A ‘Platinum Age’ for Philanthropy Requires Donors to Change Their Ways

Modern American philanthropy will soon celebrate its centennial anniversary. In June of 1911, the steel magnate Andrew Carnegie was granted a charter to create the Carnegie Corporation. Thus was born one of the first general-purpose American foundations. John D. Rockefeller, the oil baron, soon followed suit, and together those industrialists ushered in giving’s first modern Golden Age.

Since then philanthropy has grown—but never more so than in the past two decades: The number of new millionaires and billionaires worldwide has shot up, and now more than 75,000 foundations exist in the United States alone, of which nearly half were created in the last 20 years.

Experts say this era marks the second modern Golden Age of giving—although at this moment, it doesn’t seem so golden to the many struggling nonprofits that face depressed donation rates and looming government budget cuts as the nation recovers from the recession.

The fact remains that philanthropists have more to give now than ever before in history. This presents an opportune moment to reflect on philanthropy’s performance to date and extract lessons for the future. We believe that if philanthropy is to help solve a greater share of the world’s vast and complex problems—and reach its potential in its next century of giving—then the way it is commonly practiced must change.

When Carnegie and Rockefeller created their foundations a century ago, they introduced the widespread practice of modern philanthropy.

Different from charity in that it was not a hand-out but a “hand-up”: Philanthropy at the turn of the 20th century was meant to deal with the causes of problems not the symptoms.

While they zeroed in on different causes—Carnegie is most renowned for building the U.S. public library system, Rockefeller for innovations in medical research such as those that led to eradication of hookworm and yellow fever—they were united in a fundamental belief that the most effective way to help others was to help them help themselves. For these philanthropic pioneers, charity was necessary but no longer sufficient.

So it’s ironic that today much of philanthropy still seems to operate in a traditional charitable mode. In our experience, many donors—including foundation leaders, wealthy families, corporate-giving officers, and individuals—follow a simple, linear process. It begins when they receive a compelling appeal for support and ends when they send a check.

These donors later receive reports on what their grants have accomplished (though they rarely read them). Even sophisticated donors—those who develop a rigorous strategy, map out detailed plans for how to accomplish results, and carefully monitor their grantees’ progress—often approach issues as if their grants will set in motion a predictable series of events that lead directly to the intended result. They act as if their money might buy a ready-made solution from a single nonprofit.

And because most donors receive so many promising appeals from nonprofits year in and year out—each group making a compelling case about how the donor’s gift will make all the difference—philanthropists typically repeat this linear process time and again, scattering their gifts across dozens of issues and sometimes hundreds of grantees.

This approach may have worked in bygone eras. But it seems an insufficient antidote to the complex problems we face today.

A relative handful of donors do things differently.

These donors practice what we call “catalytic philanthropy.” They pursue high-impact approaches like paying for advocacy work (rather than only supporting nonprofits that provide direct services).

They connect the investment of their foundation’s assets with their missions (rather than separating their financial and philanthropic interests).

And perhaps most important, catalytic donors collaborate with foundation and nonprofit peers to advance the causes they support (rather than only supporting individual nonprofits or competing to establish their own legacies).

This is because they recognize that change requires transforming how entire fields and systems work—and that means bringing together multiple nonprofits, donors, government and business leaders, and local residents to embrace a collective strategy for impact. Instead of buying ready-made solutions, catalytic donors empower others to find solutions for themselves.

A case in point is KnowledgeWorks Foundation and its subsidiary, Strive Partnership, of Cincinnati.

Chad Wick, the chief executive of KnowledgeWorks, tried for decades to find ways to help improve the city’s struggling school system. As the head of the largest education foundation in Ohio, he poured millions into the problem.

But it wasn’t until he joined forces with Nancy Zimpher, former president of the University of Cincinnati, and fellow grant makers like Kathryn Merchant, chief executive of the Greater Cincinnati Foundation, and an array of other nonprofit, government, business, and community leaders from the region, that things began to turn around.

Together these local leaders used their collective leverage to nudge schools and youth-service providers in the right direction. They helped forge consensus among more than 300 local organizations that all affect educational results to pursue a few key shared goals. And they also created a common platform to measure and share progress.

The outcome? Today high-school graduation rates in Cincinnati are up. Math, reading, and other test scores have improved in middle and elementary schools. Even kindergartners in the city are better prepared.

The remarkable progress in Cincinnati is not the result of these donors collectively pouring hundreds of millions more dollars into the system. Nor is it an example of a single nonprofit introducing a new “killer app.” Instead, it’s the fruit of what can be achieved when local leaders work together in more effective, coordinated ways.

Although it’s extremely hard, adopting a networked approach to solving problems is something we believe every donor should try. We know that all kinds of foundations are capable of it.

For instance, large grant makers such as the John S. and James L. Knight Foundation work through networks to influence cities and towns nationwide. Knight’s approach is to mobilize hundreds of community foundations across the United States to respond to the threat of waning news and information relevant to their regions.

And while nonprofit leaders focused on any cause can start a campaign to make a collective difference, grant makers are particularly well suited to do so because they are often not tied to any one solution or grantee. Donors see the forest for the trees.

Another powerful way donors make a bigger impact is to embrace advocacy.

In our experience, many donors shy away from grants for policy work and general advocacy, preferring the more tangible, immediate results that come from financing service providers.

And we’re often asked by foundation leaders—particularly trustees—whether it is even legal for nonprofits to lobby (it is, within certain parameters). Grant makers that avoid advocacy miss a crucial tool that could better equip them to tackle tough problems.

One family foundation that bucks convention is the Tow Foundation.

Based in New Canaan, Conn, and led by its executive director, Emily Tow Jackson, this foundation has contributed to major improvements in the state’s juvenile-justice system.

A young mother raising three school-age children, Ms. Tow Jackson had never before worked with youths who had gotten in trouble with the law, nor was she trained as a lawyer before she took on the full-time executive directorship of the foundation her parents had created.

But by helping to start and actively participating in a local alliance that pushed for changes in how young people were treated by legal authorities, as well as making grants for lawsuits and other advocacy activities, the Tow Foundation has contributed to sharp decreases in Connecticut’s rates of youth incarceration and to major legislative shifts that move 16- and 17-year-olds from the adult jail back to the juvenile-justice system.

Connecticut’s system is now considered a model for the United States, and the Tow Foundation was awarded a Council on Foundations Critical Impact Award for its efforts.

The Tow Foundation has contributed to changing how the juvenile-justice system works because it did more than write checks to direct-service organizations. It moved from just providing charity to also financing and participating in social change.

Our research shows that every type of foundation can employ best practices like advocacy and network-building to achieve greater results. But it requires moving beyond the traditional charitable mind-set.

To solve pressing problems in today’s complex globally interconnected environment, grant makers should seek to induce change rather than passively writing checks and hoping for the best.

To achieve maximum results, donors should support advocacy for better government policies.

They should find ways to combine their philanthropic and financial goals and use private resources to advance the public good.

Most of all, instead of going it alone, donors must forge cross-cutting alliances that include their nonprofit and foundation peers and work together to achieve collective results rather than continuing to make grants to individual nonprofits in isolation.

We have entered a brave new world of giving in which donors have a new agenda. What we’ve come to know as modern philanthropy has yet to fully realize its original promise.

To turn this Golden Age into a platinum one—and effectively solve more of the world’s problems—donors will need to do more than give. They must strive to catalyze change.