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Foundations Give Away Five Percent Of Their Assets a Year: Typhoon Haiyan Shows Why You Should Act Now, Not Later

As you’ve probably noticed if you’re reading any news, typhoon Haiyan likely killed at least 10,000 people in the Philippines. That’s obviously a human tragedy, but there’s one small implication for nonprofit: it pays to apply for foundation funding sooner, rather than later.

The reason is simple. Foundations react to the news cycle. They also give out a limited amount of money every year. When the biggest typhoon in history hits the Philippines, funders are going to redirect a lot of their giving to victims of the typhoon. Since they’re only required to give away five percent a year, and almost no foundations give more, there is usually a finite amount of money that any individual foundation will spend in a given year. By definition, any dollar that goes to one purpose can’t go to another.

(We should clarify that we’re not criticizing foundations for donating to typhoon victims. We are, however, pointing out that in any given quarter, foundation priorities might change.)

Nonprofits that applied for foundation funding three months ago probably had their proposals evaluated on their merits without the typhoon impetus hanging over them. Incidentally, it takes us about three to four months to complete a foundation appeal, which means anyone who hires us tomorrow shouldn’t be strongly affected. But any nonprofit that spent the last year “planning” or “developing” or whatever has just seen the likelihood of its foundation appeal working decline if they submit next week.

The same thing happened, on a larger scale, after 9/11: that tragedy sucked up a huge amount of donations and foundation funding for the rest of the year. The many local, national, and international problems that nonprofit and public agencies had been addressing on 9/10 didn’t go away on 9/12. But many foundations focused on the event that dominated the news, rather than quieter needs that might make the back pages of newspapers and the bottom of websites—if they’re covered at all.

Again, we’re not trying to diminish what happened on 9/11. But we are trying to provide some context from a grant seeker’s perspective. It’s also worth noting that, as Ken Stern describes in “With Charity For All,” donations to 9/11-based causes hit diminishing returns quickly. In other words, there were too many dollars chasing too few effective charitable opportunities. Organizations like the Red Cross, which realized as much, redirected some donations to other causes and then got blasted in the media.

I mentioned above that important problems don’t go away even when major tragedies like typhoon Haiyan or 9/11 occur. My favorite example of underappreciated statistics involves cars. Pop quiz: do you know how many people died in car-related events last year? Around 30,000, which is actually down from the 40,000 people who used to routinely die in car-related events, but it’s still about ten times greater than the number of people who died on 9/11. Despite these facts, auto deaths get nowhere near the press that 9/11 did.

Almost no one is deeply engaged in rethinking our urban and transportation infrastructure to reduce reliance on cars and, as Matt Yglesias says in The Rent Is Too Damn High: What To Do About It, And Why It Matters More Than You Think, increase real incomes by lowering housing costs in major cities. (The book, by the way, is brilliant, short, and worth reading, since its main subject touches on so many economic and political issues in contemporary life.)

The contrast between the reaction to a major event like 9/11 and typhoon Haiyan and to everyday events like the deaths of innumerable people in cars demonstrates the power of unusual stories to shape funder priorities. As a society we’re willing to tolerate 30,000 people dying in and around cars every year because those deaths happen across dispersed geographic areas and 365 days a year. That doesn’t get the reaction of a single, horrifying incident. Most nonprofits are working on relatively everyday struggles around poverty, crime, research, and so on. They don’t have the advantage of every news outlet in the world shining an intense light on their cause. Both their timing in applying for funding and the content of their proposals should reflect that.

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“With Charity For All” – Ken Stern – Book Discussion

Ken Stern’s With Charity for All: Why Charities Are Failing and a Better Way to Give is really about a single, fundamental issue and its implications: funders are the real “clients” of most nonprofits, yet their desires dominate everything that nonprofits do. He says that “The care and feeding of donors who make highly personal gifts can distract from the core charitable purposes and matters of organizational effectiveness.” But in many ways the “care and feeding” of those donors is, or becomes, the organization’s real mission. Organizations that don’t attend to their funding streams aren’t going to keep their doors open.

As a result, With Charity For All is really about reforming funder priorities, especially among foundation, corporate giving, and wealthy individual donors.

That’s a laudable goal. Right now, however, most donors donate based on emotional connections rather than cost-benefit analyses. In one example, Stern describes how “Katrina was a gold rush for the nonprofit community; hundreds of organizations descended on the Gulf Coast.” But most of those organizations weren’t effective—including the Red Cross, as Stern describes in detail. When we judge by intentions more than effectiveness, we don’t actually care about effectiveness, and funders don’t look at what happens to their money after the donations; they’re busy basking in the afterglow. Moreover, Stern says:

For most charities, the story from the front lines is the most important measure of success, one that typically confirms the importance of the work and reassures stakeholders. Empirical and research studies are to be avoided as expensive, distracting, and potentially dangerous. In some ways, the charitable world exhibits and almost medieval aversion to scientific scrutiny and accountability.

Does this sound familiar? To regular readers it should, since we’ve long argued that your grant story needs to get the money and that most funders don’t value evaluations. Most donors and grant makers care only superficially about results. Nonprofits that have embraced “empirical and research studies” have mostly been outcompeted by those that tell happy stories.

That’s a problem from the perspective of those receiving services, however. Using the Red Cross as an example, which couldn’t act effectively after 9/11 and then planned to use 9/11 funds to improve organizational effectiveness, only to be bashed by the press, Stern goes on to say that there is

a bedrock and simplistic assumption that has long shackled the charitable world: that money spent on direct services is the only worthy use of charitable funds, while money invested in organizational effectiveness is to be kept as close to zero as possible. It is an equation widely accepted by the donating public, by the press, by charity watchdogs, by government regulators, and by most charities themselves. To keep overhead costs down, charities forgo necessary investments with devastating and sometimes deadly results.

