Ethical Giving Guide

Giving from the heart, or compassionate philanthropy, is a popular approach to giving, with many donors giving based on their personal preferences, familial patterns, or in accordance with what they have always done. Relatedly, donors may give based on recommendations from their social networks (a sister with an ailment, a friend with a preferred cause) or based on their religious faith. Religious faith may provide holistic advice about the kinds of causes to focus on, or may offer particular guidance about which causes are aligned with an organized religion’s mission.  For donors relying on this philosophy, giving is related to personal relationships and considerations.

One ethical issue with giving from the heart is that donors may end up relying on instinct and continue donating to causes because they have always done so, without fully assessing need or impact. Donors who exclusively give from the heart might not dig into whether their donations are having an impact, what kind of impact matters to the donor, and whether there are other causes and organizations that should also receive consideration for support.

There is another risk in giving from the heart:  nonprofit fundraising sometimes resorts to pulling heartstrings by appealing to a donor’s sympathy through sad stories for marketing purposes.  Do these kinds of ads and stories accurately represent the clients served by the nonprofit? Did the nonprofit get input from the clients on how they should be represented?  Donors need to reflect on whether they are reacting to the story in the ad or to the real cause, and whether that nonprofit is the one to support. 

This philosophy is based on giving to those who need it the most and focusing philanthropy on those who are most vulnerable.  Instead of relying on one’s own passions, donors give to those who are suffering and need help urgently.  This philosophy stems from Judaism, Christianity, and Islam.  People adhering to this philosophy might donate to help people experiencing homelessness, food insecurity, or poverty anywhere in the world.

Resources and opportunities for garnering resources are unevenly distributed across societies. Donating to help the needy is ethically justified on the basis that people suffering the most are in dire need of support in order to survive. 

People who gravitate to supporting the neediest might refrain from giving to causes that can benefit the community as a whole such as arts organizations or community events.

This school of thought focuses on the maximum impact for each dollar spent.  Advanced by philosopher Peter Singer, among others, effective altruism calls for maximizing the benefit to the greatest number of people for the least cost. Rather than relying on one’s heart and causes that “feel right” to the donor, effective altruism advises people to use rigorous metrics to assess the yield of donations. 

Effective altruism fits with the philosophy of utilitarianism, which holds that the morally right course of action is the one that produces the greatest balance of benefits over harms for everyone affected.

An example of the choice faced in effective altruism is as follows: a gravely ill child is given a fantasy come true from the Make-A-Wish Foundation.  The cost for the child’s fantasy involving Batman and heroics is $7,500.  The same amount could protect families from malaria and likely save the lives of at least three children.  The effective altruist would donate to the malaria protection as more children were saved for the same cost.

One ethical consideration is that some programmatic impact by nonprofits is not easily quantified and effective altruism does not offer a toolkit for assessing qualitative impacts. Effective altruism replaces issue-level commitment with a commitment to efficiency. While ethical giving should take effectiveness into account, many nonprofits exist precisely because inefficient and unquantifiable problems still need to be addressed – and effective altruism veers away from such organizations.

Donors who seek to dedicate funds to addressing social injustice aim to make the world a more egalitarian place. Recognizing inequalities and disparities in different communities, donors aim to mitigate these inequalities by supporting nonprofits that provide programs that address the gaps. For example, donors may give to education-focused nonprofits to help address achievement gaps in impoverished communities or to organizations addressing the impact of violence on children in urban areas. These donors rely less on their personal instincts and more on the objective need of people and the organizations that support them.

Some donors see giving as a form of reparations and view this as an obligation of those who have sufficient means to give back to those who have been harmed through inequality.  The political philosopher Chiara Cordelli promotes this philosophy and writes that for those who have wealth, philanthropy should not be discretionary because “there is a duty to return to others what is rightfully theirs.”

Donors adhering to this philosophy of healing will donate to organizations supporting those who are suffering from the effects of systemic social injustice.

These donors focus on combating the effects of laws and policies that have perpetuated societal injustices. Donors may dedicate funds to nonprofits that try to dismantle the inequities that such laws create, such as public interest law firms addressing unjust housing or education policies, or other governmental actions.  Donors might give to organizations with missions of addressing large social goals such as achieving racial justice, eradicating poverty, or addressing climate change.

