Not that long ago if you were a philanthropist you handed over money to somebody with good intentions and let them get on with it. They might open a soup kitchen, or send it to Africa. But these days things are more complicated. A new generation of entrepreneurial, technologically-savvy young people are shaking up the way that giving works and are breaking down the barriers between working and doing good. The old guard don’t always like it, but the young know that this is their world now. CampdenNXG suggests five ways to be on the money, when it comes to the new philanthropy.
Think like a Silicon Valley entrepreneur
“The younger generation, the 18 to 40-year-olds, think about philanthropy differently to the way their parents did,” says John Vogel, a professor at Tuck School of Business at Dartmouth. “I think that stems from technology. They have seen businesses like Facebook and Google that have changed the world, and they were started by people in their 20s.” The new generation doesn’t have to wait around and learn from their elders, and that goes for both business and philanthropy. As Vogel says: “They are less interested in how things have been done, and are more confident to come up with their own solutions”.
“There used to be a separation between business and philanthropy – business was what you did with your head, philanthropy with your heart,” says Vogel. But things were never so clear-cut. Google’s motto is “don’t be evil”, and Facebook and Twitter revel in and tacitly support the supposed role they have played in popular uprisings against tyrants. “Milton Friedman famously said that ‘the social responsibility of a company is to increase its profits’,” says Adlai Wertman, a professor at the Marshall School of Business at the University of Southern California. “The new generation do not believe that.”
All this comes together to utterly change the approach of the new philanthropists, exemplified by people like Pierre Omidyar and Jeff Skoll, respectively the founder and the first president of eBay. “In their philanthropic work they are more like a venture capitalist,” says Wertman. “They are willing to fail. Many of these people are entrepreneurs and they have failed a dozen times and they understand that non-profits are also more likely to fail than succeed.” This approach changes the sorts of projects that the new philanthropists want to fund.
“If you give somebody $100,000 and say: ‘Now go out and feed people’ then you can’t fail. But if you ask me to create a new idea, then of course I am going to fail now and then,” says Wertman. This causes friction with the older generation, who equate philanthropic failure with wasting money, but the new generation understand that hard-to-solve problems need innovative solutions. The new philanthropy is more like a start-up than a hand-out.
Create a spend-down foundation
Most foundations are created with the intention that they will last forever. This means that they never (or rarely) spend more than the minimum that is needed to keep them tax-exempt – 5% in the US.
Is that enough? Warren Buffett doesn’t think so. A few years ago Buffett had his people crunch the numbers and they calculated that of America’s 30 biggest foundations, 28 spent less than 5% of their assets on good works – they made it up to 5% by counting operating costs. Not good enough, he concluded. Buffett wants his money to be spent within 10 years of his death.
He wrote: “I want the money spent more promptly by people I know to be capable, vigorous, and motivated.” Bill Gates has done something similar, saying that all his money must be spent within 50 years of his or his wife’s death, whichever comes latest.
There are other famous examples, such as the $3.8 billion (€3.03 billion) given by duty free tycoon Chuck Feeney, which must be spent down by 2020, the Richard and Rhoda Goldman Fund, which must spend its half-billion within a decade of Richard’s death, and the Vincent Astor Foundation, which ran down its money in 2002.
As Buffett said, the appeal is that you can make sure your money goes to the causes you choose. “The way people see it is that there are a lot of social problems, so why save the money?” says Bob Searle, a partner at Bridgespan, an organisation that helps philanthropists develop strategies. “Keeping the money forever doesn’t make sense to these people; they want to make big bets on problems they care about.”
Another thing that next-gens want to address is the tensions between the family foundation’s giving and its wealth-preservation strategies. Many are driven crazy by the fact that, even if they can persuade the older generation to funnel money towards, say, saving the rainforests, they will often still invest in oil companies.
This inconsistency comes about because the older generation see wealth-preservation as the primary goal, and spending it secondary. This is often reversed in the younger generation, especially among entrepreneurs who made their own money. Whatever the source of the wealth, a spend-down foundation can eradicate the conservatism and inconsistency that creep into preservationist foundations.
Incorporate philanthropy into your business
A number of high-profile firms take very seriously indeed their employees’ desire to do good works. Goldman Sachs, Microsoft, Google and Facebook all realise that their highly paid and bright employees don’t want to wait until they retire to “give something back”. So they all have programmes where workers can take time off to help out at not-for-profits.
