Simpsons Solicitors

Peculiar Philanthropy – 3. The Relationship Between Donor and Recipient

January 5th 2014

Whether donor or recipient, every organisation we met said that effective large-scale philanthropy relied heavily on a good working relationship and mutual understanding of each other’s needs.

Even that language is rather loaded – “donor” and “recipient” when perhaps the better description is often a partnership or joint-venture with one partner providing funds and the other expertise and skills so that they may both deliver a shared goal.

Some, like Skoll Foundation, tended to invest more heavily in the pre-finance due diligence process to identify the stronger team that could be relied upon for greater autonomy with almost unrestricted funding guaranteed over years to provide security for administrative and project finance (a charity’s dream).   Others required closer involvement and input on an ongoing basis – indeed many saw their management team or board roles as an important part of the support being given to the organisation.

Both Skoll Foundation and Omidyar Network funded Kiva – Skoll Foundation provided $1m of unrestricted funding over three years and Omidyar Network $5m over five years towards technology building, expanding field partner relationships and due diligence and monitoring.  In their own ways, both approaches acknowledge the importance of the relationships.  Both Kiva and its funders talked highly of the relationship and acknowledged the intensity of the courting rituals.

These are, of course, general principles also espoused in business.  In large-scale philanthropy, however, the relationships have greater potential to be uneven due to the unusual financial relationship between donor and recipient – the donor has money and power and there are vast numbers of charities needing both – it is a skewed market.

This can lead to recipients being overly cautious with donors and potentially not disclosing information that they think might spook a donor but might be vital to build a relationship of trust or more effective programs.  It’s a danger that can be overcome by the building of mutual trust.

At the William and Flora Hewlett Foundation we learnt about the partnership with One Acre Fund in Africa and the deep relationship of trust that was tested when disease ripped through the country requiring a major shift in approach on the ground by the Fund.  The Fund had the support of the Foundation and the challenge weathered where others would have failed.

We saw donors acknowledge that it was usually them that needed to make a greater effort to be humble and respectful.  At the Gates Foundation we saw an open acknowledgement of the need for the Foundation to improve its relationships for more effective philanthropy.

We learnt of the importance of donors understanding the recipients’ funding cycles and operating costs.  We heard passionate pleas as to the dangers of focusing solely on operating costs as a measure of a charity’s efficiency.  Some charitable endeavours will have higher administrative costs due to the difficulty of the program – providing food in a war-zone has its particular costs.  Despite the urge towards shortcuts to try to make it easier for donors to assess the efficacy of a charity, there is no golden rule about what is a reasonable percentage of administrative costs (nor indeed who is best placed to make the assessment). It’s a balanced analysis that considers the circumstances as well as the results.

We were also cautioned about the risks of just funding particular programs rather than the organisation running the programs. To a donor, it’s potentially a less attractive proposition.  It is tempting to think you are being more effective if your money just goes to the implementation of a program.  If, however, you trust the organisation and their goals, let them decide on how best to achieve them.  If you don’t trust them – don’t give to them. If you do trust them, work with them to find a funding program that works for you both. Some organisations trumpet funding programs were every dollar goes to the end goal (and none on administration) – it’s no doubt a productive marketing approach but it was viewed with deep antipathy by many who said it is an unrealistic and short term perspective – people need to understand that charity costs money to run.  It doesn’t make for good dinner party conversations to say that you fund the salaries of receptionists and accountants in the organisation that supports disadvantaged children.  Sometimes it’s about changing your own dialogue.

Consider:

  • building relationships of trust between donor and recipient;
  • spending time at the beginning to ensure it’s a relationship worth investing in;
  • being particularly aware of the need for humility and respect as an influential donor;
  • administrative costs should be assessed in light of the operating circumstances and the results;
  • funding the organisation not just a program.

The next in the series is Peculiar Philanthropy – 4. The broader spectrum of financial arrangements