Unjust policies and laws have the potential to ensure that marginalized groups and interests remain marginalized for the foreseeable future – unless outside action is taken to scrutinize, criticize, and change these laws. Donating to overcome unjust laws may be ethically justified on the basis that donors seek to advance the common good and center justice as the purpose of giving.

Donating on the basis of giving from the heart, neediness, effective altruism, social injustice, and unjust policies may overlap, and each philosophy of giving has blind spots that may be overcome when the philosophies are combined. For example, the criterion of neediness alone may overlook the ways in which a community may not be completely needy yet lacks arts programming. Giving from the heart may overlook the aspect of data-based evaluation that effective altruism provides. Seeking to overcome unjust laws or policies may overlook the needs of communities that are not needy due to regulations but due to informal, but entrenched norms of social practice that create and reinforce injustice.

Recognizing which philosophies resonate most with you allows you to narrow your giving focus and to consider the nonprofit activities in which you are most interested. 

Go to the organization’s website to make sure the mission is a match with your interests. Read their stories, review the board of directors and leadership team, look at their annual report and financial reporting.  If your gift is large enough, talk with the leadership about the organization, its programs, and how your personal giving mission might fit.

You should also consider a nonprofit’s vision and values. You can learn a great deal about what an organization aims to achieve through its vision statement.  Values statements reveal the ideals and principles that are most important to the organization.  Those values should be significant and meaningful and should align with your values as well.

Donors need to make sure the organization is a legitimate operation that is transparent and accountable.  There are a number of agencies that evaluate or rate the accountability and transparency of nonprofits and their information is easily accessible on the internet.

Agencies such as BBB Wise Giving Alliance, Charity Navigator, and Guidestar by Candid provide this information. Charity Navigator also publishes some impact information.  Guidestar provides nonprofit tax returns which gives valuable information about the finances of the organization, as well as the highest paid individuals, and some information on the organization’s governance procedures.

These agencies base their evaluations on information that is publicly available or on information received from the nonprofits.  There is no independent investigation of the nonprofit’s activities. There are other organizations that certify accountability through an accreditation process, such as the Standards for Excellence.  This type of certification gives additional certainty about the soundness of the nonprofit’s practices.

After ensuring a nonprofit’s legitimacy, transparency, and accountability, donors should evaluate a nonprofit’s efficiency.  For many years, a nonprofit’s overhead was the measure of a nonprofit’s efficiency.  Overhead includes management and general expenses as well as fundraising costs. 

Overhead as the measure of efficiency was based on a misconception that money spent on running the nonprofit is money taken away from programs.  In 2013, an open letter to donors from Guidestar, BBB Wise Giving Alliance, and Charity Navigator on the “Overhead Myth” started a movement to debunk this concept arguing that all of the administrative costs – the staff, the building, insurance, the audit- that allow a nonprofit to accomplish its programs should be considered program costs, and that donors should include these costs in their giving. 

While donors should be aware of what organizations spend on overhead, many in the sector agree that overhead is one factor and it is best if “donors look more closely at what nonprofits achieve than what they spend.”

Donors should next consider impact: what are the results that flow from the work the nonprofit does?  The nonprofit should be able to describe the difference they are making as it relates to their mission.

Your giving philosophy may affect the way you consider impact. For example, a donor adhering to effective altruism will consider an organization to have high impact if it solves the identified problem in the most cost effective way.  A person who believes in helping the neediest will look at the number of people reached, the services they received, and perhaps whether people were moved to a more sustainable life.

There is no single method of evaluation that works for all nonprofits and imposing a particular set of metrics may exclude smaller organizations and perpetuate inequity in the sector. Some donors assess nonprofits with a for-profit lens.  They may question their leadership and capacity, the metrics used in evaluation, the activities that could be done more cheaply, or what appears to be duplication of efforts among nonprofits. This is understandable as many donors come from a background in for- profit business.  That said, the vast majority of nonprofits do great work with very limited resources. 

Nonprofits generally have employees who are deeply committed to the mission and have critical and irreplaceable knowledge and understanding of the communities in which they work.  In understanding a nonprofit’s impact, talk with the staff about how and why they are using the assessments they have chosen. Decide what impact is critical to you before making your gift.

