The Philanthropic Fork in the Road

Apparently philanthropy can no longer be the epitome of altruism. Instead, it needs to yield a smart business decision, too. Philanthropy, and its many facets, was discussed recently in the Wall Street Journal’s “The Journal Report.”

In the philanthropy world, there are usually two decisions to make: which organizations (of thousands) should I donate to, and how much should I give? Well, a third question has been added to that decision-making process, one that might not be easy to ignore. The new, big question: do I invest in an organization that runs its operations like a business and expects returns on investments, or do I invest in one that is addressing a cause I find important and worthwhile? If you’re lucky, the organization fits both criteria. However, the recent financial crises have put a kink in that idea, promoting the need for safer investment and more calculated giving strategies.

Charles Bronfman and Jeffrey Solomon agree that philanthropies should operate like businesses—why should their business structure be any different if the same goal is to efficiently and effectively achieve a specific objective? On the other side of the argument, Michael Edwards argues that focusing solely on business strategies and using business-oriented metrics will exclude a lot of people from receiving the help they need.

Traditionally, business-oriented approaches constitute a return on investment, such as the ability to repay a microfinance loan (whether the loan does or does not have interest). However, there is an issue in the fact that big businesses that have gone bankrupt during the financial crisis are not so different from microcredit institutions like Grameen Bank, which have not done much betterOver saturating the market and providing loans to people who are unable to pay them back is a problem both in the developed and developing world. While this could suggest that the business model previously relied upon is not a good option, it also implies that if lending rules are followed, they could produce the desired results instead of economic collapse. This issue, however, also highlights the controversial idea of for-profit organizations that charge poor people high interest rates and will do almost anything to collect on the loan payments.

Business-operated philanthropies seek to maximize results, but critics say that maximizing results will not provide the necessary opportunities for poor people to elevate themselves out of poverty. For example, some note the effectiveness of unconditional cash transfers, which provide no return on investment and do not dictate how the transfer is spent. For result-minded individuals, unconditional cash transfers complicate how one measures the effectiveness of a program. However, the ability to prioritize one’s needs and spending is valuable for people in different financial situations, and for those who rely on multiple loans/sources for income.

The problem with both philanthropic philosophies (try saying that five times fast), however, is the time commitment and personal, emotional investment involved. If one expects returns and does not receive them, does that signal the time to move on and support a new organization? Similarly, if one donates money solely because of an emotional connection to the cause, will s/he withdraw support when there’s a hot, new cause in development? The most important result of any philanthropy venture is that poor people are receiving the help they need in order to reach a long-term solution to alleviate poverty. The operating structure of a philanthropic organization should not undermine its mission, as that would prove to be a much more heated debate.

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