How Howard Buffett Will Use His Grandfather's Recipe For Riches To Disrupt Philanthropy

The grandson of the legendary investor aims to bring some private-sector savvy to the growing world of mega-philanthropy.

Howard Buffett is attempting to unify the scattered world of independent nonprofits through his grandfather's multi-billion dollar investment strategy: Invest in a portfolio of smart people and let them flourish. Having just taken the reins as Executive Director of the family foundation after holding posts in the White House and Department of Defense, Buffett has ambitious plans to pay the world's savviest nonprofits to collaboratively tackle the full spectrum of food security, from third-world farmer education to public policy.

"My grandfather, in part, has been so successful because he has identified the best human capital for managing businesses," Buffett tells Fast Company. Emulating the strategy of investing in people who have proven strategies, the younger Buffett is building a coalition of already-successful leaders in each niche of food security.

The approach, he hopes, will become the standard for his family's growing network of mega-philanthropists: rather than dolling out cash to independent, uncoordinated actors with the most heart-string-tugging story, they could take on an entire social problems (like food security or breast cancer) by systematically lining up nonprofits to tackle each part of the causal chain, from federal policy to victim resources.

Getting Rid Of Redundencies

"If you are an NGO, doing the exact same thing as another NGO, and that other NGO is doing better than you're doing it, then you are in business for the wrong reason," Buffett says in an exasperated rant against the individualist nature of charities. Overlapping operations, he says, not only waste money through redundant overhead, but keep brilliant minds occupied with logistical distractions that sap their potential impact.

"We will give you money to execute your mission," Buffett says, "if you work together and identify the most cost-effective and successful ways to achieve that."

Meanwhile, looking at the entire causal chain of a crisis is key to revealing missing links in the solution, such as political or logistical hurdles that are essential to success, but not appealing enough to raise dollars.

Buffett learned the importance of interconnectedness after witnessing efforts to save forests be thwarted by starving locals. "They're going to cut down the forest, burn the trees, and then try to grow food on something that has horrible productivity value," he says. The horrific conditions led the foundation to not only shift from environmental stewardship to food security, but to the current strategy of solving problems as a closed ecosystem. Now, the Buffet foundation sponsors everything from an endowed political science chair at Texas A&M that studies conflict and hunger to public awareness campaigns.

A New Take On Evaluating Philanthropic Impact

"Emotion is not fungible, so to measure success through the emotional feeling we get from doing something is not an effective way of measuring," says Buffett, who needs a way to objectively evaluate the unwieldy volumes of grants proposed to his own foundation. But, unlike money, he says, "there is nothing that exists as a universal measure of impact for a philanthropic endeavor."

To make the tough comparisons between education, hunger, veterans, or disease eradication, Buffett designed an "issue agnostic" survey of scope, relevancy, cost-efficiency, and risk of any proposal.

The first question, for instance, is "Assuming we are successful, how many people would we reach directly with the funding of this gift?" Proposals gets 3 points for affecting +1 million people, 2 for greater than 100,000, and 1 for less than 100,000. Those proposals with a less ambitious scope can secure a coveted spot on the portfolio team by being particularly unique or cost-efficient.

He maintains that the measure helps him balance caring for the needy with the harsh realities of inefficient programs. "There's absolutely nothing wrong" with emotion, he says, admitting that the crisis of global food security has a particular effect on him. "My fear is when emotion clouds rationality."

Selling Suffering

"In the philanthropic world, the problem is the product, in the business world, the product is the solution." says Buffett, who argues that NGOs are forced to "sell suffering." The needless focus on sappy narratives often overlooks sophisticated solutions that can't be easily marketed with a T-shirt-clad celebrity holding a small child.

As an example, he notes, hunger-stricken continents are perfectly capable of offsetting their own crises , since famine and food surplus hit neighboring countries in the same year. If food-swap agreements were in place, the surplus country could donate food when they have more crops, knowing they'd get reciprocation in an inevitable drought.

"I see this as sexy," he says, half-jokingly. Buffett argues he's able to harness these kinds of sophisticated solutions because of his foundation's unique approach to objective measures and a broad-spectrum tackling of whole social issues.