Donors may also want to consider how the nonprofit treats its employees.  Although there are stories about nonprofit executives being overpaid, nonprofit employees are more frequently underpaid and may not get benefits, leading to staff turnover and inability to promote staff. In some areas, cities have exempted nonprofits from paying a minimum wage based on the fear that nonprofits won’t be able to afford the salaries.  If you want to support the mission of the nonprofit but are concerned about inadequate salaries, have a conversation with the Executive Director or a Board member about your concern and consider making your gift unrestricted.

For larger nonprofits that have an endowment fund, is it important to you that the funds be invested in alignment with the nonprofit’s mission and with your values? Does the organization engage in ESG investing (environmental, social, governance) or other socially responsible investing?  The answer to this question may not be available in public documents so you may need to discuss the issue with nonprofit leadership, assuming the size of the gift merits this level of interaction.

If you are concerned about racial equity, you should consider the diversity of the nonprofit leadership and staff.  Nonprofits run by people of color face more adversity in fundraising than white-led organizations.  Think about working with nonprofits led by people of color to help close the funding gap.

Other ethical issues may arise as you research the nonprofits you select for your gifts.  Stay conscious of your philosophy of giving and your own personal values.

A donor advised fund (DAF) is a tool through which a donor makes a donation to a sponsoring organization, such as Vanguard Charitable or a community foundation, takes an immediate tax deduction but is not required to make a donation to an operating nonprofit for whatever period the donor chooses.  DAFs are very popular: in 2018 the total amount of money in DAFs was over $121 billion, and approximately $22 billion was distributed.  The distribution rate of DAFs was approximately 20%, leaving 80% of the contributions at the sponsoring organizations.  DAFs raise ethical issues for donors because the need for giving to nonprofits is so great and some donors are holding their funds in DAFs rather than distributing funds to nonprofits.

There are some excellent and ethically defensible reasons for using DAFs but not all donors are using DAFs for those reasons.  If you have a wealth event and wish to donate to charity to capture the charitable deduction in a particular year, a DAF is an excellent vehicle.  Or, if you plan to give to charity in a given year but have not yet selected the nonprofits, a DAF is a good choice, as long as you move forward promptly in your giving decisions.

From an ethical perspective, once you have given to a DAF you should plan to disburse your funds as soon as you can, unless you have a good rationale to hold the funds such as the following:

• You want to accumulate funds so you may give in case of an emergency, such as a natural disaster or other crisis.
• You are trying to grow your gift so you can extend your giving for multiple years to help nonprofits in the long-term and you don’t anticipate having other funds to donate in the future.
• You are helping to create an endowment at a community foundation or single-issue charity, such as a religious community federation, to address ongoing needs of a particular community or issue.
• You are using the DAF as a tool for family philanthropy in the long-term.

Restricted gifts are those in which a donor limits the nonprofit’s discretion in the way it uses the gift.  A donor may require, for example, that a gift to a homeless shelter be used for meals only or that a gift to an international relief and development organization be used for emergency health services in a particular country.  Restricted gifts can be structured to include funds to pay overhead expenses.    

Nonprofits benefit greatly from unrestricted gifts from donors.  Foundation and government grants are generally restricted to particular projects or programs and may not fully cover overhead, allow for program development, or provide a cushion for unforeseen circumstances.  An unrestricted gift does not mean than the nonprofit is not accountable to donors.

Unrestricted gifts demonstrate trust in the organization’s expertise to use the funds wisely.  If you have done research on an organization and learned that it is legitimate and well-run, and has impact on the issue the organization is addressing, trusting the nonprofit to put the gift to the best use is a fair and ethical decision.

Making a multi-year gift to an organization allows nonprofits to better plan programs and to have certainty in their budgets. In addition, making a multi-year, unrestricted gift can promote stable staffing, which will likely lead to stronger organizations.

Giving gifts for multiple years can be done simply by giving a gift to the same nonprofit annually. Being a committed, annual giver to a nonprofit is extremely helpful. However, unless that commitment is a pledged gift, nonprofits still spend much time cultivating you to make sure you will give again. Evaluate your own needs and giving capacity. If you can give a multi-year gift or pledge you will likely enhance the impact of your gift.