How to Give Your Fortune Away

You write a check to charity, but does it really make a difference? Enter the team of Penn researchers cracking the code on what kind of giving works best. (Surprise: It’s not always what you think)

If I were a rich man, I’d have a rich man’s worries. I’d worry about the stock market. I’d worry about my tax bracket. And I’d worry about how to make a difference in the world—how to use my hard-earned bucks to improve the lives of schoolchildren in Philly, or AIDS sufferers in Africa, or homeless families in Haiti.

Most people don’t fret very much about that. We text $10 to SAVE JAPAN after an earthquake; we help out at the food bank now and then. But if you were a rich man—if you had a spare $10,000, or $10 million—how could you figure out the best way to give it away?

You could ask Kat Rosqueta.

Rosqueta—Kat’s short for Katherina—is the executive director of the University of Pennsylvania’s Center for High Impact Philanthropy, or CHIP to its familiars. CHIP was founded five years ago by a group of Wharton alums to help philanthropists get what’s known as “bang for the buck.”

The million-dollar question in charitable work these days, Rosqueta explains, is, “How much does change cost?” Different do-gooders have different philosophical impulses; some take the short-term perspective and fund a soup kitchen, while others look long-term, funding job training for those standing in the soup kitchen’s line. What CHIP tries to do is estimate the “cost per impact” of various ways and means of doing good—to apply the science of sabermetrics, made famous in baseball, to the art of giving money away. Think of it as Moneyball Philanthropy. “Donors aren’t just satisfying an emotional desire to feel good about themselves,” says local philanthropist Peter Gould. “They’re trying to accomplish something.” Charitable giving, as he sees it, is an investment, and like any investment, it has a goal: not capitalism’s ROI—“return on investment”—but SROI, or “social return on investment,” in the form of improved lives.

To that end, in the late 1990s, venture capitalists began to extend business-world principles to the hidebound philanthropic world, looking for evidence that their do-gooding did good. The push to quantify SROI stepped up as charitable giving constricted during the recent recession; fewer resources meant more careful shepherding of what remained. Another driver was the collapse of Bernie Madoff’s empire, which gutted a number of charitable foundations that had put too many eggs in his basket. That today’s kazillionaires tend to be entrepreneurs who earned their money, not stewards of old family wealth, has also had an impact on how they view giving it away.

Ann Nolan Reese, president of the board of overseers of Penn’s School of Social Policy and Practice, is one of what CHIP terms “high-net-worth philanthropists”—donors whose giving averages $1.5 million annually. She made her fortune in finance, and she points out that if you want to invest money in the business world, you have tons of resources to turn to: general macroeconomic information, spot analyses of specific companies, mutual funds where you can measure performance. But when it comes to charitable giving, quantifiable information is hard to find. “Philanthropists would never invest in stocks as lackadaisically as they do in charities,” Reese says. She notes two high-profile examples of do-gooding gone bad: Oprah’s scandal-plagued boarding school in South Africa, and Madonna’s school in Malawi, which ate up $3.8 million in donations without ever breaking ground. “If Oprah and Madonna can’t get it right,” asks Reese, “who can?”

ENTER KAT ROSQUETA and her millionaires. A Philadelphia native, Rosqueta, a petite 42-year-old woman with a short black bob, graduated from Yale, then went to work for more than a decade in community development and venture philanthropy in San Francisco. “I got tired of people telling me nonprofits had to be more business-like,” she says, sitting in CHIP’s singularly unimpressive offices on the Penn campus, in a Frank Furness-designed twin on Walnut Street. (No high overhead here.) “I wanted to understand the tools and vocabulary that help businesses succeed.” So she went to Wharton and got an MBA. She served for five years as a consultant at McKinsey & Company, helping businesses strategize and reorganize, but she was always thinking about social-impact work. While she was on maternity leave with her second child, she got wind of something starting up at Penn. EEventually, she signed on as founding executive director of that “something,” which turned into CHIP, part of Penn’s School of Social Policy and Practice.

The original founders, who are determined to remain anonymous, chose three areas on which to focus: U.S. education, disadvantaged populations in the U.S., and global health and development. Using just over $1 million in funding from the founders, funds from social-change drivers like the Ford Foundation, and fees charged for seminars and workshops, Rosqueta and the team she assembled—five staffers and another five or so student researchers—weed out what works and what doesn’t in effecting change in those sectors and how much it costs.

Early on, CHIP conducted in-depth interviews with dozens of high-net-worth philanthropists on where and why they give. Most, like Reese, had made their money in finance. They listed peers as their most trusted sources of information on giving; they said they wanted to be involved in causes beyond merely writing checks. “They wanted to give more,” says Rosqueta, “but they weren’t confident it wouldn’t be wasted. They wanted to know more, but they didn’t have time to do the work themselves.” CHIP used their input to develop its methodology.

Take the issue of malaria—a persistent global health challenge, according to physician Carol McLaughlin, CHIP’s research director for global public health. The disease, transmitted by mosquitoes, kills a million people worldwide every year, and causes one in five child deaths in Africa—one every 30 seconds. McLaughlin and her team analyzed all the research they could find on preventing and treating malaria—random-controlled studies, quasi-experimental studies, government reports, NGO reports. They talked to experts around the world who work in malaria treatment and prevention—research scientists, physicians, nurses, clinic staff: “We look for people who know the sickness well and have been in the field for years.” They also got down to the grassroots, researching communities affected by malaria. They were searching for preventive models that were proven to work.

