Toward a Robust Marketplace for Philanthropy

MENLO PARK, Calif. — Participants in the philanthropic world — from foundations and wealthy donors to the non-profit organizations that seek their support — must create a robust marketplace of information about charitable activity if they hope to increase their social impact, a newly released study has concluded.

The 68-page study, commissioned by The William and Flora Hewlett Foundation and created in collaboration with the consulting group McKinsey & Company, sought to answer two questions: What do donors need to make smart decisions about giving, and how can the philanthropic world ensure that the strongest, most effective nonprofits get the resources they need?

The study’s answer is three-fold:

* Improve the supply of accurate, credible information about how well a non-profit organization is run, the impact it is having in the world, and the ways it tracks progress toward its goals.
* Increase donors’ demand for this information.
* Strengthen organizations that vet and advise charities and connect them to donors.

“This study is just a starting point,” said Maisie O’Flanagan, a partner at McKinsey & Company, who co-wrote the report with Hewlett Foundation President Paul Brest and Jacob Harold, a program officer with Hewlett’s Philanthropy Program. “We hope it will launch a deep and broad discussion in the philanthropic community about how to get dollars to the strongest nonprofits.”

To encourage this discussion, the Hewlett Foundation has launched a web site, http://www.givingmarketplaces.org/, where those interested can download the complete text of the study, which is entitled “The Non-Profit Marketplace: Bridging the Information Gap in Philanthropy,” and discuss it online.

The forum has launched a spirited discussion of issues in the report, from how to create incentives for non-profit organizations to share internal information to ways to stoke demand for such information on the part of donors.

Unlike for-profit investors, who have access to timely, accurate and detailed information about companies and their performance, philanthropists often make multi-million dollar decisions based on little more than hunches about which non-profit organizations are most effective. The study notes that each year individuals, foundations, and businesses in the United States distribute more than $300 billion to more than a million nonprofit organizations, yet often know little about their progress in their chosen fields.

Beyond such informal — and often unreliable — sources of information as word of mouth and marketing brochures, facts about the effectiveness of nonprofit organizations are remarkably elusive. The problem is compounded by the complexity of the philanthropic impulse, with givers potentially motivated by a host of factors other than having an impact. Contributing to a noble cause, pleasing friends, and habit each can play a larger role in giving than whether an organization actually makes progress toward accomplishing its goals.

“The stakes for increasing the effectiveness of philanthropy are very high,” Harold said. “We’re not going to solve complex problems like climate change or AIDS unless we’re much more serious as a sector about getting resources where they can have the most impact.”

About The William and Flora Hewlett Foundation
The William and Flora Hewlett Foundation has been making grants since 1967 to help solve social and environmental problems at home and around the world. The Foundation concentrates its resources on activities in education, the environment, global development, performing arts, philanthropy, and population, and makes grants to support disadvantaged communities in the San Francisco Bay Area. A full list of all the Hewlett Foundation’s grants can be found here.

About McKinsey & Company
McKinsey & Company is a management consulting firm that helps many of the world’s leading corporations and organizations address their strategic challenges. The Social Sector Office works with global institutions and philanthropies to address chronic, complex societal challenges in health, education and economic development. With consultants deployed in more than 40 countries across the globe, McKinsey advises clients on strategic, operational, organizational and technological issues. For eight decades, the firm’s primary objective has been to serve as an organization’s most trusted external advisor on critical issues facing senior management.