Essec Business School

As ESSEC prepares to launch the MOOC La Philanthropie: Comprendre et Agir (in French),
Arthur Gautier, Executive Director of the ESSEC Philanthropy Chair, explains how donors can take into account and improve the impact of their donations.

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If you have already given time, energy, or money to support a cause that is close to your heart, you are surely familiar with the sense of well-being and satisfaction that comes with doing “good”. These good intentions -- a mixture of altruism, moral obligation, and personal pleasure -- are the driving force behind philanthropy. However, they don’t tell us much about what impact our philanthropic actions will have for beneficiaries. Even with the best intentions in the world, a donation can be redundant, unnecessary, or even counterproductive for those it is supposed to help.

How can donors take their good intentions that step further? How can we ensure our philanthropic actions will be relevant and impactful? While these questions have been debated since the end of the nineteenth century, when Andrew Carnegie first laid the foundations for a "scientific philanthropy" focused on reason and efficiency, they’re increasingly topical today. Here are some simple recommendations for finding your own answers to these difficult but important questions.

Taking the consequences of philanthropy into account 

Giving is an act of freedom through which donors express their values ​​by taking it upon themselves to improve the lives of fellow men and women and the world in which they live. But with this freedom comes responsibility. Indeed, unlike private enterprise or democratic governments, philanthropy is not accountable to customers, shareholders, or voters. It is therefore a great moral responsibility for philanthropists to ask themselves the following questions: What will be the positive, but also possibly negative, impacts of my donations? Have they had the desired effects on beneficiaries and on society? Could they have had more positive effects if they had been used differently?

Very often, the consequences of philanthropy are clearly positive. In the field of medical research, philanthropy has been at the origin of many major discoveries. The Pasteur Institute, founded in 1887 by a large popular subscription and funded since then thanks to a large number of donations, has funded research that has resulted in effective treatments against infectious diseases including rabies, tuberculosis, influenza, and hepatitis B. The foundation also supported the work of 10 Nobel Prize winners for medicine.

Sometimes the consequences are more mixed. Since 2011, philanthropist Michael Bloomberg has donated over $ 80 million to the Sierra Club 50 to deploy the Beyond Coal initiative, which has precipitated the closure of 251 coal plants in the United States. The success of this campaign is good news for environmentalists who want to replace coal with renewable energies. On the other hand, these plant closures have a negative impact on the lives of miners and plant workers who saw their livelihoods disappear within a matter of months.

More rarely, philanthropy can also have negative consequences for all parties involved, as we saw with the Bill & Melinda Gates Foundation. Based on the premise that high school dropout levels in US public schools were linked to the excessive size of schools and the inadequate performance of some teachers, the foundation invested $ 3 billion between 1999 and 2009 to finance smaller pilot schools and evaluation procedures and bonuses for the most effective teachers. In 2009, after a rigorous impact assessment of these pilot schools, the foundation had to acknowledge its failure: not only were students not performing better in schools, the evaluation processes had also produced negative side effects on the teaching while administrative costs increased dramatically.

Choosing your causes carefully

These few examples illustrate the difficulty of "doing good" and doing it well. In view of the almost infinite number of possibilities, the first crucial job for a philanthropist is choosing the appropriate cause to support. According to Professor Peter Frumkin, this critical choice lies at the intersection of two bigger questions:

• What really matters to me, what do I want to contribute to?
• What are the most important and urgent needs for which a philanthropic contribution could be useful?

In other words, philanthropy is the meeting point between the expression of personal values ​​and critical societal issues. Indeed, it would be counterproductive to choose a cause for which the needs are negligible, or for which a donation would serve no purpose. Conversely, a commitment to a cause for which one does not feel personally invested may not last long ...

To make this choice, the philanthropist must work from two angles. First, he or she should be introspective: what is close to my heart? What values ​​do I want to share or convey? What could be my added value? What resonates with my experience, my expertise? Second, he or she should undertake an outward-looking analysis: what are the important or urgent needs? What are the areas where these needs are most present? What are the other existing answers to this problem? Who are the other relevant actors? How am I in a position to respond?

It is sometimes very difficult to prioritize between these "competing" needs, especially in medical research where human lives are at stake. There has been no shortage of controversy in recent years: Amyotrophic lateral sclerosis or cancer? Myopathies or AIDS?

According to the utilitarian philosopher Peter Singer, philanthropy should be a quest for the greatest good for the greatest number. Working from his ideas, the "effective altruism" movement proposes recommendations to best allocate our limited time and our money. In particular: “effective altruism” means focusing on causes that affect a very large number of people and for which affordable solutions exist to save as many lives as possible. By following Singer, we should give to the Malaria Foundation that distributes mosquito nets in Africa rather than to research against a rare genetic disease affecting only a few thousand people in the developed countries ... However, controversy is not likely to end with such strong statements. 

Understanding and evaluating the impact of donations

There is increasingly talk of impact assessment in the nonprofit sector, but there is a great deal of confusion about the concept of impact and what it covers. In fact, it all depends on what you want to assess. Nonprofit professionals and donors need to work together to clarify what “impact” entails. To simplify, we can distinguish four main families of evaluation objectives from what is sometimes mistakenly called "impact":

Evaluating the relevance of an initiative means questioning the objectives with regard to societal needs in order to analyze the project's capacity to respond to them. For example, an initiative to reduce high school dropout rates in a given city is relevant only if there is a sufficient volume of students with academic difficulties and no adequate support system at their disposal. Relevance would also depend on whether or not other actors had not already effectively mobilized to respond to this problem.

Evaluating the effectiveness refers to an initiative’s ability to achieve its objectives. If we were again dealing with high school dropout rates, the effectiveness of an initiative could be evaluated by assessing the number of students who have successfully completed high school thanks to the initiative.

Evaluating the efficiency means comparing the results of a project with the financial and human resources that have been used to produce them. For example, with regards to the number of students who have completed high schools thanks to our initiative, how much was spent per child? Can this cost be easily defended? Is it sustainable? Can it be lowered without lowering the quality of its benefits?

Evaluating the net impact involves demonstrating that a given social project has generated real added value for its beneficiaries and for society at large. The net social impact of a project is thus understood as the total outcomes generated by the action, from which the generated effects of the interventions of other actors or factors will be deduced.

Impact assessment is complex because societal changes produced by philanthropic action are scientifically difficult to measure and causal relationships are often uncertain. How, for example, should one measure self-esteem? Or the value of biodiversity in the context of environmental protection measures? In addition, evaluation can serve very distinct and often conflictual objectives depending on the audience. Is the evaluation intended to steer internal activities, or demonstrate the social value created, or report to stakeholders?

Identifying precisely the purpose of the evaluation and the questions that come with it is a difficult but essential exercise in understanding the consequences of philanthropy and being able to evaluate them.