A framework for effective giving

"It is more difficult to give money away intelligently than it is to earn it in the first place."

-- Andrew Carnegie, Scots American industrialist and philanthropist

What is effective giving? Effective giving is about making informed choices. It is about being confident that your gift will make a difference - that the charity is doing high-quality work and that your donation will be an effective and efficient use of your money or time.

Philanthropy is a private transaction, yet our sense of social responsibility compels us to want to be effective in our giving, and to make a difference. Of course, the impact obtained will vary depending on the objectives of the giver and the cause supported, and can be made up of many things. Impact is the social return on your investment in a disadvantaged community; it is the standing ovation at the performance of a musician you have supported; it is inspiring others to give. Impact is a park preserved; a patient cured; a diploma earned; a mouth fed. Impact is helping a woman gain the self confidence she needs to start her own enterprise; it is the smile on the face of a young cancer patient, simply because you showed up; it is your own satisfaction in knowing you have made a difference.

Effective giving is having the impact that you seek. While this framework and its key principles aim to help inform your giving decisions with objective analysis - that is, how you give - they are not intended to diminish the importance of your empathy and commitment - that is, what motivates you to give in the first place. Indeed, good philanthropy strives for a successful blend of objectivity and compassion.

Key principles of effective giving

1. Give responsibly. Be knowledgeable about the causes and organisations you are supporting. Even if you do not have time to engage directly with the recipients of your gifts, read the evaluation reports and modify your giving programme as appropriate.
2. Understand the impact of your giving. What impact do you seek? What impact do you have on the organisation and on its beneficiaries? How can you be confident that you are achieving your objectives? How will the results achieved influence future giving decisions?
3. Seek good advice. There are a variety of sources who can advise you on your giving programme and on individual investments. These include professional advisory services - such as tailored advisory services for donors, financial advisors and community foundations - as well as informal sources of support - such as family, friends and colleagues.
   

A framework for effective giving

Guided by these key principles, the framework for effective giving guides you through a step-by-step process to create a charitable giving strategy that reflects your own motivations, interests, circumstances and objectives. This strategy in turn guides your selection of specific charities (or other recipients) for your philanthropic portfolio. While the framework is designed especially for individuals, it also can prove useful for other types of funders.

We wish to emphasise that there is no 'right' strategy or 'right' portfolio - it is a question of what matters to you, who you would like to involve, and how you would like to organise the decision-making process. Moreover, this framework is intended to be descriptive rather than prescriptive, and aims to support you, as a guide and a stimulus, as you choose your own path to effective giving.

The first step is to determine what you want to achieve by your giving. You might want, for example, to support your local community, to preserve the quality of an experience you enjoy, or to effect some sort of social change. In defining the objectives of your giving, use your responses to the following questions as a guide.

• Why do you want to give? What are your motivations for giving?
• What influences you in why or how you give (for example family, religion, peers, feelings about obligations associated with wealth)?
• What are your basic values?
• How do you want to make a difference to a cause you care about?
• What have been your most significant gifts?
• What gifts have you found most personally rewarding?

Back to top >>

As you evaluate your circumstances, consider your finances as well as other personal resources. As you review your financial situation, take account of the following questions. If you are not sure about the answers to any of them, you should contact your financial adviser. In any case, it is a good idea to talk to your financial adviser or lawyer if you are thinking about making a significant or long-term donation. It is also essential if you are contemplating such a donation as part of an overall approach to managing your financial affairs.

• How much money do you think you might be able to give? Over what period of time?
• Is this likely to be one lump sum (for example, from the sale of a company, a block of shares, or an inheritance)?
• Could you set aside a regular amount from your salary, fees or pension?
• Do you sometimes benefit from regular extra income, such as an annual bonus?
• How much do you think you will want to give in the future?
• Do you think you might want to leave some money to different causes in your will?
• Would you like to make sure that your donations continue after your death?
• Are there time-sensitive tax considerations (such as giving shares to a charity by 5 April to obtain tax relief on the gift in the current tax year) that influence your decision?

