How Warren Buffet gives to charity

I like reading articles written by people writing about why or how they support causes that are important to them. I suppose it is a bit of an industrial hazard to wonder why people support the charities they do and how they make the decisions which ones to support. Today I came across this post on Next Avenue. When you read a title called How Warren Buffet Made Me Smarter about Charity- you have to give it a read. The author Eisenberg(2014) quotes Northern Eastern University Professor Rebecca Riccio who states;” Giving with purpose, means achieving two distinct, but highly compatible goals” — to satisfy your personal motivations for giving and to give money to high-performing organizations where it can make a real difference.” This seems to be a very reasonable criterion for deciding which charities to support. In describing Buffet’s views on charity he quotes;” “the important thing is that you feel good about it when you’ve done it. Business is easy, because the market tells you whether you’re right or wrong. But with philanthropy, you can keep doing something that doesn’t make any sense and there’s no playback from the market,” Riccio herself invented the RISE method for deciding which charity to support. In this model Relevance, Impact, Sustainability and Excellence in Management and Operations are to be considered.
As the leader of a small charity the advice to rate sustainability jumps out at me right away. Often charities are encouraged to behave in ways that are detrimental to their own sustainability. Often making investments in fundraising capacity, administration or creating financial reserves are not supported. Organizations like Charity Navigator may provide some direction for donors in deciding which charities to give to but I think overall they can be damaging to the sector. They can be particularly hard on small locally run charities. For example if you are a large multinational charity it may be much easier to create economies of scale when it comes to fundraising or administration costs. If you want some further examples of how the sector as a whole can be forced into making decisions which do not contribute to sustainability (and you are not one of the 3 million people who have already viewed this) check out this You Tube video : http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong
Impact is another criterion described in the RISE approach is also very important. You can review financials to evaluate the results of both a for profit and a nonprofit organization. Financial statements might create a pretty complete picture for a for profit, but for the NPO they tell less than half of the story. We are concerned with ROI but we are not concerned with shareholder value and only slightly less concerned with profit (creating some profit or surplus does contribute to sustainability). As suggested by Riccio (2014):” Just as if you’re investing in a company and want to feel confident it will determine the financial returns you’re looking for, when you invest in a nonprofit, you should try to see if it will deliver the social returns you’re looking for.” Part of the story of a small charities impact might be in their annual report but you will also likely find it on their website and in their newsletter.
Riccio does seem in favor of the charity rating sites but does caution that donors be cognizant of each of these organizations formula for rating charities and determining if their world view of how charities operate is similar with your own. Clearly I would not advise charities to ignore administrative costs or fundraising costs; however there are times when an organization needs to invest wisely and consider a long term view of how these investments will benefit the organization. In the post Riccio is credited with two additional viewpoints that are refreshing from a nonprofit leadership perspective. The post describes:” Riccio urges donors not to be dismissive of charities merely because they pay their executives significant salaries or have fairly high overhead. “We have placed extraordinary expectations on what the nonprofit sector should be doing to care for our most vulnerable populations and yet we somehow want them to do that on the cheap,”
The article also credits her with this second perspective;” She also encourages you to be a sustained giver — making regular, repeated donations to the same groups that you want to help. Being a sustained giver, helps nonprofits have a reliable income and gives them confidence to take a longer-term view of how they’d like their programs to work over the years,” says Riccio. “A lot of the work nonprofit organizations do takes time to see results. By sustaining an organization for the long haul and providing a reliable source of support, you’re giving them the breathing room it takes and they won’t be as subject to fluctuations in funding that can force them to stop and start programs.” Sustained gifts do create as she suggests confidence to take a longer term view. However they also do create cash flow which can be very important particularly for the small charity. I am not sure if everyone who supports a charity realizes how important sustained giving or monthly gifts are –but it is refreshing to see an author and a professor advocating it.
References
Eisenberg,R (2014) How Warren Buffett Made Me Smarter About Charity: Tips from a Giving With
Purpose MOOC he helped teach: Next Avenue; May 20,2014 as retrieved from
http://www.nextavenue.org/blog/how-warren-buffett-made-me-smarter-about-charity
Ted Talks (2013) Dan Pallotta: The way we think about charity is dead wrong as retrieved from:

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