The arrest last year of a high-profile cryptocurrency exchange founder for fraud not only hurt the crypto business, but also cast a shadow on “effective altruism.” This philosophy employs evidence and statistics to determine strategic ways to benefit others — and the alleged fraudster is a vocal proponent. He has claimed that he earned as much money as he could so he could give most of it to charity.
Is this a case of one bad apple spoiling what’s otherwise a sound approach to giving? After all, effective altruism is particularly popular among tech millionaires and billionaires. Or should your not-for-profit be wary of philanthropists who espouse it?
Power of high-impact giving
Effective altruism (also known as “strategic giving”) doesn’t focus on how effective a nonprofit is with its funds. Rather, it looks at how effective donors can be with their money and time. Instead of being guided by what makes them feel good, effective altruists use evidence-based data and reasoning to determine how to make the biggest impact.
Effective altruists generally consider a cause to be high impact if it’s large in scale, generally neglected by other philanthropists and is “highly solvable.” Because they strive to get the most bang for their bucks, some effective altruists focus on nonprofits that help people in the developing world. So, instead of donating to a U.S. school, an effective altruist interested in education might donate to an organization that provides nutrition to children in poor countries — because improving their diets also will improve their ability to learn.
What critics say
Skeptics question whether a focus on measurable outcomes results in a bias against social movements and arts organizations, whose results are harder to measure. Some organizations work to eliminate broader problems, such as income inequality or oppression, where progress isn’t easily quantified. An effective altruism approach may do little to tackle the societal issues behind a problem.
Critics also point out that an evidence-based approach ignores the role that emotional connection plays in charitable donations. When it comes to choosing which organizations to support, givers’ hearts frequently matter more than their heads. Concentrating on numbers and efficiency may actually discourage supporters.
Then there’s the issue of control. Some charities worry that effective altruists not only will dictate how nonprofits use their funds but also will treat philanthropy as a tool to achieve business, political and other noncharitable goals. Such problems are only exacerbated if effective altruists donate ill-gotten funds.
Your nonprofit probably shouldn’t ignore the effective altruism movement, but exercise caution. Carefully evaluate any large offer of support, particularly if it means giving up control of how funds are spent or if you’re worried about the legitimacy of the donor. Instead, rely on financial and other experienced professionals for advice.
How Cordia can help
Cordia works with nonprofit organizations to improve their accounting operations by providing outsourced accounting, business advisory, and technology consulting services. By leveraging a team of accounting, technology, and professionals with nonprofit experience, organizations can focus on the work that supports their mission, while Cordia’s team works to improve operational efficiencies and provide accurate and timely financial data.