Toward a Robust Marketplace for Philanthropy

MENLO PARK, Calif. — Participants in the philanthropic world — from foundations and wealthy donors to the non-profit organizations that seek their support — must create a robust marketplace of information about charitable activity if they hope to increase their social impact, a newly released study has concluded.

The 68-page study, commissioned by The William and Flora Hewlett Foundation and created in collaboration with the consulting group McKinsey & Company, sought to answer two questions: What do donors need to make smart decisions about giving, and how can the philanthropic world ensure that the strongest, most effective nonprofits get the resources they need?

The study’s answer is three-fold:

* Improve the supply of accurate, credible information about how well a non-profit organization is run, the impact it is having in the world, and the ways it tracks progress toward its goals.
* Increase donors’ demand for this information.
* Strengthen organizations that vet and advise charities and connect them to donors.

“This study is just a starting point,” said Maisie O’Flanagan, a partner at McKinsey & Company, who co-wrote the report with Hewlett Foundation President Paul Brest and Jacob Harold, a program officer with Hewlett’s Philanthropy Program. “We hope it will launch a deep and broad discussion in the philanthropic community about how to get dollars to the strongest nonprofits.”

To encourage this discussion, the Hewlett Foundation has launched a web site, http://www.givingmarketplaces.org/, where those interested can download the complete text of the study, which is entitled “The Non-Profit Marketplace: Bridging the Information Gap in Philanthropy,” and discuss it online.

The forum has launched a spirited discussion of issues in the report, from how to create incentives for non-profit organizations to share internal information to ways to stoke demand for such information on the part of donors.

Unlike for-profit investors, who have access to timely, accurate and detailed information about companies and their performance, philanthropists often make multi-million dollar decisions based on little more than hunches about which non-profit organizations are most effective. The study notes that each year individuals, foundations, and businesses in the United States distribute more than $300 billion to more than a million nonprofit organizations, yet often know little about their progress in their chosen fields.