Why seasoned philanthropists give more strategically

Ron and Marty Cordes gave money to charity long before they established their family foundation in 2006. However, the earlier sale of Ron’s investment management firm for $230m enabled the couple to substantially increase the scale of their philanthropy and, says Ron, marked a turning point. “We were going to be writing significantly larger cheques, which we were excited about,” he says. “But we also felt a greater responsibility.”

The couple are not alone. When philanthropists free up or acquire wealth, whether through the sale of a business, a rise in stock values or by inheriting family assets, the money often comes with a new sense of responsibility for giving more effectively. This is part of a journey with several stages that range from writing cheques to designing a more strategic approach to giving.

Increased responsibility was something felt by Cathy Halstead, daughter of Sidney Frank, the US businessman who in 2004 sold his Grey Goose vodka brand to Bacardi for more than $2bn.

“Suddenly we had the ability to give away a tremendous amount of money every year and wanted to think about doing it in a way that, when we all looked back 10 years later, we would feel we’d made a difference,” she says.

Charlie Rounds and his husband Mark Hiemenz are Minnesota-based philanthropists who support causes including women’s health, as well as LGBT and global human rights. The couple’s first step after Rounds sold his travel business for $800,000 in 2004 was deciding how much of it to donate, and when. “We could give away none of the money and retire, give away half and retire in seven years or give it all away and retire at normal ages,” he explains. “We gave it all away and don’t regret it.”

The Carnegie Corporation of New York, the foundation established by industrialist Andrew Carnegie in 1911, has identified seven common stages in the philanthropist’s journey. These start with the development of a “giving mindset” — or the desire to give money — and move towards a strategic approach where objectives are set, impact is measured and giving is based on performance (see box).

For Penny Lovell, chief executive of financial services firm Sanlam Private Office, this evolution is familiar. “With new philanthropists, there is an eagerness to start giving, without necessarily assessing the impact,” she says. “The sophisticated and evolved donors will approach their giving differently to those starting out. It is, in essence, a form of investing and accordingly requires experience.”

Ron Cordes recalls a critical lesson he learnt soon after establishing the Cordes Foundation when, on a trip to Africa, he and a group of business executives spent their first day visiting a school in Kenya.

The group walked around the school building and noted projects they wanted to support, from fixing a leaking roof to replacing the concrete floor. “Imagine eight Type A personalities with clipboards ready to solve problems in a country we had spent very little time in,” he says. “We showed up with this western imperial mentality.”

At the end of the tour, the school principal politely asked whether they wanted to hear what her priorities were. The most pressing problem, it turned out, was that the children were not learning effectively because the school could not afford to provide meals for them.

“All eight of us just shut up, put down our clipboards and felt like we were in the fourth grade,” the philanthropist recalls. “We walked out of there funding a feeding programme that hadn’t been on any of our lists.”

The experience, he says, taught him the importance of bringing humility and empathy to his philanthropy. “That’s informed everything we do.”

For philanthropists who have made their money in the corporate world, early giving experiences often shatter a belief that business strategies can simply be applied to philanthropy.

“These are complex social problems — and most of them are not one insight and $1bn away from being solved,” says Bill Meehan, co-author of Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector. “So one of the stages is a new humility and the wisdom that comes with it.”

Giving is a form of investing and accordingly requires experience

Of course, as they become more strategic, philanthropists also need to grapple with practical questions. These range from selecting the types of causes and organisations they want to support, to establishing appropriate giving vehicles such as a donor-advised fund or a fully staffed foundation.

“It is similar to what happens to people who start collecting,” says Melissa Berman, president and chief executive of Rockefeller Philanthropy Advisors. “It is one thing to wander into a store and buy an old book when you’re on vacation — it is another to collect first-edition Faulkners.”