“All the data showed that deaths occur when a community doesn’t have access to doctors or clinics,” McLaughlin says. So her team next looked at models that have successfully reached isolated populations in various countries. Then they talked to nonprofits and government agencies that use such models and calculated: What did they require in terms of money, staffing, government support? How many children were reached? How many children were saved? What did that mean for the health of the community? In other words: What impact was achieved, and how much did it cost?

All this digging and analysis makes sense, because big bucks are at stake. In 2007, charitable giving in the U.S. topped $300 billion for the first time, a level that has survived the downturn. And when donors give to organizations and programs that don’t get results, it can be tragic. In the 1990s, the Annenberg Education Challenge frittered away half a billion dollars in a hodgepodge of unsuccessful attempts at improving U.S. schools. Nobody wants to see that happen again.

GIVING, SAYS JAMES BARNES, chief relationship officer for the Malvern-based Vanguard Charitable Endowment Program—one of the world’s largest philanthropic nonprofits—is “an immensely complicated field, and it’s made so by human beings. It gets very emotional.” Sometimes what feels good isn’t what does good, and vice versa.

Ann Nolan Reese says her interest in CHIP comes from “a longing to apply the rigor of financial and economic analysis to the act of giving.” Rather than sprinkle donations around, she focuses on causes that are personally meaningful, particularly education and child welfare. “The cause is my heart,” she says, “but the organization is my head.” Reese is a founder of the nonprofit Center for Adoption Policy, which works to enable domestic and international adoptions. She has a special interest in orphans; last decade, she adopted two Romanian kids. When the Haitian earthquake hit last year, she knew how to help children there, thanks to CHIP’s research. “Different kinds of help matter at different stages,” she explains. “In the immediate wake of a disaster, the job isn’t to feed kids; it’s to find out who they are and where they are and put a bracelet on their arm.” So in Haiti, she gave to the Red Cross and Save the Children, which have expertise in first-response work. When others asked her how to help, she steered them toward CHIP’s “Haiti: How Can I Help?” report, which addresses longer-term issues: health, education, destitution. The juxtaposition of numbers and need can be jarring: $1,563 moves a woman and her family out of extreme poverty and creates a self-sustaining household; at Haiti’s Hôpital Albert Schweitzer, $2,775 saves a child’s life.

The move toward metrics has brought some surprises. “Our team is both highly trained and used to being wrong,” Rosqueta says, grinning. Everybody’s heard of Scared Straight, which introduces at-risk young people to the consequences of bad behavior by taking them to visit prisons. Nobody’s heard of another charity, the Nurse-Family Partnership, which unites first-time low-income mothers with RNs who make home visits from pregnancy until a child’s second birthday. Yet evidence from 30 years of NFP’s work shows a 59 percent reduction in arrests by the time that child turns 15, among other benefits, for a return of nearly six bucks in social benefits for every dollar spent—increased tax revenues, lower welfare costs, reduced costs for health care and other social services. And the high-brand-awareness Scared Straight? A 2003 study found that participants were up to 28 percent more likely to offend in the future than they were before going through the program. It was doing more harm than good.

The push to assess impact is causing charitable organizations to rethink how they judge their own performance. For years, donors have been told to evaluate charities using factors like overhead ratios—how much they take in versus how much they spend on staffing and administration. But CHIP’s high-net-worth donors are perfectly willing to pay for expensive leadership, because their business experience tells them that good leadership equals efficiency.

“Some people say, ‘Well, it’s charity,’” says Reese, “‘and if some of the money doesn’t make it, if there’s leakage, it doesn’t matter.’ I totally disagree. How many of the world’s ‘intractable’ problems are intractable because of inefficiencies that are built into our charitable system?” When the eldest of her five children started kindergarten 23 years ago, Reese began a long acquaintance with canned-food drives at his school. “My kids and I,” she says, “have collected cans, bought cans, filled paper bags with cans, shipped cans.… ” At a CHIP seminar this past fall, she discovered that canned-food drives are the single most inefficient way to address hunger in America. “If you take a dollar you spend buying cans and instead give it to a regional food pantry, you can magnify that dollar up to 52 times,” she says. “Who knew?” When she asked the school, “Why are we still doing can drives?,” the response was, “It makes a good story in the local paper, and the kids like doing it.”

Wooing philanthropists is its own cat-and-mouse game. Research has proven that if you show potential donors a photo of a sad little orphan, they’ll give you x dollars. If you show potential donors the photo and also provide them with statistics on how many sad little orphans need help, they’ll give you less. In fact, just having people solve a few mathematical equations before asking them for money drives donations down. It would seem that logical thinking wars in our brains with empathy. That makes charity’s newfound focus on outcomes as problematic as baseball’s obsession with pitch counts, which has drastically lengthened games. “People are used to seeing returns on their investments,” says Eileen Heisman, president and CEO of Jenkintown’s National Philanthropic Trust, a nonprofit vehicle for charitable giving. “But the charitable world is different. Say you’re fighting teen pregnancy in high-school girls, and you start a program in second grade. You can’t measure the outcome for years.”

With its venture-capital roots, CHIP leans toward logic, but Rosqueta keeps an eye on the human aspect—the “story”—even as she crunches the numbers. No matter how much you have to give, there’s a way to give it well. The data Reese and Gould digest before they invest their fortunes can be found on CHIP’s website. Just don’t visit right after you balance your checkbook, please.