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Turmoil in “The Giving Community”

Will an expert’s scathing analysis of traditional philanthropy beget traction and action? Or will newer models like “Strategic Philanthropy” prevail?

When The New York Times publishes a commentary such as, “Who Will Watch the Charities?” by David Callahan, founder and editor of Inside Philanthropy, attention must be paid.

Especially when the caption  reads: “Philanthropies get billions in tax breaks, but there’s almost no oversight of how they spend the money”.

Mr. Callahan, a fomer foundation executive, has fired quite a broadside across the bow of foundations:

“The charitable sector is a bit like the Wild West — by design … Philanthropy, we’re learning, is a world with too much secrecy and too little oversight … For example, foundations don’t have to prove that they’re making good use of tax-subsidized funds, and non-profits don’t have to identify their donors.”

Here’s his four-part prescription for reform:

Bring more transparency to charitable donations.

Donors should get varying degrees [emphasis added] of tax exemption, or none at all, depending on the actual public benefit provided by a nonprofit, measured independently.

Foundations and other philanthropic funds should have to give away tax-exempted funds at a faster rate (currently, foundations must give away 5% of their endowment each year).

There needs to be a better accounting if whether philanthropic dollars are effectively spent.

However, on so important and powerful a social institution, distinctions must be made — especially in terms of fast-evolving corporate and entrepreneur-generated foundations. For example, the “Strategic Philanthropy” model is becoming a significant element in the now popular corporate social responsibility/sustainable development business model. 

(There is much academic debate on iterations of the term, “Strategic Philanthropy”.)

A working definition as it is being applied in the private sector has ben supplied by TRUIST Inc.: 

“Strategic philanthropy is the practice of targeting a company’s giving efforts around a cause or issue that simultaneously provides a direct benefit for the cause and also supports the company’s business objectives.” 

Many companies have been ingenious in designing and implementing this kind of philanthropy: Direct financial grants to charities relevant to the company mission; myriad cause-related marketing programs; and in-kind donations of  products and equipment  — or, perhaps the most effective contribution of all —  the time and expertise of employees applying the companies’ core competencies to help solve societal problems.

About a decade ago, we also saw the establishment of foundations by a new generation of highly-successful, wealthy entrepreneurs — a breed of philanthropists who carefully select causes; stay directly involved in planning and implementation; and insist on sophisticated, continuous measurement of progress and results. Many of these founders made their fortunes in the digital and/or STEM industries where empirical data is prized.

Whether it is the kind of transformation that David Callahan is demanding or the growth and success of the new philanthropic models, the lively debate on the future of philanthropy is bound to continue. There are many billions of dollars at stake. More importantly, there are many millions of lives at stake.