Chapter 4: How do philanthropists select a charity?

Chapter 4: How do philanthropists select a charity?

Katie McDonald

How philanthropists select a charity is heavily influenced by their motivations for giving.

A number of researchers have proposed typologies for affluent donors. For example, Cermak, File and Prince (1994) clustered affluent donors into four distinct types:

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  affiliators - those strongly motivated by a mix of social and humanitarian factors
  
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  pragmatists - those seeking tax advantages
  
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  repayers - those who give as a result of events in their life (or those close to them) and having benefited from an organisation, and
  
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  dynasts - those interested in family tradition.
  

Each of these factors may influence whether a philanthropist gives at all, the cause area to which they give, and ultimately, which organisation(s) they choose to support. In addition to the underlying motivations, the quality of the donation experience can have a large impact on whether philanthropists decide to continue giving to an organisation or to focus their support elsewhere. A number of authors have emphasised the relationship element whereby a positive experience can catalyse further support (Prince and File 1994; Waters 2008).

Efforts to build some theory around philanthropic decision-making have drawn upon marketing concepts, including the AID-TIM model (i.e. Awareness and understanding; Interest and involvement; Desire to help; Trial gift; Information about what and how to give; and Major gift action). This model describes a process of exploring an issue and testing out the giving experience with an organisation before deciding to make a significant gift (Knowles and Gomes 2009).

Frederick Herzberg’s hygiene theory also offers some insights into how philanthropists might choose a charity (Ross and Segal 2008). Hygiene factors refer to the basic elements that need to be in place for a major gift to be successful. These are not necessarily the reasons that people give, but if not done right, they can be the reasons that people do not give. They include aspects like tax deductibility, effective governance and good communication.

Sargeant and Woodliffe (2008) have also proposed a number of judgement criteria that philanthropists use when deciding which organisation to support:

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  utility gained
  
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  emotions evoked
  
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  benefits (political good, enhance career, networking)
  
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  extent to which support is visible
  
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  ratio of admin costs (20:80)
  
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  perceived effectiveness – degree to which the organisation achieves its goals, and
  
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  professionalism and management.
  

The level of controversy in the charitable activity may also influence choice. Nicholson-Crotty (2011) investigated whether informing constituents of policy activity impacts their giving by examining United States (US) charitable organisation Internal Revenue Service files from financial years 2000 and 2001. Her findings indicate that reporting policy activity increased donations in the following fiscal year, with a 10% lobbying investment by the charity meaning a 0.5% donation increase. Some variation emerged across the type of cause, however. Health, human services, civil rights and community development were some areas where such reports increased donations whereas arts, recreation and education donors were not impacted by information about lobbying activity.

Donors may also be influenced by the extent of government support for a particular area. The large literature on ‘crowding out’ and ‘crowding in’ considers whether government investment levels alternatively displace or foster private giving. For instance a withdrawal of government funding from a particular cause might see donors rushing to fill that gap or a perception of more than adequate government support could crowd out private giving.

International context

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  personal taste
  
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  personal background
  
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  perceptions of charities’ competence, and
  
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  desire to make an impact.
  

‘Why did I choose those particular ones? Well, that has been a bit haphazard to be quite honest with you.’ (Donor)

‘It’s amazing what comes through the door, and you’ve got no means of making an objective judgement.’(Donor)

A range of heuristics, or ‘rules of thumb’ were found to influence donating decisions, including third party endorsements; personal relationships with those running charities; institutional ties; and personal requests from loved ones (Breeze 2010). These factors were found to influence donor decision-making at all levels, however, a number of other factors were identified as especially important for ultra-high-net-worth ‘million pound donors’ (Breeze 2011), including:

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  personal connection
  
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  transformational power
  
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  enjoyment
  
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  excitement
  
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  gratitude
  
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  preference for local & smaller charities
  
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  solutions focus
  
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  novelty, and
  
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  unpopular causes.
  

• 
  Charity Navigator, which analyses organisations according to their financial health, accountability and transparency to develop a rating system, which has been used to assess over 8,000 of America's best-known charities
  
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  GuideStar, which contains basic information on a charity’s income, spending, mission and executive salaries from 1.8 million nonprofit organisations (NPOs) registered with the Internal Revenue Service. They also offer a premium service that provides more detailed financial analysis, and
  
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  the BBB Wise Giving Alliance, affiliated with the Council of Better Business Bureaus, offers free reviews of 1,300 national charities, according to 20 accountability standards, such as governance, oversight, and effectiveness.
  

