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London is the financial capital of the world, home to extraordinary wealth and skills. There are a growing number of ventures in which these skills are being used in imaginative ways to create and distribute philanthropic wealth. But they are few relative to the social and financial capital available. If the impetus created by these ventures is properly harnessed, it Give and let give could drive the development of a philanthropic capital market as vibrant and diverse as the financial markets they have sprung from. The development of a philanthropic culture within the financial services industry could lead to a more generous and creative national culture of philanthropy in Britain. Give and let give This report assesses current attitudes to philanthropy amongst high net worth individuals in the financial sector, as well as examining some of the philanthropic initiatives that have emerged from the City. We consider the experiences of those Building a culture of philanthropy who have successfully connected the worlds of finance and in the financial services industry philanthropy, in order to see what lessons can be learned to help build a wider philanthropic culture in the industry. We look at the

range of individual motivations for getting started in Rob John, Rhodri Davies and Louisa Mitchell philanthropy as well as the means for giving and the methods employed to achieve philanthropic aims.

Achieving a cultural shift is an enormous task. In order to engage more financial services professionals in philanthropy, opportunities for emotional encounters must be created and barriers to giving must be broken down. This report proposes a package of practical recommendations for change, as well as considering examples of enlightened City professionals who have already taken up the challenge.

Rob John, Rhodri Davies and Louisa Mitchell

£10.00 ISBN: 978-1-906097-13-4

Policy Exchange Policy Exchange Clutha House 10 Storey’s Gate London SW1P 3AY www.policyexchange.org.uk px philanthropy HDS copy:px philanthropy HDS 8/1/08 17:46 Page 1

Give and let give

Building a culture of philanthropy in the financial services industry

Rob John, Rhodri Davies and Louisa Mitchell

Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will foster a free society based on strong communities, personal freedom, limited government, national self-confidence and an enterprise culture. Registered charity no: 1096300.

Policy Exchange is committed to an evidence-based approach to policy development. We work in partnership with aca- demics and other experts and commission major studies involving thorough empirical research of alternative policy out- comes. We believe that the policy experience of other countries offers important lessons for government in the UK. We also believe that government has much to learn from business and the voluntary sector.

Trustees, Charles Moore (Chairman of the Board), Richard Ehrman, Theodore Agnew, Richard Briance, Camilla Cavendish, Robin Edwards, Virginia Fraser, Lizzie Noel, George Robinson , Andrew Sells, Tim Steel, Alice Thomson, Rachel Whetstone px philanthropy HDS copy:px philanthropy HDS 8/1/08 17:46 Page 2

About the authors

Dr Rob John is an independent consultant to start a DPhil in the Philosophy of specialising in philanthropy and social Mathematics, but decided after a year that entrepreneurship, and a Visiting Fellow at his long-term interests lay elsewhere. He the Skoll Centre for Social worked for a year as a researcher at a high- Entrepreneurship at the University of end executive search firm before joining Oxford’s Saïd Business School. He is also Policy Exchange in June 2007. Advisor to the European Venture Philanthropy Association, a philanthropic Louisa Mitchell is a Research Director at initiative originating from the European Policy Exchange with responsibility for fami- venture capital and private equity commu- ly and society. She read Chinese at nity. Following a career spanning 15 years Cambridge University and after graduating in international development, including in 1994, joined the corporate finance depart- refugee assistance and microfinance, Rob ment at Schroders. She spent eight years directed an Oxford-based venture philan- working as an investment banker in Hong thropy fund before becoming freelance in Kong and New York, latterly for Goldman 2004. Rob is a Fellow of the RSA. Sachs. She then consulted for the private sec- tor arm of the World Bank in Hong Kong Rhodri Davies is a Research Fellow at and became Director of ASrIA, the Policy Exchange working on philanthropy. Association for Sustainable and Responsible He graduated from Oxford University in Investment in Asia. She moved to London in 2004 with a first class degree in 2003 and joined The Whitley Fund for Mathematics and Philosophy then spent a Nature as Director. In 2006 she spent several year working in financial services in months writing for the Financial Times and London. He returned to Oxford in 2005 then joined Policy Exchange.

© Policy Exchange 2007

Published by Policy Exchange, Clutha House, 10 Storey’s Gate, London SW1P 3AY www.policyexchange.org.uk

ISBN: 978-1-906097-13-4

Printed by Heron, Dawson and Sawyer Designed by SoapBox, www.soapboxcommunications.co.uk

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Contents

Acknowledgements 4 Foreword by Damon Buffini 7 Foreword by Lord Joffe of Liddington CBE 8 1. Executive Summary 9 2. Motivation 17 3. Means 38 4. Methods 62 5. Conclusions and recommendations 94 Bibliography 101 Appendix 1: Where to go from here . . . 105 Appendix 2: Detailed schedule of recommendations 107 Appendix 3: Methodology 114 Appendix 4: Glossary 116 Appendix 5: Technical comparison of US and UK means and methods 119

Case Studies Chris Mathias (18) Lord Griffiths of Fforestfach (20) Sir Tom Hunter (23) Nicola Horlick (25) Tom Hughes-Hallett (27) Man Group Plc (31) Jim O’Neill (33) Execution (35) The Children’s Investment Fund Foundation (CIFF) (40) Absolute Return for Kids (ARK) (42) The Private Equity Foundation (PEF) (44) ICAP (45) Share and Share Alike (53) Vernon Ellis (58) Michael Hintze (66) Sir Peter Lampl/The Sutton Trust (68) Prism (70) New Philanthropy Capital (NPC) (74) Pilotlight (76) The Kilfinan Group (78) Breakthrough (CAN/Permira) (82) Venturesome (84) Bridges Ventures (86) The Ethical Property Company (EPC) (88) Investing For Good (89) David Blood/Generation Investment Management (91)

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Acknowledgements

The authors wish to thank the following for their help and support:

Interviews Alexander Hoare, Managing Partner, C. Hoare & Co Andrea Sullivan, Head of Philanthropy, Arts & Culture EMEA Lehman Bros Anna Josse, Co-Founder, Prism Benoit Vauchy, Principal, Permira Caroline Mason, Co-Founder, Investing For Good Cathy Pharaoh, Director, Third Sector Prospect Charles Middleton, CEO, Triodos Bank Chris Mathias, Chairman, Arbor Ventures Damon Buffini, Chairman, Permira David Blood, Managing Partner, Generation Investment Management David Verey, UK Chairman, Blackstone Dr Diana Leat, Director, Creative Philanthropy, Carnegie Trust E. Scott Mead, Chairman of Global Technology & Telecoms Board, Apax Partners Emma Turner, Charitable Services Manager, Goldman Sachs Fiona Halton, CEO, Pilotlight Harvey McGrath, Former Chairman, Man Group Plc Hugh Sloane, Founder, Sloane Robinson James Blackburn, Head of Strategy & Chairman of Execution Charitable Trust, Execution Ltd James Tooley, President, Education Program, Orient Global Jamie Cooper-Hohn, CEO, Children’s Investment Fund Foundation Jamie McAuliffe, Portfolio Manager, The Edna McConnell Clark Foundation Jim O'Neill, Chief Economist, Goldman Sachs John Nash, Chairman, Future Jon Moulton, Managing Partner, Alchemy Partners Lord Griffiths of Fforestfach, Vice Chairman, International, Goldman Sachs Ludwig Forrest, Philanthropy Advisor, King Badouin III Foundation Mark Evans, Head of Strategic Philanthropy & Family Business, Coutts Michael Fallon, M.P, for Sevenoaks, Conservative Party Michael Hintze, Managing Partner, CQS Michael Spencer, CEO, ICAP Plc Michele Giddens, Director, Bridges Community Ventures

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Acknowledgements

Nick Ferguson, Chairman, SVG Capital Nick Finegold, Chairman & CEO, Execution Ltd Nicola Horlick, CEO, Bramdean Asset Management Olga Alexeeva, Head of Global Trustees, CAF Paul Bernstein, MD, ARK Paul Molloy, MD, Compton Fundraising Consultants Richard Bernstein, CEO, Eurovestech Plc Roger Orf, Head of European Property Investments, Citigroup Ruth Jones, Executive Director, Social Venture Partners International Shaks Ghosh, CEO, The Private Equity Foundation Sir Adam Ridley, Chairman of Trustees, Equitas Sir Peter Lampl, Founder, Sutton Trust Sir Tom Hunter, Chairman, West Coast Capital Stanley Fink, Deputy Chairman, Man Group Plc Stephen Dawson, Chairman, Impetus Trust Stephen Hammersley, CEO, The Community Foundation Network Steve Beck, CEO, Geneva Global Sue Wixley, Head of Marketing, New Philanthropy Capital Tarek Ben Halim, Former Partner, Goldman Sachs (Founder, Alfanar) Theresa Lloyd, Author of ‘Why Rich People Give’ and Advisor on Philanthropy to Individuals and Institutions Thomas Hughes-Hallett, CEO, Marie Curie Cancer Care Tris Lumley, Senior Research Analyst, New Philanthropy Capital Vernon Ellis, International Chairman, Accenture Victoria Hornby, Executive, Sainsburys Family Charitable Trusts Vincent Neate, Partner (Audit)/ PE expert, KPMG

Guidance Beth Breeze, Researcher, University of Kent Clare Maurice, Partner, Allen & Overy David Carrington, Consultant David Charters, Co-founder of the Beacon Fellowship Charitable Trust, Author and Partner in Partner Capital LL Dudley Fishburn, Director, HSBC Bank Plc Fiona Rawes, Director, Heart of the City John Kingston, Director of Venturesome, Charities Aid Foundation John Studzinski, Senior Managing Director, The Blackstone Group Lady Mackintosh, Founder and CEO, ShareGift

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Lord Joffe of Liddington CBE, House of Lords Mark Campanale, Associate Director, London Bridge Capital Nigel Harris, CEO, New Philanthropy Capital Philip Kirkpatrick, Partner, Bates, Wells & Braithwaite Richard Briance, Deputy Chairman, Hawkpoint Partners & Policy Exchange Trustee Sheila Hooper, Executive Director, Individual Giving, Charities Aid Foundation Sir Laurie Magnus, Chairman of Beat and Deputy Chairman of The National Trust Susan Mackenzie, Director, Philanthropy UK Susan Tether, Director of Corporate Affairs, Global Wealth Management Europe, Citi Swati Patel, Head of Citizenship, Global Wealth Management Europe, Citi Theodore Agnew, Chief Executive of Jubilee Insurance Group & Trustee of Policy Exchange

Support Citi Private Bank City of London Corporation Sloane Robinson Foundation Theodore Agnew, Chief Executive of Jubilee Insurance Group & Trustee of Policy Exchange

Special thanks to Clemmie Briance for her research support, Philippa Ingram and all those who commented on drafts of the report.

The views expressed in the report are those of the authors, and not necessarily of the peo- ple we interviewed or the members of the project Advisory Group.

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Foreword By Damon Buffini Chairman of Permira

Though Permira has been investing in companies. In fact, we found that the moti- businesses for over 20 years, our involve- vation that drives the management of our ment with social enterprises is relatively companies is exactly the same as that which new and dates back to setting up the drives our social enterprises – building Breakthrough initiative with CAN strong, successful, sustainable businesses. (Community Action Network) in 2005. This report clearly shows that there is no We formed that partnership because we one-size-fits-all model for a successful part- wanted to give something back to society nership between the City and the third sec- by applying the skills and resources we tor, but what is required is a genuine com- employ in our day jobs. mitment from firms to offer opportunities We didn’t anticipate how much the firm to individuals to extend their ‘giving’ activ- would gain from the process. We didn’t ity beyond the chequebook, giving time, know a lot about social enterprise when we expertise and support as well. It is an met Adele Blakeborough and her team, but insightful analysis of how the City and can what we found at CAN was a collection of work with the third sector to deliver posi- innovative entrepreneurs who were commit- tive social impact. We look forward to see- ted to the future of their businesses, not ing the results of this powerful alliance in unlike the chief executives of our portfolio the coming years.

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Foreword By Lord Joffe of Liddington CBE Founder Director, then Deputy Chairman of Allied Dunbar Assurance Plc and Chair of the Giving Campaign

There is a widespread illusion that the encourages all employees to see giving as British give generously to charity, but sadly normal practice. It is gratifying that this statistics tell a different story - a 25 per year’s Sunday Times Giving Index includes cent fall since 1992 in charitable giving as several philanthropists who created their a percentage of GDP, during a period wealth in financial services, including when personal incomes have risen in real Chris Hohn, Michael Hintze and Stanley terms on average by more than 25 per cent; Fink whose organisations are profiled in personal wealth has more than doubled; this report. the Government has introduced attractive One starting point in encouraging the tax benefits to stimulate giving; the chari- well off to give more is to establish bench- table sector is more professional in marks. I suggest an initial benchmark for fundraising and the very wealthy have our society as a whole of an average of 1.5 prospered as never before. Indeed it per cent of income or wealth; those earn- emerges that the poor who give to charity, ing more than £100,000 a year starting at give on average three times as much as a 2 per cent going upwards depending on proportion of their income as the better the wealth and income of the individual off. concerned. I would add that while giving It follows that if the national level of giv- money or shares is important I also place ing is to increase significantly, the very considerable value on the time, skills and wealthy must set an example by substan- networks that such people can contribute. tially increasing the level of their giving. I believe that over a period of the next 10 Much of Britain’s wealth today is created years it should be possible to double the by financial services firms, concentrated in level of voluntary giving in real terms. the City of London. This report gives Those who are fortunate enough to enjoy inspiring examples of financial service the rewards of a career in financial services leaders who are not only personally gener- are well placed to contribute to meeting ous, but are helping bring about a change this target and making Britain world of culture in their companies which renowned for generous philanthropy.