This is sensational but sometimes true. Still, on a smaller scale than the Red Cross, we see lots of money subtly diverted in various ways into organizational effectiveness: the van bought for one program ends up being used for another. Project staff on one program also spend time working in another. Technically these sorts of things are often against funding rules, but better organizations ignore them so they can get stuff done.

Ignoring funder rules is often rewarded, as we discuss in point three of this post.

With Charity for All is hardly the only book to observe perverse incentives among nonprofits: The Robin Hood Rules for Smart Giving says in its introduction:

The idea behind this book is that philanthropists cannot settle for choosing programs merely because they generate important benefits. They must hold out for funding only those programs that do the most good per dollar of costs. Otherwise money is wasted, which is an unforgivable mistake given yawning social needs.

“An unforgivable mistake?” I won’t be inviting Weinstein and Bradburd, the authors, to dinner, and I suspect a lot of foundation directors won’t either. Still, their take is so similar to Stern’s that it merits a mention, especially because reality on the ground indicates that philanthropists can and do “settle for choosing programs merely because they generate important benefits.”

Despite Stern’s disapproval of current funder priorities, it’s important for organizations that want to succeed quickly learn how to tell happy stories—and when not to. Most proposals submitted to state and federal organizations, for example, are designed to avoid stories about particular individuals; the RFPs tend to be so fragmented that it’s difficult or impossible to tell a coherent story. Moreover, most government programs want a story about (possibly illusory) effectiveness, much more than they want stories about identifiable humans. Remember that these are bureaucrats we’re talking about, not normal people. It’s also not clear how much government spending is actually about solving social ailments, versus accomplishing other goals. I don’t want to say more about that here, because it’s venturing too close to the political quicksand that we studiously avoid, but the point remains and should be obvious to anyone involved with in grant writing and organization funding.

There are frustrating parts of With Charity For All, especially when Stern’s evidence or discussion is thin. For example, he says:

There is little credible evidence that many charitable organizations produce lasting social value. Study after study tells the opposite story: or organizations that fail to achieve meaningful impact yet press on with their strategies and services despite significant, at times overwhelming, evidence that they don’t work.

None of these studies are cited in a footnote. No specific organizations are cited. This narrative is little better than the charities-are-ineffective narrative. Still, charities are organizations that, on a basic level, must take in more money than they spend. Consequently, charities, like all entities, are perfectly capable of failing, and they must adapt to their environment. Like pretty much everyone who looks into this matter, I agree that charities should spend more time genuinely evaluating themselves, but that requires that their funders also become more interested in doing so. is one effort to do so, and this book is an attempt to raise the profile of profiling nonprofits. Nonetheless, in a discussion about how to measure effectiveness, it’s discouraging to see references to “study after study” only to find zero studies cited.

It’s also not entirely true that “The nonprofit field is extraordinarily stagnant, even though tens of thousands of new charities are created each year and billions of dollars of grants and donations annually flow to American charities.” The word “stagnant” is probably wrong: although tens of thousands of new nonprofits ones are created, tens of thousands of old ones close. As I said above, a nonprofit that can’t take in more money than it spends won’t exist for long, and that’s part of what makes nonprofits dynamic. Now, it may be that funders are rewarding behaviors that may not be optimal in terms of achieving preferred outcomes, but that’s a separate issue that shouldn’t be conflated with dynamism per se.

In a moment of dubious interpretation, Stern writes:

At the core of our charitable system is the notion that charities perform critical social functions and thereby save the government and the taxpayer the effort and expense of providing the service. But the charitable sector is filled with organizations doing things that no government would care to do and that would scandalize taxpayers if they understood they were underwriting this effort.

I’m not sure “the notion that charities [. . .] save the government [. . . ] effort and expense” is at “the core of our charitable system:” is there a “core of our charitable systems?” Core isn’t the right word, or mental model; we have a series of post-hoc rationalizations. One of those post-hoc rationalizations is a larger sense that government can’t do or think of everything that should be done on a not-for-profit basis; groups of individuals should be able to come together to do stuff that’s worth doing but that won’t necessarily return money to “shareholders.” Not everything worth doing needs to be provided by the government and not everything provided by the government is necessarily worth doing.

Those are statements of general principle, however, and Stern goes on to describe how the college football bowl system consists of dubious nonprofits running, for example, “the Allstate Sugar Bowl” and making a lot of tax-free money in the process. Big-time college sports in general have only the flimsiest patina of amateurism left in them, and by now they should be spun off from their nominal university owners and made to pay players just like every other employers.

The idea that big time football or basketball schools (like Isaac’s favorite, the University of Kansas Jayhawks) should pay their coaches millions of dollars and their players “scholarships” is ludicrous, but those specific examples don’t necessarily mean all organizations doing things government shouldn’t should also be treated and taxed like conventional businesses. For example, the Mozilla Foundation provides an open-source web browser and is dedicated to freedom on the Internet. I don’t necessarily think the U.S. government should start its own web browser division, but most people would probably agree that Mozilla is a reasonable charitable endeavor.

(Regular readers have noticed that this post is a bit different than most of our posts: we’re reviewing a book instead of discussing direct experience, telling stories, or writing about RFPs. We’d love to hear your comments, and, if you know of any other books we should be reading, let us know about those too. Although we’re mostly content producers, occasionally we leave our iMacs, retire to a comfortable chair, and enjoy a book, along with a well-made cocktail or three.)