As you evaluate your time and skills, think about the commitment you are able to make to charitable activities in general, as well as to a specific organisation. Answering the questions below will help you to plan how you will organise your donations, as well as the relationships with the charities you support.

• Do you want to make new decisions each year?
• Do you want to support some organisations regularly and over the long term?
• Do you want to become involved in giving your time and expertise?

Back to Top >>

In this stage you focus on the causes you care about and how you might concentrate your giving, based on what you want to achieve and what the needs are.

First, think about the causes you care about. To what issues are you most passionately committed? What types of charities have you supported in the past? These might include the following:

• Social needs - promoting healthcare, education and care for people who are disadvantaged
• Culture - protecting cultural heritage, developing new ideas and supporting arts organisations
• Science - promoting research and development, for example in medicine
• Environment - promoting sustainability (development that doesn't waste natural resources), and protecting the environment and animals
• Humanitarian needs - includes reducing poverty, disaster relief and tackling AIDS
• Religion - protecting religious ideas and values
• Communities - focusing your giving on local or regional needs and issues and supporting economic regeneration of deprived communities

You should also consider the geographical area of the work. You may have a special link with a part or parts of the country. This might be where you, or someone important to you was born or brought up, your place of work or source of wealth, or the local community where you live. Or, you may want to be associated with a regional or national centre of excellence. You may also have a special link with other countries.

You may be interested in more than one of these areas, and some people find it helpful to plan to set aside a percentage of their yearly giving to each chosen category. Of course this is not a hard-and-fast rule, but setting out a policy is a simple way of making sure that you are able to support the range of causes you and you family are interested in.

Although you will have your favourite causes, you may also want to set aside something for unplanned giving. This may be in response to a disaster appeal, a specific opportunity you did not expect, or a request from a friend you respect and admire. Some people set aside a specific amount each year for unplanned giving.

Once you have identified specific causes or issues you wish to support, do some initial research - 'preliminary due diligence', if you like - to identify what the needs are and how you could best support them, given your personal resources. Ask yourself the following questions:

• What needs are most pressing?
• What needs are least well served? Where are the gaps?
• What type of support do the charities (or communities) need (for example, amount of funding; type of funding, such as grants or loans; type of non-financial support)?
• How can you have an impact?
• How much do you know about the issues?
• Do you know enough to be confident in your assessment? What expertise can you access?
• What is the role of private funding in this area? What risks can private funding take that government and other public institutions cannot?

Back to top >>

Based on what you want to support and your financial situation - and how you can give tax-efficiently - determine what giving mechanisms are most appropriate. For example, you might consider the following options.

• Supporting a few specific charities regularly through payroll giving;
• Giving through an intermediary, such as a venture philanthropy fund, a risk-capital fund, or a community development finance institution (CDFI);
• Taking advantage of tax incentives, by, for example, opening a CITR account at Charity Bank;
• Setting up a private or family charitable trust;
• Outsourcing the administration by establishing a named fund at a community foundation or setting up a CAF Charity Account or Trust Account.

Back to top >>

Having considered your objectives, resources, the focus of your giving and possible giving mechanisms, you are ready to formalise a charitable giving strategy. This strategy should clearly articulate:

• What causes you want to support and how you will support them; and
• A decision process and giving criteria.