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1

Executive summary

1. A comprehensive list of sub- Building a Culture of Philanthropy in few of us think about giving in a structured sectors in the financial services industry might include: Banking the Financial Services Industry way – only 18.6 per cent of adults give in – private, investment, commer- Financial services professionals have the a regular, planned way to charity.2 A 2007 cial, retail, credit card issuers; Asset management – pension wealth and skills to make them leaders in survey for the Government’s Office of the funds, hedge funds, private equity, venture capital, other the development of a national culture of Third Sector (OTS) found that 81 per cent fund managers; Broking– stocks, philanthropy. Our focus on the City may of respondents had given to charity in the commodities, money; Insurance 3 – general, life, reinsurance; seem narrow, but cultural change at the last four weeks, and nearly three fifths of Market-making/trading – cash, national level will not take place without people give at least once a month,4 but the futures, derivatives; Advisors/deal makers – corpo- leadership. Some of the leaders of the most common ways of giving are to put rate finance boutiques; industrial revolution became our much money in a collection tin or to buy raffle Investment consultants; Financial trade body representa- 5 lauded Victorian philanthropists. Our new tickets. A shift in attitudes is required to tives; Lawyers; Accountants; wealth creators in the financial services build our charitable culture into a fully- Consumer credit companies in the form of pawnbrokers, 1 industry (FSI) can act as heralds in our fledged philanthropic one – and that must doorstep lenders; Clearing, set- tlement and payment systems; society today, who honour the “social con- be led by the wealthy. Regulators; Central banks; tract” in which they use philanthropy to It is often said that we need to create the Ratings Agencies; Information technology specialists; Financial play their role in the society that made the same culture of giving here as exists in public relations

creation of their wealth possible. America. This is misleading. We need to 2. UK Giving 2005/06, Charities Philanthropy is another form of finance create the same levels of giving – currently Aid Foundation/National Council of Voluntary Organisations, – with the added complexity of social val- 1.67 per cent of GDP in the US compared 2006. Planned and organised ues. The skills of today’s financiers and to 0.7 per cent in the UK.6 But when it giving includes direct deb- its/standing orders, covenants, entrepreneurs are vital to the development comes to the culture, we need to encourage payroll giving and membership of a philanthropic capital market. There in the UK attitudes and behaviours that fees 3. Helping Out: A National are a growing number of ventures in which take the best and the relevant aspects of the Survey of Volunteering and the wealth and skills that have made US culture but recognise the differences Charitable Giving, National Centre for Social Research and London the world’s financial centre are between the two countries. Roughly a the Institute for Volunteering being put to use in imaginative ways to third of all giving in America is to religious Research on behalf of the Office of the Third create and distribute philanthropic wealth. organisations, compared to only 16 per 4. UK Giving 2005/06, Charities 7 Many of them are profiled in this report. cent in the UK. The US does not have a Aid Foundation/National Council Properly harnessed, the impetus created by welfare state, reflected in the third of US of Voluntary Organisations, 2006.

this currently disparate group of initiatives giving that goes to education, healthcare 5. Helping Out: A National could drive the development of a philan- and social services.8 Our culture needs to Survey of Volunteering and Charitable Giving, National thropic capital market as vibrant and recognise that we have a welfare state, that Centre for Social Research and diverse as the financial market they have we have a different tax system to the US the Institute for Volunteering Research on behalf of the Office sprung from. The FSI therefore has a key and that we already have attractive incen- of the Third Sector, 2007

role to play in signalling to wider society tives that could be effectively harnessed 6. International Comparisons of the need for a more generous and creative rather than replaced with considerable Charitable Giving, CAF, 2006 culture of philanthropy. inconvenience by something new. 7. Ibid 8. Giving USA 2007, the Center Although we in Britain are willing to Attempting to effect a cultural shift is a on Philanthropy at Indiana put our hands in our pockets when asked, daunting prospect. There is no silver bullet University, 2007

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and it will not happen over night. Multiple Research Methodology and Scope changes in attitudes and infrastructure Our methodology was largely qualitative, need to take place. More City financiers the core of which was 55 face-to-face, in- and entrepreneurs need to be motivated to depth interviews with individuals from the embrace philanthropy as a way of life that financial services (predominantly in progresses with their careers, and we need London), philanthropy and policy sectors. to make it easy for them to do so. Our sug- In the FSI, our interviews focused on pri- gestions for reform may seem minor given vate equity professionals, investment the scale of the task, but a cultural shift bankers, hedge fund and asset managers, requires step-by-step change. It also but we also interviewed people in the legal requires role models to take up the chal- and accounting professions. Although our lenge and speak out about their achieve- interviews have focused on the high mar- ments. This report offers both of these gin sub-sectors of the FSI, this report is things, practical suggestions for change also relevant for professionals who have the and inspiring examples of the enlightened potential to become high net worth indi- City professionals who have already taken viduals in most business sectors; many of up the challenge. the findings apply to business sectors other than financial services. We also inter- viewed founders of philanthropic organisa- Research Aim tions who were previously FSI profession- We set out to assess current attitudes to phi- als and we interviewed financial advisers. lanthropy among existing and potential On specific matters we interviewed profes- high net worth individuals in the financial sionals in philanthropic organisations, pol- services industry.9 In particular we assessed icy and legal experts and we also sent a what motivates them and what barriers brief set of questions to a group of senior stand in their way. The research findings UK employees at Citi. We carried out an provide case studies to act as motivational extensive literature research and multi- tools and inform recommendations on how country analysis (including some in-depth to build a culture of philanthropy that interviews) on tax regimes and infrastruc- inspires FSI individuals to stretch their ture development for philanthropy and means and their minds for philanthropy. social investment. We want City professionals and other busi- Our analysis has focused on the supply ness leaders to read this report and feel of philanthropic capital and not on the inspired to get on the philanthropy ladder, demand from charities and social enter- to maximise their resources for a long phil- prises. We recognise that the demand side anthropic journey, much like a career, but has a distinct role to play in generating with no retirement date, and to aspire to be increased philanthropic capital from the leaders in the development of a British phil- supply side. There has been a growing anthropic capital market. We want focus on the professionalism of charities Government and policy formers to read this and social enterprises in their fundraising report and resolve to support those individ- from all types of donors, corporate donors. uals by using the system to its optimum, Many are developing sophisticated ways of tweaking and refocusing where necessary, to communicating their social impact in a

9. High net worth individuals for support the development of this culture. highly competitive environment. this study are broadly defined as Companies have a large role to play in Charities and social enterprises have a crit- individuals with post-tax income in excess of £150,000 per directing a cultural change among employ- ical role to play in unlocking donations of annum and more than £500,000 money and skills from FSI professionals, of assets not including the pri- ees. A true corporate culture is at least the mary residence sum of the parts of the individuals. through the way they approach and com-

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Executive summary

municate with this community of signifi- year. Giving levels will naturally be affect- cant donors. How they do this is beyond ed by levels of income and bonuses, but the scope of this report. the culture needs to remain constant. As this report illustrates, there are increasingly creative ways to deploy social and financial City Wealth capital for philanthropy that need to be In the 21st century the City has become supported by a solid infrastructure so that the “engine room of the UK economy”.10 it is always possible to give effectively when Its official share of GDP in 2006 was 9.4 the time is right. per cent, up from 5.3 per cent in 2001, which contrasts markedly with the decline in the share of GDP of the manufacturing “ When we say philanthropy, we mean engaging the sector, down to 13.2 per cent in 2006 from head and the heart with an organised and planned 21.1 per cent in 1996.11 It has become the strategy, rather than only reacting to donation requests in UK’s most significant creator of wealth, an ad hoc manner” but concerns persist about its isolation from the rest of society and the economy. The extraordinary wealth creation is seen as benefiting the few and more and more Career Philanthropy: the Journey people believe the wealth gap is too large – Embedding a culture of philanthropy 84 per cent in a YouGov poll in September means making it normal, so that people 2007.12 Although it is important not to would be surprised if a colleague were not discourage the wealthy financiers who are philanthropically aligned with a charitable indispensable to the dynamism of the organisation or social enterprise, either in a British economy, and whose productivity financial or advisory capacity or both. levels are double the UK average,13 the tra- When we say philanthropy, we mean ditional social contract holds that recipi- engaging the head and the heart with an 10. Focus on Finance, Research ents of great wealth have an obligation to organised and planned strategy, rather than Bulletin 1, British Bankers pursue social as well as material benefits only reacting to donation requests in an ad Association, 2007 with their riches. Sir Ronald Cohen has hoc manner. Although different to a pro- 11. MacKenzie D, Economic Contribution of UK Financial said in the past that many City people “do fessional career, it can be considered in a Services 2007, International not today realise early enough the need to similar light – an individual is motivated to Financial Services, London, 2007

put something back if the system is to start on a journey and builds up to a 12. www.libdems.org.uk/news/ operate smoothly”.14 crescendo depending on career develop- british-public-demand-tougher- action-on-the-super-rich- Due to the much publicised credit ment, age and wealth creation. This analo- cable.13167.html

crunch, the bonus pool in the City in 2007 gy of philanthropy to a journey resonated 13. FSI employment in 2007 is expected to be lower this year than last. with many of our interviewees. Many set accounted for 4 per cent of total UK employment of 27million The projected figure is £7.4 billion, which off on the journey as ad hoc philanthro- people. Taking into account the is 16 per cent down on the 2006 pool, but pists; over time they became more selective industry’s 9.4 per cent share of UK GDP, this shows that the virtually flat on the previous year and about the causes they supported, deepened productivity levels in FSI were notably almost 400 per cent up from a their understanding and engagement, about double the UK average 15 14 Interviewed by David Rowan, decade ago in 1997. Anatole Kaletsky became more sophisticated in the kinds of Jewish Chronicle, 22 September wrote in The Times in November 2007: finance they chose to use and increasingly 2007 “Don’t be fooled by the tantrums on Wall keen to measure the long-term social 15 Centre for Economics and Business Research. Bonus pool Street…Markets always go up and impact of their philanthropy. There are is predominantly bonuses from down.”16 Wealth creation remains signifi- many factors that inform and affect an investment banks cant in the City and philanthropy should individual’s philanthropic journey: diverse 16. www.timesonline.co.uk/ tol/comment/columnists/anatole not be merely an afterthought in a good motivations for starting out, different des- _kaletsky/article2963276.ece

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tinations, and a variety of vehicles, fellow tant for me to give something back, especial- travellers and signposts. These factors can ly given the background that I have come be broadly categorised into three types: from. It is as simple as that really.”. A life motivation (or the “why” of giving); means changing event and personal connection (or the “what” of giving); and method (or with a cause frequently started individuals on the “how” of giving). We have used these their journey or inspired them to scale up. categories as the framework for this report. Nicola Horlick (25), founder of Bramdean Asset Management, learnt much about the health service while nursing her daughter “ Once an individual is motivated to engage the head through a ten-year battle with leukaemia. She and the heart as well as the cheque book, he or she is told us: “You cannot rely on the State to pro- unlikely to stop” vide the soft elements; the frills. We have a fantastic health service provided by the State, but you cannot expect it to do everything,”. Similarly inspired by a cause, Tom Hughes- Motivation Hallet, former investment banker and now The first category is the most vital to devel- CEO of charity Marie Curie Cancer Care oping a culture of philanthropy because once (27) told us that family experience had driv- an individual is motivated to engage the head en him to action. This was coupled with the and the heart as well as the cheque book, he recognition that: “Financially life had smiled or she is unlikely to stop. “If you allow your- on me, but…in the process it had nearly fin- self to engage then the philanthropy journey ished me off.” begins and it is virtually unstoppable…once Many people have not experienced philan- you start it takes a really hard-hearted or bru- thropy as part of their upbringing and have tal human being to stop,” said Chris Mathias been fortunate enough to avoid personal (18), entrepreneur and philanthropist. Our tragedy. Instead companies can play a critical interviews showed that the spectrum of per- role to play in providing opportunities and sonal motivations is wide and interrelated. inspiring individuals to action. Harvey Family environment was important to many McGrath, former chairman of Man Group of our interviewees. For Stanley Fink, former (31), feels that he and his fellow directors deputy chairman of Man Group (31), it is a must “lead by example”, citing his chairing of key driver both in terms of his childhood and fundraising campaigns and work in the East his influence on his own children. He said of End of London. “I don’t mean just writing his upbringing: “My parents were always cheques, but acting”, says Harvey. Although quite involved in giving, they were not par- the money is critical, the expertise and skills ticularly well off…but it was always a ques- of FSI professionals provide the opportunity tion of how much they could afford, not for maximising the creation and impact of whether they would say yes or no”; and of the the money. Companies also have a critical values he passes on to his children: “I want role to play here. They can provide access to my children to see the pleasure of giving now, appropriate infrastructure to harness and not when I am old.” Lord Griffiths of maximise wealth and expertise. Fforestfach, vice-chairman of Goldman Sachs International (20), reminds us: “Whether a person is of faith or not, the Means Bible tells us ‘God loves a cheerful giver’”. Once an individual is motivated, deter- “Giving back” was often cited as a motiva- mining or creating the means to be phil- tor. Jim O’Neill (33), chief economist at anthropic is the next step. Some entrepre- Goldman Sachs told us: “I believe it is impor- neurs and FSI professionals are employing

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Executive summary

themselves principally for this purpose. Former Goldman Sachs partner Scott Chris Hohn of The Children’s Mead said that available advice had made Investment Fund (TCI) makes money for it easy for him to translate his motivation The Children’s Investment Fund into action: “Eleven years ago, I set up my Foundation (CIFF) (40) to be able to, as own foundation…the firm was encourag- Jamie Cooper Hohn says, “provide the ing and also helped provide the infrastruc- best returns for children in the developing ture - ‘here’s a good lawyer, here’s an world”. Sir Tom Hunter, entrepreneur information session’ etc. In general they and founder of the Hunter Foundation were very helpful in that regard and there- (23) is clear in the case of his new invest- fore there were no real barriers to moving ment company, West Coast Capital, that forward, since both cultural support and “the motivation for making more money infrastructure were there for you.” An is that, after the business part is taken care infrastructure that can address the fact that of, it is all going to go to the foundation,”. philanthropists are not one homogenous Through their skills, both Chris and Sir group and provide varied means and Tom ensure that they are maximising the expertise at different stages in their career is means. critical to the development of a sustained Methods for philanthropy and max- philanthropic culture. imising means available are interrelated. Adoption of different structures and use of different assets can play a key role in “ The importance of easy access to advice on giving maximising means given the attractive vehicles and their implementation should not be tax incentives available for philanthropy. underestimated As John Moulton, managing partner of ” Alchemy Partners, told us: “Whatever else is right or wrong in the UK, the char- itable giving structures are as favourable As the journey progresses means and as anywhere else on earth.” But greater time may increase and methods evolve to awareness and ease of access to a more adopt different vehicles and ways of using cohesive infrastructure that brings the them. Michael Hintze, CEO of alternative disparate incentives together would do asset manager, CQS (66), set up a family much to create our desired culture. foundation as his method because “the Vernon Ellis, international chairman at foundation allows us more control over the Accenture (58) told us: “If you own stock way we disperse our funds and I want to which you can give away over time it is understand where they go”. As a financier by far the easiest and most efficient way he wants to use his funds to the maximum: to give,” but only 6 per cent of the senior “The beauty of underwriting is that you Citi employees we polled had ever given can re-use the money.” Armed with the shares. means and ready to give more time, Sir Peter Lampl established The Sutton Trust (68) as an operational vehicle to tackle the Method education system saying of his career in Method is the act of philanthropy and is private equity: “Frankly I lost the purpose dependent on the means available and the of making more money and I was looking vehicles that exist to deliver resources effec- for what to do next,” and “now I can do a tively. The importance of easy access to lot because it is what I do full time,” advice on giving vehicles and their imple- When we talk about infrastructure, we mentation should not be underestimated. mean two things. One is the vehicle for the

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What do we mean by philanthropy? As a word, “philanthropy” is enjoying a renaissance. In America it is commonplace as an acceptable, indeed desirable, description of a person’s generosity towards charities, educational establishments, religious organisations, the arts and other good causes. In Britain, however, the word remains sub- liminally associated with the Victorian era, where wealthy, altruistic individuals and families wrought enormous social change in areas where the State had little impact or appetite – social services, human rights campaigning, education and the environment. A much-quoted survey in 1948, “The Voluntary Sector in the UK”, revealed that the British population saw no role for philanthropy with the dawning of the welfare state.17 But as John Studzinski, senior managing director of private equi- ty group Blackstone, has often pointed out, philanthropy literally means “love of mankind” and is, above all, about human dignity. If we ignore philanthropy, we ignore a crucial part of society. In recent years there has been renewed understanding of the impact of Victorian philanthropy on modern life. The Institute for Philanthropy’s 2006 survey of 1,000 “philanthropy experts” in the UK sought nominations for the greatest achievements of British philanthropy in the pre-1900 and post- 1900 eras:18

Greatest Achievements of Historic British Philanthropy:  Provision of social services before the creation of the welfare state  Campaigning which led to the abolition of the slave trade  Provision of education and leisure opportunities for all

Greatest Achievements of Modern British Philanthropy  Famine relief and long-term aid to developing countries  Health research and pioneering health services  Campaigning which led to major social change

The survey argues that philanthropy in Britain remains a vital but uncelebrated force for change in modern society. Private wealth, argues the author, enables a level of innovation, risk-taking and speed in human development that cannot be matched by funding from the state or private sector. Our own study deliberately views philanthropy as covering a wide spectrum of activity. We see it as “providing capital to an organisation for predominantly public benefit”. This can be financial cap- ital in the form of cash, shares and other assets or social capital in the form of time, skills and net- works. We also recognise that financial capital need not simply be given away, and that a variety of financial instruments (including grants, underwriting, loans, patient capital and equity) can be deployed philanthropically, where there is clear motivation to create tangible value to wider society. Although this definition of philanthropy may seem rather broad, we wanted as elastic a definition as possible in order to reflect the growing number of opportunities in the area. Using non-grant finance is sometimes referred to as social investment, especially when driven by an ambition to select organisations that have credible plans for growth, that are focused on long-term social outcomes and that are often viewed as entrepreneurial in the way they approach and solve intractable social problems. Social investors may simply wish to preserve their capital or seek a finan-