A leader in this field is Hypertherm, a manufacturer of cutting technology headquartered in the US state of New Hampshire. It has a programme whereby employees can take days off to volunteer in the community in projects such as installing insulation in people’s homes, mending roofs, helping out at homeless shelters or running a house where parents with children in hospital can stay.
Employees also help local not-for-profits with strategy or marketing. Jack Lee, who sits on the board of the company’s philanthropic foundation, explains that people from Hypertherm’s finance team helped get funding for a housing association project. “Part of the development was for people on low incomes, and some folks from our treasury team helped out with the financial aspect to help get it built.”
He also points out that, as an engineering firm, some employees have special skills. “We have engineers who help kids from local high schools to take part in competitions where they build robots that compete against each other.”
The impetus comes from the founder, Dick Couch, and his wife Barbara. “The good works are as much a mission for the company as the business side,” says Lee. This even influences the hiring. “We do have that in mind when we are interviewing and setting up interviews,” Lee says. “You want someone who has a similar philosophy. During the initial training all employees are made aware of the voluntary opportunities and the philanthropic practice.”
Do people become interested in philanthropy before or after they join the company? “It’s a bit chicken and egg,” Lee says. He, however, says that one of the reasons he wanted to join Hypertherm was that he was keen to get involved in the community.
And what’s the effect? Employees are proud of working for the company, and that increases their loyalty. Vogel says that this chimes with his experience: “The idea that money is people’s primary motivation is wrong.”
Prove that it works
One of the key challenges for not-for-profits right now is scaling. It’s all very well running a literacy project that helps 100 children, but how do you turn it into one that helps 1,000? Or 10,000? “Take almost any social problem you can think of –poverty, hunger, education, housing, health – and there is a not-for-profit that has an effective solution,” says Vogel. “The problem is scaling that solution.”
But before you can scale an idea, you need to be able to prove beyond all doubt that the solution you have really works. This is a very significant new development. “There is a definite trend to looking for stronger evidence of outcomes,” says Searle.
He says that the old types of philanthropy were keen on activity – essentially, throwing money at problems – but the more modern sorts of not-for-profits look instead at outcomes. Have you really changed behaviour? Are you having a social impact? The reason that this is essential for scaling is that really switched-on donors, or government, need to see evidence that their money won’t be wasted. Just as you would have to prove in a business that a tactic works, so in philanthropy.
So what counts as proof? That really depends on what donors demand, but at its most rigorous you are talking about a randomised controlled trial. Searle says that the classic example of this was the research done on the Big Brothers Big Sisters project, where it was found that mentoring had a massive impact on literacy. “As a result of that trial, mentoring has really become a far bigger phenomenon,” Searle says.
Another example was the Michael and Susan Dell Foundation’s summer education programme for children from poor backgrounds who tended to suffer from “summer learning loss” – ie, they fall behind their peers during the summer holiday when they are out of school. This was proved to be so successful that it influenced the Obama administration’s No Child Left Behind programme.
Break down the boundaries
“The distinction between the business and non-profit sectors is blurring,” says Searle. “I do a lot of environmental work and you see businesses that are springing up that have a sustainable focus – renewable energy, for example.”
With things like Fairtrade and sustainable fishing marks, businesses are incorporating what might conventionally be seen as campaigning principles into their DNA. “The implication for philanthropists is that people can invest their money in different ways.” Giving is no longer the only way to do good. You can invest, do the right thing and make a return too.
The flip side of this is that non- profits are increasingly seeing the benefits of hiring MBAs to help run their operations. As mentioned above, the Holy Grail these days is to create a not-for-profit that is self-sustaining – which is known as social enterprise, or social entrepreneurship. And the key to that is making it pay for itself in some way. “That is the genius of microlending,” says Vogel. “It actually works as a business.”
A self-sustaining project doesn’t need endless amounts of donor money to be poured in, and doesn’t need endless fundraising drives. This has also become possible because of the sorts of things that the new philanthropists are interested in – they tend to be focused on social problems and not, say, funding the ballet or buying Old Masters for museums.
When you remember the venture capitalistic ethos of many of the new philanthropists, it’s clear that the sorts of things you learn at business-school are going to be helpful for not-for-profits. There used to be a lot of suspicion about businesspeople in the non-profit world. “They weren’t pure enough,” Vogel laughs. Those days are quickly becoming history.
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