"These are the times that try men’s souls." (Thomas Paine, 1776)

The front page of today’s Wall Street Journal included a headline that read “Worst Crisis Since ‘30s, With No End in Sight.” It is the latter half of this sentence that is particularly frightening.

The current level of economic uncertainty and turmoil is unprecedented and leaves many not-for-profit organizations fearing for their futures and unsure as to what the appropriate near term actions may be.

Many of my colleagues—particularly those who work for Jewish organizations that traditionally solicit funds now, in advance of the Jewish High Holy Days—are wondering if it is still appropriate to ask for money during a time when their donors may be facing personal financial crises. My answer to them is yes. You must ask. You may change the way you ask and you should understand when even longtime supporters say no, but you must continue to ask.

In the coming months, the role not-for-profit organizations play will increase in importance. Demand for programs that address basic socioeconomic needs like food, health and education will rise exponentially. The ripple from the financial market meltdown will soon be widespread, unemployment across all sectors will increase and the need for assistance will grow. A shrinking tax base will reduce government funds available, and not-for-profit organizations will be called upon to fulfill critical needs in communities across the country and around the globe.

Organizations must keep up their development efforts in order to meet this demand. No one said the work was easy, but we all agree that it must get done.

Fight Fiercely Harvard

Philanthropy News Digest: Alumni Group Presses Harvard to Do More With Its Endowment

NY Times: Alumni Group Tries to Elicit Social Action From Harvard

Much has been made in the press lately about a group of Harvard alumni who are pressuring the university to use some of the estimated $35 billion Harvard endowment to fund programs beyond Harvard. In particular, the articles tell the story of one alumna who asked her classmates to redirect their reunion contributions to struggling colleges in Africa and requested Harvard’s support in this process.

I salute the efforts of alumna Paula Tavrow to help African colleges and commend her for encouraging friends and contacts to support this cause. I also understand the frustration many alumni may feel (full disclosure: I am a Harvard alumna) when being solicited for donations to help grow an endowment that is already larger than the GNP of many countries. However, I understand Harvard’s position and the university’s reluctance to officially disperse funding to outside organizations.

First of all, while not intimately familiar with the mission of the Harvard endowment, I must assume that it grew out of donations from alumni who expected the money would be used to directly benefit Harvard. While giving to colleges elsewhere in the world is commendable and needed, such an act could alienate many longtime Harvard supporters. Plus, it just isn’t nice. No matter how noble the cause, you can’t take money that was given for one purpose and use it for another.

Second, there is no good argument in favor of Harvard sharing alumni information that was given with the expectation of privacy. Tavrow’s group expresses frustration that Harvard refuses to share its alumni contact list. Good for Harvard—fight on! When I provide Harvard with my personal information, it is under the assumption that it will not be shared with outside organizations who might want to solicit me for funding. I’m sorry, but “the ends justify the means” argument is not working for me here. With all the social networking sites and online resources available, there are plenty of other ways to reach fellow Harvard alumni who want to be found.

Despite these defenses, I am not letting Harvard off the hook so easily. Harvard has what I term CTWM—“Change The World Money.” CTWM is money that when deployed correctly can have a real impact. I will reserve my general thoughts on CTWM and how it is being used by the institutions and individuals who have it for another blog.

There are endless ways Harvard could harness its vast resources to change the world. Harvard could create programs that teach alumni about effective philanthropy. It could educate its students about world problems and require service obligations for students to get hands on experience. Harvard could create more scholarships for students from underdeveloped countries, or initiate programs that will help these students pave a path toward higher education. It could implement professional development and training programs for university administrators, as well as professors from other universities. Harvard could use its endowment to subsidize the salaries of graduates who choose public service or not-for-profit careers. Many these ideas may already be in motion (disclaimer #2: I don’t always read the alumni magazine), and if so—my apologies.

Harvard has a worldwide reputation as being a leading academic and research institution. The superlatives and “ests” (biggest, largest, best) that are used to describe the university’s achievements, qualifications, awards, etc. are endless. Harvard now has the opportunity—and I would argue the obligation—to leverage its capabilities to find new ways for the university and its community to change the world. I look forward to watching the progress.

If You're Happy and You Know It Clap Your Hands

Science Magazine has just published a study that documents something those of us in the philanthropy business have known for years—people who donate to charities or splurge on gifts for others are happier than those who do not. While most of those surveyed assumed they would be happier if they spent money on themselves, the opposite proved to be true. It’s worth keeping the results of this study in mind over the next few weeks as you tally up your 2007 charitable giving for your taxes, or find a crumpled $20 bill in your coat pocket—or even as you deposit your 2008 “economic stimulus” tax rebate.

Paint by Numbers

Ellison Research has just published a study that reveals 62% of Americans believe charities are spending too much money on overhead. Those polled indicated that they perceive most charities as spending an average of 36 cents per dollar on overhead vs. the 22 cents these same people believe charities ought to be spending. However, according to The Chronicle of Philanthropy’s comments on the study, most watchdog groups report that well-run charities often spend between 30 and 40% on such costs.

The Chronicle of Philanthropy discusses the study in detail and points out the obvious issue for charities: donors, many of whom have no idea how to run a not-for-profit organization, may be less likely to donate if they think the charity spends too much on overhead.

