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Center for Social Innovation

When Did Charity Become a Bad Word?

Everywhere you turn these days, “investing for impact” seems to be at the forefront of social innovation thinking. At conferences, in the media, and in education, the term “impact investing” – defined as investment that aims to solve social or environmental challenges while generating financial profit – seems to be getting all the attention. Somehow, good old “giving” has gone out of vogue. But what is the field of social value creation losing if we leave straight philanthropy behind?

It all started with the article by Chris Letts, William Ryan, and Allen Grossman, in the March 1997 Harvard Business Review, “Virtuous Capital: What Foundations Can Learn from Venture Capitalists.” The authors argued that traditional philanthropy has had lackluster performance and would benefit from the infusion of venture capital techniques: adopting performance measures, placing large bets on chosen organizations, working closely with them to produce results, and exiting at the appropriate time. At the center of their model was the concept of treating funding as an investment rather than a charitable grant – with corresponding expectations of return on investment, operating efficiencies, and management oversight. With this, “venture philanthropy” was born.

In the late 1990s into the 2000s, venture philanthropy evolved and contributed in many positive ways to the social good. The emphasis on funding an organization, not just a particular program, led to a commitment to long-term funding and unrestricted funds, which was beneficial. But the investment mindset seems to be taking hold everywhere and has been identified as the “preferred” social impact model.

The grid below provides an overview of the continuum of models and organizational structures that exist today to deliver social impact. Across the continuum the need for both donations and investment at times blurs. And some of that is to be expected and can be a healthy mix.

 

Social Impact Spectrum

 

There are numerous books and articles on impact investing, below are a few links for those who want to know more about – how it’s defined and its value proposition.

 

Kevin Starr, Mulago Foundation

Jigar Shah, Carbon War Room

The Economist

 

Whether and how impact investing will solve our social and environmental challenges will be proven over the next two decades. In all cases, whether investing or donating for social impact we must take responsibility that funds go to organizations that demonstrate real social impact with effective management, clear measurement and demonstrated results. However, I contend that we will still need charity. Donations are a form of gifting – giving without expectation of receiving back. A civil society that functions well is one in which generosity still operates in healthy ways. So a mantra to keep in mind is: Give generously, give frequently, give effectively.

 

There won't ever be anything

There won't ever be anything better for charity organizations than donations.

I have to agree with you.

I have to agree with you. Although impact investing is a good way to help the community and its people, I believe donations are a lot better. Why are most companies willing to help only when they have something to gain? My father gave away a few cars through a donate car program and he has never expected anything in return...

A Continuum of Giving is Smart

Our family foundation will allocate about 25% of our budget in 2012 to Program Related Investments (PRIs). These will target entities on the right side of the chart. The remaining 75% will be philanthropic grants to NGOs and non-profts - all on the left side of the chart. Philanthropy need not be either / or. Our foundation's mission is to help create permanent improvements in the lives of the poor. Over the years we have found that a mixture of grants and PRIs, some to traditionally great entities and some to high risk start-ups, feels right to us. Mike Murray

good framework

Kriss, A very helpful framework, and the citations are interesting as well--and nice title too. Paul Brest

When charity became a bad word?