17 cited by Jeremy Kendall and cial return in addition to anticipated social dividends. Moving towards the more commercial end of Martin Knapp (1996) the philanthropy spectrum we see growth of community development finance institutions, hybrid 18 Breeze B, UK Philanthropy’s organisations such as social enterprises, initiatives such as micro-finance and straightforward busi- Greatest Achievements, Institute 19 for Philanthropy, 2006 nesses with ethical, social or environmental goals. 19 Our definition of philanthropy The creative philanthropist can view all these as potential avenues for investing their financial does not include socially resources. responsible investment (SRI). See glossary

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Executive summary

distribution of wealth, such as a charitable viduals and access to vehicles that they can account or the next step up, which is a man- work to suit their objectives. Companies aged or private trust. The other is the model need to consider the best initiatives for for leveraging social capital (skills) in order their business and company culture. to both create and distribute wealth for phi- lanthropy. For example, Absolute Return for Kids (ARK) (42) taps into its peer network Breaking Down Barriers: and their skills to create philanthropic 1. Opt-out “white label” 20 Charitable wealth and Chris Hohn makes use of what Account 21 he does for his day job to create philanthrop-  Charitable account providers ic wealth. should establish opt-out ‘white Damon Buffini and his colleagues at label’ charitable account Permira, the private equity partnership, use schemes in partnership with the venture philanthropy model to distribute companies as part of the their skills and wealth along with business employee joining package. expertise to social enterprises through their  Deposits could be made by partnership with CAN (82). When explain- payroll giving, transfers of Gift ing how Permira employees came to be Aided cash or tax-efficient share involved with CAN, Damon said: “By tak- donations. ing what the firm does – ‘enterprise’ – and coupling that to an area which would touch 2. Simplification of personal Gift Aid the lives of hundreds or thousands of people reclaim into charitable account it would be a very efficient way of giving.”  HM Revenue and Customs Permira has “invested” in social enterprises should allow individuals to and leveraged the social capital of individual empower charitable account employees to mentor and advise the people providers to reclaim the higher- running these enterprises. rate personal Gift Aid relief on Using skills to create philanthropic wealth their behalf. and to distribute it effectively are critical to the development of the philanthropic capital 3. www.givinginthecity.org.uk market and FSI professionals have the  A neutral body should drive expertise to do both. This is what makes the the development of a website City an exciting hub for the development of for highly financially literate, such a market – one which could drive a high net worth individuals stronger philanthropic culture across Britain. about philanthropy that is funded by financial services companies. It should be linked Summary of Recommendations to company intranets and ben- There is no silver bullet for cultural efit from the expertise of change. Our recommendations come as a selected partners. 20 A white label product or serv-  ice is one produced by one package aimed at inspiring individuals to This website should act as the company (the producer) that action, breaking down the barriers to leading body for the campaign other companies rebrand to make it appear as if it is their implementation and recognising that com- on opt-out white label charita- product or service

panies have a key role to play in both these ble accounts. 21 The current leading charitable things. No two potential philanthropists 4. Gold standard for philanthropy account provider is the Charities Aid Foundation (CAF), which has and no two companies are the same. advice over 80,000 account holders. Potential philanthropists need opportuni-  A relevant professional body CAF is a charity focussed on promoting effective, committed ties for inspiration that touch them as indi- should introduce a gold stan- giving. See www.cafonline.org

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dard initiative for financial distribution, as well as advising advisers that includes compre- or mentoring. hensive philanthropy advice in their spectrum of financial 8. Employer support advice.  Company corporate social responsibility (CSR) pro- 5. Targeted awareness campaign on grammes should make use of gifting shares existing internal frameworks  Charitable account providers to build up individual social should front a campaign, tar- responsibility and should pro- geted at City professionals, vide the infrastructure and explaining the attractive tax initiatives to encourage incentives available for gifting employees to engage with phi- shares. lanthropy at all stages of their career. 6. Broader tax incentives for giving  Government should consider 9. Promotion of leaders introducing tax-efficient life-  Companies should promote time giving vehicles such as role models internally, provid- charitable remainder trusts and ing “giving leaders” with oppor- widening the existing tax breaks tunities to talk openly about on gifts of shares and land to their philanthropy and “doing include unlisted shares and/or leaders” with opportunities to works of arts. present their latest projects and initiatives. 7. Individual Social Responsibility (ISR) 10.Leverage technical resources for  Individuals should take respon- innovative philanthropy sibility for their own philan-  FSI individuals should consider thropy and demonstrate leader- applying their technical finan- ship in their company and cial skills to their philanthropy broader communities by con- to deliver alternative forms of sidering charity or social enter- financing and expertise to the prise board positions both for philanthropic and social enter- wealth creation and for wealth prise sectors.

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Motivation

We set out to understand the factors that Fink, deputy chairman of Man Group lead successful individuals from the finan- (31), the hedge fund, was raised in such a cial services industry to commit time and culture: “My parents were always quite money to philanthropy and the barriers involved in giving, they were not particu- that stand in their way. Our interviews sen- larly well off but…it was always a question sitively probed these questions and several of how much they could afford, not individuals acknowledged that it was the whether they would say yes or no”. He first time they had articulated how their himself “started doing youth voluntary personal histories, life experiences and reli- service” in his early teens, later meeting his gious beliefs had formed their philanthro- wife through it. py in practice. We also studied the ways in The entrepreneur, Sir Tom Hunter, which a company can influence the chari- (23) speaks of his father, who “instilled table actions of its employees. Although hard work and community” in him, as cen- much has been written about why high net tral to his decision to focus enormous ener- worth individuals engage in philanthropy gy on his philanthropy after selling his first – from Paul Schervish on theoretical company. frameworks to Theresa Lloyd on interview- As well as family members, childhood based perspectives – our intention was to surroundings can play a key role in moti- focus specifically on financial services pro- vating individuals. For Chris Mathias (18) fessionals and to unearth significant phi- growing up in India clearly informed his lanthropists who had not told their stories later philanthropy. Similarly, David Blood in full before. (91) grew up in a country with a wide dis- parity of wealth: “We lived in Brazil and as an 11 or 12 year old you can be highly 2.1 Sources of Motivation influenced by seeing poverty.” This was an Our interviews revealed four broad moti- experience that shaped him professionally: vational themes, often personal and usual- “My orientation, even as a partner at ly interrelated: Goldman Sachs, was always to try to understand markets and what that meant  Family and faith to the broader group of people,”.  Social responsibility As people recognise how their child-  Life change hood has influenced their actions in adult  Connection with the cause life, so they may wish to pass on values about giving and responsibility to the next generation, especially if their own children Family and Faith are to avoid the dangers of inheriting vast Growing up in a family where giving, no wealth. Nicola Horlick (25), the asset matter on how modest a scale, is the norm, manager who now heads her own compa- has a huge influence in later life. Stanley ny, Bramdean Asset Management, says: “I

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Chris Mathias co-founded around, he found himself rich well what else are you going to CMG Partners and Arbor at the turn of a new millenni- do? I do not want a plane!” Ventures, both private invest- um. This new wealth gave him “Setting up a family foun- ment management companies opportunity to develop the dation through the Charities focusing on early stage compa- sense of responsibility imbed- Aid Foundation was ‘dead nies, the latter investing in ded during his youth. easy’,” says Chris, “and now my social enterprises. He is on the Despite a successful educa- three daughters effectively run board of several philanthropic tion at INSEAD, he realised it,” providing them with first- organisations including World that he knew little about the hand experience of responsible Links, a global learning net- way charitable ventures philanthropy while sustaining work, Digital Links worked. He knew how busi- the culture of giving in the International, which he co- nesses worked and how com- next generation. Chris main- founded to recycle computers panies could be turned around tains his own Charities Aid to Africa, and venture philan- and grown for profit. But Foundation charity account for thropy company Impetus Trust. charities were different; so he everyday donations but has set Chris was born and spent time with the develop- up a limited company, Arbor brought up in India during ment agencies Oxfam and Ventures, for what he terms the 1970s. He was aware that ActionAid learning the ropes social investing, while his his family belonged to a small by funding their projects. His investment firm, CMG elite in a vast and poor coun- success in technology, new Partners, manages his fully try, where millions struggled understanding of the charity commercial deals. Although to survive. He was just 16 sector and clear motivations most of his philanthropy is when he left for the huge con- from childhood led Chris to cash based, he likes the ease trast of a boarding school in set up Digital Links and tax efficiency of donating Plymouth. The destitution he International – a social enter- shares, usually assigning 10 per had seen every day on his way prise which refurbishes ex-cor- cent of a holding upfront. to school was nowhere to be porate PCs for hospitals, Chris does not get hung up seen in England. “We had NGOs, community projects on whether an idea or venture always given,” says Chris and schools throughout Africa. he is working on belongs neat- about his family life in His old company, Bain, helped ly as a charity or business. India, “I am sure the motiva- him develop the venture’s busi- Indeed one of his current big tion for philanthropy was ness plan, which would ensure ideas started off as a non-prof- my upbringing.” He scalability, environmental it venture based in India, remained in England and, responsibility and high social migrated to his social invest- after graduating from universi- impact. The enterprise is now ing arm, Arbor Ventures, but ty, found his calling as an self-sustaining, a business has since become part of his entrepreneur after stints with objective that Chris brings commercial investment inter- Arthur Anderson and Bain, from his commercial roots. ests. His desire to create social the management consultancy Chris is a restless entrepre- value through it remains firm. In 1991 he founded neur – “I make money because intact, but he also recognises Conduit Communications, a I’m good at it, I enjoy it and it its commercial potential. He is company that grew meteori- is fun, so that is why I do it.” realistic about the difficulties cally during the technology His keen sense of values means of running and funding social revolution of the 1990s. After that he will give it away as fast enterprises, saying: “The social cashing out from Conduit, as he makes it. He says: investment market is just real- and five other companies that “Money is great to have, but ly hard; there is not any infra- he had successfully turned once you can eat and drink, structure, there is not any

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ecosystem, you answer to money and time is far who say they just do not have many masters.” greater. I learnt that from time are kidding themselves. As a trustee of venture phi- Impetus and there’s no About his own time manage- lanthropy fund Impetus Trust, doubt in my mind.” ment he says: “Over any given Chris is committed to the It is Chris’ philosophy to period of time I very strictly powerful model of money plus create value, whether in the look back, and if I have not skills. “I never give money business or social fields, and spent half my time non-profit simply by giving money,” he each requires time, effort and and half my time for-profit, I says, “because the impact of inspiration. He feels people know I am screwing up.”

think it is wrong to give too much inherit- am a Christian and I get some of my kicks ed wealth to children. I will not be leaving out of running a bank but I remember I’ve all my wealth to my children because that got a ‘higher authority’ up there and I see will just ruin their lives,”. She also recog- the bank as an opportunity for me to try to nises that it is not enough just to limit the do His will through philanthropy.” wealth that is passed down to them. It is as Lord Griffiths, vice-chairman of much about transferring values. “It is real- Goldman Sachs International (20) says: ly important for me to involve my children “For me the main motivation in philan- because I wanted them to understand that thropy has been my personal Christian there’s more to life than shopping on the faith, heavily influenced by the Old Kings Road and mobile telephones.” Testament and the traditions of Judaism.” Vernon Ellis (58), international chairman of Accenture, echoed this sentiment: “It’s Social Responsibility not good for children being left large sums Whether prompted by religious faith or of money.” secular humanism, people who have Tom Hughes-Hallett (27), a former amassed significant wealth during a career banker and now CEO of Marie Curie in financial services, often articulate the Cancer Care, felt his children needed to voice of their conscience in terms of “giv- know “that giving money is immensely ing back”. Jim O’Neill, chief global econo- pleasurable”. For the most imaginative, mist at investment bank Goldman Sachs even children’s pocket money can be an (33) says: “I believe that it is appropriate early exploration of philanthropy. A for- for me to give something back, especially mer investment banker explained: “When given the background that I’ve come from. I give them pocket money I split it into It is as simple as that really.” Pointing at the three baskets – one is spending money, one view from his window, he remarks on “the is savings and one is charity, and I say ‘You scale of deprivation and staggering lack of can choose which charity’. To be honest opportunity” experienced by people who one third is a lot more than what people are just a few miles away. normally give but I think it is important Sir Ronald Cohen, the retired chairman that they learn at an early age the idea that of Apax Partners, caused waves during the you help other people.” intense criticism of private equity in 2007 Unsurprisingly, being brought up in a with his views on taxation, domicile and religious faith where tithing and social the industry’s obsession with making obligations are normative, runs as a thread money. He feels that many made rich by throughout an individual’s life. Alexander the City lack a moral vision and “do not Hoare, managing partner of C. Hoare & realise early enough the need to put some- Co, England’s oldest private bank, says: “I thing back if the system is to operate

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Lord Griffiths of became poor, so that you Miller Inc, a company found- Fforestfach is vice-chairman through his poverty might ed by D J DePree, a man of of Goldman Sachs Int er - become rich.’1 “This is the strong faith who encouraged national, an acclaimed aca- basis of Paul’s argument for and commissioned work from demic and was a former spe- giving”, Lord Griffiths points many of the foremost names cial adviser to Margaret out, “and I think that is the in the modernist movement. Thatcher. He is also chairman authentic nature of giving D Pree’s influence has left the of the Archbishop of within the Christian church. company with a strong philan- Canterbury’s Lambeth Trust It is the example of Christ and thropic culture, and Lord and is on the board of refer- the following of Christ.” Griffiths currently chairs its ence of the Transformational As a young academic at the philanthropy programme. For Business Network (TBN), an London School of Economics him there has been a “com- association of businessmen during the Sixties, Lord mon thread of faith” running and women who use their Griffiths was heavily influ- through his life: “I’ve seen it skills and experience to make enced by the businessman and in different cuts, so to speak, an impact in the neediest areas philanthropist Sir John Laing, like in Wales in a mining of the world. a deeply religious man who background, in London in a Lord Griffiths grew up built up his famous family professional background, in during the postwar years in construction business giving it America in a business context, Wales “in a religious back- a strong sense of responsibility but there has always been that ground with the expectation to workers and community. motivation of faith.” that people should give a Immensely successful and Goldman Sachs provided tenth of their income; the wealthy, Sir John Laing died him with a company culture only question was should the in 1978 having given away in tune with his own morality tenth be before tax or after most of his money (up to 90 of giving: “When I first came tax?” It was a community per cent of his income towards to Goldman Sachs in 1991 it where people lived very mod- the end of his life) and having was assumed that everyone estly: “But,” says Griffiths, endowed several trusts. He who was a partner had a “they really did give. It was was a hard act to follow, but foundation of their own and very generous as a community.” Lord Griffiths says that his that they gave. That was just In the decades before the flour- example encouraged him to considered to be part of ishing of independent charities maintain the biblical tradition what’s expected of any per- the main outlet for this gen- of tithing, or giving away 10 son who has been given so erosity was “the church or per cent of income. much: that they give so faith-based organisations.” During his time running much back.” He is clear about the fact the Prime Minister’s Policy He is impressed with the that for him, “the main moti- Unit between 1985 and 1990, great industrialists such as vation in philanthropy has Lord Griffiths found Mrs Cadbury and Lever who pro- been my own personal, Thatcher deeply committed to vided safe work places, decent Christian faith, heavily influ- a giving culture, providing an housing and green spaces for enced by the Old Testament environment where initiatives their workers long before the and the traditions of Judaism.” such as Business in the welfare state. “I was very And he quotes the Bible pas- Community and the Percent impressed with Cadbury, and sage that says, ‘For you know Club could flourish. After in particular with the devel- the grace of our Lord Jesus leaving No 10 he became opment of Bourneville, Christ: that though he was involved with the US furni- because Bourneville is giving rich, yet for your sake he ture manufacturer, Herman In its day it was quite 1 II Corinthians viii, 9