A Business-Minded Approach To Philanthropy

Frustrated by the bureaucratic restraints of government and inspired by the nimbleness of the growing social entrepreneurship industry, the 27-year-old Buffett aims to bring some private sector savvy to the philanthropic world. He hopes his coalition strategy will encourage nonprofits to consider their "comparative advantage," and that his universal measure of "impact" can be as fungible as money. Finally, he aims to move charities away from selling narratives to selling solutions. 

He even imagines a world were nonprofits can acquire one another. "You want to bring this back to the business world, there are no incentives for philanthropic organizations to merge," he says, adding that there are no easy legal means by which nonprofits can combine their resources as for-profits do.

Buffett was raised to blur the lines between nonprofit and for-profit: He is the product of a billionaire grandfather who has both pledged to give most of his money away and maligned the concept of inheritance as perpetuating "members of the lucky sperm club."

Yet, grateful for the opportunities his family gave him, and the legacy of giving his grandfather catalyzed, Buffett aims to make this exceptional charitable philosophy a mainstream belief for his generation.

"Our old definitions of success were wealth, power, and fame," he says. "We need to see those as a means to an end, and those need to be impact."

Check out "Who's Next" for more profiles of the new big thinkers. 

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11 Comments

  • Lisbeth Jimenez

    As someone who has worked in the non-profit sector, education and health field. I applaud Mr. Buffett for disrupting the non-profit sector. For many years I have looked at the redundancies within various communities and thought "If these two organizations worked together instead of competed" they would be able to serve more people and make a greater impact within the community.  While I do not believe that the non-profit sector has to adopt a complete corporate business approach, the non-profit sector needs to take a look at itself and critically ask itself "is this the best we can do?"

    Bravo Mr. Buffett and thank you Mr. Ferenstein for a great article.

    Lisbeth Jimenez
    Founder Social Media Tools For Non-Profits
    http://socialmediatoolsfornonp...

  • lauranne

    I agree with Elizabeth to a point.  The measure of success for a non-profit is not money, it's impact.  Also, it doesn't always have to be measured in terms of "millions and millions served".  Efficiency is also different for a non-profit.
    Money has a different purpose in non-profits - it's the fuel for the engine, not the measurement of achievement.  See "Good to Great for the Social Sectors" by Jim Collins.  Based on the book, Good to Great.  That said, Howard Buffet is elevating the philanthropic conversation and is going in a positive direction that will help us all be better.

  • Joe Rowan

    While very convenient to dismiss various aspects of Mr. Buffett's view of a large segment of our global economy in which he has limited direct involvement, I would challenge all my colleagues to reconcile the larger message: scale and efficiency deserve far greater consideration than emotional (or daresay, vane) satisfaction if the true objective is delivering positive impact with high likliehood of recurrance.  For those who choose a career in NPO leadership, Valhalla might be defined by the achievement of economic sustainability - or at least the confidence in knowing the organization will survive the individual and prosper under those who follow. 

    Sounds very similar to most any business endeavor, doesn't it?

    Too often, 'non-profit' is construed as an adjunct of the organizational mission statment.  This is most certainly incorrect.  The term simply refers to a designation under tax code.  While we do not personally profit from activities as operatives or shareholders, we must strive to consistently demonstrate the ability to attract more capital, in all its forms, than are expended year-in and year-out, lest we fail to deliver on our respective mission.  It is, indeed, the purpose of a non-profit to generate net income since little is achieved or sustained if we fail to do so.

    So should individual success stories be dismissed if it can't be replicated by the hundreds of thousands?  Absolutely not!  The larger message, however, is that each individual touched by NPO activity should be directly linked to a larger strategy that seeks to eliminate or greatly reduce the need for future interventions. 

    Would you rather point to each person who's life has been changed by your actions, or point to the multitude no longer jeopordized by threat of falling through societial cracks as a result of your commitment to a cause?  To be certain, each individual does matter.  But the cost of one must be carefully and objectively weighed against the cost of allowing others to follow a similar path.

