It’s an enviable job to guide where $100 billion is invested each year. But with great power comes great responsibility.
Most of the $5 trillion in donations made in the United States last year were made by individuals, reflecting their personal interests. The 20% distributed by foundations and other professional donors is subject to special oversight. What is the highest and best use of philanthropy?
“Need and demand will always outstrip supply,” said Jamie Sears, managing director and co-head of social impact and philanthropy at UBS, which has become one of the world’s largest asset managers.
Sears, in part, sent me in search of an answer to this question. I met her through a social impact conference many years ago and we have worked on a project together. Specifically, a podcast series called “Off the Sidelines” that focuses on bringing underrepresented high-net-worth individuals into angel investing. She took a reflective stance as entrepreneurship surged during the pandemic, especially among women and people of color. Did a decade of philanthropic investment in programs and resources for underrepresented founders actually contribute to that boom?
The result of that question was a groundbreaking analysis by Technical.ly called The Inclusion Edge, which UBS helped fund. The short answer is, it probably is. Years of trials and cultural shifts have made it easier for black women in particular to opt out of traditional jobs and become self-employed. But prudent stewards of capital like Sears resist any kind of celebration. With so much to do, we discussed the questions at hand. How should funders consider balancing priorities after years of pandemic disruption and social disruption?
“The expectations of the communities and organizations we support have changed,” said Nyla Jordan, director of social impact investing at American Family Institute. She has invested across the country on issues ranging from economic opportunity to the arts.
Four traditions of philanthropy
To understand how expectations have changed, it’s helpful to look back at how we got here.
Philanthropy is an old concept. When wealth is concentrated, there is a long-standing moral obligation to distribute some of it. Historically, this has had religious connotations, such as the concept of tithe in many traditions. In modern times, American tax law encourages it. The federal government made donations to charities tax deductible in 1917 and formalized today’s concept of private foundations in 1969. While each philanthropist has their own priorities, tax incentives come with the mandate of directing these funds for greater social good.
According to one framework prevalent among community foundations, over time American philanthropic priorities have followed three traditions: relief, improvement, and social reform.
- Relief: The oldest sense is philanthropy in urgent response to current crises. Consider running a soup kitchen to feed the hungry or distributing water and medical supplies after a natural disaster.
- Improvement: After the industrial revolution, root cause obstacles to personal growth became more of a priority. Considered worthy of scholarships, early workforce programs, and Carnegie Libraries.
- Social reform: The past half century has focused on the systems that underpin social inequality. Consider research and policy change, program development, and a focus on data-driven, reproducible systems.
Currently, “Over the past 20 years, there has been a trend toward evolving from a top-down approach of “We know what they need over there” to a place where we design with the community and, hopefully, are designed by the community.” ” said Platypus Advisors CEO Caroline Valerin. She founded a philanthropy consulting firm after leading corporate philanthropy on her Twitter and her Eventbrite.
This fourth tradition is citizen engagement, in which funders invest as close to the communities they serve as possible.
“Build with design, not for it,” Valerin says, leveraging the preposition. Although the pandemic era did not create this trend, as Valerin predicted in his 2020, it may be remembered as part of it. Invest in close, on-the-ground efforts.
Effective altruism and “long-termism”
While investing locally may sound like an undeniable good, there are also criticisms among some modern moral philosophers and ethicists who challenge today’s philanthropy.
Brian Barkey says that what philosophers call “reciprocity,” where people feel compelled to give advantage to those who are geographically closer to them than those who are further away, is an outdated concept. He is a professor of business ethics at the Wharton School at the University of Pennsylvania and participated in last year’s Technical.ly special report on international hiring.
It is better for philanthropists to focus their money where it can improve lives the most. This is at the heart of something called “effective altruism,” an emerging field of research focused on identifying the world’s most pressing problems and the most efficient solutions. A common example is that bed nets are one of the world’s most cost-effective tools to improve quality of life by reducing malaria transmission. It doesn’t cost much to ease the pain in low-wealth parts of the world, it helps people live longer, happier lives, often with higher incomes, and more likely to have children themselves. It creates ripples that transcend generations.
One of the themes of effective altruism that takes into account this multigenerational impact is the concept of “long-termism.” The term has been popularized in recent years by books such as Toby Orb’s 2020 book The Precipice: Existential Risk and the Future of Humanity and William MacAskill’s 2022 book What We Owe the Future. Ta.
Long-termism asserts that there is no moral difference between caring for a stranger 150 miles away and caring for a stranger 150, or even thousands of years, away. This is not all that different from the famous 7th generation principle, which is credited to the Haudenosaunee or Iroquois people. This principle requires that today’s decisions be consistent with our ancestors several generations before us and our descendants who will live seven generations from today. It has been 150 years since then.
Effective altruism and long-termism are among the most high-profile challenges to contemporary standards of morally responsible philanthropy. Where shall we go next?
“Join the community” according to your expertise
Compared to Malawi’s Malaria Net, for example, support for (or storytelling about) Milwaukee’s Entrepreneurial Support Program would seem particularly costly and indirect. Why not abandon everything and direct all funds to the most cost-effective interventions?
Effective altruism raises important questions, but Valerin questions whether it is desirable (much less possible) to coordinate all of the world’s philanthropic funding around one issue at a time. I am. Social issues are deeply intertwined. Malaria exposure is associated with housing and education, as is entrepreneurial access with awareness and network effects.
“Through a variety of philanthropic approaches that look at the short, medium and long term, we can further innovate and create more cross-cutting solutions needed for the complexity of our problems. We’re going to unleash it. We’re going to work on it today,” Barerin said.
Donors, both individuals and foundations, need to scrutinize their investments and invest across the “capital stack.” Relief forms of philanthropy are increasingly left to governments and religious groups, but when hurricanes strike, contributions from others are desperately needed.
When the storm subsides, the root cause is attacked. There, professional philanthropy can go beyond just funding and incorporate expertise. Regulations apply to private foundations and corporate philanthropy, especially philanthropy by financial institutions, which contributes to geographic and thematic focus. Beneficially, this can be aligned with the expertise and networks of funders.
“Instead of just mailing a check to the most well-known nonprofit, find the nonprofit closest to your problem and ask them what they need,” Valerin says. She advised investing where there are other resources to offer.
For example, asset management firm UBS has identified that increasing business ownership by women and people of color addresses wealth inequality. This is a goal for charities that benefit from the company’s expertise. That’s why Sears has developed a portfolio of programs, organizations and investments with the goal of increasing the skills, networks and stories of underrepresented entrepreneurs.
“The need for more sustainable investments is critical,” Sears said. “And that’s something we can all do from a process standpoint.”
As American Family Insurance’s Jordan says, “Trust, try, learn, and listen.”
Sears added, “The answer comes from partnerships and communities.”
Knowledge is power!
Subscribe for free today and get the news and tips you need to grow your career and connect with our vibrant tech community.
technically media