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advanced: the idea that each philanthropy”, where microfi- real challenge. It’s very interest- family should have a plot of nance or social venture capital ing that Jesus taught more land, a house but also a gar- in Africa can help solve about money than he did den, because they were made intractable social problems by about prayer. When he person- in the image of God.” giving poor entrepreneurs alised and deified money in He is optimistic that the access to the capital they need the form of Mammon, that’s a attitude that all companies to build sustainable small busi- very powerful metaphor in the should involve their workforce nesses. His new book Fighting Christian faith; and Mammon in philanthropy is growing: “I Poverty Through Enterprise – the can easily take over.” think, at the corporate level, Case for Social Venture Capital, Lord Griffiths believes lead- charity has moved on from co-authored with biotechnolo- ership is the vital first step in wealthy individuals in the gy venture capitalist, Kim Tan, creating a culture of giving in company giving to everyone argues persuasively for enter- any company “however large, taking a part – a corporation prising approaches to eradicat- however small”. “The CEO with a ‘giving heart’.” He feels ing poverty that unlock entre- has to say ultimately these are companies need to give all preneurship rather than leading our values, these are our prin- staff opportunities to con- to dependency.2 ciples, this is the way we want tribute what they can: “It may What prevents greater gen- to live.” But it must be done be time, it may be money or it erosity in the financial services “without creating a really may be the company con- industry? “I suppose the main oppressive environment”, tributing its core competen- barrier is materialism,” says where people are coerced cies.” Times are changing for Lord Griffiths. “By the time because people do derive enor- the better: “To me that is you’ve got a car or two and a mous pleasure from giving something new. That wasn’t yacht and maybe a second freely.” “Whether a person is around 30 years ago.” home in the south of France of faith or not, the Bible tells Lord Griffiths sees enter- or something, you can see that us ‘God loves a cheerful prise as “a key part of modern the bills add up. That is the giver’.”

smoothly”.3 He fears that a widening gap do have a lot of personal responsibility or between rich and poor, especially as they they will end up like Marie Antoinette with are often thrown together in the same a social revolution on their hands.” neighbourhoods, will lead to social tension: The vast wealth created by relatively few “People haven’t quite understood that the people in the City is not uniformly system that enables entrepreneurial soci- matched by charitable generosity. This eties to thrive leads to social consequences view was universally echoed throughout that the market does not take care of. It’s our interviews. Nick Ferguson, a veteran of great to talk of the economy’s growth, but the private equity industry and a promi- you do have to worry about what’s happen- nent philanthropist, expressed it forcefully: ing at the extremes. The divergence of the “I could see around me all the money rich and the poor creates an unstable situa- being created, and was upset that more of tion. And I am interested in avoiding a sit- it wasn’t going to charities, and being upset uation where people get so far left behind was a great motivator for doing all sorts of that they are desperate, they don’t mind things.” 2 Griffiths B and Tan K, Fighting Poverty Through Enterprise – overturning the applecart.” Private banker It is natural for people to want their giv- The Case for Social Venture Alexander Hoare agreed: “I think that peo- ing to “make a difference” and to feel a Capital, 2007 3 Interview by David Rowan, ple in London financial services who are sense of achievement from their act of gen- Jewish Chronicle, 22 September gapingly richer than the rest of the country erosity. But some go further and see them- 2007

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selves as what Theresa Lloyd calls a “cata- money”, says Sir Peter Lampl, who went lyst for change”, in search of significant on to set up The Sutton Trust (68). and sustainable improvement in the lives Financial success and security do not of others.4 Having the confidence that guarantee contentment. The stereotypical these aspirations can be realised is what mid-life crisis can hit anyone in any indus- Paul Schervish in his paper, The Modern try and may even provide new avenues for Medici, refers to as “hyperagency”.5 While philanthropy. In explaining why he set up “great expectations and grand aspiration a personal foundation Jon Moulton, exist across the financial spectrum”, it is Alchemy Partners managing partner, half the wealthy who can make them happen. joked: “It was my own idea. I began to see Harvey McGrath, former chairman of that I had a lot of surplus assets and trad- Man Group (31) reflects: “Sometimes we ing the wife in for a younger model or get- give for social reasons and sometimes we ting a yacht seemed less attractive!” give for reasons that relate to a direct per- Stanley Fink of Man Group (31) has sonal experience, and I do that. But my spent decades shaping his own and the reflection is …. if you want to move company’s philanthropy but admits: “I beyond a mode that is broadly reactive, really believe my passion to give more has then I think you do need some sort of grown as I’ve got older.” approach which answers that rather more Jim O’Neill of Goldman Sachs (33) difficult question: ‘How do I know what thinks philanthropy is something one the consequence of my giving is? And so turns to naturally towards the upper end that has led me to do a number of things of a career: “I suppose you get to a stage differently in terms of the way my giving in life where you start thinking about has been shaped. It has focussed me on these things a bit.” Responsibilities certain themes or certain areas rather than increase, but so do authority and remu- others, ultimately driven by the demon- neration and it should be easier to build strable effectiveness and impact of these time for philanthropy into life at this charities.” stage. Getting people hooked earlier on in their careers, even in a low key way, is the Life Change vital challenge for a strong and vibrant Changes in life circumstances can take philanthropy sector. place slowly as we get older, or suddenly, Tarek Ben Halim, a former investment perhaps through family illness or change banker now working on Arab social change of job. Sir Tom Hunter (23) had spent his programmes, is adamant that active pur- whole life building up a successful retail suit of philanthropy is not something that company and when he sold it felt ill pre- should be left until those post-retirement pared for the immediate impact: “I had a twilight years, saying: “I think you need to big cheque and I was unemployed”. Top do these things when you have the energy,” City jobs are lucrative but can take a toll and believes that good philanthropy “is not on health and wellbeing. As Tom Hughes- just about giving money, it is also about Hallett (27) says of his investment bank- trying to think of a way of doing it that ing career: “Financially life had smiled on may have an impact.”

4 Lloyd T, Why Rich People me, but in the process it had nearly fin- Give, Association of Charitable ished me off.” Ill health or plain boredom Connection with the Cause Foundations, 2004 can set people off in search of fresh chal- Philanthropy is about engagement of head 5 Schervish P, The Modern Medici: Patterns, Motivations lenges: “I was in private equity for a num- and heart, like most pursuits in life. There and Giving Strategies of the ber of years, made some money and quite may be many internal and external motiva- Wealthy, Boston College Social Welfare Research Institute, 2000 frankly got bored with making more tions that prompt a philanthropic

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Sir Tom Hunter founded needed – “So among others, need to act responsibly. private equity firm West Coast Vartan really began to educate With the example of fellow Capital which invests predom- me in philanthropy, he was the Scot Andrew Carnegie and inantly in retail companies. kind of mentor who took me advice from Vartan he began Previously he founded the under his wing. So we kind of to professionalise the working Sports Division chain of shops came to two conclusions: one of the Hunter Foundation. which he sold in 1998. He set was that I wanted to continue Mindful of the heritage of up the Hunter Foundation the with wealth creation, but I Scottish entrepreneurship, same year. didn’t have the motivator of which had been eroded by “At the tender age of 37 I needing any more money decades of dependency on had only one thing in my life personally, because I didn’t, state-owned industries, Sir – my business – this was my all my material goals were all Tom focused on the Scottish total life, I knew nothing fulfilled, but the motivation educational system as a start- else,” says Sir Tom Hunter. was now to earn the money ing point – “we felt that it “When I sold it I had a big to put it into the founda- wasn’t a very grand statement, cheque and I was unem- tion.” but we knew we had to start ployed. I had to re-educate While building up his busi- at the beginning to educate myself that life wasn’t over, ness Sir Tom had naturally kids into a different mindset, hopefully.” So began a jour- enough got involved with from ‘someone will take care ney for Sir Tom, a Scottish local charities, “I had always of you, to you’ve got to take billionaire who over 14 years done my bit, being in the care of yourself’.” created a sports retail empire sports business; bought a set Sir Tom set up West Coast from scratch. of strips for the local kids Capital in 2001 as his for-profit His father, the local grocer football team, or maybe a investment company “and the in a small Ayrshire village, had local hospice would want motivation for making more instilled strong values of hard something and so on” he money is that, after that busi- work and responsibility to the recalls, “but that was pretty ness part is taken care of, it’s all community in his son. Even unfulfilling because you wrote going to go into the founda- so, to find himself suddenly the cheque, and thought ‘did tion.” West Coast Capital is the very wealthy was not a life it make any difference?’ And engine driving Sir Tom’s philan- change for which Sir Tom was was it a scam? And what were thropy, which is becoming fully prepared. He gave himself the outcomes for what I did?” increasingly international in space and time to consider Setting up the Hunter scope through support of Band how to invest money effective- Foundation in 1998 with his Aid, Live 8, Make Poverty ly. The breakthrough was wife, Marion, came well History and collaborations with meeting Vartan Gregorian, before Sir Tom met Vartan; it former Pres ident Clinton on a president of the Carnegie was a knee jerk reaction to bold attempt to deliver a model Corporation of New York, the selling the business in a hurry for poverty alleviation through grant-making foundation set – Sir Tom remembers it as the Clinton Hunter up by Andrew Carnegie in “number 47 on the lawyers to- Development Initiative. 1911. Sir Tom recounts the do list: ‘do you own a charita- “My aspiration is to meeting, “I just went over ble foundation?’”. He admits spend half my time on there and I knocked on his is was no great vision for phi- wealth creation and half on door and I said, ‘Look, here’s lanthropy, just something peo- philanthropy,” says Sir Tom, my story and can you help ple did when they suddenly “but these two worlds are me?’ Vartan was instrumental became wealthy, although colliding, and it’s very in giving Sir Tom the steer he deep inside he sensed a latent healthy for my business and

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charitable work.” He recalls bility.” His gesture attracted world’s philanthropy capital.” how a week spent in New cynics but Sir Tom is adamant So what does Sir Tom believe York at the Clinton Global it was made for the right rea- is holding the City back? Initiative on philanthropy sons: “I was really challenging “I firmly believe that, in opened up new business con- myself by making it public, Britain, we’re only coming to tacts: “A lot of people wanted whereas if you keep it private terms with the idea that to see me, who I would never you’re allowing yourself to fail wealth creation’s OK, never get to see in a purely business because nobody ever knew mind investing it for the pub- sense, to talk about philan- that’s what you wanted to do.” lic good, like in America. In thropy. I could never have He sees his foundation as a 1995, as entrepreneurs, we opened those doors from a risk fund, believing that “gov- asked ourselves – How can we business point of view; these ernments don’t really like to help others? We set up the were big business people who take risks, so what we’ve said Entrepreneurial Exchange to are trying to get into philan- to them is, ‘OK, here’s some- encourage those of us who’d thropy. Now I suppose I’m a thing which we have found, had success and wanted to put little further up the curve in for example in education, so something back.” The philanthropy, but they’re fur- let’s do a pilot, let’s agree the Exchange runs small, focused ther ahead of me in business; outcomes, let’s get independ- dinners, for example for entre- it’s a win-win situation.” ent evaluation, but if we prove preneurs wanting to learn In 2007 Sir Tom put his it then you adopt it as policy.’” about philanthropy. He thinks head above the parapet by The thinking is similar to Sir that the City needs such safe announcing publicly: “Our Peter Lampl’s (68) – to sustain peer groups to encourage phi- aim is to redouble our efforts a proven model there must be lanthropy from within. in wealth creation through an exit strategy which involves “I have a belief that once West Coast Capital in order taking the model to scale, and business people get into it that we can, over time, invest often only governments have properly then they’ll do it £1 billion in venture philan- the capacity to do that. for the right reasons, because thropy through our The Scotsman believes that it’s great fun and fulfilling – Foundation. Great wealth “London is the world’s finan- it’s more fulfilling than any brings with it great responsi- cial capital and it could be the business deals I do.”

response, including experiments with dif- Harvey McGrath, recently departed chair- ferent giving models or the goal of leverag- man of Man Group (31) grew up in Belfast ing resources for maximum impact, but and had firsthand experience of the genera- philanthropy, or love of mankind, is fun- tional consequences of a segregated educa- damentally an emotional activity. Tom tion system. He has put his weight behind Hughes-Hallett (27), a former banker now projects to bridge the sectarian divide in the working full time in the charity sector, told schools of Northern Ireland: “It is a genera- us how he had set up a set up a charitable tional change programme, because having trust in the memory of his daughter. In grown up in the place it has long been my caring for her daughter, Georgie, during a conviction that you have actually got to ten-year battle against leukaemia, Nicola change the way in which the next generation Horlick (25), the asset manager, learned a views the world in order to make enduring lot about the health service and cancer care positive progress.” and has consequently focused much of her Chris Mathias (18) is convinced that see- own charitable work on children and can- ing first-class charitable work in action is cer. “the most powerful motivator”, adding that

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Nicola Horlick is founder money to build a children’s school, which Nicola was and chief executive of play area dedicated to the more than happy to arrange. Bramdean Asset Management memory of her mother-in-law, She is aware of the poten- LLP, a London-based fund who died of breast cancer. tial her philanthropic activities management company. She Personal experience and have for inspiring her col- has spent more than 20 years connection also led her to leagues, but as the head of a in the fund management donate some money to St business she does not want to industry and was previously Paul’s Girls’ School, where be prescriptive about getting founder and chief executive of Georgie had been a pupil, to people involved. Instead, she SG Asset Management. build a maths room in her says that she “will let them Nicola has always given to memory. And they were also create their own wealth and charity because she is aware behind her decision to set up decide what they do with it”. that she “was brought up in a two bursaries in Georgie’s However, she is aware that very comfortable way and name at her old Oxford col- “they do see what I’m doing, continued to live comfortably” lege, Balliol, aimed at provid- and therefore I’m sure they through her life and feels “very ing support for students with will be influenced by that.” strongly that if you are privi- young children. Nicola has realised, though, leged it is really important to Her own children are that people from the business give something back”. another major motivation for world are often more willing to She also believes that the Nicola. Like a growing num- get involved in philanthropy non-profit sector is a vital ber of people in her position, once they realise that the bene- component of any well devel- she is concerned about the fits go both ways: “It is really oped society: “You can’t just potential harm that leaving important to give something rely on the State to provide large amounts of wealth to her back, but it is also very good for the soft elements; the frills. offspring could do. But even you to have outside experience We have a fantastic health more than that, she is keen to from your day job, because in service provided by the State, involve her children in her strange ways it can create ideas but you can’t expect it to do charitable work, because she for that job; if you are meeting everything.” “wants them to understand new people and having new She experienced first that there’s more to life than thoughts about completely dif- hand the value that can be shopping on the King’s Road ferent subjects it can lead to lat- added by voluntary organisa- and mobile telephones”. eral thoughts which can be ben- tions during her daughter For three years until last eficial to your business.” Georgie’s ten-year battle with August, she was vice-president Nicola is aware of the value leukaemia. Since Georgie’s of Unicef, giving both her of demonstrating efficiency: death in 1998, Nicola has time and business experience “If you can say to people that become heavily involved with to it. She took the opportuni- this charity only spends 5p in a number of charities linked ty whenever possible to take the pound and 95p of what to her experiences, including her children to see the projects you give goes directly to where Great Ormond Street Hospital in Zambia that she had chosen it’s needed, that makes a big and Leuka 2000 (now Leuka), as her focus. This policy of difference.” and has often used her public involvement certainly seems to She has stuck to this philos- profile and enviable list of have had an effect: her daugh- ophy in her own philanthropy: contacts to help to fundraise, ter, who had been on one of “I don’t like just giving blank including £13m for the Breast the Zambia trips, asked to go cheques to people. If I was Cancer Unit at Bart’s out there after finishing her going to raise money, I insisted Hospital. She personally gave GCSEs to help to rebuild a on it being targeted and

