Let me just stop you now before you question my statement that philanthropy has failed. Yes, I realize that worldwide giving is tremendous – that Americans alone (by far the most generous when it comes to per capita giving) donated over $300 billion dollars last year alone. And yes, many people in need around the world have been helped, many causes furthered. But what dramatic stories of success have you heard? Which disease epidemics have been halted? Which natural wonders saved? Are our children becoming smarter? The ghettos growing smaller? Is the world and it’s inhabitants becoming better for each subsequent generation? Of course, philanthropy can’t solve all problems, and the solutions it does bear will never be prefect. But can it be better? The answer is a resounding YES. And when I say philanthropy has failed, it is because it has indeed failed to live up to its GREAT potential.

Why?

Accountability
Much like the bureaucracies of government, non-profits have long been the recipients of large sums of money given in good faith with expectations but very little oversight to ensure those expectations are met. This causes two problems. The first is that the mark is widely missed for meeting expectations; many non-profits are plagued with irresponsible spending, unchecked power, and unacceptable results as it related to their stated mission. The second problem is a derivative of the first – as reality consistently falls short of expectations people begin to lose faith, and as morale around charitable giving decreases, so do donations.

Fix: Donors must require feedback from charities they give to and like a shareholder in a public company, demand positive results from the recipients of their funds. In order for this to effectively occur a system needs to be created to receive and process this organizational feedback, and to allow for funds to be re-allocated to the best performing organizations.

Transparency
Transparency is an incentive for good behavior. It also levels the playing field for competition between organizations, allows market forces to work and donors to make rational decisions. Without transparency, the full realization of accountability as noted above is impossible.

Fix: Create standards and best practices that open up the industry, allowing visibility into the fundraising, operations, cash flow, and the successes & failures of organizations. Make this information easily accessible. Once a movement towards openness takes hold it will make it very hard for walled-garden organizations to succeed.

Lack of Necessary Skills
Unfortunately the non-profit sector as a whole suffers from a lack of particular skill-sets that would be valuable to its organizations: namely, those of the traditional business world and the technology sector. Successful for-profit executives and employees have been the benefactor of significant HR development. They have a good knowledge of the business environment and come from a culture where if you fail to perform you fail to succeed as a company and as an individual. They know how to run a business, manage projects, handle day to day operations efficiently, use technology and media effectively, and drive an organization to accomplish clearly defined goals.

Fix: Recruit from the for-profit world. Increase collaboration with other sectors.

Efficiency
Internal processes of many charitable organizations are largely inefficient, as are their fundraising efforts. Internally, the time and resources it takes to process donations and distribute funds can be significant; the overhead remains higher than it needs to be, which means less money doing good, and a slower path to that good. On the fundraising side, the cost of every dollar raised is too high in many organizations who are forced to use branding campaigns and a bevy of volunteers to solicit funds, usually around pre-defined holidays and catastrophic events (which means incoming funds are sporadic). If a better fundraising system could be designed those volunteer hours could be put to better use, money could be saved, and the incoming flow of donations could be made more consistent.

Fix : Use technology to streamline internal processes, decrease bureaucracies, and lower costs. Change fundraising strategies to secure a better baseline of continuous funding, while still promoting extra giving during times of disaster.

Approach

My personal opinion is that many charitable organizations throw time and money at short term solutions. But since these are only short term solutions nothing really changes beyond immediate, if temporary relief in a given cause. The cycle continues and we get stuck in a circle of perpetual giving for a cause that never ends.

Fix: We need to find a balance between providing a temporary bandage for problems and creating long term solutions. If we work from the bottom up we can create sustainable change and progress toward making a cause no longer a concern (which should be the ultimate goal). Tim Ferris, author of The 4 Hour Workweek, illustrates this concept well:

…to educate a girl for 10 years in the developing world, ultimately producing an economically self-sufficient family and ending the cycle of poverty, costs a total of $2,500 with Room to Read. How much does it cost to provide aid or welfare to an entire family for decades on end, not to mention treating the famine, disease, and violence generated from this collective poverty? Look at Africa and the $50 billion+ that has been given as aid. Charity [alone] doesn’t work — empowerment does.

The Self-Interest of Man
This last point is easily overlooked, as the problem itself is not within the philanthropic community, but is a “flaw” of their donor pool. It is a simple fact that although people can be kind and generous, they often are motivated by self-interest. This fact can create unrecognized interference in the donor flow if not managed properly.

Fix: Government and non-profit organizations need to continue to find ways to incentivise charitable giving and activity. On the government side, this may mean easy, legitimate tax deductions, or programs to provide loan deferment during periods of charitable work, etc. Non-profit organizations need to present benefit cases associated with giving – e.g. Business that foster a charitable culture by giving themselves, as well as empowering their employees to give, benefit from easier recruitment and higher retention. They also need to make accounting of gifts for tax purposes easy for the donor and provide other boosts to donors (such as the increased feeling of self worth, or higher social standing) through a variety of creative means.

Obviously, these are broad bullet points outlining issues that need to be addressed. But a wealth of detail and action will be required to actually fix these problems. Fortunately, many new forces within the non-profit world are working on moving things in the right direction. Social entrepreneurship is on the rise, great minds are taking their shot at tackling the world’s toughest problems, and innovative new organizations are popping up everyday that are turning the non-profit sector on its head and being a real force of change.

For a sampling, check out some of these great non-profits:

Room to Read
Mercy Corps
ACCION International
Common Ground
Teach for America
Rubicon Programs
Donors Choose
Witness
First Book
City Year
Endeavor Global

And for-profit social ventures too:

Causes (Project Agape)
Better World Books
ShoreBank