When most Americans write a check or make a donation in some form to a foundation or charity, they have hopefully done their research on organizations that can best use their money. Making sure money gets to the right place is the first step in successful giving.
Most of us who will never have the means to donate money in the millions, which means any charity would be able to accept, process and utilize our gift. As a result, most Americans are likely not aware of the massive amount of pledged money that goes unused or unspent because so many organizations are not able to take a multi-million dollar pledge and spend it effectively.
That, of course, is not for lack of trying. There is simply nowhere to put vast sums of cash. Calling this a demand issue would be a misnomer, but once gifts reach the hundreds of millions of dollars, the number of charities equipped to disburse that much money is quite small.
Bill Gates and Warren Buffet started The Giving Pledge, but the vast majority of the money pledged has gone unspent. Current estimates are that there are a maximum of 150 charities worldwide that could take a pledge of $200 million. Even if every organization took $200 million, that would be less than 10% of the estimated $600 billion pledged.
It is also possible that many living billionaires could pass away before their pledge is ever fulfilled. That would amount to an unprecedented missed opportunity for our philanthropic world.
Reimagining how we receive and disburse major impact philanthropy will require an overhaul of the infrastructure of most of the nonprofit world.
The Center for Effective Philanthropy found that 67% of foundation CEOs thought philanthropy had the potential to make a major impact on our world, but only a fraction (17%) thought it was actually doing so. The problem is a lingering status quo. The chasm between pledged dollars and money utilized seems to be widening as many billionaire donors struggle to stay ahead of their wealth.
There is a big challenge ahead for the nation's best thinkers tasked with expanding philanthropy's capabilities. They must scale while keeping the same due diligence and investment management standards.
Emerging now is a type of investment or philanthropic firm that looks a lot more like venture capital than a traditional charity framework. The world's existing prosperity has the ability to lift generations out of poverty for a century to come. Sir Ronald Cohen, the father of British venture capital, writes in his new book that such a phenomenon has happened before, but the capitalist market is not currently delivering on that promise of prosperity.
As Cohen puts it, for "...more than 200 years, our existing version of capitalism drove prosperity and lifted billions out of poverty, but it no longer fulfills its promise to deliver widespread economic improvement and social progress. Its negative social and environmental consequences have become so great that we can no longer handle them."
Foundations have to loosen their rigid frameworks as well. When annual budgets become unflexible, they are unable to adapt to large-scale philanthropy. For that reason, an organization's work is unable to migrate to meet the market's needs. Foundations are remarkably ritualistic, and many have been sticking to the same routines and budgets for decades.
The Stanford Social Innovation Review cites the John D. and Catherine T. MacArthur Foundation, which announced in 2015 that it would "work primarily through programs that were larger in scale, time-limited in nature, with a specific transformative goal in mind."
In the most successful cases, donors, grantees and board members are given the freedom to identify the beneficiaries they want to serve. In those cases, immediate beneficiaries may change, but the overall goal of the foundations is fulfilled by the new adaptations.
Often, the grantees know how to execute a massive funding plan because they have expertise in their fields. In the aforementioned SSIR article, the authors posit, "The 'bet' in big bet will often mean that the foundation needs to cede control and put a great deal of faith in a grantee, or group of grantees, to achieve the desired impact."
Foundations and charities dealing in small donations are largely successful, but to unfurl the massive potential of large-scale, impact philanthropy, foundations must find solutions and new ideas as bold as the donations they are receiving.
We are discussing life-changing donations — world-altering philanthropy. If only it could get in the right hands.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
