Giving isn't easy

There's an interesting dilemma about successful philanthropy writes Catherine Roe. Just like business, the more discipline and rigour you apply to the way you do it, the more professional you become, and the better your returns will be.

But by applying a business-like approach to your giving, it's possible to become overly focused on short-term, quantitative deliverables. And short-termism is the enemy of long-term change.

So how can family offices resolve this dilemma? They need to help family members take the same long-term approach to achieving philanthropic returns as they do to their investments. To achieve real and lasting social change, you need to plan carefully, build enduring partnerships, invest in human and institutional capacity, and learn which approaches work best. All of which takes time.

In managing your family's wealth, you use a similar set of tools to those that fashion successful philanthropic interventions. Family offices provide the professionalism, expertise and relationships of trust that families need to manage their wealth. Philanthropic foundations require the equivalent. The skills used in a family office are transferable to the world of philanthropy.

Foundations also need to build long-term partnerships with fund managers and investment advisers. Most important of all, family offices are used to taking a long-term view of investments, measuring performance over, say, five-year rolling periods rather than being overly concerned with quarterly results. The same long-term perspective is needed to achieve excellent results in philanthropy.

Given this happy coincidence, why don't more philanthropists apply what they have learned in their wealth management to their charitable activities? In practice, it can take some time for donors to understand what successful philanthropy involves. Of course giving away money is easy. It's giving it away effectively that's hard.

So many donors start out in what I call the "hit-and-miss school of philanthropy". So they give because a cause strikes a chord. But they don't look very hard into whether the organisation has the capacity to deliver or whether a particular project is well designed to maximise chances of success. If the money given achieves lasting change, it's pretty luck-of-the-draw. Even if donations hit more often than they miss, they have little impact because overall the donations lack a strategic direction.

What turns a scattergun philanthropist into a strategic one? Sometimes, it's sheer frustration that there is little to show for years of giving. Then a donor's business instincts kick in. He wants to see results and realises that this will require just as much acumen, time and effort as making investments for financial returns. Sometimes, the motivation comes from a growing commitment to making a difference in a particular field because an issue has touched a donor or a member of his family in some way.

Once a philanthropist decides he wants to see real results, the steps to follow will be familiar to him from the worlds of business and investment. The family office can help by finding the equivalent of the family's Unique Selling Proposition. This is your philanthropic mission. Arriving at that mission involves understanding where the family's real appetite to make a difference lies and combining that motivation with a hard-headed assessment of the "market".

You need to assess supply and demand. What is the scale and nature of the need? Who else is working in the field? Where are the greatest areas of unmet need? Where are the other "suppliers" (particularly government) failing to reach? By understanding where the real opportunities lie and what the key risks are, you can fine-tune your family's vision into a realisable mission, a mission that is focused on bringing about lasting change.

The next step is to develop a strategic plan. Of course there are successful businesses that start out without a business plan, but a good plan can save enormous amounts of time and effort in failed initiatives. It's the same with philanthropy. The key is to set the right strategic goals and this is where the family office's leadership is crucial. Goals represent long-term targets and become invaluable tools to maintain focus, set priorities, decide on programmes and partners, and understand what human and other resources are needed. They are a powerful and simple means of motivating staff and partners and of helping all involved to think and act strategically.

That leads us to the hazardous business of implementation. Even with a great strategic plan, there are many pitfalls, yet people take risks in their philanthropy that they wouldn't with their investments. They don't properly check the institutional capacity of project partners. They don't sign agreements that make crystal clear what both the donor and the recipient have agreed to do. They don't adequately scrutinise whether partners are meeting the targets.

The rigorous thinking donors apply to business go out the window. But doing good requires a lot more than good intentions and donors must be as disciplined in their dealings with philanthropic partners they are with business partners. This is the only way real trust can develop and fruitful partnerships can blossom.

A particular bugbear of mine is the growing tendency towards the "hit and run school of philanthropy", which I believe is really unhelpful. Philanthropists want to effect lasting change, to make a difference, to be at the cutting edge. Which is great. But this sometimes translates into a pursuit of the new for the sake of the new, which may leave old projects and partners struggling for survival before they have had a proper opportunity to take root. Donors say they don't want to create dependence in partner organisations, but not-for-profits need to be strong before they can be independent.

This is another aspect of the need to think and act long-term. When families invest in a new business, they have no problem thinking in terms of a three-to-five year commitment and may inject more funds at critical moments. Perhaps they'll work with the business to strengthen its organisational capacity or particular skills. Exits usually come at the point where returns are maximised on investment. That's exactly the kind of approach that achieves the best results in philanthropy too.

Due diligence and performance measurement are also important business tools to apply. You wouldn't invest in a business without doing due diligence. It's the same when making a grant to a not-for-profit. You need to know that its human and institutional capacity is up to the job. Where are the risks and the weaknesses and how can they be mitigated? Is there a clear and compelling plan to achieve results? How long will it take and how will a project continue, if it is intended to continue, beyond your involvement?

Once you decide to back an organisation, get good feedback from it. Otherwise, how can you judge whether your family's investment is successful and how can you learn to improve what you are doing going forward?

Measuring performance is tricky. A number of approaches have emerged but, not surprisingly, they are all flawed. What is the equivalent of profit if you are measuring increased well-being? But it is important to expect feedback and measure as much as you can. At a minimum, organisations must account to you for the money you have given them. Beyond that, they can report against milestones you have agreed for the progress of projects or for their own institution building. They can also report on the benefits they have delivered.

Where performance measurement comes unstuck is where you get to the Holy Grail itself – social impact. How do you measure the increased well-being of the people you help and how much of that increased well-being should be attributed to an organisation's work? Philanthropists have to get the best picture they can, without overburdening their partner organisations, and accept that the picture will be far for perfect.

Bear in mind that some kinds of impact are harder to assess than others. If philanthropists get overly fixated on performance measurement, they'll avoid these areas and that would greatly impoverish the overall philanthropic effort.

It all begins to sound as if, far from being easy, giving away money is such hard work as to deter many would-be philanthropists. But family offices are used to getting things done and know there are lots of ways of doing that.

Besides, the family that chooses their goals strategically and pursues them tenaciously over the long-term can create institutions that will endure, serving others long beyond a generation; they can promote new and better ways of addressing problems that others then adopt; they can achieve lasting change. That's one hell of a pay-off for your family's time and generosity.