Being strategic in your philanthropy

We have seen first-hand the impact that philanthropy can have. We have observed wealthy families transform the lives of others, often in novel and audacious ways. Whether it has been through direct support for those in poverty – at times, literally feeding the hungry, funding educational scholarships for the intellectually rich but financially disadvantaged, supporting the economy at large by investing time and energy in young entrepreneurs, or advancing aspects of medical research for the good of all. It has been a privilege to see family wealth used so powerfully. In addition, philanthropy has often been used as a vehicle for the next generation to get involved early in the stewardship of family resources – again, with great positive effect.

Whilst the impact for the recipients of philanthropy is generally – and rightly – the greatest focus for anyone giving, psychological research demonstrates that giving also brings joy to the giver with positive neural processes when generous choices are made versus selfish ones. Giving can also be good for self-image and self-confidence, literally making you feel better about yourself and your place in the world. A study in the UK found that people who felt greater levels of personal accomplishment were more likely to give generously. Philanthropy can therefore be a literal win-win for donor and beneficiary alike. Beyond this, many societies decide to reward philanthropy with tax relief or recognise philanthropists with state awards.

Giving strategically, and with true purpose

We firmly believe that philanthropy is best done with a clear strategy. It can be all too easy to chase a current fashion or trend, or simply to give to the last charity that asked, irrespective of their effectiveness or impact. In our experience, a haphazard approach to giving rarely leads to the best outcomes for a generous family. Therefore, when working with families, we debate the following with them:

• What are your values and philosophy? Whilst we have witnessed the huge positive impact of philanthropy, and believe in philanthropy personally, we do not seek to force a particular world view on the families we work with. In the end, funds belong to you and no one else. Consequently, it is important to debate the philosophy and values at the heart of a family to determine a common vision for the whole family on philanthropy. Ultimately, the joy of giving should be something that unites not divides a family. For example, there may be particular experiences that you have had on your journey to wealth that you might want to offer to others (e.g. academic scholarship, skills development).

• What do you want to give to? It is evident that the needs in the world are very significant indeed, and it can be all too tempting, therefore, to adopt a scattergun approach. But even the world’s greatest and richest philanthropists have been focused, with a desire to try and own, and then solve a particular issue (for example, The Bill & Melinda Gates Foundation and malaria). Through structured and authentic discussion, it is possible for a family to determine the issues that matter to them most, and where they can reasonably have an impact given their capacity. Most families want to see real change – whether it is something as expansive as preventing a global disease or narrow as transforming the fortunes of their immediate local community.

• How do you want to give? For a family, is it about establishing a foundation that perhaps distributes income only and will therefore exist through generations, creating a long-term legacy? Or is it about giving from capital and income in the present with very immediate results? Then, is it about outright one-off donations, regular multi-year commitments, capacity building loans, co-investing with others (for example, providing matched funding) or even a venture capital style approach to philanthropy. Each approach can have merit, depending on your circumstances and objectives. But each will require different levels of effort and skill.

• How do you choose the right partners, and measure impact? The reality is that the non-profit organisations that you will likely need to partner with will vary significantly in quality and the impact they can deliver. The sustainability of their actions and interventions will also vary considerably. It is critical to employ proper analysis of potential partners to ensure that they will do what they promise. For example, examining their leadership, track-record, financial accounts and reputation can provide valuable insights into whether an organisation can be trusted.

• How do you govern your philanthropy strategy? Establishing a governing committee to oversee donations / investments will allow proper scrutiny of potential partners and provide a forum for regular reporting back. When choosing to donate to a particular non-profit organisation, it is also critical to ensure that there are agreed key performance indicators upfront. This is a great opportunity for many family members to be involved.

Implementing these steps will allow your family to be truly strategic in their philanthropy. It will allow the building of a common family vision and purpose and will maximise the likelihood of impact from your donations and investments.

Avoiding the behavioural pitfalls

In planning your philanthropy, not surprisingly, there are pitfalls that could blow you off course – either unintentionally, as a result of behavioural biases, or intentionally through the actions of someone else, such as fundraisers. It is important to build an understanding of what can influence your decision-making, so you can act with intention:

• Greater awareness of a need. On one level, this is obvious. How can you give to something where you have no awareness? But, if your awareness is influenced deliberately by excessive media coverage or information shared by a fundraiser, this could lead to you supporting something which is not part of your strategic plan or is not aligned to your values or interests.

• Being asked and being asked for a specific amount. The act of being asked for a donation will increase the likelihood that you will give to a particular charity versus another one. Furthermore, being asked for a specific amount – ideally a stretching amount, but not excessively so – will increase the size of your gift versus simply being asked vaguely to “make a generous donation”. On one level, this is intuitive, but you should ask: “is the non-profit asking me, the best non-profit I could support?” There may be a better non-profit that delivers greater impact or more impressive outcomes, with similar objectives – don’t succumb just because you asked.

• Being in a situation where a positive mood is induced. A positive mood can mean that you give more. Again, this may be no bad thing if such giving is consistent with your intention and strategy. But be aware if your mood is being induced – for example, in a social setting such as a gala or ball, or by a conversation with a fundraiser. Psychological research tells us that even the act of simply asking someone “how are you today?” can induce a positive mood, as you will likely respond positively. People are also more inclined to give generously if they have been thinking about their own death, about an act of forgiveness, or about things in life for which they are grateful.

• Responding to guilt. If you are in a bad mood, you will be more responsive to the punishments associated with not giving – to guilt. It is then that you will be most likely to respond to a statement designed to exploit your guilt: “imagine how you would feel if you didn’t help in this situation Similarly, studying committed donors who continue to give to a particular charity reveals that guilt prevents many people from stopping – a belief that they will inflict harm on the beneficiaries by ceasing their giving – even if they no longer really wish to support a particular cause. Be alert to feelings of guilt.

• Because of an incentive or reward. There is, in fact, a correlation between what you are given by an organisation and what you might then give back. For example, alumni of a university are more likely to donate to the university if the university spent more on them whilst they were studying there. It has been shown the access to exclusive events, such as dinners and concerts, increase the likelihood and levels of giving. Of course, there is nothing inherently wrong with this and, indeed, such events can be rewarding for the donor in particular if the experience cannot easily be bought. But it is also important to be objective here – the overall impact and effectiveness of the charity should really be the driving factor, not the charity that organizes the best fundraising events. Be aware that incentives lead to a sense of duty.

• Because of language. As individuals, we are often open to influence by others. For example, if we are called a “helper” by someone, we are more likely to be helpful and to give. Similarly, being called “charitable” leads to increased charitable behaviour. When a discussion takes place on an individual’s general theoretical giving intentions, it increases the chance that they will give, when subsequently asked. Be cognisant of this inherent desire to live-up to the expectations of others and what they might say to you.

Any of these behaviour pitfalls can lead to you deviating from your philanthropy strategy. These can lead to choosing charities that may be less than excellent at achieving impact. At worst, you may sense manipulation from fundraisers. It is critical that behavioural biases are acknowledged and managed.

Conclusion

We have seen the huge positive impact of family philanthropy changing lives. The positive impact, in turn, benefits the donor with giving literally bring joy. It is critical to put in place a philanthropy strategy that ensures your giving has the maximum impact. At the same time, managing behavioural biases that can influence you is also critical. We partner with you to think through all these issues, putting in place your own family philanthropy plan – so the effectiveness and impact of your giving is maximised.