Why the Rich Fail at Philanthropy

Why the Rich Fail at Philanthropy

Article posted in General on 29 May 2014| 1 comments
audience: National Publication | last updated: 30 May 2014


Eric Friedman is a philanthropist, not an advisor, not a fundraiser. So we need to listen. His opinion is critical to our understanding of the donor. Not only read his very opinionated article, but also read the reviews of his book at Amazon.com and click to see who wrote every review, as I did. You will learn a lot. We now live in a world where we cannot ignore the beliefs, convictions and inner thoughts of our clients and benefactors. For those of us who simply understand that a donor is first a person, we will succeed far beyond the norm as advisors and fundraisers.

The views of Eric Friedman are his own and not the views of the Planned Giving Design Center or its hosting organizations. Enjoy, learn, and grow.

by Eric Friedman

Many people consider Bill and Melinda Gates to be the prototypical rich philanthropists. Forbes ranks Bill Gates as the world’s richest person, with $76 billion, narrowly beating out Carlos Slim, who has a net worth of $72 billion.[1] But the only reason it is a close competition is because Gates used much of his earnings to occupy the top spot of a different Forbes list: The Billion Dollar Givers. Gates has already given away $28 billion and has pledged to give away more.[2]

The Gates’ philanthropy is well-known to many, as it has attracted widespread media attention. We’ve all seen images and video footage of Bill Gates in extremely poor villages, standing with the people he is trying to help. The Gates Foundation is “guided by the belief that every life has equal value,”[3] and has the reputation of helping the poorest of the poor, with programs on global health and economic development. The foundation has addressed causes like preventing malaria, eradicating polio, and vaccinating children. Domestically, its programs are dedicated to improving high school and postsecondary education and supporting vulnerable children and families; the focus involves giving young people the resources they need to live happy and productive lives.

While the image of ultra rich philanthropists dedicating themselves to those less fortunate may embody Bill and Melinda Gates, this is by no means the standard among the rich—even among rich philanthropists. Many treat philanthropy like a personal hobby, writing checks for things they like (and provide some benefit to others) rather than trying to do the most to help others.

We can see by looking at the mega-donations from 2011-2013.[4] 12 percent of the gifts over a million dollars were focused on cultural areas such as the arts, museums, sports, or historic preservation. As an example, billionaire David Koch made several of these gifts.[5] One of these was a donation of $65 million to the New York Metropolitan Museum of Art, financing a renovation of the outdoor plaza around the museum. Thomas Campbell, director and CEO of the museum, described the importance of the donation: “We see the need for a space that will make a significant contribution to our neighborhood, rich in spatial character, with glorious fountains, welcoming shade, choices for seating, beautiful plantings, and light refreshments, all in elegant complement to our iconic Beaux-Arts building.”[6]

Koch also gave another $35 million to National Museum of Natural History for a new dinosaur exhibit hall. Koch told the Washington Post that one of the reasons he made this donation is because dinosaurs have always fascinated him. “It goes way back,” Koch said. “I went to my first dinosaur hall with my father and twin brother. We went to the American Museum of Natural History, and I was blown away by the dinosaurs.”[7]

Another one of Koch’s mega-donations was for $1 million dollars to the New York City Opera. This was just a drop in the bucket for the opera, though, as Koch previously pledged $100 million to renovate the performance center that is home to the New York City Ballet and New York City Opera.[8]

Though the general public will certainly appreciate the improvements to these cultural institutions, the style of this type of giving is quite different from that of the Gates Foundation. Koch likes art, opera, and dinosaurs, and directed his giving accordingly. Certainly rich and poor alike can appreciate the improvements from Koch’s gifts (except possibly the opera house, which is primarily for the financial elite), but it’s a far stretch to suggest that these gifts were designed to maximize the good that can be accomplished from the use of the funds.

Gifts to cultural institutions are not the only questionable mega donations. 62 percent of the donations over $1 million were to colleges and universities. There is certainly a stronger case for this type of giving, as higher education provides many important benefits to people from a variety of socioeconomic backgrounds.

