There are many different ways to give, choosing the path that best suits your family can involve anything from monetary allocations to donating time and or resources.
The field of philanthropy is a constantly evolving one and the last five years has seen an ever-greater rate of change. In 2006, Warren Buffett’s pledge of the bulk of his fortune – some $31billion out of a total $44billion – to the Bill and Melinda Gates Foundation signalled what many commentators have called the ‘second great wave’ of philanthropy, following that which was set in motion by Andrew Carnegie and John D. Rockefeller a century or so before.
Like the first wave, this second wave has been led by a group of wealthy donors who are giving their money strategically for wider social benefit; who, rather than giving their money away in their wills, are keen to do so during their lifetimes. Yet the second wave also has several unique features.
The first feature is what is commonly called ‘next generation philanthropy.’ We are on the verge of perhaps the greatest inter-generational transfer of wealth in history, as members of the post-World War II ‘baby boomer’ generation move towards retirement. With this unprecedented transfer comes the potential problem of how a family should prepare its younger generation for the burdens and responsibilities of wealth. Fortunately, philanthropy is an excellent way for wealth-holders to express and pass down their values.
The second feature is a focus on the evaluation and efficiency of giving; which, in turn, is driven by two factors. The first is that many wealthy individuals have built careers in business or have been entrepreneurs, such as private equity pioneer Sir Ronald Cohen and eBay founder Pierre Omidyar. Consequently they demand the same standards of due diligence and benchmarking of their philanthropy that they have applied to their businesses. The second is the economic crisis, which has forced donors to be more strategic in their allocation of private capital. With resources becoming scarcer, donors are increasingly attracted to charities capable of demonstrating impact and value for money. An encouraging sign of the times was the establishment of the Lodestar Collaboration Prize in 2008 by leading US philanthropist Jerry Hirsch, whose Lodestar Foundation makes an annual award of $250,000 to the not-for-profit organisation that has worked most effectively with others in the sector to achieve its mission with fewer resources.
The third and closely related feature is the increasing confluence of business and philanthropy. Traditionally, donors have considered that the only way to further a charitable cause was by the grant of money. Now, though, they are being more creative with their financial assets, using a blend of for-profit and not-for-profit methods to bring about positive social change. In 2010, for example, the Bill and Melinda Gates Foundation made low interest loans to
not-for-profit organisations instead of grants, in order to free up capital for future grant-making.
Latterly, too, we have seen the emergence of the technique of ‘impact investing,’ a movement led by finance experts such as Ariya Capital’s Herta von Stiegel, a former banker who now works to enable sustainable venture and private equity investments in Africa. Impact investing is a technique where investors seek not only to achieve a financial return from their investment, but also a social or environmental one.
The fourth feature of this ‘second wave’ is the emergence of new technologies, and particularly social media tools philanthropists can use to bring about positive change. Sites such as Facebook and Twitter now allow donors to raise awareness of their chosen causes, to reach much larger audiences very quickly and to share best practice in philanthropy more easily than ever before
Getting started
First of all, they must decide upon their philanthropic mission and the causes they would like to support. Here, a potential tension presents itself: very often, different generations of a family will have divergent views about where they would like to make grants.
A family retreat, where everyone is gathered, can serve as the ideal place for such a discussion and most families who pursue this route have spoken of the great benefit of using trusted, external facilitators. Though this is a complex discussion, it should be an enjoyable one, as it presents an opportunity for the family to examine the world, to find the intersection between need or opportunity and their interests and shared goals, as well as their competencies.
Once families have decided upon their cause(s) of choice, they must then look
at the type of vehicle that will give best expression to their philanthropy. The routes they choose will depend on the amount of time and money they are able to commit to their philanthropy.
