Foundation Donation Selection Process

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Foundation Donation Selection Process

Strategies used by foundations to assess who receives a donation or grant include issuing challenge grants. Donor-Advised Funds (DAFs) mostly depend on the original donor to choose the charity that will receive the donation. However, they often propose options and resources like GuideStar to aid in the selection process. Meanwhile, family offices have different governance models, which influence the selection process in different ways. Employees of companies matching their donations usually can choose their preferred charity as long is it meets the guidelines established by the company. However, some corporations specify the charities they can select. Lastly, individual donors have different preferences dependent on age, gender, sexual orientation, and income. During their selection process they can use tools such as GiveWell and verify the accreditation of a charity as well as its impact.

Foundation Donation Selection Process

  • Challenge Grants
    • Some foundations use challenge grants to select who they are going to donate to. Challenge grants usually require the charity in question to raise a significant amount of money before the grant is awarded.
    • A foundation that has used this process to select the recipient of its grant is the Mabee Foundation. In this case, the foundation was working with KVC Health Systems and its HOPE LIVES campaign to raise money to build a new psychiatric hospital.
    • According to the challenge, KVC had to raise $6 million and after fulfilling this challenge, the foundation would grant the last $1 million needed for the project.
  • Other Selection Processes
    • Other foundations have a more nuclear selection process. The Harry and Jeanette Weinberg Foundation has a program committee, which chooses the awardees of any grant.
    • The committee is formed by the president and CEO, the program team, and the trustees. General requirements for charities requesting a donation include being involved in service to low-income populations.
    • Other requirements are that the charity in question has been working for at least three years and that they are able to provide proof of audit or financial review.
  • Pain Points and Challenges
    • According to Geneva Global, a challenge faced by foundations in the process of selecting awardees is identifying a charity that stands out.
    • This is why this consulting group advises charities to have a clear and defined message, through which they can explain why they exist, their goal, and what the ultimate end result would be were they to receive the donation.
    • According to McKinsey, a challenge that affects both donors and awardees is the fact that selection procedures have become more complicated, which slows down the entire process.
    • That said, McKinsey notes that the COVID-19 pandemic has directly impacted these processes, speeding them up substantially.

DAF Donation Selection Process

  • Original Donor
    • Donor-Advised Funds (DAFs) are able to choose the charity they will donate to. However, the original donor can also have an input on who is the recipient of the money.
    • This input is generally respected and followed, meaning that the original donor is the one that gets to choose in a great number of cases.
    • Another option for original donors is to choose an overall cause without specifying which charity will get the donation.
  • Role of DAFs
    • Something to note is that DAFs do verify the charity selected by the original donor complies with the requirements and conditions established by the Internal Revenue Service (IRS).
    • Furthermore, although the desire of the original donor is usually followed, DAFs are not required to do so. In addition, the money, once it has been given to the DAF -not to the charity- can not be returned.
    • An identified trend is that DAFs appear to be more involved in giving to education causes than to other popular issues, such as those related to religion.
    • In addition, DAFs can create specialized funds and design strategies to increase donations to specific causes, by offering to match a donation or creating a campaign.
  • Tools Recommended by DAFs
    • The Fidelity Charitable Fund is the most important DHF. When it comes to charity selection, this fund provides suggestions to its donors on their website.
    • Among the suggestions, information about organizations fighting racial inequality, a Silicon Valley curated list of charities, and the United Nations Sustainable Development Goals Charity Navigator are provided as research resources. This could influence the decision of donors regarding who to donate to.
    • Furthermore, this DHF proposes the use of tools such as GuideStar, Giving Compass, Great Nonprofits, IssueLab, and VolunteerMatch for charity selection.
    • The US Charitable GiftTrust has a section similar to that proposed by the Fidelity Charitable Fund on its website.
    • On it, tools such as Charity Navigator, the Chronicle of Philanthropy website, the National Center for Family Philanthropy website, GuideStar, and the BBB Wise Giving Alliance are proposed as resources to find an eligible charity.
  • Pain Points and Challenges
    • A challenge faced in the selection process is that DAFs can only donate the money when the original donor states they are ready to do so. Selecting a charity in advance or making long-term commitments becomes unlikely in these circumstances.
    • Another challenge that comes from the fact that donors generally choose the charity is that DAFs might find their actions limited when it comes to contributing to time-sensitive issues.
    • Such is the case when natural disasters occur. However, these funds have the option of not only making recommendations on their website but also initiating campaigns to bring awareness to donors and accelerate the process of selecting an organization that needs a donation immediately.

