Philanthropists of the World: You’re Doing It Wrong!

As baby boomers barrel into retirement in larger numbers with better health and more energy than any previous generation, philanthropy is getting a makeover. Boomers don’t want to give time at a soup kitchen; they’d rather mentor a small business. They don’t want to throw money into the black hole of a mega-charity; they’d rather know how their money is going to be spent — and possibly have something to say about it.

This is disruption of a high order, which I explored, with co-author Ken Dychtwald, in a 2010 book, A New Purpose. Others, including the notable philosopher Peter Singer, have opined on how much the current generation of givers ought to be giving.

Now comes the self-styled philanthropist Eric Friedman with an intriguing argument about how one should give. In his forthcoming Reinventing Philanthropy: A Framework for More Effective Giving, which is scheduled to be published in September, Friedman takes all sorts of givers to task for personalizing their charity rather than weighing what most needs to be done. In his view, donors must figure out what the world needs, not what they want the world to have, and give accordingly.

“Most generous, well-intentioned donors are failing to meet their potential,” Friedman asserts. “They aren’t giving to the most impactful charities. Sometimes I felt like a jerk criticizing really good people, but it’s important to discuss this candidly.”

Friedman is hardly a household name. He’s a Chicago-area actuary who, at age 35, gives away 10% of what he makes—practicing what I’ve called Everymanthropy, giving while living in affordable chunks. He set out to give for maximum impact and quickly grew frustrated with the charitable world’s infrastructure, which he says plays to donors’ ego, self-interest, and disinclination to ask tough questions.

Friedman is not the first to attack philanthropy on such grounds. The Chinese Zen Master Chuang-Tzu argued in the 4^th century B.C. that most philanthropy was meant to further one’s own business or personal interests. The 19^th-century Frenchman Alexis De Tocqueville described philanthropy as “self-interest, rightly understood.” German philosopher Friedrich Nietzsche agreed.

In New Purpose, I quote billionaire Scotsman Sir Thomas Hunter taking aim at Warren Buffett, of all people, for being a lazy giver. In 2006, Buffett pledged $31 billion to the Bill and Melinda Gates Foundation. In doing so, Hunter told me, Buffett shirked his responsibility. “If you’re clever enough to make $31 billion…I would love to have your thinking in trying to solve the world’s seemingly intractable problems,” Hunter said. (Buffett has a different view: He believes the Gates foundation can do a better job giving away all that money than he ever could.)

Still, Friedman isn’t just throwing stones. He seems to genuinely wonder why folks who give don’t take a keener interest in relatively cheap but life-saving measures like a simple mosquito net or clean water to combat deadly illness in developing nations over things like art museums and university buildings. He’s all about giving efficiently, and to causes that address human suffering–personal passions be damned. It’s a what-matters-most approach to philanthropy that certainly de-clutters all the charitable options out there. In the end, Friedman puts forward a three-point plan for reinventing charitable giving:

• More critical thinking. Today’s dominant paradigm is giving to causes that you care about, such as your alma mater, the opera, or an illness that touched your life. But giving based on emotional ties has much less impact than giving based on trying to make the biggest dent in the world’s toughest problems, Friedman says. He adds: “We should reserve the highest praise for donors with the most altruistic motives.”
• Better vetting systems. The most popular charity evaluators focus on things like a nonprofit’s overhead and the percentage of expenditures that go directly to the cause. This is useful information but does not address whether a charity’s programs are effective. For that kind of analysis, Friedman recommends Givewell.org and givingwhatwecan.org.
• Donors need to roll up their sleeves. Only 35% of donors do any research and just 9% do more than two hours of research before giving, according to Hope Consulting. Donors should think not just about what tugs at their heart but about the world’s greatest problems and the charities that address them. “The irony is that as donors make their giving decisions based less on emotional appeals and more on evidence about what works best, the increased conviction they have in their giving will ultimately provide even greater emotional satisfaction,” Friedman writes.

I’m not sure Friedman has got it exactly right. Without an emotional response would people give as generously? Shouldn’t giving bring us joy, even if it comes at the cost of some efficiency? Should we really abandon, say, the arts, as strict adherence to Friedman’s guidelines would require? In my view, all giving is good regardless of motive. But a little more attention to what matters most probably makes sense.

Will money buy the White House?

By the end of July, Mitt Romney had widened his cash advantageover President Obama by $62 million. Romney has also been raising more money than Obama in the last three months.

In case you haven't noticed, this election season is awash in money.

If Romney continues to outraise Obama, does it mean that he will win the presidential race? Can money buy elections?

Historically, the candidate who raises the most money is likely to win. In recent presidential elections, the only victors whose campaign committees raised less than their opponent were Bill Clinton in 1996 (raising $116.8 million to Sen. Bob Dole's $134.7 million) and Ronald Reagan, who raised less than Jimmy Carter but nevertheless swept into Washington in a 1980 landslide.

