Why Our Company Doesn’t Give Money to Groups That Simply Help the Poor

If foundations really want to end poverty, they should stop giving money to some nonprofits that claim to fight it.

Despite the best of intentions, many organizations that help the poor are on life support. Too many are tiny nonprofits surviving on razor-thin budgets. Their handful of staff are close to burnout, and they struggle to make payroll while competing for funding. They cannot be effective, let alone expand, and can serve very few needy people.

In the United States alone, an estimated 40 million people live below the federal poverty threshold of $24,200 for a family of four. That figure hardly reflects reality, especially on the West Coast, where the U.S. Department of Housing and Urban Development’s 2018 figures defined “low-income” as $117,400 and “very low income” as $73,000 for families in San Francisco, Marin, and San Mateo counties — the highest such figures in the nation.

Despite the United States’s record employment and booming economy, in May 2018, the U.N. issued a report decrying the country’s extreme wealth inequality and inadequate-to-punitive policies toward the poor. Yet in 2017 alone, the United States spent $500 billion, or approximately 4 percent of GDP, on poverty-related issues. Something is badly amiss.

At our company, we believe that strong communities are those where everyone is economically empowered. That’s why we choose not to give money to nonprofits focused on poverty’s symptoms. Instead, we provide pro bono consulting to nonprofits focused on ending poverty.

We also want to help grant makers understand why they should direct their money to organizations that make a real impact and not to do-gooders with bleeding hearts and bleeding margins.

“Giving USA” estimated that last year more than $410 billion was donated to charity, or approximately 2 percent of GDP. Of that, $67 billion came from foundations.

Although most donations, including bequests, come from individuals, those donations tend to be modest — about $5,500 on average, according to the Internal Revenue Service. Clearly, sizable grants that can truly make a difference come from foundations, whether individual or corporate, and from other large grant makers, including state and federal entities.

To add some perspective, in 2017 12 percent of all donations, $50.06 billion, went to human-service organizations. As a snapshot, our headquarters state of Georgia is home to approximately 37,000 nonprofits, with 27 percent in human services. Of that percentage which amounts to just over 10,000, roughly 9,000 have operating budgets below $1 million.

Our pro bono findings show nonprofits below the $1 million operating-budget threshold are desperate to do good but rarely can: They lack essential business skills, suffer from mission creep, struggle to set priorities, and make only marginal use of data to inform decisions.

We urge grant makers to stop giving to such organizations and those focused on poverty’s symptoms. If that means that some small nonprofits disappear, sobeit. We make no apologies about the need for impact and for “do-gooders” to close up shop.

Lack of Independent Evaluations

No business would keep funding an investment year after year that showed minimal or negative returns. But many grant makers have become comfortable giving to ineffective “do-good” nonprofits. Why?

First, it’s far easier to write a check than require grantees to show impact. Last year a Fortune 100 corporate executive gave a shocking response when asked how her company’s foundation measures grantee success. Speaking at a standing-room-only symposium in Atlanta, she said, “We don’t have the staff to go into the field, so we depend on them [grantees] to deliver what they said they would in their application.”

Why do we require annual performance reviews for employees, yet some grant makers don’t require annual performance reviews of nonprofits that receive their funding?

Second, foundations often make grants to causes that are in sync with their business or industry needs: Biotech or pharmaceutical companies tend to fund health projects, banks support neighborhood revitalization, and tech companies might support computer literacy.

However, grant makers need to think about more effective ways to meet society’s most pressing needs. For example, instead of funding brick-and-mortar computer centers, they might consider the impact of mobile labs. For residents of blighted neighborhoods, getting to a building miles away may not be easy, but having a literacy center come to them (as in the case of Atlanta’s west-side revitalization efforts) can facilitate access and reach more people.

Instead of making grants to nonprofits focused on poverty’s symptoms, reward those whose strategy is to lift people to self-sufficiency and who define success as intentionally going out of business.

Grant makers are in an ideal position to set clear expectations for what their dollars will cover, and grantees should be required to annually report measurable outcomes and their impact. Corporations measure results; foundations and those they support should be no different.

Focus on Board Members

How do we help corporate grant makers better understand that supporting nonprofits focused on poverty’s symptoms will have diminishing returns? Effecting radical change requires untraditional approaches, something that can be intimidating for foundations and board members who may feel they lack the necessary experience in human-service issues to ask the tough questions.

But not asking can lead to greater difficulty.

Corporate foundations may believe their hands are tied by a company’s strategy and private foundations by the legacy of their founders. But focusing on a grant’s objective and requiring grantees to measure and report on impact opens up possibilities for how grants can best be used to drive sustained change. That may be one reason organizations such as GreenLight Fund (North Highland is a founding member of the Atlanta hub) are attractive to companies that can envision an end to poverty. GreenLight addresses local needs through infrastructure projects that can have a significant, measurable impact — and that win significant community support.

As our 2019 pro bono projects move forward, we will be showing nonprofit board members how to adjust their strategies and priorities to operate more effectively. By doing so, we’ll ensure that board members who also give their own money or influence their business’s philanthropy adopt an impact perspective when considering fundraising and capital campaigns. The lives of 40 million people who have yet to be lifted out of poverty may depend on such an approach.

Dianne Bernez is the global head of philanthropy at North Highland, a management consulting company.