity rating organization, is demonstrating how impact-focused transparency can be effective for foundations.
GiveWell has be posting information for donors who want to contribute to Japan’s disaster relief. These posts constitute in-depth, highly informed analysis with actionable takeaways. They explore the complex nature of the disaster and look at the unique characteristics of the specific event, rather than offering general disaster response advice.
GiveWell’s advice moves money. The money donors give to the charities that it recommends on its website represents only a fraction of the money it actually influences.
So here’s my question. Why is GiveWell, which has a modest annual operating budget of $350,000, leading the way? According to GiveWell, a single staff person has spent only about 40 hours on this project, yet the project was highlighted in the New York Times.
It isn’t as if large foundations have not analyzed the Japanese situation. The Gates Foundation, for instance, made a $1 million grant to Mercy Corps in response. Why doesn’t the Gates Foundation invest 40 hours from one staff member to explain its rationale? GiveWell is baffled as well:
“The situation in Japan is confusing to donors, and the Gates Foundation is better positioned than individuals (and better positioned than we are) to sort through the confusions. If it posted a substantive explanation of its grant—and answers to the natural questions this grant raises—it could be a great help to individual donors, who have given over $161 million (U.S. donors only) to the relief effort.”
If the Gates Foundation produced the sort of public analysis that GiveWell has done, I would guess that it would influence enough other donors to raise more than the $1 million that it gave. Certainly, the New York Times article would have highlighted its thinking on the topic.
My point is not to pick on the Gates Foundation. No major foundation, to my knowledge, consistently produces public information that explains the rationale behind its donations as a way to influence other donors and enhance the impact of the foundation.
The opportunity here is huge. Foundation giving makes up just 13% of U.S. charitable giving. If you believe—as I would assume most foundations do—that philanthropic knowledge is their key value (versus raw capital), then the best way to leverage that value is by sharing it to influence the giving of more capital.
Just having a lot of money makes you neither a great philanthropist, nor a great investor. Knowing what to do with your money is the key. Figuring out how to leverage your knowledge against the largest pool of capital possible is the path to being the best possible philanthropist or investor. Leveraging knowledge against the largest pool of capital is exactly the approach Warren Buffett used to make the most of his investment knowledge. Who is going to figure out how to apply this approach to philanthropy?