ACE’s charity recommendations occur in the context of thousands of other giving decisions. Some of these are fairly predictable. Individual donors acting independently will provide some funding to just about every animal charity out there, and some charities have their own development or fundraising plans which can help predict growth. We usually assume that however much money a charity raised last year, they’ll probably raise a similar amount this year. A charity with a $10,000 budget one year usually won’t raise $1 million the next, and it would take a similarly special situation to bring about such a large shift in reverse. However, there are some circumstances that can change this expectation. In particular, large donors entering the field or changing their strategy can significantly affect organizational budgets, and not always in predictable ways. We saw this in 2016 with the Open Philanthropy Project’s first grants to improve farmed animal welfare.
This blog post deals with the questions these grants have compelled us to grapple with more closely than we otherwise might have, including:
- How do large grants and donations influence room for funding?
- How should we respond to grants that significantly decrease a charity’s room for funding?
- Can we accurately predict how major funders are going to act?
- What effects will our responses have on major donors’ behavior?
- To what extent should ACE’s charity recommendation decisions be influenced by the decisions of other major funders?
After considering these questions, we conclude that in most cases ACE should make charity recommendations that are largely independent of our expectations of major funders’ behavior.
How do large grants and donations influence room for funding?
Our goal is to recommend effective charities that can use additional donations to help animals. Typically, a given charity can absorb some increase in funding over what they have received in the past, but there is an amount past which it might be hard for them to immediately and effectively use new additional funding. For example, they might not have a plan for what they would do with more than a certain amount of money, what they would do with additional money might not be as effective as what they currently do, existing employees might not have time to bring on more than a certain number of new staff per month or year, or there might be outside factors inhibiting their growth—such as the number of undercover investigations the media is willing to cover yearly. We say that a charity has room for funding if we believe they can expand their programs without being significantly impaired by problems like these.
Major donations can entirely fill an organization’s room for funding, if a donor chooses to fund all of the projects that the charity has planned, or if they simply give a very large gift relative to the current size of the charity. Our response to the knowledge that a charity has received or expects to receive a large donation or grant would depend on the size of the grant relative to the charity’s overall budget and ability to grow, and on whether the grant is designed to accomplish a specific purpose or offer general support. A grant or donation is more likely to fill a charity’s room for funding if it accounts for a large proportion of their expenditures. All else equal, an unrestricted grant is more likely to fill a charity’s room for funding than a restricted grant. A restricted grant may still enable an organization to grow other programs than the one it is targeting (as unrestricted funds originally allocated to that program could be shifted to another). However, a restricted grant is likely to be calibrated to the needs and capacity of one specific program, and we think that funds diverted from that program probably wouldn’t completely fund every possible expansion in the charity’s other programs. An unrestricted grant could be the result of a process that considered the charity’s full capacity for growth and sought to expand all programs as far as practical.
How should we respond to grants that significantly decrease a charity’s room for funding?
If a major grant or donation appears to us to entirely fill a charity’s room for funding, we’d expect further donations to that charity in the immediate future to be significantly less useful. In such a circumstance, we wouldn’t want to name that charity as a Top Charity, because we know that recommendation leads to increased funding for the recommended charities. We might still recommend them as a Standout Charity, in recognition of their excellence in some area coupled with the fact that they do not meet all of the criteria for a Top Charity (specifically, having room for more funding). If they were already a Top Charity, we would allow them to keep that status until we released new recommendations, but we’d communicate their updated funding situation to donors through our blog and website, suggesting that they donate instead to other Top Charities for the remainder of the year.
If a major grant or donation doesn’t seem to fill a charity’s entire room for funding, the grant or donation would not necessarily prevent any sort of recommendation from ACE. It’s possible that a charity would receive so much support from major donors that their remaining room for funding would be small compared to the room for funding of other Top Charities. In that case, we might still name them a Top Charity, but provide advice for donors on how to allocate resources proportionately among our Top Charities, similar to the advice we’d provide if one Top Charity had limited room for funding because of a small existing staff.
Can we accurately predict how major funders are going to act?
Beyond the immediate impacts of a major grant or donation, we also try to understand the patterns of behavior of major funders. That way, when we select our Top Charities, we can try to predict whether they will still have adequate room for funding in the coming year or whether major donations might fill their room for funding. The more we know about the major funders supporting animal advocacy charities, including their reasoning and actions, the more accurately we can make these predictions.
There are some concerns that we expect most funders to share. For instance, we think that they’re likely to be interested in whether a charity has enough room to expand programs given more funding, or whether they’d have to wait before spending it. We also expect that most major funders would prefer not to be the sole or even majority support for a charity; we’ve heard other funders express this view in multiple contexts.