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focused.” It is only by doing have contributed to the chari- For instance, through a for- this that she can reassure her- ties she has been involved with. mer contact of hers at Unicef, self and others that “the money She considered setting up a Bramdean has formed a rela- wasn’t being wasted”. private foundation as a vehicle tionship with ARK. So in this Nicola has a general rule of for her giving, but decided case, Nicola thought: “There is thumb to guide her charitable that the potential benefits did no point in me setting up foun- giving: “What I tend to do is not outweigh the fact that “it dations when there are other give away about 25 per cent is very expensive in my opin- people who are doing it perfect- of my income per annum, ion”. She was aware of many ly well. I trust those people, so plus the occasional big existing organisations working I’m very happy just to give that expense.” It is almost impossi- in the areas she is interested money to ARK for them to ble, however, to calculate how in, and felt there was no need spend on Aids projects in much her fundraising skills to duplicate their work. South Africa.”

direct experience is “way more than being ed publicly, as it is in the US. Theresa cool, way more than it being a duty or down Lloyd, in her survey of wealthy donors, to your background or anything”. “There is found a “widespread feeling of unhappi- something about offering volunteering ness about the status and respect given to opportunities,” thinks Tom Hughes-Hallett philanthropy in the UK”, brought about (27), “because once you volunteer I think by the “complex attitudes of the British to you are quite likely to give.” money, class and wealth creation…the The day that Jim O’Neill (33) and the absence of role models…and the perceived Goldman Sachs Community TeamWorks reluctance to talk about money.”6 This spent with Kids Company in the East End deep-rooted attitude was further com- of London triggered a critical memory of pounded, argues Lloyd, by the media’s per- his upbringing in an underprivileged area petuating of a negative image of philan- of Manchester. Jim and others went on to thropy. In 2006, an article in The Observer found the education organisation SHINE, even warned readers that “the media risk an enterprise he describes as “my passion, branding philanthropists not far from pae- that’s for sure”. dophiles”.7 The result has been people Philanthropy is not an “either/or” pur- wanting to “give discreetly”, discouraging suit. It works most effectively when a per- “an open culture of giving”. son balances head and heart. The entrepre- Tom Hughes-Hallett (27) feels that neurial and financing skill used in the day this has to change: “I think we’ve got to jobs of our interviewees is a great asset for beat the culture. We’ve got to find some their philanthropy. But so is the passion, way, through role models and through drive, enthusiasm and fun that comes from scrupulously placing the newspaper arti- a personal engagement with a charitable cles, to make people think it is OK to tell cause, whether it be health, the arts, educa- the world they have given money, because tion, music, the environment or global then the peer pressure will begin to poverty. To combine both is the art of mount up,”. effective philanthropy. When he started out, in the New York financial industry, Sir Peter Lampl (68)

6 Lloyd T, Why Rich People learned that not only were giving habits Give, 2004 2.2 Staying Private or Going Public publicly known, but also even affected 7 Hunt T, “How To Stifle In British culture, giving is essentially a career advancement: “I had a slightly Philanthropy”, The Observer, 16 April 2006 private affair. Philanthropy is not celebrat- British attitude to giving at that time and

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Tom Hughes-Hallett is chief Although he is clearly driv- the previous year and if the executive of Marie Curie en by his passion for the causes mark to market is higher Cancer Care, one of the UK’s he supports, Tom is also prag- than the previous year I will largest cancer charities. He matic and admits that his give away that amount of joined Marie Curie in 2000, awareness of the tax incentives money into the founda- following a 25-year career in for charitable donations has tion…if the portfolio goes up the City, latterly running added an extra impetus to his from x to 1.1x, I give away Fleming’s global securities busi- giving. “There was no question 0.1x in shares.” ness. that I was to some extent tax He sees this as an efficient Since he first had contact driven in my motives. and long term way to keep his with the charity world, Tom’s Particularly with the money philanthropic capital coming: passion and level of involve- that I was getting in bonuses “If you like it is painless when ment has grown ever greater. and then the money I got the market keeps going up, While working as a banker, when Chase took us over, the because it is not money I’ve family and friends’ experience sheer pleasure of being able to ever had. It is incredibly tax- brought Tom into contact with direct it myself rather than giv- efficient because then there’s no two charities: Great Ormond ing it all to the Chancellor was capital gains tax paid and I off- Street Hospital (GOSH) and a motivating factor.” set it against income tax.” the Michael Palin Centre for As well as his full time role And this calculation of how Stammering Children. He was with Marie Curie, and his non- much to give has a crucial so impressed by what he saw of executive roles with GOSH result: “It creates fun, because these organisations and the and the Michael Palin Centre, it is fun giving away money. support his family and friends Tom has set up a family chari- Something we don’t talk about received from them that he table trust – the Emily enough in this country. It is became involved at a board Hughes-Hallett Trust, named fun!” level with both. in memory of his daughter. An important aspect of phi- Following the takeover of Because of the diversity of lanthropy for Tom is the Flemings by Chase Manhattan his charitable activities, Tom potential he sees for showing in 2000, Tom was faced with a gives in a wide range of ways. his peers how and why getting dilemma: “I was suddenly He gives his time, energies and involved with charities can be confronted by the fact that I expertise to Marie Curie rewarding: “I talk quite a lot to probably didn’t have to work through his day job, and to City people about jumping again, but I was 47 and full GOSH and the Michael Palin ship, so I probably see someone of energy.” Centre through his board roles every month…I do talk a lot A move to a full-time role with both. In terms of giving about the Emily Hughes- in the charity sector seemed money, he mainly uses the Hallett Trust to my friends, the ideal solution: “My wife Emily Hughes-Hallett Trust. particularly the ones who’ve said to me, ‘Why don’t you A large part of the money in been lucky as well. ‘You ought make the evening job the day the trust came from a donation to try this because it’s great job, because you seem to enjoy of the shares he received on the fun.’” it a lot more than the day job?’ sale of Flemings. In addition, However, he admits that So I answered an advert and Tom gives shares every year to there can be difficulties when came here. And I’ve been here add more money to the pot, trying to be open about phi- for seven years. I love it. It’s the using his own rough formula lanthropy. “I don’t think any best job I’ve ever had and I to calculate how much: “Each of my friends have any idea don’t know why I didn’t do it year we look at the perform- of the magnitude of what I’ve earlier really.” ance of my own investments given away and nor do I have

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any idea of the magnitude of life and two years ago I helped importance of these sorts of what they have given away. to keep it afloat, and I regularly metrics in the for-profit world, That is a pity, in a way. There give a percentage of my income and he thinks that the trend must be some clever way of to it.’ I think that is not a bad towards greater measurability doing it, without us all feel- thing, given the character of in the philanthropic sector is ing shy and embarrassed.” the British.” on the whole a positive one. Tom thinks it might help if Marie Curie produces an However, he does offer a the focus were more on the impact report every year, out- note of caution. In the devel- causes people believed in, lining the specific goals set opment of the “market intelli- rather than the amounts being down the previous year and gence” sector for charities we given. “If I wanted to try assessing whether these have must remember that the two through my own experience to been met. This is a key aspect are not the same: “The differ- put pressure on my friends, of demonstrating to donors ence between being a fund rather than saying, ‘I’ve given where their money is going manager and someone who’s away…’, I could say, ‘The and what effect it is having. giving their money away is that Michael Palin Centre is the Tom’s experience in the City in the latter case there is the most important thing in my has made him aware of the personal emotion.”

said ‘Why should I give money away?’ its of his private equity firm resulted in but it became fairly apparent that if you predictably cynical media comment. For didn’t you would stand out, and that Sir Tom it was aspirational and holds him might affect your career prospects quite publicly accountable to achieve the goal frankly, so everyone did it.” While (23). More stories need to be heard advancing your prospects for promotion about doyens of our financial services might not be the purest motive for phi- industry who have made generous, lanthropy, it does at least provide a pow- thoughtful and adventurous contribu- erful incentive to start the habit of giving tions to philanthropy. in the early stages of a career – the more Philanthropy, in some ways has never so if a company introduces its profession- been more fashionable. Chris Mathias als to a particular cause at the same time. (31) believes that the time has come for The latter is critical for motivation and philanthropists to change their attitude financial services professionals need com- to publicity: “If you had cool people who pelling stories about philanthropy in would stand up, and have everyone treat order to be encouraged to give and to them as if they were cool, rather than give more. The industry needs to see phi- faintly grimy, then that’s the only thing lanthropy work successfully in the lives of that will change the culture.” But public- those it respects professionally. Stanley ity remains a huge tension for the major- Fink, deputy chairman of Man Group ity of philanthropists – even Chris strug- (31), believes that people need to know gles with this area despite his recognition about the “great examples of leadership that we need more public role models. in the industry”. When asked to be more public in his role Being public about philanthropy is a at venture philanthropy firm Impetus risk; the media usually focus on the num- Trust he knew that it needed a very pub- bers rather than the cause or the social lic leader to “be passionate about it to impact created. Sir Tom Hunter’s (31) create a bandwagon”, but he could not very public statement about raising £1 bring himself to do it. As he said: “It just billion for his foundation from the prof- so goes against my grain.”

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2.3 The Company as Catalyst executive of ICAP (45), created the com- Although our research has focused on indi- pany’s first annual charity day in 1993. viduals and their personal motivation as Harvey McGrath, formerly of Man philanthropists it became clear that com- Group, feels that he and fellow directors panies can and do have a significant role to must “lead by example”, citing the play in unlocking the philanthropic poten- fundraising campaigns that he chairs and tial of individual employees in three ways: his work in the East End of London. “I don’t mean just writing cheques, but act-  Setting a culture ing,” says Harvey who, with Stanley Fink  Providing opportunities and others, has created a culture of giving  Leveraging resources at the hedge fund (31). It is no surprise that both men are energetic, thoughtful Setting a culture and adventurous philanthropists. Without question, a company’s culture is Scott Mead, former partner at US set and sustained by the board of directors investment bank Goldman Sachs, senses and senior executives. In 1971 Joel Joffe that the “level of facilitation and moral (now Lord Joffe) founded Allied Dunbar persuasion” for promoting philanthropy at Assurance (later part of Zurich Financial Goldman Sachs is unique among its peers. Services) and, together with Mark The firm encouraged him when he set up Weinberg, was the driving force in creating his own charitable foundation and suggest- a generous culture of philanthropy ed a good lawyer to use. He feels the cul- throughout the company. Lord Joffe, once ture is very pro-philanthropy: “It is a why part of Nelson Mandela’s defence team, not- why wouldn’t you do this?” frame of went on to become a consumer champion, mind, where all employees are expected to Chairman of Oxfam and a hands-on phi- give at a level most appropriate for them. lanthropist akin to a business angel. One of Goldman Sachs has recently taken the Sir Mark Weinberg’s more recent ventures, further step of providing the framework for St James’s Place Wealth Management, con- partners of the firm to do just that. tinues in the same vein of generous corpo- Goldman Sachs Gives is a donor advised rate philanthropy. Its employee matching fund (see Section 3) for partners, who can scheme for charitable donations stands at donate a percentage of their salary to it and over £800,000 annually and an outstand- direct where their money goes, while the ing 82 per cent of the company’s commu- fund carries out all of the administration nity (including employees, clients and and bears the costs.8 Not only is this about those involved in the St James’s Place net- making it easy for the partners to give, it is work of advisers) give each month to its about making philanthropy part of the aspi- foundation through Gift Aid enabling it to ration of becoming a partner, of becoming a raise over £10 million. Goldman leader and success story. Thirty-five years on, our interviews A number of other banks also have revealed just how critical it is that a com- “pooled vehicles”, which employees can pany’s leaders drive its vision for philan- use for their giving. Merrill Lynch, for thropy and themselves “walk the talk”. instance, has a donor advised fund, When Nick Finegold founded the agency although it is aimed at clients of the bank’s brokerage, Execution, in 2001 he decided wealth management division as well as that a fundraising day for charity would be employees. Lehman Brothers uses its own central to the company’s strategy (35). corporate foundation like a donor advised Frustrated with a haphazard approach to 8 “Goldman sets up $1bn phi- fund, allowing employees to have a large lanthropy fund”, Financial News, company giving, Michael Spencer, chief say in the grants process. In 2006, 76 per 21 November 2007

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cent of grants from the Lehman Brothers TeamWorks and Morgan Stanley has its Foundation were based on recommenda- “What a Difference a Day Makes” initia- tions by employees.9 tive.10 Deutsche Bank, Merrill Lynch, Nicola Horlick (25) has created a new UBS, Lehman Brothers, Credit Suisse and fund management firm, Bramdean Asset others have comparable schemes. Management, staffed with young profes- Another approach is to give employees sionals working their way up. Although she time off for individual volunteering. has a track record in philanthropy she Stanley Fink of Man Group (31) agrees realises that her younger staff are not nec- that this one important way for a company essarily where she is yet: “I will let them to signal to staff that it values what they do create their own wealth and decide what beyond their desks, but he is realistic about they do with it, but they do see what I’m how much time can be spared in a pres- doing, so therefore I’m sure that they’ll be sured commercial environment: “We give influenced by that.” them a bit of time off to go and do some Making sure that he and other leaders at volunteering, but only one or two days a Man Group (31) are on the top of an year, we can’t really go any higher”. But employee’s sponsorship list is an important these hours can add up. Man Group leadership signal for Stanley Fink: “If one employees donated 3,642 hours of man- of the employees is doing a sponsored agement time in 2006-07 and Deutsche thing, I’ll always be the first on the sponsor Bank employees in the UK volunteered sheet with a thousand pounds or so to 2,650 hours of paid time in 2006.11 Harvey inspire some of my colleagues to give a bit McGrath, former chairman of Man more…” Group, says the company’s current strategy for its corporate philanthropy is “driven by Providing Opportunities a focus on the engagement of people in the Last year, 18,000 Goldman Sachs employees company” and it is reviewing its policy for participated in more than 1,400 social proj- giving staff days off for volunteering to ects, including working with a range of make it “more flexible and increased”. human service organisations, building When Damon Buffini, chairman of pri- homes, mentoring young people and restor- vate equity firm Permira, led the ing the environment, through its global Breakthrough (82) initiative, he offered all Community TeamWorks programme. These his London-based staff an opportunity to initiatives are often belittled and it is fair that get involved. He was surprised by the take- in some cases it would be more useful to put up: “We had more volunteers than we a business leader into a charity strategy meet- could accommodate at the time.” Two ing for a day than to have him clean up a years on, a quarter of Permira’s staff have beach. But these schemes should not be been directly involved with the social written off. Jim O’Neill (33) went on to enterprises supported through the scheme, found SHINE after his experience with a from mentoring through to IT advice. TeamWorks project at Kids Company in Damon believes the Breakthrough project East London. has been successful in giving staff the There are different approaches to pro- opportunities they need to set off on their viding volunteering opportunities. The own philanthropy journey, and that work- 9 Lehman Brothers 2006 Global Philanthropy Review TeamWorks style of day which doubles up ing with social entrepreneurs has “really 10 Morgan Stanley, International as a corporate bonding experience is one opened our eyes and changed people’s atti- Charity Report, 2006 such approach which many of the very tudes to charity”. 11 Deutsche Bank, Corporate Social Responsibility Report, largest (“bulge bracket”) investment banks A company does not need to have a 2006 adopt. Goldman Sachs has Community proprietary philanthropy programme in