In both instances, the comparison of funds raised is limited to their primary campaigns as, unlike today, these candidates relied exclusively upon the presidential public financing system which provided funds in equal amounts to both major party candidates for their general election campaigns.
Fortunately, for candidates in any given race, money alone provides no guarantee of victory. Candidates need exceptional campaign skills, a solid election team, charisma, name recognition and it helps to be an incumbent who usually has these attributes and whose viability often attracts more donations.

Over the last decade, we've seen that in the vast majority of congressional races, those who raised the most money emerged victorious. In 2004, Senate candidates who raised the most moneywon 88% of the time and House candidates who raised the most money won an astonishing 97.8% of the time. It is a testament to money's influence that even in what was widely considered to be a "wave election" in 2010, when the political environment favored the GOP, candidates with the most money still held sway in most of the races.

Still, money is essential. For example, in the 2010 cycle (including both primaries and general elections), only 9 winning House challengers spent under $1 million. Candidates need a lot of resources to conduct a meaningful campaign and, these days, that costs $1.4 million for an average House seat and up to hundreds of millions to take the White House.

In 2012, money is even more important because candidates are not just competing with their electoral opponent anymore, but also with the messages and money from highly professionalized super PACs and nonprofits with lots of campaign experience. These unfamiliar groups' agendas may or may not be clear to candidates, or the voters they're trying to influence.

Outside spending is now the hallmark of America's elections, particularly in tight races.

Expect to see record spending this year, which will largely come from very few donors. While the presidential campaigns are raising less money overall than in 2008, money spent by super PACs and secretive nonprofits, ostensibly independently, to influence elections is soaring. Groups across the political spectrum are making "independent expenditures" and "issue ads" that talk about candidates and issues without explicit "vote for" messages.

This is the evolutionary effects of two critical changes in the campaign finance world. One is the demise of the presidential public funding program and the other is the formal legal sanctioning of unlimited and unrestricted spending directed at candidates.

Since 1976, the presidential public financing system included matching funds for small contributions in primaries and equal grants for the two general election nominees. Beginning with George W. Bush rejecting public matching funds in the 2000 primary campaign (and the spending limits that went with them), that system was diminished incrementally until 2008 when Obama's rejection of general election funding spelled its final demise.

The system was far from perfect, but it offered an equal base from which the two presidential candidates could conduct the eight or nine week sprint to the finish. And it would reduce the fundraising frenzy that now surrounds this presidential race.

Witness how Paul Ryan began his tenure as Romney's running mate with a stop at the Venetian Hotel to meet Sheldon Adelson, the billionaire casino magnate who has previously said he will spend up to $100 million to ensure President Obama's defeat. Team Obama, meanwhile, is holding exclusive, coast-to-coast fundraisers in homes of the super-rich, giving face time (with the president, vice president, first lady and various other celebrities) to those who can bring $70,000 or so to the table.

Similarly, a series of judicial and regulatory decisions in recent years has yielded a system in which unlimited funds from virtually any source can be brought directly into the campaign at any time, often with no indication of who is paying the bill. The maze of obscure organizations designed to coordinate these outside efforts and obfuscate their financial sources is just one more example of the cynical efforts of the political class to bend the rules and manipulate the process in hopes of gaining some small advantage on Election Day. It's an attitude that is not lost on an already frustrated electorate that finds little in the political process worthy of respect.

The result is an atmosphere where candidates and parties must raise upwards of $20 million or more each week or risk falling behind. The airwaves are saturated in an unprecedented effort to influence voters in the dozen states up for grabs this year. In the largest of these states (Ohio, Florida, Virginia) the campaigns, super PACs and other shadowy groups have spent an average of nearly $30 million each month since May, levels not seen until late fall in the closest of previous presidential races.

We've reached the point in the campaign where groups running issues ads that identify a candidate would normally have to disclose their donors. But in a cynical move, groups like the U.S. Chamber of Commerce and Crossroads GPS readily admit to employing evasive tactics which, ironically, require that they take a more aggressive position for or against the candidate, in exchange for which they may completely dodge disclosure of their donors.

Meanwhile, we move toward fall pretending that our campaign finance system remains sound and will protect us when, in some key respects, the rules and disclosure that the Citizens United decision, and the entire system, depends on no longer exist.

Partisan advantage appears to have replaced institutional dysfunction as the driving forces behind the eroding disclosure of those "paying the piper" in this election. The question is whether and when enough people will engage their representatives and collectively demand more authentic dialogue and intellectually honest leadership from lawmakers in Washington. If there is to be any hope of change, this is step No. 1. Otherwise, we shouldn't be surprised when, come 2013, we start hearing a new tune, but can't see who's calling it.

Meanwhile, Romney, Obama, their parties and the outside groups that support them are all locked in an exhaustive race for funds. While Romney has done well compared to Obama in the last few months, the Obama campaign has raised far more overall this cycle. Both camps will have enough money to get their message out, but only one will win the election. In the end, money may not be the only reason, but if history is any indication, whichever candidate raises more of it will likely be our next president.