Australian context

Qualitative research in Australia has highlighted the importance of personal values for shaping an individual’s giving (Scaife, Williamson et al. 2012). For many participants, these values are forged in childhood by family culture, family history and example, which developed into a sense of responsibility, especially for the wealthy. Espoused personal value systems have been identified by both donors and fundraisers as the foundation for giving. Not only do values prompt giving in the first place, they shape the form that giving will take as philanthropists seek to find a cause or organisation that aligns with their own values - that is, they want to support something they believe in (Scaife, McDonald et al. 2011).

Peer leaders have also been found to significantly influence philanthropists’ decisions on which charity to support. Philanthropists often seek out inspiration, advice, support and recommendations from peers (Scaife, McDonald and Smyllie 2011). Some Australian philanthropists will not give unless the cause has been introduced by a peer or through an established relationship, highlighting the importance of trust in making such an important decision (Scaife, McDonald and Smyllie 2011).

‘I generally ask some other people I know whether they know anything about it and whether they think they do good work and that sort of stuff.’ (Australian major donor)

At the same time, Australian philanthropists have reported a distinct lack of visible public champions and peer leaders, which can lead to uncertainty about where to turn for this type of trusted guidance (Scaife et al. 2012). Accordingly, some philanthropists turn to professional advisers and intermediaries for assistance with their charitable giving. However, typically this advice is more focused on the technical aspects of setting up a planning giving structure, such as a foundation, rather than where to give once the structure is set up. Many philanthropists, especially those with a high net worth, are highly independent in their decision-making (Scaife, McDonald and Smyllie 2011). A number of reservations have also been expressed by philanthropists participating in the Foundations for Giving study in regards to the quality of philanthropic advice (Scaife et al. 2012).

Australian philanthropists have also identified a number of hygiene factors (Ross and Segal 2008) that influence their decision-making, such as tax deductibility and effective governance. If not in place, these aspects may turn donors away or effect the size of the gift (Scaife, McDonald and Smyllie 2011).

‘So you need to have your tax deductibility sorted out. You need to have good management and a good board, et cetera. These don’t convince people to give but if any of them stink they’re likely to make the donor go another way.’ (Brisbane based, fundraising consultant)

‘I must say, if it’s tax-deductible, I give twice as much and in fact I very much look to making tax-deductible donations.’ (Major donor)

‘I’ve got to think that it is a worthwhile cause and that the outcomes – that there are achievable outcomes. So that is the first assumption and then I’ve got to think that they’ve got a reasonable prospect of doing [it], so the way they’re set up.’ (Major donor)

For Australian philanthropists looking for information about how to select an organisation to support, Philanthropy Australia’s Guide to Giving is a useful resource (Meachen 2010). The guide does not prescribe the best way to give, but outlines the choices available and proposes questions and issues to consider while deciding how to give, for example:

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  personal motivations – why do you want to give?
  
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  assets – what do you have to give?
  
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  constraints – what limitations might you have?, and
  
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  giving focus – what and who do you want your giving to benefit?
  
• 
  
  

For many potential philanthropists, reflecting on these questions may lead to a very specific idea about who to support, others may need to consider further questions to refine their giving strategy, for example:

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  what are the most pressing needs?
  
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  where are the gaps?
  
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  how can you best make a positive difference?
  
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  how much do you know about this area?
  
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  what types of assistance do these charities/communities need?
  
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  what other funding is available in this area?, and
  
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  what is government policy in this area?
  

The guide to giving goes on to highlight the mechanisms for giving that are available in Australia, their advantages and disadvantages. For philanthropists interested in a more structured approach to giving, for example by establishing a foundation, there are a number of restrictions around the type of entity they can fund, which will ultimately influence their giving choices (Meachen 2010).

For philanthropists with an established foundation, specific information is typically sought out from prospective grant-seekers to assist in deciding which charity to support. Only around a third of Australian foundations provide detailed selection criteria (Leat 2006). Specific criteria is generally clustered into five broad groups: (i) fit with the foundation’s goals/mission; (ii) impacts and effectiveness; (iii) evaluation; (iv) management and planning; and (v) value for money (Leat 2006). The most commonly sought information includes:

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  tax status
  
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  organisational status/incoporation
  
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  ABN number
  
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  mission/purpose
  
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  uses of grant money/how spent
  
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  if project: primary purpose
  
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  population to be served
  
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  anticipated length of project
  
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  current expense budget/breakdown
  
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  success criteria/evaluation plans
  
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  applications to other bodies
  
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  plans for future funding/sustainability, and
  
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  intended project outcomes.
  

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