In our first article on Smart Tzedakah, we outlined seven principles which can guide those looking to give in a more effective and strategic way. When actioning these principles in the nonprofit sector, we believe that donors can adapt processes that apply to other types of investments.
From our myriad 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. A primary reason 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 often lack clear objective measurements.
For those with the means and for whom a structured process is natural, we believe that an approach to strategic giving can be modeled similarly to the approach many use to set up an investment portfolio. These seven processes are a useful guide:
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, environment etc.) and it helps to narrow one’s focus to a small number of areas one can get to know deeper and possibly have a greater impact.
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 but are often linked to specific projects that best match the giver’s intention. The caveat is to be guided by the organization’s 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.
Smart Tzedakah can be as rewarding for the giver as it is for the recipient. In this sense it is a form of “justice” (the meaning of the root word of tzedakah, i.e., tzedek), 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.
It serves as an opportunity to educate our children, create a conversation across the generations, strengthen family bonds and leave 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.
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.