Other than that, our level of insight into funders’ reasoning and actions varies greatly. In some cases we’re aware a major donor exists and is funding a specific program because we’ve asked the charity whether they have programs that are supported by restricted donations, but we don’t know where the donations for those programs are coming from. For example, we know that funding for The Humane League’s online ads comes from VegFund and some other major donors, but we aren’t sure exactly who all of them are. In other cases, we’re aware that a particular funder has certain priorities, and can check in on their past behavior—particularly if they’re a foundation or if we have a relationship with them. The level of insight we have in this case depends both on the funder’s transparency in general and on our relationship with them. For example, we know more about Open Phil’s priorities than we do about most funders’, both because they publish about past grants—including the reasoning behind them—and because they’ve shared additional information with us in private communications.1
In order to learn as much as possible about large future grants, we communicate with both charities and funders. We ask all charities we evaluate whether they expect their funding situation to change in the coming year. Of course, they may choose not to tell us about grants or donations that they’re hoping for but aren’t confident of receiving, or even about those that they are confident in. We sometimes communicate with major donors about funding opportunities if they’ve asked us for advice, and we can sometimes predict the activities of foundations if they have established a strong pattern of behavior. Open Phil has sometimes shared with us information about grants they’re in the process of finalizing and haven’t yet publicly announced.
What effects will our responses have on major donors’ behavior?
If we’re allowing our decisions to be influenced by those made by others, we should acknowledge that we may have an influence on them, too. In the easiest cases, individual donors sometimes ask our advice before making a large gift. When this happens, we know that we’re likely having some influence on a decision, and we can be deliberate about what we suggest so that we work together to make the largest impact possible. At other times, funders may be influenced partially by our recommendations and reviews without making contact with us, both in ways that we intend and in ways that we don’t intend.
For example, just as we’re hesitant to recommend a charity if we think other funders have filled or are likely to fill its room for funding, others might be hesitant to fund a charity if they expect it to receive more funding from our recommendation than it can immediately use. On the other hand, if a charity has plenty of room for funding, our recommendation could be a positive signal to a major funder who otherwise would worry about providing a grant that might be too large of a percentage of the charity’s total income.
Things can become even more complicated if we consider how a funder might react to the way we respond to their original grant or donation. For example, Open Phil made a grant to The Humane League in late 2016 that was intended to provide general support. This grant, together with others Open Phil has made to THL, makes up a substantial portion of THL’s budget, and because it is intended to provide general support, we might think it indicates a general willingness to fund any of THL’s programs that need support. Open Phil has a large granting budget to work with, and if they’re willing to fill any funding gap that THL has, we could view our recommendation as less important, or even unimportant, to THL. If we think they have little need for our recommendation, it could make sense to recommend another charity instead, one which would not receive as much support from Open Phil or other large funders. However, if we changed our recommendation in response to this type of situation, particularly if we did so more than once or if we were (as we would like to be) transparent about the reasons for our action, we would expect Open Phil to notice. They’ve written that they don’t want their granting strategy to drive other donors away from causes they’re interested in, but would prefer instead to try to cover a “fair share” of the funding gaps they see, so we think this might discourage them from making grants to our Top Charities, and perhaps to animal charities in general, or reduce the size of their grants in the area.
Because we think that our Top Charities are excellent giving opportunities, we’re happy to see Open Phil and other major funders making grants to them, and we don’t want our actions to have this discouraging or dampening effect.
To what extent should ACE’s charity recommendation decisions be influenced by the decisions of other major funders?
For now, our conclusion is that in most cases our charity recommendations should be relatively independent of our expectations about the behavior of major funders. We shouldn’t deliberately avoid recommending charities because we think they’re attractive to major funders, especially if that would lead to a situation in which they had only one significant funding source. We don’t want to behave in a way that makes the most effective charities less attractive to other donors.
However, we do take charities’ room for more funding into account as a critical factor in our ability to make a Top Charity recommendation. If we thought a charity had received—or would receive—so much funding (from any source) that they could no longer effectively use more funding in the short term, we wouldn’t name them a Top Charity. If they were one already, we’d ask donors to consider shifting their donations to other Top Charities instead, until it was time for us to issue new recommendations or they were able to use more funding again. Additionally, if we expected our Top Charities as a group to run out of room for funding over the course of the year, we would consider that a reason to try to recommend a larger number of Top Charities.
We don’t think there’s a single clear way to resolve donor coordination problems like the ones discussed in this post. We’ve described our current thinking, but we’re aware that our thoughts may shift as we gain experience and perhaps try new things. The things we’re still thinking about include:
- How can we best handle a situation in which our Top Charities have extremely varied room for funding from the start (perhaps in part because of the action of major donors)? Should we recommend a specific allocation of funding for our Top Charities in this case?
- How can we best handle a situation in which a Top Charity runs out of room for funding mid-year, either due to large grants or due to enthusiasm from many individual donors?
- Can and should we explicitly coordinate with Open Phil or other major donors to ensure that major donors and the group of donors influenced by ACE both provide a “fair share” of support to charities we agree are especially promising? How could we do this?
- Are there any charities that are better candidates for a recommendation from ACE than for support from major donors, and if so, can and should we prioritize finding them?
Thanks for this, Allison. It does help to realize ACE thinks about these things.