Leading with unrestricted gifts
Paul Graham is a computer scientist, entrepreneur, venture capitalist and co-founder of Y Combinator and, in my opinion, a true polymath.
In a blog he authored last year Graham writes about one of my charitable giving pet peeves … restricted gifts. Unfortunately, over the last few decades restricted donations have become one of the biggest trends in the nonprofit sector. As Malcolm Burrows, head of philanthropic advisory services at Scotia Wealth Management writes, “As a general rule, the more restrictions the greater the likelihood an estate donation will fail”.
I encourage you to take a moment and read Paul Graham’s insightful thoughts on, as he puts it, “The secret curse of the nonprofit world …”
by Paul Graham, March 2021
The secret curse of the nonprofit world is restricted donations. If you haven't been involved with nonprofits, you may never have heard this phrase before. But if you have been, it probably made you wince.
Restricted donations mean donations where the donor limits what can be done with the money. This is common with big donations, perhaps the default. And yet it's usually a bad idea. Usually the way the donor wants the money spent is not the way the nonprofit would have chosen. Otherwise there would have been no need to restrict the donation. But who has a better understanding of where money needs to be spent, the nonprofit or the donor?
If a nonprofit doesn't understand better than its donors where money needs to be spent, then it's incompetent and you shouldn't be donating to it at all.
Which means a restricted donation is inherently suboptimal. It's either a donation to a bad nonprofit, or a donation for the wrong things.
There are a couple exceptions to this principle. One is when the nonprofit is an umbrella organization. It's reasonable to make a restricted donation to a university, for example, because a university is only nominally a single nonprofit. Another exception is when the donor actually does know as much as the nonprofit about where money needs to be spent. The Gates Foundation, for example, has specific goals and often makes restricted donations to individual nonprofits to accomplish them. But unless you're a domain expert yourself or donating to an umbrella organization, your donation would do more good if it were unrestricted.
If restricted donations do less good than unrestricted ones, why do donors so often make them? Partly because doing good isn't donors' only motive. They often have other motives as well — to make a mark, or to generate good publicity , or to comply with regulations or corporate policies. Many donors may simply never have considered the distinction between restricted and unrestricted donations. They may believe that donating money for some specific purpose is just how donation works. And to be fair, nonprofits don't try very hard to discourage such illusions. They can't afford to. People running nonprofits are almost always anxious about money. They can't afford to talk back to big donors.
You can't expect candor in a relationship so asymmetric. So I'll tell you what nonprofits wish they could tell you. If you want to donate to a nonprofit, donate unrestricted. If you trust them to spend your money, trust them to decide how.
Note  Unfortunately restricted donations tend to generate more publicity than unrestricted ones. "X donates money to build a school in Africa" is not only more interesting than "X donates money to Y nonprofit to spend as Y chooses," but also focuses more attention on X
Keith here - Closing off this month’s blog I would again like to quote Malcolm Burrows, “Charities know the need and should be trusted to do their work without handcuffs or second-guessing”.
Is it possible to hold the view that the state of the world is perpetually getting worse but, in actual fact, things are really getting better? I would answer with a resounding “yes”! Echoing Professor Deidre McCloskey’s comment, “For reasons I have never understood, people like to hear the world is going to hell”, I feel my perspective is very much in the minority.
For those of us who work in the nonprofit sector, or as a donor contributing to it, whether we believe the world is going to hell or not, in the end what we can probably all agree on is that each one of us is trying to make our planet a better place.
As we look forward to a much improved 2022, I thought you might appreciate “99 Good News Stories From 2021 You Probably Didn’t Hear About”. As the author suggests, the reason you didn’t hear about them is, quite simply, good news does not sell advertisements or generate clicks. I believe this is all the more reason to highlight them. From big wins for conservation and global health, to peace, safety and human rights, these are 99 good news stories from last year that are the very embodiment of the word … “hope”!
Thank you, and all the best for 2022!