For at least a decade, movers and shakers in philanthropy have been trying to persuade donors to behave more like data-driven investors.
But the so-called effective-philanthropy movement suffered a significant setback last month when the William and Flora Hewlett Foundation, a prominent champion of the idea, announced that it was ending an eight-year, $12-million effort to get donors to rely as much on their heads as their hearts.
After this year, it is dropping support for groups like Charity Navigator, GiveWell, and GuideStar to provide publicly-accessible information about the financial performance and social impact of nonprofits. (Editor's Note: The previous sentence has been revised to more precisely describe the initiative.) It is continuing to fund groups that provide research on philanthropic strategies that produce measurable results.
The decision pleases some critics worried that philanthropy has become too heavily focused on short-term measurements at the expense of worthy efforts that may not bear results for years.
“Some of the greatest achievements in American philanthropy took decades,” said William Dietel, a philanthropy adviser and former president of the Rockefeller Brothers Fund. “If donors had demanded immediate results, we wouldn’t have made many advances.”
He hopes that Hewlett’s shift forces an evaluation of the term “effective philanthropy,” which he sees as an instant-gratification strategy driven by young, tech-savvy philanthropists.
This new generation of donors wants philanthropy to bring the same quick returns as a new company would, Mr. Dietel says. He worries that such a perspective discredits the personal motivations of most Americans when they decide what causes to support.
The Hewlett Foundation’s Nonprofit Marketplace Initiative set a high bar for itself: By 2015, it wanted the research and ratings produced by its grantees to inform at least 10 percent of the $200-billion individuals give annually.
While the foundation’s effort succeeded at producing more information about charity performance, it did little to change donors’ decisions: They continued to give with their hearts, not their heads.
Not that that should have been a surprise. When Hewlett started the effort in 2006, then-president Paul Brest wrote, “Personal philanthropy may sometimes be so profoundly emotional as to be invulnerable to rational analysis.”
Indeed. In a video on Hewlett’s website about the end of the project, Mr. Brest says, “If we had any impact, it was not a discernable or measurable impact in achieving the goal.”
Still, some advocates say it is worth trying to get more donors to focus their giving on high-performing charities.
“It’s not like we could make them all super rational,” said Jacob Harold, chief executive of GuideStar and a former Hewlett program officer who helped start the marketplace program.
Changing the behavior of donors is “really hard,” Mr. Harold says.
His group has received $3.6-million from Hewlett’s effort since 2007. Even though donors may not seek research before giving, they do expect charities to be effective.
“We don’t want to pull that notion out of philanthropy,” he says.
But some nonprofit experts are happy to see the effective-philanthropy movement lose some luster.
Critics say objective measures common at for-profit companies are not as easy to apply to nonprofits.
And donors have little interest in using the same measurements that foundations demand of nonprofits.
William Schambra, director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal, says any fundraiser could have told Hewlett that the effort to “spread this kind of grant making to everyday citizens” was doomed.
Ending the effort is a “huge turnaround” and a setback for advocates “who think that we’re going to reestablish American giving entirely on the basis of metrics.”
“It’s just not going to happen,” he says.
Giving by Heart
Despite the increasing number of ratings and research on nonprofit performance, donors still give most of their money to charities they know well, such as their alma maters or groups that have helped them or their friends, studies show.
In deciding to end the marketplace program, the Hewlett foundation cited 2010 research from Hope Consulting and its own independent evaluation in 2012.
The consulting firm’s Money for Good study found that few people investigate the performance of nonprofit organizations.
While 85 percent said that a charity’s performance is very important, only 35 percent conducted research on giving, and just 2 percent gave based on a group’s relative performance.
The foundation’s own evaluation showed that high-quality information about charities was not influencing anywhere close to the $20-billion goal.
'Not a Happy Day’
Ken Berger, chief executive of Charity Navigator, worries that Hewlett’s departure will accelerate a decline in foundation support for efforts to help nonprofits improve how they track performance.
“It is certainly a blow for those of us trying to do this work, because there is so little funding out there for this fundamental attempt to change the whole nonprofit paradigm,” says Mr. Berger, whose group received $575,000 in Hewlett grants. “It’s not a happy day.”
Mr. Berger said his strategy to provide ratings on nonprofits that receive the most contributions is paying off: The 7,300 groups that Charity Navigator rates represent $55-billion in contributions, about half of the $110-billion in donations from individuals to charities other than religious groups.
Too Few Ratings
But one part of Hewlett’s analysis, conducted by the Stanford philanthropy scholar Lucy Bernholz, states that Mr. Berger’s group and others rate only 10,000 groups out of the nearly 1 million nonprofits, which doesn’t “add up to a useful resource for all the donors out there,” Ms. Bernholz says in the Hewlett video.
“Most donors are not even looking for high-quality information before they make their donations.”
Mr. Dietel says groups like Charity Navigator and GuideStar have provided useful “insights into the dark corners of 21st-century philanthropy” and that Hewlett’s shift may have more to do with Larry Kramer’s appointment to succeed Mr. Brest, who retired as president in late 2012.
But he also said that Hope Consulting’s report should be a lesson to foundations that financial and performance measures are not the sole ways to assess a charity’s value.
Getting more donors to give according to some measurement-driven standards, like foundations increasingly do, will only continue to place pressure on charities to spend diminishing resources on evaluations instead of programs.
“They don’t need more assessments or dictates,” he says, “They need help doing the job.”
Jeff Raikes, chief executive of the Bill & Melinda Gates Foundation, and other supporters of effective philanthropy say that advances in social issues would accelerate much faster if more donors assisted operations of nonprofits with proven results.
He said Hewlett’s decision reflects the very self-analysis it asks of grantees: Pull the plug on efforts with no evidence of results.
“They were very smart about seeing what works and what doesn’t,” Mr. Raikes says.
Even though Hewlett is phasing out its marketplace grants this year, it continues to support organizations that conduct research that foundations and nonprofits can apply.
These include the University of Pennsylvania’s Center for High Impact Philanthropy, Stanford University’s Social Innovation Review, the Foundation Center, the Bridgespan Group, and others.
A new element of Hewlett’s effective-philanthropy program will aim to encourage foundations to be more open about what works and what doesn’t.
Mr. Raikes said Hewlett’s decision to continue that funding and to encourage information-sharing among foundations about effective approaches will be welcomed by new philanthropists, who are expected to give at record levels in coming decades.
“The immense magnitude of the wealth is going to get people interested in how that wealth can be spent well on behalf of society,” he said.
Such younger, higher net-worth donors will demand more research than average donors.
GiveWell, one of Hewlett’s grantees, already targets that audience. Elie Hassenfeld, a co-founder and co-executive director of the group, said his organization appeals to younger, wealthier donors and the “relatively small slice of the population” interested in the research it produces on high-performing charities.
Most of the organization’s donors who gave more than $2,000 are in their 20s and 30s and work in technology, software, and finance.
He’s confident donors that rely on GiveWell research to make donations will financially support its operations when Hewlett’s funding—$500,000 over five years—ends.
“It’s market testing for us,” Mr. Hassenfeld said. “Are we offering something that people are willing to pay for, or is it something they will only use if it’s free?”
Henry Berman, chief executive of Exponent Philanthropy, formerly known as the Association of Small Foundations, said the family funds and other grant makers his group serves have increasingly been mindful of ratings, data, and other measures.
Smart grant makers rely on both data and ratings as well as their experience and relationships.
“It’s the head and heart balance,” he said.
“If you go strictly head, you’ll never make a grant. If you go strictly heart, you’ll go out of business.”