Issue: The Business of Philanthropy The Business of Philanthropy By: S.L. Mintz Pub. Date: October 26, 2015 Access Date: September 24, 2021 DOI: 10.1177/2374556815616611 Source URL: http://businessresearcher.sagepub.com/sbr-1645-97243-2699002/20151026/the-business-of-philanthropy ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Can for-profit strategies work in the nonprofit world? Executive Summary To support their philanthropic missions, U.S. nonprofit groups raise and spend trillions of dollars each year, and employ about 11 million people. They have access to unmatched wealth, dazzling technology and increasingly sophisticated and data-hungry donors. But challenges abound. They include an intense rivalry for dollars, whether fundraising is done face-to-face or by electronic means. In addition, nonprofits have learned that they cannot win or retain support based on the merit of their causes alone—they also must be able to show measurable, transparent results. To meet these challenges, managers increasingly are emphasizing the same bottom-line oriented techniques used by their for-profit counterparts. Among the questions under discussion: Can for-profit management principles and practices fit the philanthropic model? Can data measure good work? Can technology improve fundraising? Overview CARE, the iconic international human relief organization, got its start distributing packages of much-needed food and supplies to European survivors of World War II. Through cultural shifts, policy reversals, local political conflicts and volatile economic climates, CARE has not altered its ambitious philanthropic mission: to serve individuals and families in the poorest communities in the world. 1 CEO Helene Gayle arrived at Atlanta-based CARE in 2006 with a mandate to multiply the impact of the sprawling global organization. “We determined that we needed to share information across countries more than we had done, be more rigorous about measuring our impact and make the best use of our voice as an advocate for policy change,” Gayle told the Harvard Business Review. To improve accountability, CARE not only tracks numbers such as the amount of food it delivers. It also measures how it has improved access to clean water, sanitation, health care, agricultural expertise that targets malnutrition and skills that empower women, all in close cooperation with governments and the private sector. On Gayle's watch, the list of changes included a program to expand access to savings accounts, credit, insurance and other financial services to hundreds of millions of low-income Africans. 2 Gayle left CARE in early 2015 to become the first CEO of the McKinsey Helene Gayle, then-CEO of CARE, reads with children during a Social Initiative. In her new role, she will advise other nonprofits under the visit to a Guatemalan school. Gayle pushed the global aid aegis of New York-based McKinsey & Co., a corporate management 3 organization to use more businesslike metrics to assess the consultant. Her job switch signals a shift in the nonprofit sector, as many effects of its work. (CARE) U.S. nonprofits assess how best to cope with a rapidly changing, crowded philanthropic landscape that increasingly requires business expertise to support do-good missions. Tens of thousands of new public charities open in the United States each year, including those started for churches, schools and charitable aid groups. 4 (Donors to public charities can take tax deductions; the philanthropic sector also includes private foundations, which typically have just one source of funding, such as a wealthy family. 5 There are also nonprofit groups, such as fraternal societies, that are tax- exempt, even though contributions to them are not regarded as charitable and may not be deductible. 6 ) Nonprofit groups today have access to unmatched wealth, dazzling social technology and increasingly sophisticated and data-hungry donors. But challenges abound. They include an intense rivalry for fundraising dollars, whether done face-to-face or by electronic means. In addition, nonprofits have learned that they cannot win or retain support based on the merit of their causes alone—they also must be able to show measurable, transparent results. At a minimum, donors chastened by recent financial upheaval seek greater evidence that donations are making the world a better place. If a particular charity doesn't meet their expectations, alternatives are just a few clicks away on the Internet. Philanthropic Donations Reach High Charitable giving, in $U.S. billions, 1954–2014 Page 2 of 24 The Business of Philanthropy SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. Note: All figures are rounded. Sources: Data from GivingUSA; original graphic from “Giving USA 2015: The Annual Report on Philanthropy for the Year 2014,” GivingUSA and the Indiana University Lilly Family School of Philanthropy, June 2015; caption information from “Patterns of Charitable Giving,” Congressional Budget Office, Oct. 18, 2011, http://tinyurl.com/n98ekzd Philanthropic donations by foundations, corporations and individuals in the United States rose to a record $358 billion in 2014. Donations increased gradually from the mid-1970s through the mid-1990s before jumping 65 percent from 1995 to 2000, a period of strong stock market growth. While giving dipped during recessions in the early and late 2000s, donations have climbed the last five years. “The new philanthropists are challenging the whole setup,” says Richard Feiner, the director of development at the Drugs for Neglected Diseases initiative, the U.S. arm of a nonprofit based in Geneva. “There is more of an expectation that the nonprofit sector will be run like a business,” he says. It's not a new trend, he says, but it keeps accelerating: “There is more focus now, because so many philanthropists want to see [results] in their lifetimes.” Although many nonprofits operate on shoestring budgets—or fold for lack of funds—the nonprofit sector as a whole has impressive financial muscle. 7 In 2013, total assets surpassed $3 trillion across the 1 million U.S. public charities. Their revenue from government contracts, corporate largesse, charitable foundations and individual fundraising exceeded $1.7 trillion; they spent $1.6 trillion. 8 Nonprofit organizations employed 11.4 million workers in 2012, almost 1 million more than in 2007. 9 That total jumped from 9.2 percent of the private-sector workforce to 10.3 percent, according to the Bureau of Labor Statistics. 10 Elite executive directors, meanwhile, take home high six-figure and even seven-figure salaries. 11 Giving Varies Among Largest Charities Largest charities ranked by donor support, 2014, in $U.S. billions, and their charitable commitment, by percent Page 3 of 24 The Business of Philanthropy SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. Note: “Charitable commitment” measures how much of an organization's total expenses went directly to its charitable purpose, rather than to management, fundraising and certain overhead expenses. Source: “The 50 Largest Charities,” Forbes, December 2014, http://tinyurl.com/b4ujsqn United Way received $3.9 billion in private donations in 2014, more than any other charity in the United States. Among the 10 largest charities, the Atlanta-based Task Force for Global Health was the only one to spend 100 percent of its expenditures for its charitable purpose; the American Cancer Society, by contrast, spent less than three-fourths of its expenditures on charitable services. Organizations that receive donations of goods, known as gifts in kind, tend to show a higher percentage of charitable commitment, according to Forbes, which performed the calculations. Whether an organization builds widgets or advances a charitable cause, effective management can help it succeed. As Peter Drucker, a legendary management guru, wrote about nonprofits more than two decades ago, “They know that they need to learn how to use management as their tool lest they be overwhelmed by it. They know they need management so that they can concentrate on their mission.” 12 Like their for-profit counterparts, nonprofit professionals praise tools to gauge performance, as well as ever-more-sophisticated technology that streamlines operations and makes frequent use of social media. Strategic partnerships and mergers have ticked up in bids to cut costs and increase impact. “By adopting a model that is increasingly common in the business world, nonprofit organizations can launch, test, and implement new programs and services more efficiently and more effectively,” Peter Murray and Steve Ma of nonprofit incubator Accelerate Change wrote in summer 2015. They singled out “lean experimentation” that turns fresh ideas into a series of experiments. For example, they said, managers of the nonprofit Worldreader applied lean experimentation to support its mission of improving literacy in developing countries. They began by giving out e-readers to students in just one school in Ghana, rather than distributing them widely. That experiment showed them that the students kept breaking the e-readers; Worldreader learned that it should teach students to care for the e-readers and also that it should ask the manufacturer to make the devices sturdier. 13 Fundraising strategies that resemble taxable investments or feature tax planning have become fixtures. Those include “impact investing,” shorthand for “investment strategies that generate financial