How Warren Buffett Made Me Smarter About Charity
Tips from a Giving With Purpose MOOC he helped teach
I bet that, like me, when you’ve donated to charity you’ve had a slightly queasy feeling. You probably wrestled with questions like: Will my donation do any good? Is the charity well run? Is this the most effective way I can help a cause I care about?
I’m actually now feeling more confident about being an effective donor, thanks to help I just received from Warren Buffett, Patrick Dempsey, Cal Ripken Jr., Ben & Jerry and — most of all — Northeastern University Professor Rebecca Riccio, director of the school’s Social Impact Lab.
I was one of 7,500 students who enrolled in Riccio’s terrific, six-week Giving With Purpose MOOC (Massively Open Online Course). Northeastern offered it in partnership with Doris Buffett’s (Warren’s sister) Learning by Giving Foundation, through the EdX MOOC platform.
(MORE: How to Check Out a Charity)
What Giving With Purpose Means
Giving with purpose, Riccio told us, “means achieving two distinct, but highly compatible goals" — to satisfy your personal motivations for giving and to give money to high-performing organizations where it can make a real difference.
Riccio finished each class interviewing all-star philanthropists including the ones I mentioned. “We set a high bar for who we wanted to interview,” says Riccio. “It wasn’t enough to be rich, famous and generous. It was very important that the guest speakers had something meaningful to say and were strategic in their giving.”
Buffett's View on Philanthropy
Warren Buffett, of course, has persuaded 127 billionaires to give away more than half their wealth. But in the MOOC, he had a tip for the rest of us: When you’re deciding where to donate your money or time, Buffett said, “the important thing is that you feel good about it when you’ve done it.”
He conceded that evaluating nonprofits can be tough. “Business is easy, because the market tells you whether you’re right or wrong. But with philanthropy, you can keep doing something that doesn’t make any sense and there’s no playback from the market,” Buffett said.
(MORE: 6 Mistakes to Avoid When Giving to Charity)
Measuring Charities With RISE
You’ll increase your chances of donating wisely, though, if you find ones that score well on something Riccio invented, known as the RISE framework. RISE stands for:
Relevance — This includes how well the group: articulates and understands the need it’s addressing; knows what works in response to the need; is connected to the community or individuals it serves and does work that has meaning to you, the prospective donor
Impact — This includes how well the group: explains its results and holds itself accountable as well as whether supporting it will let you make a difference with your resources (money, time or both)
Sustainability — This includes how well the group: has defined its business model; has demonstrated it has reliable revenue sources now and into the future; shows it manages its money effectively and fits into your personal giving plan. One of Riccio’s tips to measure sustainability: Read a nonprofit’s tax return known as Form 990. You can get it online either from the group’s site or on sites of charity information providers, such as GuideStar or Charity Navigator.
Excellence in Management and Operations — This includes: how well-qualified the executive director and board members are; how informative and professional the group’s marketing materials are and whether you’ve done your own due diligence
Once you’ve put a nonprofit under the RISE microscope, you’ll have a stronger sense of whether it deserves your donations.
(MORE: A Charity Expert's Tips on Giving Wisely)
Think of Donating Like You're Investing
“Ultimately, I’d like people to think of their charitable giving as an investment in the change they’d like to see in the world,” Riccio told me. “Just as if you’re investing in a company and want to feel confident it will determine the financial returns you’re looking for, when you invest in a nonprofit, you should try to see if it will deliver the social returns you’re looking for.”
Riccio wouldn’t say how well nonprofits do, overall, on the RISE scale. “What I can say is that organizations that seem to be making a real diference and achieving financial sustainability typically score very high,” she says.
What You May Have Trouble Finding
As part of the MOOC homework, I needed to evaluate nonprofits on the RISE scale and was surprised — no, disappointed — by how few provided the kind of specifics about their financials and staffing that would let prospective donors make informed decisions.
“I don’t think they’re hiding things,” Riccio says. “I think because many donors don’t realize how important it is to look at that information, there hasn’t been much demand for it. The demand has come for more of the anecdotal stories — the things that pull on our heartstrings.”
Riccio would like to see nonprofits do better providing prospective donors with what investors would call their fundamentals. Me too. The Snapshot 2014 survey of 240 nonprofits by America’s Charities —a coalition of charities — found that only 53 percent think it’s very important to deliver financial and other key information on their website.
Riccio says charity raters — such as Charity Navigator, the Better Business Bureau’s Wise Giving Alliance, Give Well and Charity Watch — “provide an incredibly valuable service” to help you choose where to donate. But, she says, you need to scrutinize the raters, too.
“I encourage people to use these evaluators, but to recognize the strengths and limitations of them. They all have their own methodology and worldview," says Riccio. "Before you use their data, it’s important to understand where they’re coming from and what they value.”
Nuanced View of Nonprofit Salaries
Riccio urges donors not to be dismissive of charities merely because they pay their executives significant salaries or have fairly high overhead. “We have placed extraordinary expectations on what the nonprofit sector should be doing to care for our most vulnerable populations and yet we somehow want them to do that on the cheap,” she says.
Be a Sustained Giver
She also encourages you to be a sustained giver — making regular, repeated donations to the same groups that you want to help. (You may have just heard your local public radio station’s spring pledge drive urging you to become a sustaining member, perhaps ad nauseum.)
Being a sustained giver, “helps nonprofits have a reliable income and gives them confidence to take a longer-term view of how they’d like their programs to work over the years,” says Riccio. “A lot of the work nonprofit organizations do takes time to see results. By sustaining an organization for the long haul and providing a reliable source of support, you’re giving them the breathing room it takes and they won’t be as subject to fluctuations in funding that can force them to stop and start programs.”
Taking the Next Giving With Purpose MOOC
If you’re interested in enrolling in the next Giving With Purpose MOOC, which will probably be offered next spring, join the mailing list of the Northeastern Social Impact Lab or the Learning by Giving Foundation. Then you’ll get the details.
Incidentally, the students in the MOOC evaluated 29 nonprofits that classmates nominated and the ones with the best RISE scores will receive Giving With Purpose grants totaling $100,000 or more.
I’m glad to know the money will go to charities with proven effectiveness and hope you’ll find — and give to — worthy nonprofits that you think RISE above others.