However, many of the mega gifts from the rich are designed to create elite institutions for the elite, rather than to improve opportunity for the general public. The rich treat philanthropy as a whimsical hobby; they do things like financing new buildings (named after them) and endowing professorships (in the subject areas that interest them). Many also give as “grateful recipients,” thanking the universities that contributed to their own lives, rather than seeking the schools that could make the best use of a donation. While these donations make our society better off than if nothing were given, this type of philanthropy is very different from giving with the sole purpose of improving the world.

Harvard’s endowment exceeds $32 billion, Yale has over $20 billion, and Stanford’s is over $18 billion,[9] and these universities and their elite peers continue to top the list of universities getting even richer with the most new donations. Meanwhile, college education is getting less affordable for the middle class, our K-12 education system is in decline, and some people in poor countries continue to have limited access to any school at all.

Another 12 percent were to health-related charities and hospitals. The role that donors play in health care is both complex and personal. Most gifts go to hospitals, institutions, and illness-related causes that have touched the lives of donors. Certainly some of these donations are examples of great philanthropy. But the donors tend to be members of the middle and upper class in wealthy countries, so the health care problems that get the most attention are those that affect their demographics. This means that a disproportionate amount of donations are directed to researching and administering advanced treatment for illnesses like cancer and Alzheimer’s, and much less is dedicated to diseases of poverty, like providing access to low-cost treatment for malaria and tuberculosis.

The type of care that gets the most funding is reserved only for those with good insurance coverage in developed countries; it is the type of care that may be inaccessible to over six billion of the world’s seven billion people. (By the way, the demographic group that reads this publication is likely to be among the lucky for whom such care is available.) One of the reasons health care is becoming increasingly expensive is because new technologies are searching for solutions that are more effective, not more affordable. The perverse impact of this is that while some people are getting better care from new technology, others are no longer able to afford care at all. Why don’t we search for lower-cost prevention and treatments for illnesses to touch those without insurance? Probably because those people can’t afford to donate.

It is not my intention to criticize those who give to health care (or other) causes that have touched their lives. There is a thin tightrope to walk with critiquing donors—should they be compared to people who donated more effectively or people who didn’t donate at all? Nevertheless, it is important to illuminate the issue that a charitable culture in which people give to the causes that have affected their own lives tends to overemphasize areas that help the financial elite and underfund charities that focus on issues that exclusively affect the needy.

A frequent counterargument is that donors are voluntarily giving away their own money, so we should be grateful that they are doing something to benefit society, even if it’s not what would be most beneficial. After all, that’s better than if they bought a yacht and a hybrid Lamborghini. This is certainly a valid argument, but it doesn’t imply that we need to treat all donors like magnanimous saints, when many are not particularly intent on doing what will benefit the world most.

Part of the reason mediocre charitable giving is celebrated is that people are uncomfortable being judgmental about charitable giving. It doesn’t seem fair to throw stones at people whose charitable giving is directed at mediocre causes when there are so many who are not philanthropic at all. This reluctance to critique donors even extends to professional experts in philanthropy. In their seminal book on strategic philanthropy, Paul Brest and Hal Harvey, former senior executives of the multi-billion dollar Hewlett Foundation, wrote:

We do not presume to tell you… what passions to pursue… You may wish to promote the arts, religion, social services, education, health and medicine, or world peace; or protect the environment; or support the search for extraterrestrial life… such issues are outside the scope of this book. The subjects considered here are relevant to all philanthropic goals.[10]

It is striking that the fundamental goals of giving are outside the scope of an otherwise-excellent book on philanthropy. Similarly, the Giving Pledge, an initiative by Bill Gates and Warren Buffett, encourages billionaires to donate over half their wealth, but is intentionally silent on how those people should be giving. The only type of charitable giving that draws a strongly critical reaction is when the recipient charities are wasteful or fraudulent. But just because a charity passes this test by spending little on fundraising and overhead costs doesn’t mean that its programs are good. (Actually, many nonprofit experts believe that the excessive focus some donors have on low overhead costs hurts charities by pressuring them to minimize the amount they spend on capacity-building areas such as staff training, modern computer systems, and program evaluation.)