To clarify your strategy, you might find it useful to write a giving strategy statement, outlining the following:

• The goals and objectives of your giving;
• What causes you will support;
• What areas, if any, are off-limits;
• The types of recipients of your giving (eg, registered charities, individuals, ethical businesses, social enterprises, micro-enterprises);
• The type of funding you will provide (eg, grants, loans, equity);
• The types of activity on which you might focus (eg, frontline services versus advocating for change; establishing new approaches versus maintaining existing services);
• What non-financial support you will offer (eg, time and expertise);
• The giving mechanisms you will use (eg, charitable trust, CAF account, intermediary);

In defining a decision-making process, consider how you want to be involved in the giving decisions. Many people will be guided by the specific requests they receive. Apart from making a financial contribution, they do not want to become more involved, particularly if they have limited time and have confidence in the ability and effectiveness of their beneficiaries. However, when developing the principles and priorities for your donations, you might also consider how you would like to manage the relationships with the organisations you support. This is really about how far you want to be involved in decisions about how the money is spent, or in learning about and, in some cases, taking part in the work of the charity in general. So it is at least partly about committing time as well as money.

• Do you want to take part in a formal process where you review and assess possible beneficiaries based on a formal set of funding conditions?
• Do you prefer to respond to needs as you see them, or as you are inspired, on a one-off basis?
• Are you likely to want to support more than one organisation?
• Do you want to research and pick the charities you give to, and perhaps set aside your donations for specific programmes or projects within those charities?
• Do you want to give to a charity that supports a general issue or cause you are interested in, and allow them to make more specific decisions about which organisations or projects will benefit from your gift?

In addition, consider whether you might want to involve others in your decision-making. Some people see their donations as a private matter, whereas some people like to involve others. Do you want to take part in a joint group process, or would you rather control your own decisions? Who do you wish to involve? Depending on your interests, these might include family, friends, colleagues, advisors or community members.

If you wish to use a formal decision-making process, then you might consider your responses to the following questions.

• What criteria - based on your giving strategy statement - will you use?
• Will you accept unsolicited proposals?
• What information, and in what format, will you request?
• Who will you involve in the decision-making?
• How will you respond to proposals?
• What is your preferred method of contact?
• Are there administrative or regulatory requirements?

If, on the other hand, you prefer to have a more informal process, or if you wish to outsource the decision-making to an advisor, then you will likely want to establish, at a minimum, some giving criteria - based on your giving strategy statement - and a preferred method of contact.

Back to top >>

Identification and evaluation of potential recipients of your gift will be driven by your charitable giving strategy, decision-making process and criteria. You may take an active role in finding and selecting recipients, or you may outsource this responsibility to an advisor, who screens proposals against specified criteria. Yet, even if you are relying on advisors to manage your charitable giving, you should be knowledgeable about the causes and the organisations in which you are investing.

The level of research you undertake - or have carried out for you - will depend upon the level of your giving and your giving strategy and objectives. However, even if you do not have time to manage your charitable giving portfolio actively, you will benefit from learning as much as you can about your focus areas. This learning can help you be more critical of the evaluation reports you receive, increase your confidence in your philanthropy, and may even encourage you to take some risks.

Networks and other resources you might access include the following:

• Family and friends;
• Neighbours and community leaders;
• Colleagues;
• Individuals leading your company's corporate giving programme;
• Advisors (eg, financial and legal);
• Philanthropic intermediaries (eg, community foundations, donor advisory services, community development finance institutions);
• Other donors;
• Practitioners and advocates within your focus areas;
• Membership associations;
• Academic research;
• Media coverage on your chosen focus area.

If you are personally making the giving decisions, you might consider the following evaluation questions (note that this is not intended to be a comprehensive list):

• What are the mission, vision and culture of the charity?
• What specific need does the charity address?
• What is unique about its approach? How does the organisation compare to its competitors?
• Who are the beneficiaries?
• What is the calibre and experience of the organisation's leadership?
• What is the financial health of the organisation? What are its existing funding sources? How might this change?
• What regulatory factors need to be considered?
• How can your investment add value to the organisation and its beneficiaries?
• Can you leverage your giving with the financial resources and expertise of other stakeholders?

If you wish to be directly involved in making decisions for specific charities, then you might want to consider requesting certain standard information. This information may include:

• the mission and aims of the charity;
• what it has achieved over the last few years;
• what you are being asked to support and why your support is needed;
• the beneficiaries of the charity, and how your gift might make a difference to their lives;
• the main staff and trustees;
• the other main supporters;
• the process for assessing progress towards meeting the aims of the project or plan; and
• accounts for the last three years.