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Man Group Plc is a global that by giving a much higher This charity is then the focus provider of alternative invest- weighting to a request [for of giving for the Man Group ment products and solutions. funding] that comes from Charitable Foundation for the The company has a long- someone in the business who year; hence the company’s giv- standing tradition of encour- is involved in that particular ing is fundamentally dictated aging philanthropy among its cause than to a cold, third by its employees. employees and a number of party approach.” Stanley Fink For individual employees notable individual philanthro- says: “If one of the employ- who wish to become involved pists among its senior manage- ees is doing a sponsored with charities, the company ment. thing, I’ll always be the first also strives to allow them as Man Group sees its philan- on the sponsor sheet with a much time as is practicable. thropy as being an essential thousand pounds or so to Man Group employees donat- element of what it is to be a inspire some of my col- ed 3,642 hours of manage- “good corporate citizen”. It is leagues to give a bit more…” ment time in 2006/07. This easy to be cynical about such There is an element of has been calculated to equate claims, but in Man’s case enlightened self interest at to a cost of $516,000 based spending even a bit of time work here, as the culture at on the value of each employ- with some of the senior man- Man Group is seen as a key ee’s time, and represents an agers shows that they take it selling point when trying to increase of 26 per cent on the very seriously and with good attract the best talent. As year before. effect. Stanley Fink points out, “If The company also matches A crucial feature of Man you can show people that individual charitable fundrais- Group’s philanthropic culture your corporate goals are ing by its employees up to a is that the people at the top about more than making maximum of $4,500, in lead by example. Both the money for the owners of the recognition of the potential of recently departed chairman business, that you’re doing such matching schemes. In Harvey McGrath and the cur- some powerful social good 2007, nearly $200,000 of rent deputy chairman Stanley and influencing change, you matched funding was lever- Fink are noted philanthro- can actually make people aged from the group. Man pists in their own right, being feel good about working for Group also has a payroll giv- heavily involved with organi- an organisation…I have this ing scheme, where employees sations such as New view that in the City most of can elect to make tax-efficient Philanthropy Capital and the employees have used donations to charities of their Absolute Return for Kids money as the only currency, choice directly from the pay- (ARK). They are key role and I think it’s just like play- roll. In 2007, 200 UK models for Man’s employees. ing golf with one golf club - employees took part in payroll The group’s approach to you’re not getting the best giving, and raised $427,850. philanthropy is driven by the out of it.” Matched funding from the desire to encourage the indi- A key aspect of engaging company took the total to viduals within the company to employees with charitable $600,000. become engaged with causes causes is giving them the Man Group also that interest them. As Harvey opportunity to see for them- announced in 2006 that it McGrath says: “I can’t stress selves the work that charities was introducing an innovative enough how much we are do. The group adopts an formula to determine its level driven by a focus on engaging annual charity, based on a staff of charitable giving. After this the people in the company ballot of a shortlist of causes summer’s spin off of the bro- and we, for example, articulate recommended by employees. kerage division, the formula

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states that Man Group will As a leader in the hedge Each of the trustees of the donate to the trust 2.50 per fund industry, metrics and Man Group Charitable Trust is cent of net performance fee measurement are very much responsible for recommending income and 0.25 per cent of Man Group’s stock in trade, and building relationships with net management fee income. and they are keen to apply charities, which are invited to There will be no upper limit the same sort of focus on trustee meetings to make pre- on donations, but there is a results to the company’s giv- sentations on their progress. guarantee that they will not be ing. As stated in the 2006 This allows the trustees to less than 0.5 per cent of group Group Corporate Social track the effectiveness of dona- pre-tax profits. This new for- Responsibility report: “We tions and to understand the mula has resulted in a 103 per select charities and initia- needs of the charities better, cent increase in Man’s charita- tives to which our donations for example in terms of finan- ble giving, as reported for the will make a tangible differ- cial support or involvement of year to March 2007. ence.” Man Group employees.

place for staff to be given opportunities. great use for philanthropy. His belief that There are a growing number of interme- the “operational gearing was enormous” diary advice and mentoring initiatives led to company charity days at Deutsche such as Pilotlight (35) and Kilfinan Bank and more recently his own company, Group (45) that can broker the opportu- Execution (35). ICAP’s Charity Day (45) nity to put staff skills to good use. is based on the same model: an entire day’s Focusing on the development of individ- trading revenue and commission is collect- ual skills, Goldman Sachs launched the ed for philanthropic causes through the Public Service Program in 2004 which is a company’s foundation. global initiative designed to give its high per- These high-profile fundraising days do formers the chance to spend up to a year not suit all companies, especially those who working with a non-profit organisation.12 answer to public shareholders; matched giv- The idea is not only to provide the charities ing can be a simpler way to gear up the char- with the benefit of financial and manage- itable donations of employees. Peter Lampl ment expertise, but also to give employees (68) experienced the US corporate culture the chance to develop their leadership skills where “the company match-funded payroll in a different environment. giving”. For both employee and company Although our interviewees told us time “this was not an optional thing” and the and time again that the key to fulfilling “pressure to be generous and have the com- philanthropy is to put time and energy pany match it was tangible”. At private bank into it as well as money, this is not always C. Hoare & Co, managing partner realistic at the start of a career when indi- Alexander Hoare is adamant that a culture viduals are not in control of their own of company matching drives up philanthro- schedules. But any company can adopt the py generally among the staff: “Our founda- St James’s Place Wealth Management tion double-matches any employee dona- approach of fostering a philanthropic cul- tion through Give As You Earn, which has ture at all levels through a matched giving the effect that fully a third of our staff have scheme (see page 29). got charity accounts at CAF.” “At Man Group”, says Stanley 12 www2.goldmansachs.com/ our_firm/our_culture/corporate_c Leveraging Resources Fink,(31) “we match the first £1,000 a itizenship/charitable_services_ Nick Finegold’s intuition told him that a year for staff on payroll giving; we really group/public_service_program/p ublic_service_program company’s infrastructure could be put to try and give people enormous leverage to

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Jim O’Neill is a partner and there and connected him have children, to research Chief Global Economist at with a cause and it supported “everything that was going on US investment bank his time and effort in setting in education” for six months. Goldman Sachs. He is chair- up SHINE. It was the business plan man of trustees for SHINE Jim’s day job is also a key approach and it would never (Support and Help in motivator. As an economist have occurred to them to do Education) and he is on the he spends a lot of his time it any other way. board of the Goldman Sachs analysing global economies Jim agrees that he and Foundation in Europe. and it has cultivated his his co-trustees time and It is currently fashionable thinking that “you cannot skills are important for to be cynical about corporate expect to be the forefront of SHINE, but he is adamant social responsibility and to global change without doing that “our money is pretty shun corporate community more for those that are disad- important too”. It is the action days as public relations vantaged by it.” combination and application stunts, but every so often His profession also means of all three that put the these initiatives reap a winner that he is results-driven and money up, worked it and and Jim O’Neill is a classic believes in raising productivi- applied it in a way that gets example. ty. His passion is delivering results for the cause. “I went on a Goldman this through education. But SHINE is the perfect Sachs Community he is convinced that aspira- example of how City profes- TeamWorks day to Kids tion is also critical to ultimate sionals’ money and skills can Company and I was hit by success. From these two be leveraged to create the the scale of deprivation and strong beliefs SHINE was maximum result with the staggering lack of opportu- born. minimum input. Not that nity for the people that are His experience at Kids running money is easy, but if three miles away from my Company made him realise you do it for your day job, office,” he says. that if he and his friends took adding another fund to those This event on his doorstep some of their money, man- you already manage falls nat- in London, coupled with his aged it as well as they could urally into your daily routine upbringing – “modest in to create more money, without contributing another terms of income” – on the applied their skills, drive and large item to the “to do” list edge of one of Manchester’s time and directed it towards that has to be constantly rougher areas, led him to cre- disadvantaged children to try reprioritised and rescheduled. ate SHINE with some col- to create the aspiration and Crucially for the long term leagues in 1999. SHINE opportunity that had enabled sustainability of SHINE, Jim funds organisations working them to get to where they are and his co-trustees negotiated with underachieving 7-16 today, then they had a chance with the Charity Commission year-olds from disadvantaged of achieving an incredibly to be allowed to run their areas in London and high return. endowment as they saw fit. It Manchester. (Jim grew up in Their training meant that may have seemed risky to Manchester and made his for- they were not about to diverge from the standard 60 tune in London.) embark on something with- per cent bonds and 40 per Goldman Sachs fulfilled out the right preparation, cent equities model, but two key criteria in providing they hired three people they SHINE’s trustees were keen the framework and motiva- knew and respected, two of to use the expertise of a col- tion for Jim’s philanthropic whom where City women league who ran the London activity today: it got him out who had taken time out to office of a major hedge fund.

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They won their battle and, Jim and his co-trustees are Sachs, but he could have said since it was set up, the tough. They would be the enough was enough along endowment has returned on first to admit that. The time ago. average 7 per cent per annum yearning for results and the He candidly says that he compared to an average of 1 inclination to constant meas- nearly did that a few years per cent for the FTSE 100. urement and evaluation nat- ago, jaded by the travel and SHINE also fundraises urally spills over into the schedule and the fact externally. Jim says this is one SHINE’s operations and its that he could not honestly of the most difficult things to funding recipients too. Jim say to himself that he needed do. This is partly because he says he does sometimes hear any more money. But along and his co-trustees shun the of people saying that they with the development of the limelight and public events, don’t want to ask “the BRIC concept (the combina- even though they recognise SHINE crowd” for money tion of the developing that they need more role because their expectations economies of Brazil, Russia, models to help to build a cul- are too high. But this is an India and China), and many ture of philanthropy, and organisation that is about other things, SHINE has partly because SHINE already aspiration, the whole ethos, helped re-orientate and refo- has a solid body of trustees, the whole point is about cus him, given him fresh but many wealthy individuals aiming high. purpose. In his own words, do not want to give if they are Jim did not get where he is when he had those feelings, not going to be part of that today without stratospheric he was beaten back into sub- core group. Jim and the aims and without an inordi- mission by the thought “Jim trustees also recognise that it nate amount of hard work. O’Neill of Goldman Sachs can be hard to persuade peo- He would be the first to say is better for SHINE than ple to give to an organisation that he was “lucky” to be a Jim O’Neill of South West with such a specific focus. pre-IPO partner at Goldman London.”

get them into philanthropy.” The majori- such as Morgan Stanley and Lehman ty of the bulge bracket financial institu- Brothers offer direct donation matching tions have matching schemes in place. in America, but have decided to focus on Most firms match on a pound-for-pound matching employee fundraising rather basis, but some match at 1.5 or even 2 than donations in Britain. times employee donations, usually with an upper limit on the total amount. UBS matches employee donations up to 2.4 The Business Case $2,500 a year,13 Merrill Lynch donations “Doing good is apparently good for you” is 14 13 UBS, Corporate between $50 and $1,500 a year, and the conclusion of a 2006 study of corpo- Responsibility Report, 2006 Deutsche Bank up to £3,000 a year.15 rate philanthropy in which two leading US 14 http://philanthropy.ml.com/ index.asp?id=66319_67034_ Goldman Sachs has recently announced business schools demonstrated the link 67416 that it is raising its matching limit from between a company’s charitable donations 15 Deutsche Bank, Corporate $10,000 to $20,000 per employee per and future revenue growth.16 Dover Social Responsibility Report, 2006 year. This announcement was made at Management, the US-based mutual fund

16 Lev B, Petrovits C and the same time as Goldman Sachs Gives that invests in companies with a high level Suresh R, “Is Doing Good Good (see page 29) in order to emphasise the of corporate philanthropy has no doubt for You? Yes, Charitable Contributions Enhance Revenue importance of philanthropy throughout from its own research “that companies that Growth”, Social Science Research Network, July 2006; the firm and to encourage aspiring part- dedicate their philanthropy strategically, in http://ssrn.com/abstract=920502 ners to engage in it. Some companies keeping with their overarching corporate

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Nick Finegold is the founder, could not hire one person to do about the fact he “had to have chairman and CEO and James what NPC does for the trust James run it” because if he did Blackburn is the head of strate- with all of their resources”. it, “the money would be spent gy at Execution, a small They have been low key within 30 seconds of it coming agency broker servicing major about what they have estab- in”. Nick is quick to clarify: “I investing institutions. James is lished and achieved – partly founded the company and the also chair of the Execution because they recognise that it is trust but James does all the Charitable Trust. The trust is not just their own money they hard work and I am kind of the funded by the revenues from are granting, but their clients striker that scores too, but he is one-day of trading through money too, and partly because kind of the mid-field engine, Execution. they wanted to build up a track without whom the striker Nick was an enlightened 25- record before they started to would never score a goal.” year-old at NatWest Markets shout about it. “It is like trying James has an incredible pas- when his “Jewish guilt” mani- to raise money in a fund man- sion for what the trust achieves fested itself in an idea to use the agement business; you are and would love to devote much trading business to raise money judged on your historic track more of his time and attention for philanthropy: “I would go record and you have to do two to it, but the importance of to charity dinners, which are or three years of proving your operational gearing is never far great fun, but they are a worth,” says Nick. away, and he can do more for headache to organise, and This has clearly been a his charities by leveraging someone might write a source of some tension for Execution’s trading platform. “I cheque for £1,000 and that them. James recounts that have always believed that peo- would be a great achievement. recently he has spoken at a few ple are philanthropic, what we But then I would come into private philanthropy forums have done is provide our clients work the next day, see the and, when he says that they and employees with an excel- money that was changing prefer to stay under the radar, lent mechanism for tapping hands on a daily basis and people say to him: “You have into that,” he said. think, if I could get hold of an obligation to talk about it, it The model of operational this business for just one day is not your choice, you have an leverage extends into the organ- and use it to raise obligation to tell people that isations they fund too. They money…the operational gear- this is the way they should found more and more of their ing would be enormous.” behave.” charities were coming to them He did not pull it off at Nick rationalises it by mak- and saying, “I have got a vision NatWest Markets, but managed ing a big distinction between but I have got no idea how to it at Deutsche Bank in the early “promoting oneself versus being get from A to Z,” so they 1990s. When he founded asked to speak”, the latter being found they were repeatedly hir- Execution in 2001 he and his acceptable. But they have taken ing consultants to sit down partners integrated it into the the feedback on board and with them. “Now it makes company’s core strategy, despite Nick says: “In the same way sense to fund the Cranfield the fact the company was very that I saw the operational Trust who have lots of experts young and not really making gearing in being able to get to do that role, but need much money at that stage. hold of the workplace, I now money to support them,” said Operational gearing is a see operational gearing in James. The Cranfield Trust principle that runs through the inspiring others to do some- offers free consultancy to vol- trust. James works with New thing similar.” untary organisations, using a Philanthropy Capital (NPC) Nick and James complement register of volunteers from the (74) on the basis that “they each other. Nick is very honest commercial sector.

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Charity day is a low-key cent of the gross proceeds of exactly what impact we are hav- affair and both Nick and James the day. That means they pass ing and I take employees and are adamant that they like it on all the commission as well as clients with me to these places,” that way. Nick says: “We have the cost of settlement and clear- says James. They also have a just kept our heads down, and ing and other aspects of execut- workshop once a year when there is something strangely ful- ing the trades. So they are rais- they invite all their beneficiaries filling about doing something ing clients’ money and also to London, to share and solve simply because it is in your donating their own slice of the each other’s problems, and also heart to do so.” pie as well. to meet employees and clients. It may be in their hearts, but In 2007 Execution raised In their modest way, they they go about it with the same £1.55 million for charity. This say much about how carefully attention and rigour that they year, as in previous years, they they assess the impact of their do their trading. Through New made a large donation to ARK money by acknowledging their Philanthropy Capital their giv- and they are keen to support mistakes. “What I am very ing is meticulously planned. “I ARK’s work. The rest is man- proud of is that we try things think we have used our clients’ aged with the help of New and we accept that they might funds incredibly well. We pro- Philanthropy Capital, with the not work sometimes, and we vided the mechanism and we exception of a small amount monitor them, and maybe have used the funds responsi- that is kept for employee gifts sometimes you have to pull bly,” says Nick. or for clients who would like something or someone,” says Nick does retain the right to part of their total donation Nick. go with a hunch too, but those given to a charity of the client’s This is the attitude they cheques come from his personal choice. Even these ad hoc have adopted throughout the account. He was one of the first donations are endorsed by Execution Trust’s five-year jour- backers behind Jeremy Gilley’s NPC so that Execution can be ney, as Nick said: “We have Peace One Day initiative which sure not to waste donations on got a record now, having is now observed by 100 million inappropriate organisations. quietly gone about what we people in 200 countries and James clearly manages the have done with dignity and marked by a concert at the trust portfolio carefully with having selected some Albert Hall with stars such as NPC and takes great pride in inspired charities to support. Annie Lennox and Jude Law. He constantly assessing the impact Like our fund-raising mech- got his partners’ agreement for of the funds. “Clients may not anism and our Trust opera- Execution to put a roof over even ask us what we have done tions with NPC, our giving Jeremy’s head, provided phones with their money over five strategy was also opera- and computers and it now hous- years, they are not particularly tionally geared. To give one es a team of six. But the cheques demanding, but they are enti- example, we took care of two he wrote out himself, realising he tled to ask and if I couldn’t go people in a way which meant could not ask others to support back within five minutes and we took 25 kids off an such an unproven, nascent idea. explain then I would have estate, which enhanced the It helps that Execution is a nothing to be proud of,” says lives of about two thousand private company because Nick’s James. people. We have five years of board is made up of people He likes to be able to experi- that type of result, and we such as him who support his ence his projects firsthand. have Peace One Day being strategy and he does not have “One of the reasons we have observed by 100 million to answer to shareholders. chosen community projects in people in 200 countries, so On charity trading day, the UK is so that we can go now I feel we have got some- Execution passes on 100 per and see them and understand thing to shout about.”

