A new generation of donors wants impact and engagement

Out of the dot.com boom came a new breed of donors for whom good intentions are not enough an evidence is key

How do you think philanthropy is changing, and what’s driving those changes?

The most obvious changes in the past 15 years are the arrival of many new donors, new ways of giving, and much higher profile.

It started with the dot.com boom: money from eBay, Microsoft, Google et al. They brought tools common in business, but not used in philanthropy: high-engagement, focus on results, and financial instruments beyond grants such as loans and quasi-equity investments. We often think of them as flashy, and while that’s true of some, there are major European and Asian donors who keep out of sight.

Growth is driven by self-made wealth. The UK’s rich list shows that 50 years ago, most wealth was inherited, now it is self-made. This has brought an urgency about getting things done, which has spurred interest in new ways of engaging.

And it’s not just the rich. People giving modest amounts also want to be effective. The donations influenced by GiveWell’s independent analysis of charities’ performance have risen about 700% in just four years. Giving What We Can, which began as a student movement, encourages people to pledge part of their income to non-profits: many members ‘earn to give‘ by taking high-paid jobs to maximise the amount they can donate.

All this has brought a focus on effectiveness … though, ironically, we have no idea whether it’s achieving anything.

In the past few decades, awareness has grown that good intentions are not enough. Donors also wonder if their work is optimised.

What’s the potential impact of these changes?

We don’t know! Because funders don’t make comparative assessment of how various models of giving perform. For example, are your grants more likely to succeed if you are hands-on with them or not? People have lots of opinions about this but there’s no actual data.

Yet it’s not hard to find out. Shell Foundation made many grants, and graded each according to whether ‘succeeded’, ‘did OK’ or ‘failed’. Hardly any succeeded. So the foundation changed its model: away from making many, small, reactive grants, to making fewer and being more engaged. The success rate picked up. The foundation intensified the change, which increased the success rate further.

We need lots of funders to do this analysis and to publish it along with details of their model. And it is not rocket science.

Of course, it doesn’t ‘measure the full impact’ of the funder’s work, but funders often get hung up on that. It’s extremely hard to accurately measure impact, because it’s normally through grantees and may include diverse types of work which can’t be aggregated. At some level that doesn’t matter because, the aggregate impact of grantees is different to the impact of the funder: the grantees may do great work despite a really annoying and wasteful funder. To understand the funder’s effect, we need to look at the funder’s own processes. Shell Foundation’s analysis assessed processes for making decisions and providing support.

However, to find the best model in particular circumstances it’s unlikely that one model will outperform another model in all circumstances.

What one thing could foundations do better to increase their sustainable impact?

Funders could vastly increase their impact by basing their decisions on sound evidence. That covers their decisions about both what to fund and how to fund.

On what to fund, that means:

• When deciding on programmes or focus areas, look at where need is and where supply is. There’s currently a chronic mismatch: for instance, in global health, about 90% of funding goes to just 10% of the disease burden.

• When deciding which programmes to fund, look for existing independent and rigorous evidence, rather than just what the applicant provides. Many interventions have been studied independently: health in the UK is quite well-studied, as are many areas in international development; crime in the UK is just starting. The Children’s Investment Fund Foundation – more rigorous than most – puts more weight on a proper literature review than on the information in the application form.

• Know the difference between reliable evidence and unreliable evidence. For example, a charity claiming impact might show that people it helps get jobs more quickly than those it doesn’t help. But that comparison is no good. It may say solely indicate that people who chose to ask for its help are unusually motivated. (This real example is discussed here.)

• If no decent quality evidence exists, consider funding researchers to produce more.

Understanding how to fund means:

• Measuring your ‘success rate’ as described above, seeing how it varies if you change your practice. Publish what you find so that others can learn.

• Seeing if you can find free money! Measure the costs that are borne by charities (and/or social enterprises and others) in applying to you and in reporting to you. I personally once got a net grant which was entirely consumed by the funder’s processes. Such stories are quite common. Streamlining these processes could easily release £400m every year.

• Asking your grantees for their views of your processes. The US Center for Effective Philanthropy does this through its grantee perception reports, and others do too, such as Keystone Accountability.

And lastly, publish tales of things which don’t really work. That evidence is hugely insightful, and though 92% of funders believe that ‘charities should be encouraged to report failures or negative results’, no funders publish theirs. Giving Evidence is working with a corporate foundation to publish soon the first in a series of ‘honesty reports’, based loosely on Engineers Without Border’s annual Failure Reports.

Why many charities shouldn’t evaluate their own work –>