As early as 1974, some speakers at the Council on Foundations annual meeting touted high leverage philanthropy, long before the widely read Kramer and Porter piece that followed Letts, There were several milestones that decade: the Sloan and other foundations' support of public policy and public management programs at universities like Stanford and Yale. In the first class at Stanford Graduae Business School's new Public Management Program, I was captivated by possibilities. One of the reasons was an assigned book, Alice Rivlin's "Systematic Thinking for Social Action," which argued desperately strenuously for more of what is now called "evidence-based" decision making in policy and, of course, the demonstrations and research needed to create it. One prominent foundation speaker called foundations "society's passing gear." Neilsen's widely read history praised Big Foundations who accepted the research and development role decades earlier, before government got in the business. Alan Pifer, in 1976, I think, wrote in Carnegie's annual report of the benefits, even imperative, of supporting public policy development, another high-leverage aspiration. At the same time, more and more foundations hired from law, business, public policy, social work schools, especially for grasp of innovation, policy analysis and evaluation. So, along with the climate of praise for high-leverage came people who much preferred strategic, problem-solving grantmaking to simpler, agency-centered grants. Many boards agreed. Kramer and Porter, writing during the tech bubble, found a ready audience for their argument that, without leverage, foundations could not justify their extra operating costs The use of $1500/day strategic planning consultants from venerable and brand new consulting firms expanded rapidly, leaving local, small shop consultants making 20% of that scratching their heads. Pushback began earlier, too. By about 1996, the California Association of Non-profits annual conference had a panel of grantmakers explaining (defending) why they demanded so much and costly evaluation and were so fussy about project support, with the connotation of mistrust or "we know better." and the fact that grantees wanted money for direct services. Even the President of the San Francisco Foundation was on the panel. In short, the trend toward "rationalization" in philanthropy started early and came from pressure inside and outside foundations. It is possible that, for whatever money that would have gone to general support or easy project support that is now in demonstrations, policy analysis, or advocacy, there was and is some offset in the arrival of new foundations that prefer "mom and pop" grantmaking. The tension is inevitable, however. Solutions adopted by some foundations: pay full overhead or accept a general support tax on restricted grants or just set aside money for local non-profits' highest priorities. Or perhaps the results of high leverage, sometimes highly publicized, grants programs will push some donors toward "safer," and less ambitious giving.

Yes....and....

What is also very important is that the donors and beneficiaries have a clear and honest understanding of exactly what kind of giving is going on in a particular context -- and that they say it out loud. There are true benefits to old-fashioned charitable giving (which should be discussed more often) and no one should feel the need to pretend that it is something that it is not. Thanks for another thought-provoking post. Catherine Crystal Foster

Amen, sister!

Thanks for pointing out that there are plenty of human needs which aren't profitable to meet, and that they nonetheless need to be met.

What happened to charity?

I suspect that charity is suffering increasingly from "crowding out," with government spending on social services crowding out private sector giving. In ancient Rome, the dreaded tax collectors developed their Biblical ill-repute when trying to implement tax rates of only 1-3%. Religions developed core principles of charity for the needy when governments took no such responsibility. In the modern world, government attempts to address a wide range of social services, and supports those programs with marginal tax rates (Federal, State, local, property, sales, etc.) exceeding 30 percent for most people with any capacity to give, and 50 percent for those with the greatest capacity to give. Not only is there the increasing perception that social welfare is the government's job, but there is also much less capacity to give. Clearly there are still many with the wealth to donate freely. But in the economic chasm between those who need help, and those who have virtually unlimited resources, is a mass of people who have the heart to give, but (1) feel the need less urgently when the government declares such efforts to be its role, and (2) sense that the government has already extracted by force of law what might otherwise have been donated freely. Venture philanthopy provides a means to create self-sustaining enterprises with charitable impact - bypassing the taxman to varying degrees while delivering needed services privately.

Thank you!

