Time to take a back-to-basics approach to philanthropy

Globally, donations from the public, whether major donors, people running marathons or trekking in Peru, are falling. Giving USA reports a 5.7% drop in public donations to US charities in 2008, the largest drop since the group began recording donations in 1950. Two thirds of American charities have reported a decrease in their income.

In the UK it is a similar story – 55% of UK trusts are reducing their grants this year. Donations from the public had been static for a decade before the recent financial turmoil. Even the ARK hedge fund dinner, famous for being the biggest UK fundraising event of the year, only raised £16 million this year, down from £25.5 million in 2008.

So it appears that even those whose financial assets put them in the top 1% of personal global wealth are drawing in their horns at a time when charitable giving, in all its forms, has never been so important or urgent. Some who have seen their net worth decline significantly are cautious, others are eyeing up the opportunities. This is the time when sound investment decisions will show real dividends and one of the best possible times to review philanthropic support, because it has never been more needed.

However, the climate also calls for intelligent philanthropy in order to encourage those with a net worth to review and increase their levels of philanthropic giving. Before the welfare state in the UK, the Victorians stepped into the void to help the destitute on their doorsteps. The great philanthropists of the era, Andrew Carnegie and Dr Barnardo, are still well-known names over a century later. Now is the time when an intelligent investment strategy for philanthropy can make a real, lasting and positive impact for causes near to home as much as for the global issues that will affect our children and grandchildren.

US research shows that wealth creators still wish to give, but choose to support different causes during periods of intense economic uncertainty. The well-endowed alumni fund seems less vital than underpinning local organisations working with today's destitute or paying for medical research in danger of being cut. For those with little or no net worth redundancy, mental illness and family breakdown are an increasing reality. These problems, coupled with the stress on public finances that comes with an ageing population, place an increasing burden on healthcare services.

Dealing with the Downturn (published in June 2009) is a report from the UK's National Health Service Confederation warning that in just under two years, NHS finances will face "the most severe constriction ever" with a shortfall in real terms of £15 billion by 2016. Whichever way the budget is stretched, universal healthcare is under increasing threat, and it's our weakest citizens who will suffer.

According to Bill Gates: "All billionaires should give away the vast majority of their fortunes. I think they would enjoy it, their kids would be better off and the world would be better off. I'm a great believer that great wealth should go from the richest to the poor."

On this occasion I agree with Bill. His view is in line with much research linking happiness to altruism. Happiness doesn't flow from wealth but from family, friends, being part of a community and generosity – the art of giving back to society.

A difficult quandary for family offices with the responsibility for investment strategy, perhaps? I'd pause and reflect on Andrew Carnegie's "a man who dies rich, dies disgraced." When banks crash and recession hits there is a real opportunity to encourage the move from success to significance. To replace ad hoc philanthropy with a decent programme that will endure, expand and improve maybe hundreds of thousands of lives. What a legacy.

There are really only three key secrets to successful philanthropy; interest, focus and the desire to stick with it. Interest because investors need to understand the issues and engage. There is greater emotional return on investment for a cause that has personal meaning. Count the charities set up in memory of a close relative and you begin to get the picture; Cecily's Fund (supporting Zambian orphans), The Anthony Nolan Trust (establishing a bone marrow donor database), Andrea's Wish (for brain tumour patients) – examples of change created because people wished it to.

The reward from a decent philanthropy strategy comes from being able to create significant change, which doesn't happen overnight when dealing with people's lives or environmental issues. Investing in philanthropy is like a good marriage – success needs a partner you get on with. And stick with something you believe in, gain expertise, become able to influence the strategy, or link different organisations to share knowledge and achieve more. Helping to oil a system which you cannot deliver but which others can, is reward enough. And an example for the next generation.

Focus is the second essential for maximum impact. The latest trend is for consultants, advisers and now rating agencies to focus on measuring effectiveness and impact beyond all else. This can lead to all sorts of trouble and is best avoided. Charities that look effective from their figures may be anything but in reality. The charity is large, well known, with great ratings from various rating agencies because the admin costs are low in relation to the work done. The work's been evaluated as good; the model seems strong and transferable. It ticks all the boxes and gets an A rating. Get to know the charity, look beneath the surface, and the reason for the low overheads surfaces. The management team is over-stretched and the business processes inefficient through lack of investment. It's shaped for the accounts to look good, and forgotten that what it's there for is to do the best it can for the people it helps. Time to bin the ratios and get back to basics. Nothing beats in depth knowledge.

 There are millions of registered charities globally. If you need help to develop a philanthropy strategy to match your clients' needs; finding charities worthy of pump priming, that are well run with vision and ability, ones that have the potential to create significant positive change in the world, seek out an advisor who has practical experience of charities and a heart. It is vision and leadership that inspires and gets things done more than funding ratios. It is trust that makes the relationship work; the gut feeling that tells you there are connections beyond the stats and figures. Ideally you should look for someone with a common value system rather than an analyst in disguise.

The brighter private banks have already worked out that their high net worth clients, whilst suspicious of seminars and events advising them about tax, offshore companies and the newest investment vehicles, will come to seminars and events focusing on charity and philanthropy, particularly when they offer family involvement. The banks have realised that time spent discussing the 'softer' issues around family succession and charity cement their client relationships in a way that tax and investment advice cannot. It is a strategy to retain clients that are constantly being wooed by the competition.

The question to consider is whether you're acting as gate-keeper for a whole load of good causes that are beating a path to your door, or whether it's time to take charge and turn the tables from hunted prospect to hunter. To take the analogy further you might benefit from a native guide who can read the signs better than most.

Why now? Because it's a back-to-basics time, with values being revisited, when Victor Frankel's search for meaning has particular resonance. It is a time charities are struggling to meet rising demand from reduced resources. The plain fact is that any person or group with intelligence, resources, money, contacts and even a dollop of power, influence and goodwill has it within their power to make a huge difference to the problems affecting our world. It's surely better to create a world than to acquire it.