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  1. Impact Philanthropy
January 28, 2013

Busting 5 Common Myths About Philanthropy

By Spear's

Feeling virtuous this January? If you’re planning to start 2013 generously, Alison Prout at Adessy Associates explains some of philanthropy’s biggest myths.
1. “Low overhead costs are a good indicator of a charity’s efficiency and effectiveness and should form the basis of my giving decisions”

This is ‘the most common and least helpful misconception in philanthropy,’ says Prout. ‘Two similar sized organisations, working on the same issue in the same location might report substantially different spending on overheads.

‘So does this mean that the one which spends the least on overheads and the most on direct work is more deserving of your gift? Not necessarily; there are productive overheads and unproductive overheads. Would you want to fly with an airline that spent the least on maintenance?

‘It is highly unlikely that in any comparison between charities you are actually comparing apples with apples and pears with pears; even if it looks so at first. Take these two charities. It might be that one of them has genuinely developed innovative ways of operating that reduce costs, most likely, however, is that they either account for their costs slightly differently or the core of their work is quite different, for example one works with multiple beneficiaries, the other with a handful of organisations. Clearly, the former requires far more extensive administrative systems.

‘Do remember that a good charity will be able to clearly link their spending with their impact. Without impact, it is just spending! This is illustrated in Adessy’s recent survey ‘Constructive Capitalism for Goodness Sake’ where many respondents said that treating donations as an investment, rather than purely as a gift, was likely to incentivize further giving, for example, receiving an annual report documenting return on investment or impact on large scale social change.’

2. “My philanthropic activities are a private matter, and should stay that way”

‘There is so much more that can be accomplished either in partnership or after some good advice,’ says Prout. ‘The most obvious advantage of engaging with others is that you can learn from their mistakes, take heart from their successes and use their experiences to clarify your own thinking.

‘You may well come across like-minded individuals with whom you are able to collaborate and achieve a significantly greater impact, lifting your philanthropy to another level. Sharing your ideas, concerns and experiences around philanthropy doesn’t need to intrude on your privacy.

‘Almost everyone you might be engaging with, whether it is a specialist adviser or a fellow philanthropist, will want to respect your privacy and boundaries. Adessy’s unique Pioneers for Change Social Investor Leadership Programme offers an impartial programme of exploration, education, inspiration and mentoring around social investment leadership in a peer-to-peer environment.’

3. “Establishing a trust or a new charity is the only way to keep control of my giving.”

‘A charitable trust or foundation can offer many advantages,’ says Prout, ‘namely tax benefits, a structure with which to engage friends and family, control and a sense of legacy, particularly if it is named after you. However it can also come with substantial legal costs, an administrative burden and reliable trustees aren’t always easy to find.

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‘Careful consideration, taking into account the value of the intended endowment and its aims, is needed before establishing a trust. Don’t let the tail wag the dog!

‘There may be other ways to meet your requirements without creating a potentially energy-sapping structure. Your philanthropic goals should be the focus of your energy, not simply the legal vehicle.

‘Given the magnitude of charitable organisations today, it is very likely that there is already a charity in place that shares your interests. You may be able to save yourself a great deal of effort and potential duplication by working with an existing charity which shares your values and beliefs.’

4. “My interests aren’t relevant, it’s more important that I just give a proportion of my wealth to a charity”

‘Not everyone is going to become passionate about philanthropy,’ says Prout, ‘although most philanthropists will be eager to tell you how incredibly rewarding they find it. However, by not giving yourself the time to be clear about your values, beliefs and aims of your philanthropy, you are not only depriving yourself of the potential reward from your activities, you are also depriving your current chosen cause of an important asset – your passion and enthusiasm.

‘Excitement and enthusiasm for a charity you are involved with will filter through to your friends, family and colleagues. Without realising, you could be an important ambassador. Although your passion may well result in higher donations from you in the future, you will also be involving those around you – invaluable!’

5. “A good charity could and should be able to make good use of assets I gift in whatever structure I choose”

‘Creative thinking around philanthropy can be wonderful; too often donors feel restricted to monetary donations only, when they have skills, time, assets and networks that could be of enormous use to their chosen charity,’ says Prout. ‘The key is ensuring that your gift is structured appropriately.

‘A common mistake might be giving a small charity a large donation, which needs to be spent in a set time period. A major influx of funds for a short period can be extremely de-stabilising as it can force a false expansion of project work and snap hiring of temporary staff or simply overpower the financial structures in place.

‘Similarly the gift of tightly tied assets or restricted legacies can become surprisingly burdensome. Asset values go up and down and society changes. Consider how a property bequeathed to an historic east end social charity ‘for the benefit of child chimney sweeps’ can be well-used in today’s world without a great deal of time and expense and you’ll get the idea.

‘Most charities will give polite guidance on what they will find most useful, or make direct proposals, but do be mindful that without a bit of thought, you might not be being as generous as you thought.’
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