Principles and Processes
Strategic giving and great philanthropy are not easy. While there are many different views and much literature devoted to the topic, here we summarize seven principles and processes that serve us in developing our strategic approach to give mindfully through Smart Tzedakah.
Giving can be great. But great giving is hard. Whether physically close by or distant, recipients often live in a different world from ours. Data on real needs and impact is often unavailable and lots of emotions influence the process (in fact, playing on these emotions is usually a fundraising strategy). While professional standards in the philanthropic sector are usually different to those of the corporate world, the challenges of ego and competing interests are still a factor. Due diligence on recipients is also difficult and objective cross-sector analysis is lacking. Consequently, much giving is driven “bottom-up” in a more reactive and opportunist sense, rather than strategically decided upon “top-down” from the giver’s values and aspirations to affect meaningful change.
Many sophisticated philanthropists and foundations have actively tried to overcome these obstacles as they professionalize their passion, however, in discussions with dozens of leaders, we found that they were always looking to upgrade in this space. For this reason, we have elaborated seven basic principles, which may not be revolutionary, but together help frame how we approach Smart Tzedakah.
7 Principles of Smart Tzedakah
1. Support strong leaders. Work with effective leaders who know the needs of the charity intimately. Be sure that the leaders of what you support are strong and passionate with a real track record and true expertise in the field.
2. Treat the cause, not just the symptoms. Focus on helping people sustain themselves, rather than just providing them with sustenance. Help people manage their budgets, rather than just paying for their debts.
3. Give as close to the final recipients as you can. Avoid chains of intermediaries in which each part takes a share of the funds before passing them on closer to the final recipients.
4. Look for leverage. Highlight organizations that mobilize many volunteers, since every dollar given enables the work of many volunteers, or those nonprofits which partner with the government or (confirmed) matching mechanisms to leverage their impact.
5. Check the efficiency of recipient organizations. Overhead is not always bad (e.g., a well-executed fundraising budget can catalyze exponential growth), but check key areas such as the highest salary levels and expense buckets to make sure they are justified.
6. Objectively measure the impact and value delivered for your investment. Ask for or create impact metrics (e.g., cost of helping one recipient; organizations percentage operating costs to amounts raised and distributed etc.) and compare it across other similar organizations.
7. Revisit, revise and revitalize your strategy. Don’t be constrained by history, preconceived notions and relations. Take a clean sheet look every few years
When actioning these principles in the nonprofit sector, we believe that donors can adapt processes that apply to other types of investments.
From our plethora of conversations, we have seen that donors do not always give at a level commensurate with their means and many do not have as much time to invest in this space as they do in others. One of the many reasons for this is that the success of a financial investment can typically be measured by specific return metrics (such as the Internal Rate of Return or Return On Assets), whereas philanthropic investment needs to be measured by impact which can often lack clear objective metrics.
For those with the means and for whom a structured process is appropriate, we believe that an approach to strategic giving can be adapted from an approach many use to set up an investment portfolio.
7 Processes of Smart Tzedakah
1. Decide spend level and speed: Like sizing an investment portfolio, this can either be top-down (e.g. give away 15% of income) or working from the end (e.g., give away $x until age 80).
2. Allocate to giving areas: Sharing similarities with strategic asset allocation, this often starts with a deep reflection on the areas you or your family care about most and believe in, or the legacy one wants to leave and how one wants to make a difference in the world. Giving areas can be broad (e.g., religion, education, poverty, social equality, health, science, arts and culture, entrepreneurship, female empowerment and environment) and it helps to narrow one’s focus to a small number of areas one can get to know in a deeper way and possibly have a greater impact with.
3. Select beneficiaries: Similar to stock picking, the Seven Principles of Tzedakah that we shared previously can serve as a starting point regarding beneficiary selection within each of the giving areas. For larger gifts, proper due diligence might require site visits and engaging objective professionals.
4. Design projects: Gifts can be unrestricted such as funding the organization’s general operating budget which is a recipients dream or are often linked to specific projects that best match the giver’s intention. If the organization is right, it is important to be guided by the deep knowledge of recipient needs and be wary of ego.
5. Measure performance and report: As with portfolio performance reporting this requires the organization to report on how funds were used and especially what impact they have had. This is only practical for larger gifts but is a critical step in re-evaluating one’s strategy for future years.
6. Evolve strategy: Based on the donor’s evolving sensitivities, the impact of previous gifts, increased learning about recipient needs, it is best practice to review one’s overall giving strategy every few years, to ensure learnings are incorporated and that the strategy keeps delivering impact in general and to the satisfaction of the donor in particular.
7. Be proactive about being reactive: Build a discretionary amount in the portfolio that allows for fluidity, reacting to needs as they may arise, whether because of a new area of passion or important need that you have become aware of.
Philosophy of Smart Tzedakah
The Hebrew word “tzedakah” is often mistranslated as “charity,” yet it literally means “justice.” These are opposites. Charity suggests that we give despite the fact that the recipient is undeserving, while justice suggests that we give because the recipient is deserving. Clearly, the traditional idea of charity is not what is being described here, but rather a form of redistribution of wealth as a form of justice. Whereas one instinctively gives from an emotional place of compassionate kindness, the underlying sentiment of this idea is to give with intelligence and discipline.
Maimonides, one of the greatest Jewish sages, famously outlined eight levels of Tzedakah. Inherent in his methodology of grading the different levels is the fact that there are better and worse ways of giving. Three themes emerge as important factors:
• What we give
• How we give
• The impact of our giving
This approach, among others, pushes us to think through the best way to optimize the ‘what’, ‘how’ and ‘impact’ of our charitable resources. It is for this reason that we define our approach as Smart Tzedakah and the above principles and procedures are there to help achieve this.
Smart Tzedakah can be as rewarding for the giver as it is for the recipient. In this sense it really is a form of “justice,” exchanging financial and emotional goods, with the donor giving resources such as time and money and receiving a level of satisfaction and good for the world. In our experience, it is a way of paying back and paying forward that benefits the giver enormously.
There are many other benefits including serving as an opportunity to educate our children, creating a conversation across the generations, strengthening family bonds and leaving a legacy. It helps us clarify that which is important to us and live our values. It reminds us that money is a means to a greater end and that we have a responsibility to share. For many givers it helps develop empathy, broaden horizons, deepen engagement with society and cultivate a greater understanding about diverse needs, populations groups and people. Sometimes financial giving is only the beginning of Smart Tzedakah and in the process we are gifted the opportunity to give in so many other ways, based on our skill set, life-experience, network and different perspectives and attributes.
The world was created in seven stages and we hope the seven principles and processes of Smart Tzedakah add to the empowerment of others to recreate worlds. Ultimately, we believe everyone should develop an approach that works for them, and having a considered framework is good practice for anyone who wants to invest in what money alone cannot buy.
Rabbi Dr. Benji Levy was the previous CEO of Mosaic United. Michael Bloch is a former senior partner at McKinsey & Company. Together they founded Israel Impact Partners: www.Israel-Impact.com