On effective giving

Mike Davis shares the key principles he applies when considering charitable causes, and stresses the importance of asking good questions.   

Spending time overseas over the Christmas and New Year break has given me time to reflect on my giving practices and how I will approach giving in 2020. Trekking in Patagonia and meandering with the Moai in Easter Island will give you the sort of perspective that can only come with immersion in nature. 

My regenerative time in nature was juxtaposed with reading about the bushfires destroying our natural habitat and communities back home. On the last few days of my trip in Chile, I read that smoke had actually drifted from Australia across the Pacific Ocean and shrouded Santiago for at least a few days. A timely intercontinental reminder of how climate catastrophe binds us all together. 

The bushfires naturally led to a groundswell of personal and public anxiety, concern and charitable opportunities arising demanding our attention. Whilst this is undoubtedly 95 per cent well-intentioned, it has also led to unanticipated negative effects like donor confusion, scamming and a duplication of similar efforts; rather than collaboration and shared responses. Reading through the numerous appeals and calls to action to give back reminded me of the key principles that I apply in considering charitable causes. 

Ultimately, giving decisions are always a marriage between our hearts and minds; but it helps to build in some guiding principles to assist us in the process. It also helps to adopt a planned approach to giving rather than making spontaneous decisions – which are often driven by emotional pressures and unconscious biases rather than sound logic and good research. 

Krystian Seibert has written a helpful piece in the Guardian with some practical tips and I will focus here on some useful guiding principles to adopt in thinking about how you can ensure your giving is most effective. Much of the best advice I can give is in the form of asking good questions. In particular, I’ll ask you to question how you think about administrative costs or overheads.  

“A prudent question is one-half of wisdom.” – Francis Bacon

1. Expected impact

Expectations are a key mediator of giving. What do we expect our donation to enable the organisation in question to do? Is the organisation’s claimed impact reasonable and achievable? What exactly does your donation fund? 

Does the way that this organisation is attempting to solve the problem at hand and create positive social change make sense to you? If it doesn’t make sense to you can you probe further and find a satisfactory answer? If you can’t, this is a problem and you are better off supporting a charity whose theory of change you do understand. 

It is also worth looking at evidence or academic papers that support the link between the problem and solution offered by the charity in question. For example, can we say with confidence that supporting microfinance lending initiatives in developing countries is an effective and also the most effective path out of poverty?

To give well it helps to be curious and interested in the causes you are planning to support. This makes the research process much more fun and less effortful. It also means you are far more likely to reach out and get in touch with people who know about these opportunities and their impact. 

Ask: What activities are being funded? What outcomes and impact are produced? Does the research support this approach to solving the problem?

2. Historical competency

Does the organisation in question have a history of working effectively in this specific area or in complementary areas? If you are thinking of supporting an initiative by a local health promotion charity to focus on a forest restoration campaign overseas – is this the right group to effectively deploy resources and create impact? 

It might be more prudent to ensure the organisation you are funding is focused on spending on areas that you care about and not going too far outside its comfort zone or nexus of competency. You might rightly ask, why would this charity be venturing into a historically misaligned area?

Are they seeking to enter unfamiliar territory where they lack expertise or capability to ensure good social outcomes? Perhaps this is an opportunistic move that is not rooted in the strategic plan but is more leveraged at current sentiment or mood. If you can’t understand the connection or alignment then this might be a sign that a current campaign or cause isn’t for you.  

Ask: Is this historically something that this organisation does well? Are they the best organisation to deploy these activities? Is there good strategic alignment with this planned initiative? 

3. Administrative costs

Prepare for a short but important rant. All organisations spend money to produce outcomes. When we are talking about for profit companies we would expect to see a decent amount spent on organisational development. Here we would be hoping to see money spent on competitive salaries to attract the best people, learning and development opportunities and on quality IT systems to report on impact. 

These are the intangible spending areas that often springboard performance through culture improvement, innovation focus and talent development. It is from these intangibles that you will often see a competitive advantage arise. 

However, when we talk about intangible spending in not for profits or for purpose organisations, administrative spend is seen to be an indicator of bloat, inefficiency or just overspending in non-service delivery areas. This mentality is outdated and misleading. It doesn’t speak to the significant and widespread role that innovation plays in driving revenue growth for not for profits.  

The fastest way to fail as a not for profit is to ignore investing in your competitive advantage or what is often called your “unique value proposition”. For a not for profit this means identifying points of leverage that enable this charity to deliver more social value than its competitors.  

Investing in innovation

A recent 2018 Commbank NFP Insight Report revealed that around 95 per cent of not-for-profit organisations are actively pursuing innovation or improvement strategies, with the sector also leading the adoption of several cutting-edge technologies. This far outpaced the national average for Australian organisations of whom 82 per cent were adopting similar measures. Importantly the average not for profit invested $290,000 in the past year (2017-18) generating an average return on investment of $379,000. 

We have moved past being a sector that seeks trust and admiration for aphorisms like “we run on the smell of an oily rag”. Dynamism and leadership in the for purpose sector today means investing in competitive salaries, leadership programs, IT system and platform development, impact reporting, strategy and building a great culture. These should be seen as critical investments fundamental to growth as opposed to costs that add to an administrative overhead. 

If you look at some of the leading for purpose organisations in Australia that regularly appear on the NFP Innovation Index they understand the need for investment in these areas and adopt a commercial approach to achieving social outcomes. They are investigating and investing in new funding models, scaling social enterprise, looking at blockchain tracking systems and real time interactive impact reporting. 

“Administrative costs are a perennial red-herring in ranking the effectiveness of not for profits” 

The more important question is how do these costs sit alongside their organisational structure, strategic plan and compares to sector benchmarks for administrative spending.

Similarly, if an organisation is running very low administrative overheads – consider whether there is enough slack or room to invest in the capability required to deliver on their plan. More information from the ACNC here on this. 

Ask: Are back office expenses working effectively to scale impact? Are these costs helping to deploy better programs with better outcomes? Is there enough administrative spending to produce high quality and consistent social outcomes? 

Further Resources:

1. GiveWell
2. Effective Altruism
3. The Life You Can Save
4. GiveEasy NFP Innovation Index
5. CHOICE Australia – Donating to Charity 

“We make a living by what we get, but we make a life by what we give.”

―Winston Churchill