    Greater understanding and progress occurs not just when we recognize our own trajectory, but when we also accept the critique of others who are unencumbered by the limitations of first-hand experience. 

  • Allan

    The non-profit world is full of small organizations that serve local communities. These are automatically excluded from the mega-funders because we can't compete with those serving the million person threshold.

    In the drive for efficiency, smaller organizations get overlook because they don't have the flair or client base that generates lots of attention. As an example I work for a housing organization that provides housing for 260+ low-income and homeless families in a community of about 500,000. I can't compete with a local food bank for funding with their marketing budget of $500,000 a year and that pays the 4 executive managers $600,000 in salaries. United Way and local foundations readily fund the high visibility agency for the publicity benefit while we struggle trying to pay staff just above minimum wage.

    Unfortunately the mega-funds, United Way, Red Cross, etc make it nearly impossible to generate funds for the small "grass roots" agencies that provide essential services on a local level. In some cases, our names are used to generate revenue but the funds actually go to other agencies with greater visibility.

  • Joyce Schriebman

    As someone who has worked in the not-only-for-profit world (manager & grunt laborer), the third sector (staff, board and volunteer) and the educational arena (teacher and administrator), I say the differences are not all that great. 

    There's always an objective and a means to an end. The shared challenge is to be effective (achieve results) and efficient (with the wisest use of resources.) Buffett's attempt to create a new matrix to measure both isn't a bad idea...it's just different. I invite my colleagues to step away from the table of skepticism and come back when they're ready to join in something potentially game-changing. Just cause you don't see it, friends, doesn't mean it won't work. Instead of, "yes, but..." how about a, "yes, and..."?  

  • Elizabeth Gilbert

    The problem with running a non-profit like a business is that the goal of the non-profit (hopefully) is not to make money.  I agree that wasting it is also not acceptable or a goal and I agree that there are redundancies and areas for improvement.  But how we (as non-profits) measure success is not by how much we made, nor even how efficient we are.  And if it is, we should be in another business.

    For example, I work for a non-profit that offers service opportunities for youth ages 11-18.  We recently received a letter from a mother who told us that her son was having a lot of problems functioning as a result of his ADD.  After doing service projects for the summer with our organization, his whole attitude and outlook on life has completely transformed for the better.  He helps around the house unprompted, he gets along better with his family and peers, he has a sense of belonging and feeling of accomplishment, he is happy, he is excited about life.

    How do you measure that in points.  A boy who may have grown up to be troubled and a drain on society may now become a valuable and productive member of society.  Is that 1 point?  2 Points?  Or is that priceless?  Can that even be measured?

    Again, I am all for making non-profits more efficient and effective.  But the reason the non-profit sector is "non-profit" is because it wanted to measure success in human terms not in financial terms.  And if points are assigned according to how many people you reach, for example, then will non-profits not help small populations because they won't get enough points?  And is it better to give a million people fish than to teach 100 people how to fish?

  • daytonenglish

    This kind of thinking is definitely important in the long-term sustainability of the public sector.  I do disagree with Buffett's assertion that there is no motive for charities to collaborate or merge at present, as there are some, such as increased purchasing power, coalescing on physical and other resources and others.  Overall he is on track with the perspectives expressed though.

  • Phil Washburn

    Two concerns I have with this concept.  The first is the inevitable bureaucracy that occurs as organizations grow in size and scope.  Will this increase effectiveness or will this decrease effectiveness in the long term?  I suspect it will decrease long term effectiveness.  What makes many smaller NFP's and NGO's so successful is they are more agile and localized and can respond to the immediate needs of a community quickly.  That is the very reason internationally many NGO's seek to use localized organizations to do their actual work on the ground. 

    The second concern is having worked in the NFP industry for more than ten years I have found people tend to give money in the long term to organizations in which they have a vested interest.  People give money when they feel personally connected in some way to the organization.  Have organizational redundancy actually increases long term giving partners as each organization can build and develop its own group of partnerships with individuals. 

    I am guessing Mr. Buffet's comment would be if he can just organize those billionaires alone they would have an exponential impact in comparison to all of the individual donors an organization would be able to organize.  So we probably need both models.  His model for the multi-millionaires and the traditional model for smaller individual givers and localized success.