If, for reasons of time or privacy, they wish to remain one degree removed from the process, families can entrust a sum of money to a donor advised fund, which is administered by a host organisation which will make grants to the families’ intended beneficiaries. A host organisation would be a private bank, a community foundation or other respected intermediary, such as the Charities Aid Foundation (CAF), whose CAF Charity Account is one of the most popular in the UK. The host organisation will charge the donor a small percentage for administration: CAF charge the donor 4% (though this is decreased the larger the gift) of his or her donation after Gift Aid every time the donor funds the account.
trusts/foundations
Should families wish to take a more involved role in their philanthropy, then they may set up their own trusts, or foundations (the two words are used interchangeably). A foundation is different from a donor advised fund, in that it is an independent legal organisation that the family will administer directly. There are considerable tax advantages to setting up a foundation: any money committed to the foundation will benefit from tax reliefs on business rates, capital gains and investment income, and will be exempt from inheritance tax. The trust or foundation itself will also benefit from Gift Aid, giving the donor more money to give away. As Gift Aid has already been claimed by the foundation, the beneficiary of the grant cannot then subsequently claim Gift Aid on the donation again.
If families wish to build a visible legacy of their generosity, then establishing a family foundation is an excellent way to proceed. Once set up, such a foundation can be run one of two ways. First, there is the ‘operating foundation’ model (most common in Latin America and the Middle East) where the foundation not only makes grants but also has staff who provide direct services to its intended beneficiaries.
For example, they not only provide funds for building schools but also employ staff who will build those schools. The Makhzoumi Foundation, directed by May Makhzoumi, supports civil society in Lebanon through its work in the education, environmental and healthcare sectors. The key point to note is that, in the case of an operating foundation, it is usually an extension of the family business’s existing corporate social responsibility programme.
Secondly, there is the ‘family foundation’ model, which is independently governed. Most popular in the UK and US, this model has a separate chief executive from the family business, though family members will generally still have positions on the board. A good example of this in the UK is the Indigo Trust, which was set up by Fran Perrin to promote information equality among disadvantaged people and communities. The Indigo Trust is one of eighteen charitable trusts established by the Sainsbury Family, each of which has its own mission and endowment.
For younger family members, the sudden responsibility of allocating significant funds can be overwhelming, even disempowering; so they may benefit from being eased into the grant-making process. To this end, families might consider creating a junior board, or ‘next-generation committee’ (with smaller financial resources and lower stakes) within the family’s philanthropic model. This can be an effective way of engaging younger generations in the family’s philanthropic mission providing newcomers with first-hand, practical grant-making experience before they move up into the broader governance process.
Though the family’s foundation has a common mission, it may be that some family members have passions for social issues that lie outside the chosen remit. In such cases it may be prudent to set aside additional funding outside the ‘collective pot’ so they can explore their own particular philanthropic interests. This can be a useful way to accommodate personal charitable projects under the umbrella of the family model, which in turn can strengthen the core of the family’s giving.
Resources and peer support for giving
In order to achieve the best possible results, families should approach their philanthropy with a clear strategy. Many of the skills that people traditionally associate with success in the business world can also prove valuable in this field. There are several organisations, including the Institute for Philanthropy, that can provide families with bespoke advice on how to approach their giving in a strategic fashion.
The Institute runs a major donor education programme called The Philanthropy Workshop every year; arranges many bespoke training offerings for families and individual philanthropists; and provides advice on setting up philanthropic foundations.
The Institute also produces research papers on a range of topics that include experiential case studies and tips for best practice. For example, for donors who wish to learn how to measure the impact of their giving, there is: Evaluation: A Guide. Also published is: Giving in a Recession, which provides 10 tips on how donors can maximise the effect of their philanthropy despite the difficult economic climate; and most recently Philanthropy and Social Media, which provides an introduction to families seeking to use social media to communicate with the wider audiences about their philanthropy.
In the UK, there is a growing community of philanthropists, several of which already have their own foundations and who are an invaluable source of knowledge and peer support. Having provided donor education to many individuals, we are fortunate to continue to work with a broad network of our alumni of almost 200 donors and their families. Elsewhere, Philanthropy UK is an excellent online resource for families wishing to learn more about giving, while the Community Foundation Network offers a great introduction to those looking to make contributions in their local areas.
The world of family philanthropy, then, is a thriving one; and one which we encourage families to explore actively, for we believe that it can provide the most rewarding of journeys for all those involved.