Family Offices Donation Selection Process

  • Consultants and Associations
    • According to the Bank of America, family offices can choose from a range of options to make donations, from direct ones to making donations through DAFs or establishing private foundations and charitable trusts.
    • In addition, family offices could avail themselves of the services of institutions such as Bank of America to consult on the best steps to take to achieve their philanthropic goal. This could aid them in the selection of a charity aligned with the family values.
    • The philanthropy division of the Family Office Network provides a curated directory of charities they recommend to family offices. That said, it is not explicitly stated how these charities are chosen.
    • Categories highlighted include organizations working with disaster issues, poverty issues, and performing research. In addition, the Network selects featured organizations to display on its website.
    • However, charities can also request to be listed on the directory. The selection criteria are not clarified.
  • Founding Date, Causes Preferred, and Acceptance of Inquiries
    • According to a 2020 report, the date of foundation influences where family foundations focus their donations. For example, 81% of those founded before 1970 focus their donations geographically, while 82% of those founded after 2010 select charities based on issues approached.
    • In 2017, it was reported that the main causes to which family offices allocate philanthropic resources are education, children and youth, and health.
    • This focus is also reported on the aforementioned 2020 report. That said, family foundations founded after 2010 focus less on education and more on economic inequality causes.
    • Interestingly, unsolicited letters and requests for donations were only accepted by 32% of the sample used for this report. This means that these organizations prefer to initiate contact with possible awardees.
  • Influence of Governance Models
    • The governance model of the organization can determine how a charity is chosen and who chooses it.
    • One of the models involves a single decision-maker who is in charge of all aspects, from investments to philanthropic initiatives.
    • The second model involves the formation of a committee in which different generations of a family might be represented. This model could lead to a larger portfolio of charities being chosen than the prior model.
    • A third model involves one or more outside trustees that work together with members of the family to choose a charity.
    • Lastly, a fourth model does not involve members of the family. However, it is likely that those in charge of the donations would consider the family values to make a decision.
  • Pain Points and Challenges
    • A challenge reported in 2017 was the fact that only 36% of family offices were involved in philanthropic activities with a clear strategy in mind. This would make it difficult to follow a core mission and select from a specific group of charities sharing the same goal.
    • Another challenge could be the fact that different generations are often represented within a family board. This leads to different members having interests that might not be aligned with each other. This could make the charity selection process more difficult.
    • Furthermore, in 33% of the cases studied for this report, younger generations did not have time to be involved in charitable endeavors, making the future of the family philanthropic activities questionable.