    Phil Washburn
    EngagedSolutions.com

  • Megan Strand

    Facilitating strategic alliances among the nonprofit community is certainly a step in the right direction, albeit a herculean task.  Few would argue that the redundancies in the nonprofit sector are helpful.  

    My question is this:  where are the business partners in this equation?  Issues of food security don't exist in a vacuum and adopting the stance of, "We will give you money to execute your mission" seems to be missing a critical business element.  I find this surprising from a business leader such as Howard Buffett.

    Hopefully examining the causal chain of a particular issue will illuminate a potential role for business in any given alliance.

    Megan Strand
    Director of Communications
    Cause Marketing Forum
    @TweetCMF

  • Jackie Dawson

    This article is very interesting.  I have always felt that non-profits that run more like businesses, run better.  However, having worked in non-profits solely in the U.S. with a local focus and learned about international NGOs in school, I would argue that these are two very different entities.  A good example is the simple fact that the U.S. has a familiar structure economically, politically, socially and the ability to combine local non-profits for the same cause would be easier and possibly, more efficient.  The question that arises, however, is with regards to health non-profits.  There are numerous non-profits in the U.S., for example, that focus on the fight against cancer.  While some may argue that that is unnecessary and funding and efforts should be focused on the cure for cancer in general, it is absolutely essential to have some health non-profits focused on breast cancer, some on lymphoma, some on pancreatic, and prostate cancer.  Cancer comes in all different shapes and sizes and the cure, well cures, will be different for each person and each type of cancer.  There is no question that collaboration is needed as the cure for one type of cancer could lead researchers to discover it works for other types of cancers as well, but I fear combining all efforts into one larger effort, could snub ingenuity and creativity on the parts of researchers. 

    Taking that to an international scale, the first red flag I see in this article is the apparent arrogance of Mr. Buffett with regards to knowing what's best for international NGOs in a general sense.  He is right to assert that there is waste when you have two NGOs working in the same region for the same cause and the only way they acquire their funding is through pulling the heartstrings, if you will.  Combining efforts and commodities would help these NGOs run more efficiently, but the solutions are not and never can be that simple.  You must also consider the missions of each of these non-profits.  Maybe Doctors without Borders and the International Red Cross, should continue to remain separate.  Although they may provide similar services (e.g. vaccinations to children in 3rd world countries) their missions are entirely different. 

    Another thing Buffett conveniently ignored is the socio-economic and political environment in 3rd world countries.  Buffett asserted that famine in one country can often be prevented if a neighboring country shared their surplus in food and developed an agreement to do share back and forth.  While that's very "cumbaya," of him, that's not reality.  Many times those neighboring countries do not have a surplus (they barely have enough for themselves) and if they had just a little bit it probably wouldn't be enough to feed the entire famine-torn region, so is it really a good idea to ration food and decide who lives and who doesn't in the neighboring country?  Of course, this presumes certain socio-economic and political conditions between these two countries.  Are we sure these countries are even stable politically?  Are they allies?  Rival tribes?  Do the people even survive on the food they grow or are their commodities squandered by a nefarious and corrupt central government?  These are all questions that have to be asked and were conveniently ignored.

    I get annoyed when these big smart multi-million (whoops billionaires) speak in broad, simple terms of curing the world's ills and make sweeping generalizations as though the world can be fixed by a swipe of their pen and their solution. There's nothing wrong with suggesting that NGOs could be more efficient if they combined their causes and resources, but please, demonstrate to me how that can work on the nitty-gritty level, because that's ultimately where it will happen or fail. 

  • David Kaiser, PhD

    Interesting article, it left me curious for more knowledge. I have heard quite a bit about the need to bring focus and efficiency to the NGO comunity, while retaining the dedication to social good. In business, it's pretty easy, money is the scorecard and the means. Maybe in the NGO world it's "impact," but how do you quantify that? Should you even try? How could an NGO "acquire" another right now? Would that be good or bad? How would you value that? No idea, but I want to know!

    David Kaiser, PhD
    Executive Coach
    www.DarkMatterConsulting.com

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