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and product strategies, are able to invest banker. I can give better advice to my shareholder value and create greater share- 10,000 customers because I’ve seen things holder wealth.” from the other side.” Stanley Fink of Man Group (31) is The top performing hedge fund, the clear that the corporate philanthropy Children’s Investment Fund (TCI) (40), strategy he brought to the board of Man has a unique philanthropic model that Group was a strong business case: “When Jamie Cooper-Hohn feels attracts top tal- you are appealing in the graduate market- ent because it takes its social responsibility place for the brightest youngest peo- so seriously. She says: “We really do have ple…if you can show that your corporate people who anyone in the private sector goals are about more than making money would drool over”. for the people themselves, the owners of On the face of it philanthropy may not the business, that you’re doing some be a priority for a bright executive working powerful social good and possible his way up through a private equity career, change, you can actually make people feel but for Benoit Vauchy at Permira, the part- good about working for an organisation.” nership with Breakthrough (82) makes a Nicola Horlick of Bramdean Asset difference. “What is great about this initia- Management (25) also believes that people tive…is that your employer, within reason, should be aware of the potential value that says ‘I’m happy for you to give your time getting involved with philanthropy can have and to use what you do best’.” For Benoit on their working life. She argues: “Although this is an aspect of the firm not usually it’s important to give something back, it is associated with Europe’s largest buy-out also very good for you to have outside expe- fund: “At Permira there is a culture which rience other than what you’re doing full is a very human culture”. time because in strange ways it can create As part of creating a culture where indi- new ideas for your day job; if you’re meeting vidual philanthropy is the norm, more new people and having new thoughts about companies need to realise that philanthro- a completely different subject it can lead to py is not a one-way street. It is not only lateral thoughts which can be beneficial to about charities benefiting from the time your business.” Alexander Hoare of C. and expertise of a company’s employees, Hoare & Co agrees, pointing to his own but also about those employees gaining experience that “the outside appointments, valuable experience and the compa- which do take up time, make you a better ny being able to attract the best talent.

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Means

Once an individual knows that he or she managing personal wealth. And the skills wants to give, the next step is to decide the philanthropist has acquired from a life- what resources to employ. These can be time of experience may be so extensive as financial capital in the form of cash, shares to require careful scheduling and targeting. and other assets or social capital in the To maximise returns for both philanthro- form of time, skills and networks. To get pist and recipient organisation, it is impor- full satisfaction from philanthropy it is tant to consider all the tax treatments of important to maximise the capital financial capital and the best use of social employed, for example by claiming all capital. appropriate tax reliefs or ensuring that skills are used as effectively as possible. When starting out on the philanthropic 3.1 New Models for Creating journey, the main resources available are Philanthropic Wealth likely to be the simplest form of cash and In recent years we have seen the emergence perhaps some volunteering of time. But as of the so-called new philanthropist. individuals mount the career ladder and Opinions vary as to whether what they are become wealthier, their asset base may doing is really new, but one of the uncon- become more varied, so that they may also tested aspects of the phenomenon is the donate shares for example, and be able to dominance of newly-generated wealth over volunteer more time. In the same way that the more traditional inherited wealth.1 It is investors diversify their investment portfo- not that the model of the self-made bil- lios, donors will want to consider how they lionaire philanthropist is new – one has can make philanthropic use of their full only to think of Andrew Carnegie or John range of assets. Many interviewees extolled D. Rockefeller – but there has been a shift the benefits of combining direct personal towards newly-created wealth as the driv- involvement with monetary gifts and felt ing force behind philanthropy, which that was the best way to maximise all reflects the general pattern in the world resources. As entrepreneur Chris Mathias today. In 2007, three-quarters of those (18) said: “I never give money simply by appearing in The Sunday Times Rich List giving money because the impact of were self-made billionaires or millionaires money and time is far greater”. and only a quarter had inherited their Maximising the means available is wealth, the exact reverse of the situation 1 See, for instance, “The 2 Business of Giving – A Survey of important at all stages. At the beginning, twenty years ago. Wealth and Philanthropy”, The when individuals do not have much to give In the UK the financial services sector is Economist, 23 February, 2006 in terms of wealth, tax incentives and com- a major driver of the economy. According 2 The Sunday Times Rich List, 30 April 2007 pany matching of their employees’ gifts to official figures it contributed 9.4 per 3 3 MacKenzie D, Economic can be vital. Much later, gifts may be so cent of GDP in 2006. Unofficially it is Contribution of UK Financial large that tax effectiveness is critical for cre- Services 2007, International considered to contribute much more. A Financial Services London, 2007 ating wealth for philanthropy as well as substantial number of the nation’s newly

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wealthy individuals have made their for- discussions with the Charity Commission, tunes in the financial services industry. In but she is complimentary about its work: The Sunday Times Rich List for 2007, 117 “They do see their position as providing of the UK’s top 1,000 richest people had guidelines and not laws.” earned most of their wealth in the FSI.4 ARK raises funds through a prestigious The most straightforward approach for peer network. The majority of fund raising philanthropically-minded financiers or takes place at its annual dinner, a glam- business people is to give away the money orous event that attracts the luminaries of they have made as direct cash donations to the hedge fund industry, as well as the the causes that they care about. This is the great and the good from other sectors. It bedrock of philanthropy. However, more aims to channel its funds to areas of need and more professionals in financial services through a highly focused and structured are using alternative, highly-structured operating organisation. Managing director ways to raise or leverage money for philan- Paul Bernstein says that this allows ARK thropy. After all, philanthropy can be seen control over where it gives grant money as as another form of financing and these are well as “business-like measurability and individuals who have created their person- accountability”. al capital through their skills in invest- New philanthropic ventures emerging ment, asset management or trading. Now from the private equity industry have mir- they are using their social capital to max- rored these two models. The Private Equity imise financial capital for philanthropy. All Foundation (PEF) (44) has taken the ARK the new approaches share this common approach of fundraising through peer net- thread: leveraging resources. works. It aims to leverage the resources of The hedge fund industry has been the the private equity community as a whole focus of significant wealth creation in and so act as a focus for the industry’s phi- recent years and also of innovative philan- lanthropy. Sir Tom Hunter’s West Coast thropic organisations. Two of the most Capital (27) has parallels with Chris high-profile philanthropic initiatives Hohn’s TCI, in that one of reasons for its linked to hedge funds in the UK, the creation was the generation of philan- Children’s Investment Fund Foundation thropic capital. Unlike CIFF, West Coast (CIFF) (40) and Absolute Return for Kids Capital is not structured to direct a given (ARK) (42), take different but highly percentage to a charitable structure, but Sir effective approaches to raising capital. Tom has stated publicly that he intends his CIFF is inextricably linked to the hedge foundation to benefit from a significant fund run by its founder, Chris Hohn. When proportion of the profit generated by his he set up the Children’s Investment Fund investment company. (TCI), CIFF was built into the strategy and These examples of philanthropic vehi- structure of the fund. A percentage of man- cles linked to hedge funds and private agement fees and a percentage of profits equity companies, now broadly under- (above an 11 per cent hurdle) are channelled stood and accepted by the financial servic- directly into the foundation. Any assets that es industry, use the social capital of the the foundation does not use in a given year industry for philanthropic gain. However, are reinvested, mostly in TCI where they in other areas of the FSI these models can- can make substantial returns. The purpose not be easily replicated and it may not be is to produce “the highest returns for chil- immediately obvious how specific skills dren in the developing world”, says Jamie can be best applied. Cooper-Hohn, chief executive of CIFF. For traders there is an innovative solu- 4 The Sunday Times Rich List, Establishing this model required lengthy tion. Execution (35), a small agency bro- 30 April 2007

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The Children’s foundation. “We wanted our mostly through international Investment Fund children to grow up in a fami- NGOs, but also working with Foundation (CIFF) is fund- ly where philanthropy was governments and local charities. ed by a proportion of the considered the norm”, says Jamie is adamant that the foun- management fees and profits Jamie, who ran the new foun- dation should add as much generated from hedge fund dation from home. value as possible to the funding: The Children’s Investment Shortly after, she recalls, “We always went into it saying Fund (TCI). Chris Hohn runs they realised that “clearly the that we will be additive, there the hedge fund and his wife, next natural step for Chris was will be strategic entry points Jamie Cooper-Hohn, the to run his own hedge fund, and that we will have demon- foundation. and so we started to define strable impact.” Their model of “For Chris and me one of what that would look like as “five countries and four our shared values is our desire well”. They wanted to combine themes” keeps the organisation to make a difference in the a top performing hedge fund focused, and working with only world that is substantially big- with philanthropy, drawing on a handful of core grantees in a ger than ourselves,” says Jamie their combined skills and pas- venture philanthropy model Cooper-Hohn about the moti- sions. The result was an unusu- allows them to work intensively vation behind their powerful al hybrid – a hedge fund that with each. Jamie is excited new model for philanthropy. channelled a significant pro- about what she feels can be From a modest background portion of its fees and profit to achieved with her project team, – the son of Jamaican parents a charitable foundation. One saying: “We really do have who emigrated to Britain in third of TCI’s management fees people who anyone in the pri- 1960 – Chris Hohn graduated go to the foundation, plus half vate sector would drool over.” from Southampton University, a percent of all assets under But she runs a tight ship and excelled at Harvard Business management if profits to expects her employees to “justi- School, and ended up at Perry investors reach a target 11 per fy that the burden of due dili- Capital in London. But it was cent net return. The fund gence and high engagement in the Philippines, during a kicked off at £700 million, gives the programmes greater five -month banking job, that with a highly unusual lock-in impact”. In the last reporting Chris came face to face with for investors, and has now year CIFF spent over £5 mil- poverty. Jamie recalls one of grown to several billion lion on charitable activities, the their early dates together: “He pounds. In five years the bulk on its HIV-Aids pro- showed me his photo album hedge fund has allocated gramme, and Jamie is open of the children in the garbage nearly £700 million to the about the fact that, until its heap in Manila. He was foundation. Jamie never own internal portfolio manage- spending his weekends helping imagined that the founda- ment and evaluation resources kids in the dumps, and seeing tion’s assets would grow so are fully established, grants will that extreme poverty up close large, and is determined to not match its income levels. As deeply affected him.” turn that opportunity into Rockefeller and Carnegie both In 2002 Jamie, an econom- “the highest returns for chil- found, giving money away ics graduate who had made dren in the developing effectively can be harder than her career in the non-profit world”. making it. sector, intended to step back The foundation works with The unique linkage of from full-time work to raise children in sub-Saharan Africa hedge fund and foundation is their four children. The cou- and India, focused on HIV- generating several hundred mil- ple decided the time was right Aids, water and sanitation, edu- lion philanthropic pounds each to set up a family charitable cation and emergency aid, year. While the foundation’s

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infrastructure is steadily built Commission with a reasonable for something that’s a little bit up and high-impact projects thoughtful argument, they do more than about the pay evaluated, the foundation’s see their position as guidelines cheque.” She admits there was assets are invested – the bulk and not laws.” It should a more intense relationship being put back into TCI encourage other hedge fund between fund and foundation where they return “40 to 50 managers to know that the in the start-up days, when per cent every year with no skills they used to create wealth “everyone was crammed in the fee”, says Jamie, “but that first can equally be deployed grow- same room”, but even today required an exemption from ing philanthropic assets. “there is a real interest and I the Charity Commission”. The TCI is an iron fist in a vel- still think it’s special for peo- commission requires a charity’s vet glove. The fund attracts ple to have the connection.” assets to be diversified with due top talent not only because it Twice Eurohedge Fund of consideration of risk. Holding performs so well (Chris is the Year, TCI is a remarkably the majority of a charity’s assets ranked second among hedge- successful business start-up. in a hedge fund (even the one fund managers globally), but Chris Hohn has made a name that created the asset in the also because it takes its social for himself as a fund manager first place) is thought too risky responsibilities so seriously and relentlessly activist share- for funds held in public trust. and creatively: Jamie is sure holder, but it is his partner- But Jamie is complimentary there is a great business case to ship with Jamie in creating about the Commission’s posi- be made, quoting one of TCI’s one of the most innovative tion, which permitted the top managers, highly sought and generous business models foundation to invest in TCI: “I after by competitors: “You of modern times for which do believe if you go to the know what? I want to work they will be remembered.

ker and ICAP, the world’s largest inter- 3.2 Maximising Wealth for dealer broker, (45) each hold an annual Philanthropy day when total daily revenue and broker The models highlighted in 3.1 for creating commissions are passed directly to selected wealth for philanthropy are new and max- charities. Over the years, ICAP’s Charity imise financial capital through use of rele- Day has become a major event in the char- vant social capital, but they also adopt ity calendar, with celebrity patrons attend- structures for their philanthropic vehicles ing or taking part in telephone trading. As that allow them to maximise further the we have seen, the charity trading day is also wealth created. CIFF and PEF are both a highly effective tool for motivating indi- charitable foundations and ARK is an viduals and for creating a philanthropic implementing charity, so all of them bene- culture. fit from the associated tax advantages. The professionals who set up these four From making individual cash donations to organisations have all employed innovative running an operational foundation, tax mechanisms that are closely aligned with incentives and maximising capital are existing business models to maximise important levers for philanthropic wealth wealth creation and use of skills. Given the creation. We look at the available tax financial and social capital that exists in the incentives for philanthropy in order to City, if more individuals and companies understand their role in maximising the were to use their core skills for the purpose pool of funds available and to determine of philanthropic fundraising, the benefits any barriers they may be creating along the would be huge. journey.