Corporate Matching Programs Employees Donation Selection Process

  • Overall Preferred Causes
    • It has been estimated that 33.3% of companies matching the donations of employees select specific charities according to the philanthropic mission or values of the company.
    • The remaining 66.6% of these companies will mainly match donations made to causes related to education, environmental concerns, health, arts and culture, and community organizations.
    • An example of this is General Electric, which has been matching the donations of their employees on a 1:1 ratio up to $5,000 since 1954.
    • This company specifies that donations must be made to schools or colleges in the United States or charities recognized as such by the United Kingdom Charity Commission or the Charities Aid-Foundation America when they are not in America. This would limit the options for employees and would direct their selection process as well.
  • Volunteer Hours or Money Gifts Matching
    • While some companies only match monetary donations, there are others that match hours of volunteering. This means that they will donate a certain amount per hour volunteered to an organization by an employee.
    • This provides alternatives to employees when selecting an organization, which are either volunteering their time or making a money donation.
    • An example of this is Microsoft, which is one of the top matching companies. This company matches donations on a 1:1 ratio up to $15,000 and it also matches volunteer hours, paying $25 per hour volunteered.
    • In this specific case, the company suggests non-profit organizations register with its giving service provider, which is Benevity.
    • In addition, this company has specialized programs to encourage volunteerism which are Hack for Good and the annual Give Fest.
  • Mixed Models of Selection
    • Some companies specify the organizations that are eligible for matching gifts. Such is the case of MasterCard, which has a mixed model for the selection of a charity.
    • Usually, MasterCard employees can choose the charity they prefer, as long as it is registered as a non-profit and it does not meet any of the exclusion criteria (e.g. being a religious group, groups involved in adversarial tactics).
    • However, MasterCard also offers a double match when natural disasters take place. These gifts are only matched when they are made to AmeriCares, the International Federation of Red Cross/Red Crescent Societies, and the American Red Cross. This limits the choices for employees during natural crises.
    • Another example is ExxonMobil, which also has a mixed program. Employees interested in making donations to education causes such as schools or universities need to have a personal affiliation with the institution in question for it to be eligible.
    • Therefore, employees wanting to donate to education purposes would only be able to select institutions they are associated with or to the United Negro College Fund, the Hispanic Scholarship Fund, or the American Indian College Fund, which are eligible without any personal affiliation.
  • Challenges and Pain Points
    • A pain point of this selection process is the fact that approximately 78% of employees of corporations that match donations are unaware of this option. Therefore, they do not know they can make donations to specific charities that will be matched by their employer.
    • This has led to lower engagement by employees across different companies from various sectors. For example, the participation rate of employees in the matching gift program of Wells Fargo is only 11%.
  • Another pain point is identifying which charities are eligible under the matching gift program of a company. While some organizations provide fast tools within their websites, sometimes employees need to do time-consuming research to identify the eligibility of their chosen charity.

Individual Donors Donation Selection Process

  • General Preferences
    • According to the Institute of Fundraising, donors are more willing to become involved when charities that contact them have prepared before initiating a conversation.
    • In addition, their personal preferences, values, and goals will play an instrumental role in the selection of a charity.
    • Determinants of which charity is selected by a donor include their race, age, sexual orientation, and their gender according to a 2018 report.
    • More specifically, individuals with high-income and Millennials are more responsive to charities that make an effort to establish a more personal relationship.
    • By 2018, it had been estimated that 68% of donations were made by individual donors, with the majority of them being major donors.
    • According to a survey performed by the Bank of America and the Indiana University Lilly Family School of Philanthropy, high net-worth individuals choose organizations involved in responding to basic needs.
  • Charity Selection Journey
    • Suggested donation journeys for individual donors involve as a first step the identification of what interests them and what their values are. Also, donors often consider whether they want to have a global, national, or local impact.
    • The second step is researching charities by focusing first on what their mission is and evaluating if it aligns with the mission of the donor. Also, donors can verify if the charity in question has the proper accreditation.
    • The third step requires the donor to learn about how the charity in question is using the donations received. This could involve evaluating the impact per dollar. Tools such as GiveWell can aid in this step.
    • GiveWell estimates that while numerous donors directly make donations through their platform, many others use the platform as a research tool and donate directly to the charity in question.
    • Involved donors might also get in contact with the charity to ask any questions relevant to their donation, how it will be used, and how this will be measured.
    • Once a charity is selected, the establishment of meaningful relationships between the donor and the charity could be instrumental for a productive donation journey.
  • Pain Points and Challenges
    • According to a 2019 report, sometimes donors do not truly understand the work a charity is doing.
    • This could lead to a misalignment that makes the donor choose the wrong charity or stop working with a charity because there is not a sufficient understanding of the mission.
    • Also, the Bank of America survey reported that one of the main challenges for 45% of donors surveyed is identifying the cause they want to donate to and what their own interests are. This could be due to unclear messaging or an incomplete decision journey.
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