I am so pleased you have raised this issue. I am the Executive Director and Co-Founder of miraclefeet, a new non-profit, that is addressing the issue of untreated clubfoot on a global basis. We are having an extraordinary impact on the lives of children born with this debilitating condition, restoring their ability to function completely normally for the rest of their lives for as little as $250 a child. While I would love to be able to fund our program by charging for services I believe that this particular issue is best solved using the approach we are taking. We have had a very positive response from many donors, raising $2.5 million in the last two years, and have demonstrated our ability to have an impact (25 clinics being supported, 450 children in treatment with the expectation that we will have 1,500 children in treatment by the end of 2012). However,our model is that of a classic charity. We establish clubfoot clinics in developing countries, working in public and charitable hospitals where we are NOT ALLOWED to charge for services. We provide the financial resources and organizational support needed to establish an effective, highly functioning clubfoot practice within an existing hospital. We empower local trained doctors to provide the proper treatment to children born with clubfoot. Treatment that they would otherwise not get. By doing this we change lives forever. This approach is cost-effective because we are leveraging existing local infrastructure and doctors. We don't build new clinics, we don't pay doctors salaries, we don't pay rent, we often don't have to provide the basic supplies (such as plaster and padding) as they are usually provided, and the children need help tend to just show up so we don't have to pay a lot in marketing. We also believe this approach is sustainable in the long-term because it integrates the solution into the public health systems provided by the country. miraclefeet will not have to fund the clinics forever but will have created a low-cost, long-term solution through an initial investment of time and money. I have been slightly bemused when fundraising, particularly on the West coast. I frequently get the response that the miraclefeet story is extraordinarily compelling, the impact is clear, the results are amazing, but this approach isn't "socially entrepreneurial" enough. "We only fund ideas that have a mechanism to generate revenue that will feed back into the venture." I believe miraclefeet is taking the best approach to solving an important problem given the issues we are up against - but agree that it is a classic old-style charitable model. I applaud the wonderful initiatives that have emerged which can fund themselves by charging for products or services, but I am a true believer that there is still room for charitable giving. The many donors who have responded generously to this cause are thrilled to give money knowing their investment will change the lives of children forever. The ROI on $250 is pretty impressive - preventing a child from living with the terrible implications of an unnecessary disability (illiteracy, abuse,isolation, humiliation,pain, unemployment and poverty)and giving him or her the chance at a normal life. I believe there are plenty of people who will continue to be happy to donate to a high impact cause, versus investing in a less-impactful, but more socially entrepreneurial organization. Thank you for raising the issue. I believe there is some confusion around these different models leading to a devaluing of the purely philanthropic approach, which can still be remarbaley effective and efficient if implemented correctly.

Couldn't Agree More Kris

The focus on "sustainability" as requiring some kind of anti-philanthropy solution has also obscured the fact that increasing charity/retail giving/donations often can, and, in many cases should be the strategy for getting to sustainability. Apple is sustainable because it sells computers and the public wants what it sells and it gets the public to want more of it. Charity also gives the public what it wants - a chance to be compassionate. Sell more of that and you become more sustainable.

Impact philanthropy

Surely every generous donor seeks to achieve impact with his/her gift. Donors don't respond to "needs"; they respond to opportunities to have an impact on the charity, its services, and its social benefits. I certainly hope the word "impact" doesn't get captured by and isolated to hybrid or fully for-profit ventures. Henry Riggs, Stanford, CA

Charity still okay

I see no particular evidence that "charity" is a bad work. Plenty of people give to charities, and there are many organizations that call themselves charities. One should not let labels of the moment determine trend conclusions.

Charity as a Bad Word -- You Completely Miss the Point

You seem to be missing the revolution in the development world that now requires "Sustainable development" (i.e. balance of consumption and production on a resource base, over two or more generations) and rights protections of cultures rather than simply measures of "investments" which is the neo-colonial approach of the 1950s. Charity was the missionary approach of maintaining colonial structures by treating symptoms. Here are links to a couple of screening indicators that use the international standards to measure project performance and to separate out the old "charity" approach and the "technology transfer/investment" approach from building sustainability: “A Dependency in Development Indicator for NGOs and International Organizations,” Global Jurist, Volume 9, Issue 2, Article 6, 2009. http://www.bepress.com/gi/vol9/iss2/art6 “A Sustainable Development Indicator for NGOs and International Organizations,” with Nguyen Nhu Hue, International Journal of Sustainable Societies, 1:1, 2008. http://inderscience.metapress.com/app/home/contribution.asp?referrer=par... Reprinted at: http://www.pelicanweb.org/solisustv07n8page4.html If you are focused specifically on business interventions, you might also want to look at this indicator. “A Quick Indicator of Effectiveness of “Income Generation” and “Sustainable Business Initiatives” in International Development,” Economology Journal, Volume 2, Number 2, 2012. http://www.economologos.com/Lempert_EJ_II_Feb_2012.pdf Try to stay up to date with the literature, Kriss! David Lempert, JD/MBA '85, Ph.D., E.D. (Hon.) Lao Country Representative, Global Village Foundation

Excellent summary of the continuum

Kriss, Thank you for the excellent table laying out the continuum of models and structures. I find one of the biggest sources (causes?) of confusion in the donor/investor dialog is that people will apply the term "social enterprise" to four or even five of the organization types in your table. You've identified some solid criteria for helping distinguish between them. Debbie Hall

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