There is another point that should be noted: donors are now demanding more and more accountability from organizations. Gone are the days when philanthropists were satisfied to write checks and assume that the programs they funded were working; they now seek measurable results, often by way of demonstrated improvement and side-by-side comparisons with other organizations. Donors have a right, and--in my opinion--an obligation, to seek detailed information about how their money is being spent. However, they also must understand that there is a cost to retrieving, preparing and analyzing this data. You can’t demand infrastructure and not expect to pay for it.

Donors, charity “watchdogs,” and non-profit managers must understand that there is no “one size fits all” approach. The percentage that an organization spends on overhead may vary from year to year depending on capital campaigns and projects, one time events, currency fluctuations or other unusual situations. While the numbers are important, it’s the story behind the numbers that paints the full picture.

Physician, Heal Thyself

A few weeks ago I wrote about several new organizations that seek to provide information on charities to help donors make decisions. One of the organizations, GiveWell, has been
in the press lately because its two founders—one of whom served as Executive Director—promoted GiveWell on various Web sites while posing as neutral third party commenters.

In response to this discovery, the board of GiveWell demoted the Executive Director and fined both him and his co-founder $5,000 of their $65,000 salaries. While I realize that everyone makes mistakes, I am shocked that an organization whose mission is to reveal “the truth” about charities would accept such practices from its management. Perhaps the “slap on the wrist” each received for this behavior would be appropriate in the hedge fund world, but it should be unacceptable in the philanthropic one.

If the founders would go to such extremes to promote their organization—which had recently been featured on CNBC and mentioned in both the Wall Street Journal and New York Times—how can their rating system and opinion of the operations of other organizations be taken seriously? The GiveWell founders have deliberately misled the very people they claim to help. Instead of pointing out the problems with other rating systems, they should be taking a hard look at their own practices.

"I Can See for Miles and Miles" (The Who)

The end of the year is a popular time for predictions. In the past few weeks, I have read articles predicting 2008’s top performing stocks, workplace trends, fashion influences, World Series winner, election results and celebrity divorces--just to name a few.

Never one to be left out, I am providing my top 5 predictions for trends in philanthropy in 2008.

1. Ever-increasing focus on accountability and transparency
Donors want to know how their money is being spent and what it is accomplishing. The most successful not-for-profits will continue to create new ways to share information, document success and measure their effectiveness. As a result, donors to these organizations will be more committed and engaged, and the organizations themselves will gain the resources to expand.

2. Application of business management principles
Donors who derive their wealth (and ability to donate) from business success expect the organizations they support to adhere to certain basic business principles. Charities that adapt these principles to their operations will thrive. These organizations will learn to effectively hire and retain strong staff members, while letting go of those who cannot perform. They will become more focused, create long term plans and better understand their markets. While not-for-profits are meant to address pressing societal issues, they still need to be budget conscious—“dollars in” must be greater than or equal to “dollars out.”

3. Increased partnerships
With more than 1.4 million charities competing for the market share, not-for-profit partnerships make sense. An increase in this practice will allow organizations to focus on their core competences while providing more services to their target audiences. Partnerships will also allow for increased reach without duplication of overhead. It works for business; it can work for philanthropy as well.

4. “Hands-on” philanthropy
The days of a donor writing a blank check are long gone. Today’s philanthropists are far more sophisticated. They not only feel passion for an organization’s mission, but they also want to be involved in shaping it and contributing to its successful execution. The most effective charities will learn how to leverage this trend to meet the needs of their supporters without sacrificing overall focus.

5. Shortage of quality professionals
Each of the many new not-for-profits being founded every month requires quality management to successfully translate vision into reality. At the same time, experienced leadership in established organizations is aging toward retirement. The shortage of high quality not-for-profit leaders will continue in the short term. Organizations should plan ahead—retain strong employees, continue to cultivate and train from within, and don’t be afraid to think outside of the box when it comes to hiring new staff. People with diverse career experience can bring a new set of talent to the fund-raising profession.

Who’s Watching the Watchers?

There has been a recent surge in the number of organizations and individuals providing services designed to help potential philanthropists evaluate charities. A recent article in the New York Times discusses the new GiveWell site, which is already generating controversy for its detailed evaluation and criticism of existing charity rating methodologies.

First of all, I applaud anyone who decides to dedicate their life to helping other people. Whether it’s the guys who started GiveWell or more established organizations like Charity Navigator, any sincere attempt to improve the way society takes care of its most vulnerable citizens is important and impactful.

That said, any attempt to create a universal ranking system for the approximately 1.4million 501c3 organizations operating in the United States is destined to fall short. A quick review of general statistics such as the ratio of program spending to fundraising expenses, the percentage of repeat donors, or the number of people served can’t even begin to tell the whole story of an individual charity’s impact. On the other hand, providing specific details and complex analysis can detract from organizational effectiveness, particularly for smaller charities, by diverting staff time and resources away from programs.

The answer, of course, lies somewhere in between. Top level analysis is important, but does not paint the clearest picture. Smart donors will need to ask more specific questions about documented results, long term planning and management focus. Getting advice and analysis from a third party is not a bad idea, but donors need to understand how the methodology and ratings used pertain to a specific charity. Getting the highest rating may mean that an organization excels at achieving its mission—-or it may mean that it excels at being rated.