After you have decided to support a particular cause, you might want to think about how you want your gift to be spent. How do you want to make a difference? Most people think about one or more of the following:

• Supporting established organisations by giving one-off gifts or long-term support;
• Supporting new projects, including pilot schemes that may offer a higher risk;
• Supporting campaigning and lobbying activities - sometimes called 'advocacy';
• Supporting an intermediary organisation that in turn supports a number of charities that the intermediary has assessed as being excellent candidates for funding/investment.

Many donations to charities are given in an unrestricted manner. This gives the management of the charity the ability to use the funds as they see best, and gives them the flexibility to respond to changing circumstances. You may alternatively want to think about doing the following:

• Supporting specific projects or equipment;
• Contributing to overheads or 'core costs' (such as rent, insurance or telephone bills);
• Donating towards a major capital project;
• Contributing to reserves (money set aside to make sure the charity can continue to operate if there is a drop in income) or an endowment;

Some people prefer to support individuals through:

• bursaries and scholarships;
• cash grants;
• investment in social entrepreneurs (people who work in a businesslike way for public or social benefit rather than to make profits) and young people starting businesses.

If you are flexible in the way you give, then you can discuss with charities that you are considering for support what their funding needs and priorities are. From the perspective of the charities, all contributions are highly valued.

Long-term committed giving is often preferred, as it provides the charity with reliable, baseline funding and enables the charity's management to plan more effectively. While many charities actively seek one-off support for specific appeals, such as for a new service or building, once the appeal has achieved its objectives, they will still need ongoing funding to maintain the new service.

Just as in business, charities do need to invest in infrastructure, such as their talent, IT and quality systems, to ensure that funds can be used to deliver the greatest impact. Charities may particularly value gifts that acknowledge this.

Finally, you might want to think about recognition for your gift. Sometimes, particularly when you make a major gift, the charity would like to make a permanent and public acknowledgement of the fact. This is because there is a long tradition of doing so, and because it often encourages others when they see the range and nature of existing supporters, and the level of their giving. This is something to think about for specific gifts and in general.

In an individual case, you should discuss this in detail with the charity before making the gift. In many cases, they will propose a type of recognition that is appropriate for the level of commitment you are making, but if you would like something different you should not be afraid to mention it. You may have specific personal reasons for making a particular request. Unless you tell them, they will not have the opportunity to honour a respected donor in the best possible way. For example, you may want to create a permanent memorial to someone who has been important to you, or have your name associated with a particular type of social service, education or the arts.

If you are planning to make a major commitment to charity during your lifetime, you may want to consider the values and reputation that will be associated with your family name (unless, of course, you prefer to donate anonymously). In other words, how would you like your giving to be remembered?

Regardless of your preferences, make sure the charity knows exactly what your expectations and requirements are before you make the gift, so the risk of misunderstandings and disappointment is reduced as far as possible.

Back to top >>

Donors give because they want to have an impact. While the nature and degree of this impact will vary by donor, objectives, cause, beneficiaries, etc, donors will want to assess and understand the results of the investment: What worked and what didn't? What was important to the success? What were the challenges? What external factors affected the results? The way you determine answers to these questions will depend on how involved you want to be, the level of your giving and the scope of your giving programme. If you are making sizeable gifts, you may want to consider building in a percentage to be directed toward a formal appraisal.

As you define your approach to evaluation, consider the following questions:

• What impact do you seek?
• What do you want to learn? What evidence do you need to assess impact?
• How do you want to learn it (eg, written reports from the organisation, an advisor, or an intermediary; personal visits to the charity; speaking with beneficiaries or community members)?
• How can you lever additional resources more effectively?
• How will your findings impact future giving decisions?
• How might you be more effective in your charitable giving?

Back to top >>