Unfortunately, the rich are not the only ones who are not good at charitable giving; middle class donors often have just as many bad habits. According to a study by Hope Consulting, only 35% of donors do any research before giving, and only 9% do more than two hours of research.[11] It is common for people to donate to their alma maters, without seriously considering whether another school could make better use of the gift, let alone a charity in an entirely different sector. Further, some people give to many different charities, spreading their gifts thin and refusing to prioritize or express conviction in what is likely to work best.

So what are the best charities to support? Probably ones you’ve never heard of. The charity evaluator GiveWell provides its top rating to charities with strong documented track records, highly cost-effective activities, and concrete needs for more funds. Currently its three top-recommended charities include Deworm the World and the Schistosomiasis Control Initiative, both of which treats people with parasitic intestinal worms in very poor regions of the world.  And the third is GiveDirectly, which has a shockingly strong evidence for improving lives simply by giving money to extremely poor people. Part of the reason the best charities are the ones people haven’t heard of is precisely because people haven’t heard of them—the easiest solutions haven’t been funded by other donors.

What is the role of advisors to donors?  Should advisors be helping donors pursue their chosen mode of philanthropy or pushing donors to become more effective?  Good advisors will likely do both.  Good advisors listen to their clients and try to understand their goals.  Donors who have mostly self-centered goals for giving, such as the recognition of having a building named after them or the fun of supporting a favored cultural institution, will be uninterested in increasing the impact of their philanthropy.  Advisors may have little choice but to be sensitive to that.  But many donors are motivated to help others; if an advisor can suggest a way for them to be more effective at helping others, it should be well-received.  To add value in discussions about charitable giving, advisors must become knowledgeable about strategies for effective giving, which requires much more than simply knowing the tax and legal rules about giving.  While so much philanthropy fails to reach its potential impact, it doesn’t have to be that way—and advisors can be vital to such improvements. 

Eric Friedman is the author of “Reinventing Philanthropy: A Framework for More Effective Giving.” An excerpt is available at www.ReinventingPhilanthropy.com.

[2] Durgy, Edwin. “Billion Dollar Givers: 23 Who Have Given Away $1 Billion Or More.” Forbes. 5 November 2012. http://www.forbes.com/sites/edwindurgy/2012/11/05/billion-dollar-givers-...

[4]Chronicle of Philanthropy list of gifts over $1 million: http://philanthropy.com/factfile/gifts

[5] “No. 11: David Koch.” Chronicle of Philanthropy. 10 February 2013. http://philanthropy.com/article/No-11-David-Koch/137119/

[6] Zimmer, Amy. “David Koch Funding Major Metropolitan Museum of Art Plaza Renovation.” DNA Info. 7 February 2012.  http://www.dnainfo.com/new-york/20120207/upper-east-side/david-koch-fund...

[7] Trescott, Jacqueline. “David Koch donates $35 million to National Museum of Natural History for dinosaur hall.” Washington Post. 3 May 2012.  http://articles.washingtonpost.com/2012-05-03/lifestyle/35455230_1_dinos...

[9] Hicken, Melanie. “America's biggest college endowments get even bigger ” CNNMoney.com. January 28, 2014.  http://money.cnn.com/2014/01/28/pf/college/university-endowments/

[10] Brest, Paul and Hal Harvey. Money Well Spent: A Strategic Plan for Smart Philanthropy. Bloomberg Press, 2008. p. xxiii-xiv.

[11] Money for Good. Hope Consulting. 2010. http://hopeconsulting.us/money-for-good/

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Re: Why the Rich Fail at Philanthropy

Very thoughtful article. Having dealt with individual donors of varying degrees of wealth for over 35 years; however, I find that donors primarily give to those institutions and causes dearest to their hearts based upon their world view, belief system or personal passion and interest. While advisors can provide expertise for structuring gifts and may offer alternatives, steering donors to charities that "will do the most good" as reference by the author's seems very subjective and judgmental. How would one measure "the most good" and in whose opinion is one gift more valuable than another gift? Good questions to consider and discuss with client/donors but substitution of my belief system or values for that of the donor is, in my opinion, not the job of the advisor.

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