"Altruism is really a very selfish pleasure."
That's one of the themes that New York Times columnist Nicholas Kristof underscored in remarks at a sold-out gathering Monday at Seattle's Town Hall, where he discussed A New Path Appears: Transforming Lives, Creating Opportunity, the book about rethinking charity that he co-authored with his wife Sheryl WuDunn. He cited a growing body of research, based on brain scans, that suggests that helping others makes us happier.
"The pleasure centers of the brain light up when you make a gift as well as when you receive one," he said.
Research also indicates that altruism may be more effective in maintaining health than either exercise or cholesterol levels, he said.
Kristof argues, however, that donors need to focus more on how well charities carry out their missions. Too often, he says, impact investors get too carried away with charities' financial workings.
The nonprofit sector underperforms with respect to accomplishing its do-good missions, he says, and that is in large part due to constraints set upon them by the public's unwritten rules as to how they should spend their money. Donors judge charities by the percentage of their budget that is devoted to administrative costs, and if that percentage is too high, the charity is considered wasteful and unworthy–even if its social impact is over-the-top in terms of excellent performance.
Case in point: the work of Dan Pallotta, whose company raised $81 million in 2002 for AIDS and breast cancer services and research—a sum equal to half the annual giving of the Rockefeller Foundation at the time. The company ended up closing down after a public outcry that its logistics, marketing, salaries and administrative costs amounted to nearly half the funds it raised.
"People look at Charity Navigator ratings, and the percentage of revenues consumed by administration, particularly salaries," he wrote, noting that what matters most is impact. "There's no point in funding an AIDS vaccine effort that saves on overhead by using unreliable third-rate laboratory equipment."
Nonprofits also under-invest in marketing, he says, noting for example that while there are numerous videos about the needs of women and girls, most are "so earnest and boring" that they have "zero impact." Compare that with the Nike Foundation's Girl Effect, a marketing campaign produced by the company's ad agency that focuses on empowering the world’s adolescent girls. It ended up attracting over 15 million views on YouTube.
"Any aid organization that had tried to invest in such professional work would have been denounced for wasting money," he said.
In his book, Kristof cites a study commissioned by the Economist that compares the work of the Carnegie Foundation with that of IBM and concludes that IBM's social impact has been greater over its lifespan. In an interview with Private Wealth, he conceded that there is not one metric by which you can compare the two, but noted that the bigger message is that our cultural lens holds us back in terms of solving social problems.
"We tend to emphasize those entities, whether they are nonprofits or for-profit social enterprises, that are in the business of doing good and sometimes underestimate the good that is accomplished by for-profit enterprises," he said.
In the interview, Kristof also intimated that social progress could be inhibited by wealthy impact investors who insist upon market-rate financial returns while trying to maximize environmental and/or social returns. In general, he said, there is a trade-off.
"There certainly will be some cases where investing will earn amazing returns," he said. "But none of these things work all the time or even all that well. If you are trying to emphasize an environmental bottom line as well, or a social bottom line, that is going to take away to some degree your focus to get a financial bottom line."
In fact, Kristof said, one of the basic problems with impact investing is the bifurcation in the mindset of many high-net-worth individuals who are willing to lose a certain amount of money completely by writing checks to charity, but whom insist upon the highest possible financial return from the rest of their funds.
"There should be more areas in between, where people want to invest but are willing to accept a reduced return," he said. "It does seem odd that we have this 100% polarization with how we handle money."
