Simpsons Solicitors

Organisational Fundamentals – Philanthropy is no different

January 5th 2014

In many ways, the most obvious and perhaps most important lesson from these U.S philanthropists was a lesson that could equally have been learnt from BHP: a well run organisation is more likely to achieve success than a poorly run one.

It’s no surprise that the successful philanthropists in Silicon Valley, San Francisco and Seattle were also successful business people.

You need excellent leadership and human resources; clear mission, goals and strategies; the means to measure and learn from successes and failures; and an understanding of the competition and market in which you are operating.

Indeed, if you don’t have or can’t afford a well-run organisation, you have a serious problem before you’ve begun trying to help others.   Perhaps it’s because your donors or members wont fund and don’t appreciate the importance of administrative costs.  Perhaps you are duplicating services or administration that would be solved with a merging of organisations or projects.  For large donors, why set up another foundation? Why not do as Warren Buffet did and give money to another organisation you trust?

I have been on a board of an arts organisation that was replaced for merely investigating an administrative merger in circumstances where it could not afford to run properly; such was the concern and vested interest.  The organisation merged out of more desperate necessity two years after.

Otherwise, many of the challenges and opportunities of philanthropy are mirrored in business – the role of politics, regulation, competition, public and government relations and disruptive technology.  We saw all these in operation.

Take Kiva as an example. Matt Flannery, one of Kiva’s founders, talked of the opportunities that new technology opened, not only in starting Kiva with Internet micro-finance, but the continuing re-invention of the program.  They have just launched a new direct micro-lending relationship; made possible by mobile phone banking and cheap phones in Africa.   This is a new opportunity for Kiva and the communities it supports.  It is also likely to disrupt many charities that operate on more traditional micro-finance models.  They will need to adapt or close.  He also talked about the great challenges they face providing innovative finance models with government regulation.  There are on-going fights with governments who wanted to classify Kiva as a bank and bring the organisation under crippling regulation – it’s a fight no government has won.

Gates’ harnessing of innovation and intellectual rigour have been applied to the success of Microsoft just as keenly as the Gates Foundation – as Gates put it, if you’re going to do it properly, its just as hard to make money as give it away.  There’s a lot to give away.  But even $70 billion could be wasted without the intelligent and strategic application of principles that are mirrored in good business.

This organisational rigour was not limited to the Gates Foundation nor was it limited to the benefit of the particular foundation or its projects.   At the Omidyar Network (Pierre Omidyar being one of eBay’s founders) there was a firm view that such rigour is also good for the philanthropy field generally, setting higher benchmarks, and essential to a more ethical and enriched decision making process.  These organisations are taking a leadership role and are willing to share their experiences to benefit others in the field.

With endowments measured in the millions and billions and administrative funding that attracts top-level finance and management teams, none of this should be surprising but seeing it in action was impressive.

It raises the issue of administrative costs in philanthropy – is there something wrong with paying a market salary to a top executive if the results outweigh the costs?  If you increase the salary from $200,000 to $300,000 to attract a particular person but that person raises an additional $500,000 leaving a net benefit to the organisation of $400,000, can that be criticised?  It is partly a perception and marketing issue.  Donors can be reluctant to give to an organisation with high salaries.  Perhaps it feels unfair to give to an organisation if you think its representatives don’t give themselves. Could that be addressed by a commitment from staff to also give time or money to the charity for which they work?  Or does that happen anyway (by lower than market salaries?) but is not well communicated?

It would certainly be a mistake to think that good philanthropic management is the exclusive domain of large and well-funded organisations.  Like in business, small organisations can be just as well run as larger ones and can be more responsive to change.

It is important to bear in mind particularly because philanthropy has its own peculiar problems and without a solid platform from which to operate they can quickly become unmanageable.

To consider:

  • Good administration, drives good philanthropy
  • Assess the cost of administration by reference to the value of the results
  • Collaboration can reduce inefficient use of resources

The next in the series is Peculiar Philanthropy – 1. Measuring Social Impact: Cost, Reliability and Awareness.