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Absolute Return For Kids accountability’”. But Paul admits health system and ensure sustain- (ARK) is a charity founded in that does not reduce ARK to ability. ARK also increases 2002 by Arpad Busson and a simply spreadsheets and metrics: impact by leveraging funding number of other senior figures “You want to feel good about from the US government and from the alternative asset man- philanthropy, and the closer you private foundations. agement industry. Paul Bernstein are to the delivery of the proj- ARK sets up a management is currently managing director of ects, the stronger your commit- team and operating organisation ARK, and Stanley Fink is a ment. There is a blend of heart in each country where it works, trustee. and head, making sure you are to create capacity locally to “Another awards dinner was passionate about what you do, absorb large scale funding and not what the hedge fund indus- but making decisions backed by deliver complex programmes. try needed, but raising money objective, well-researched evi- “We are in relatively few coun- for children’s charities and spend- dence, plus data to evaluate suc- tries, but are scaling rapidly ing it effectively with measurable cess. That blend of the emotion- within them” explains Paul. The returns was” says Stanley Fink of al with the rational isn’t generally ARK trustees and other sup- Man Group, an early supporter present for normal business.” porters remain well connected of ARK (Absolute Return for Five years on, ARK’s mission to operations thousands of Kids). And that goal certainly is to transform the lives of chil- miles away: “Every one to two has been achieved – ARK’s dren, through funding innovative months there is a conference income increased by 50% over programmes with hand-on man- call or a meeting between the the last financial year, with its agement. Its three core pro- team on the ground and the flagship fundraising event – a gramme themes are: HIV/AIDS; trustees to really thrash out Gala Dinner in London – raising education for disadvantaged chil- business plans, strategy, growth a record-breaking £26.6 million dren; and deinstitutionalising and monitoring and evalua- in a single evening. What start- children in orphanages, by boost- tion,” says Paul. ed out as an annual bash for ing family-based care. ARK’s The level of involvement by hedge fund managers was trans- HIV/AIDS programme is cen- ARK’s trustees (all of them, like formed in 2002 into a major tred in South Africa where it their chairman, Arpad Busson, charitable organisation commit- funds staff and facilities for the leaders in the alternative invest- ted to children and young peo- government’s anti-retroviral treat- ment industry) is not typical of a ple in Africa, Eastern Europe ment programme. Its purpose is traditional foundation; they are and the UK. to stop children becoming highly engaged and clearly the Reflecting on the motivation orphaned, by keeping their quality and breadth of impact of for setting up ARK, its mothers alive. This £17 million ARK’s work on the ground is Managing Director, Paul project has so far prevented over personally critical for them. “The Bernstein says: “The trustees 39,000 South African children term board members apply to came together with a philosophy from being orphaned by or dying ARK is collective philanthropy”, that said – ‘we have a major from AIDS, by focusing treat- says Paul. “An environment opportunity to give in a different ment to HIV-infected care-givers, where decisions are made collec- way – take control over how our as well as infected children. ARK tively contrasts with the typical money is distributed, run the expects this figure to double over fund management firm. But it programmes in a business-like the next 3 years. Despite being works very well and fits our way, and most importantly focus one of the largest NGO-funded model of philanthropy. It’s a seri- on delivering a social return on and managed programmes in the ous, focused, working board”. investment. We’ll do that region, ARK is careful to ensure Serious and generous: ARK’s through an unwavering commit- it works through government board and patrons all commit to ment to measurability and infrastructure to leverage the ensuring that the organisation’s

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central administrative costs are grammes really work, in the long generous, but too frequently covered, so that all money raised term. “I think when you look at “they struggle to find great proj- at the Gala Dinner – as well as ARK compared with most chari- ects meeting their demanding donations through the year – go ties there is a difference,”, says giving criteria”. He believes the directly towards delivering ARK’s Stanley, “ARK is absolutely work of ARK on the ground programmes. determined to measure out- speaks for itself, and is just the Stanley Fink became a trustee comes; to try and deliver the kind of philanthropy people when ARK launched its UK philanthropy in a way that you want to support and could con- programme to support Academy can see a tangible result.” tinue to be expanded with great Schools; he is attracted by its Paul feels that people in the impact for children around the commitment to prove its pro- City are open to becoming more world.

The Role of Tax that UK incentives compare fairly well Tax is important when maximising wealth with those available in America. However, for philanthropy, even if its role as a moti- the slightly greater level of complexity and vator is questionable. Once an individual the fact that the available incentives seem has been inspired to give, tax efficiency can somewhat fragmented have prevented peo- maximise the impact of the gift. ple from realising this. It is traditional in the UK to compare Scott Mead said: “The Blair government our philanthropic culture unfavourably to did dramatically improve the tax efficiency that of the US and to blame it at least part- for philanthropy. The problem is that it is ly on our tax regime. Many feel that the US still relatively cumbersome.” David Verey, system of straight deduction from pre-tax UK chairman of private equity firm income is simpler and more likely to pro- Blackstone, has extensive charity experience. mote giving. Scott Mead, a former partner He said: “When people say of the US, ‘oh we in Goldman Sachs, who has extensive expe- don’t have the tax system that they have,’ it’s rience of the US system says: ““In the US because they probably have the sense that giving is significantly easier - you give the American system is simple. Somehow or $100, that $100 goes to the charity, they other the sense that it is pretty easy over here keep it, and there is a deduction from your needs to be got across.” adjusted gross income. It is much more Some interviewees even argued that when straightforward.” However, this can only understood properly, our UK tax incentives work if individuals file a return before were better than those available anywhere deduction of tax. Whilst “tax complex” else. Jon Moulton, managing partner of high earners in the UK may file a return, Alchemy Partners, said: “Whatever else is they will also have income tax deducted at right or wrong in the UK, the charitable giv- source through PAYE, as do all those in ing tax structures are as favourable as any- full-time employment who are not self- where on earth. I think they’re better than employed. Therefore a fundamental change virtually all other jurisdictions. Gift Aid is a of the tax system would be required. huge benefit if you have got the income to The introduction of new tax incentives take advantage of it. I certainly have been for charitable gifts, particularly following clever enough to make sure that I’d rather the Finance Act 2000, has improved the the money ended up with a charity than possibilities for philanthropy in the UK. went towards the Iraq war.” Many of our interviewees who have made A complete overhaul of the tax system in it their business to understand the tax the UK to get to a US-style system for giv- incentives associated with giving believe ing is both impractical and according to

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The Private Equity Capital Partners, confirms that equity companies are just Foundation was created by its origins predate the attacks on waking up to philanthropy – a group of Europe’s leading private equity. Its ambitions are this is a great opportunity private equity firms as the to create a collaborative, indus- for the Private Equity philanthropic vehicle to rep- try-wide philanthropy vehicle Foundation. There are indi- resent their industry. Shaks committed to real social impact. viduals who are personally Ghosh is chief executive of Their newly appointed and privately very big givers the foundation. CEO, Shaks Ghosh, whose indeed. But I don’t think The Private Equity successful career has been in their companies have really Foundation (PEF) was a mile- the non-profit sector, is clear have got their heads around stone in philanthropic collabo- that “the foundation was corporate social responsibili- ration. In 2006 some 70 of launched because its time was ty and philanthropy.” She Europe’s top businesses in the right, it was of the moment. sees that as changing now that private equity “ecosphere” The trustees had a keen sense private equity is off the blocks, clubbed together to create a of responsibility, of wanting to and not for purely PR reasons. charitable foundation. Almost give something back.” She She feels that it is committed immediately, the foundation recalls that Ramez challenged to identifying social causes it found itself caught up in the the founders to think about can put substantial weight maelstrom of criticism of pri- making significant impact by behind: “We want to see a vate equity and facing unprece- collectively raising a signifi- needle shift on literacy, or dented public, trade union and cant sum, initially targeted at whatever social ill we focus government scrutiny. The foun- a national children’s charity. on, by getting our partner dation was an easy target for the Ghosh feels that private companies engaged in a way cynics, but its chairman, Ramez equity is the sleeping giant of that brings more than just a Sousou, CEO of TowerBrook philanthropy: “Many private cheque.”

many of our interviewees not necessary. for philanthropy. In section 4 on methods, Instead we assess how to simplify the exist- we consider other structures such as chari- ing system and refine the infrastructure so table trusts and donor-advised funds, as to lower the perceived barriers to giving which, while ensuring means are max- and maximise the effect of existing mecha- imised, are structures that break down the nisms. Maximising wealth through fiscal barriers to giving by providing user-friend- incentives is linked to the structure ly methodologies. employed for philanthropy. Means depend on methods to a certain extent and vice 3.2.1 Gift Aid versa. Gift Aid was introduced in 1990 and is the In this section we focus specifically on most commonly used form of tax relief on tax incentives available to maximise wealth donations in the UK: over 90 per cent of for philanthropy: Gift Aid, payroll giving all tax-efficient donations by value (exclud- and share giving are currently the main UK ing legacies) are made using Gift Aid.5 It tax breaks on gifts, but we also consider allows charities to claim basic rate tax on other means which are available in the US, donations made by UK taxpayers. Higher- such as charitable remainder trusts and rate taxpayers can also claim the difference asset gifting. These include new assets for between higher-rate and basic-rate tax as philanthropy, so we consider them in this personal tax relief. The general rationale is 5 Analysis of Giving Through Gift Aid, Charities Aid Foundation section on maximising wealth. However, that it is not appropriate to tax capital Briefing Paper, January 2006 some of these are linked to new methods being given away for the benefit of wider

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ICAP is the world’s largest by an employee dedicated to enough to have a real impact. inter-dealer broker. Chief the selection of the charities As the contribution is entirely executive Michael Spencer and the organisation. Nikki dependent on a day’s trading introduced ICAP’s annual Studt is currently ICAP’s char- which is, as Michael says, “in Charity Day in 1993, when ity co-ordinator. Michael says the lap of the gods”, it is also the company’s total daily rev- that is critical to participation important that a charity does enue and broker commissions and its operation. “You have not become dependent on are passed directly to selected to have someone who really, this. There is usually a theme charities. This innovative trad- really cares about Charity Day. each year – such as medical ing day has raised over £33 Nikki is absolutely passionate research, children, education. million since then. about it.” Charity Day is deliberately Michael Spencer says: “We Charity Day makes use of scheduled for December, close were being asked by our staff brokers’ professional skills for to Christmas, a time of giving to give to a charity here and a maximum philanthropic gain. and a time of fun. Making it charity there and it was in a As an interdealer broker, ICAP exciting and keeping the totally unstructured format. facilitates transactions between momentum up is Nikki’s We thought about how to banks and is paid a commis- biggest challenge. Patrons of make it more efficient and sion for this. On Charity Day, the chosen charities are invited how to motivate the whole ICAP takes its total revenues on to the trading floor firm and we came up with and commissions from all of Celebrities take client orders Charity Day.” its clients’ orders and distrib- and the opportunity to close a Michael is clear about the utes it all to charities that have deal with Prince William, motivation: “We have always been carefully selected and Cherie Blair or Elton John is a been very sensitive that our approved by a group of direc- significant driver of the rev- primary objective with tors. All of the brokers forsake enue. The whole day has a Charity Day, as a successful their commissions for the day party spirit with brokers dress- business that makes a lot of and are, in effect, giving their ing up (12 Joanna Lumleys money, is to give back to money directly to the cause. with beehive wigs and shaved society and make the staff This is the most effective legs the year she attended) and feel part of that giving.” way for a broker to raise big refreshments delivered to It is not compulsory for money fast for philanthropy. desks so that the employees do employees to participate. Brokers do what they do every not have to go out for lunch. However, Charity Day has day, with the extra satisfaction On the first Charity Day in become a part of ICAP’s cul- of giving to a cause. Clients 1993, ICAP had only 100 ture and the staff look for- also also enter into the spirit staff based in London. In ward to it. “The guys in of the event and tend to put 2007, Nikki co-ordinated London were very, very their orders through ICAP 3,500 staff in 31 centres enthusiastic and positive specifically because it is around the world – a massive about it from the outset and Charity Day. The company exercise. over the years it has given us does significantly more busi- Michael says: “It suits us all a strong sense of participa- ness on Charity Day than on ideally because we start at a tion and identity to a good any other day of the year. certain time in the morning, cause, not only in London, All the donations to the we finish at a certain time of but across all our offices glob- selected charities are one-off, day and then we are done. ally,” says Michael. to allow ICAP to give to as We tally up our revenues and Charity Day has always wide a group of charities and we know immediately what been professionally managed causes as possible, but sizeable we have achieved and the

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amount of money we have to give large sums to a small world.. During the year many raised”. number of charities or proj- of the beneficiaries come back Last year ICAP raised £7.1 ects and Nikki conducts due to ICAP to tell their stories to million out of annual revenues diligence to make sure that the brokers. For example of £1.1 billion. When Michael the money is spent wisely. Moorefields Eye Hospital is hears a sharp intake of ICAP has tried to support just by Broadgate where ICAP investor breath, he points out initiatives close to home. This is based and the company sup- that this is not a representative helps to generate enthusiasm ported the opening of the percentage as they do not do among employees – as many ICAP special eyes room in the that level of business on a nor- will have had direct experi- new children’s hospital. “It is mal day. ence with some of the chari- on our doorstep and every- Nikki spends the best part ties selected – and makes it one at ICAP can see physi- of the year filtering charities easier to monitor how the cally where the money has that ICAP might want to money is being spent. gone which creates a strong support. To make its philan- This strategy is repeated in connection and a constant thropy is effective ICAP likes ICAP’s offices around the incentive to do more.”

society. In effect, it costs a basic-rate tax- enabling charities to reclaim basic-rate tax payer 78p to donate a pound and a higher- on donations – many were either unaware of rate taxpayer 60p. The Finance Act 2000 the relief available for higher-rate taxpayers introduced a number of key changes to the or were discouraged from claiming it by the Gift Aid system. The main one was the requirement to keep records of all charitable removal of the £250 lower limit on dona- donations. This means that they are leaving tions, so that it is now possible to claim money available for themselves or the chari- Gift Aid on donations of any size. table sector with the Exchequer. It is impor- tant to note that those interviewees who had Benefit to Donors a charitable account found the administra- In 2004-05, the amount recouped by high- tion less of a barrier because the account er-rate taxpayers via the personal tax relief provider keeps the records on their behalf. on Gift Aid totalled £150 million. The The proportion of donors using Gift Charities Aid Foundation (CAF) has esti- Aid since the changes in 2000 has mated from this that the amount donated increased from less than 1 per cent in by higher rate taxpayers in this period, on 1999-2000, to around one third in 2004- which they received this personal tax relief, 05.8 The value of Gift Aid donations has was roughly £830 millon.6 This is almost grown on average at about 11 per cent a one third of the £2.8 billion gross that year since the system was set up in 1990. charities received from Gift Aid. Since However the average gift size has been higher-rate taxpayers make up only about falling since the tax changes in 2000.9 11 per cent of all UK taxpayers, this shows As a result of its research, CAF drew a that they make an important proportional number of conclusions about issues under- 6 This estimate assumes that contribution to charitable donations lying the trend of increasing Gift Aid higher-rate taxpayers reclaim the 7 personal relief on all their Gift through Gift Aid. donations: Aid donations. A survey on giving by wealthy people car-  A large proportion of the increase is 7 Analysis of Giving Through Gift ried out by Ipsos MORI for HM Revenue due to the conversion of existing Aid, Charities Aid Foundation Briefing Paper, January 2006 and Customs in April 2007 highlighted that donors and existing giving. 8 Ibid although most of the interviewees were  There have been few new donors as a 9 Ibid aware of the main function of Gift Aid – result of the scheme.

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 A small amount of new charitable understood the higher-rate relief: “In terms money has been generated. of the other element of Gift Aid-provision  A small number of larger gifts have for taxpayers to personally claim back the been raised. difference between basic and higher-rate tax – some large donors, who were unaware Benefit to charities of this rule prior to taking part in the Gift Aid has had a clear effect on the level research, thought they might give more to of income available for charities in the UK: charity now they were aware of this possi- in 2005-2006, £751 million of tax on con- bility.”13 The reduction in basic rate income tributions was recovered by charities tax from 22 per cent to 20 per cent, due in through the Gift Aid scheme.10 The value April 2008, will increase the value of the of gross individual donations made personal relief for higher rate tax payers to through the scheme rose from £0.8 billion 20 per cent from 18 per cent. to £1.8 billion between 1990-91 and There are frequent complaints that char- 2000-01, and then rose by another billion ities are overwhelmed by the administrative to £2.8 billion by 2004-05.11 burden of the Gift Aid system. One of the purposes of the removal of the £250 lower Gift Aid Issues limit on Gift Aid donations in the Finance Despite the success of Gift Aid in raising Act 2000 was to democratise tax-efficient the income of the charitable sector, there is charitable giving. One of the factors under- still concern that the benefits are not being pinning the overall increase in Gift Aid maximised. The National Council for donations, cited by CAF, has been the trend Voluntary Organisations (NCVO) esti- away from a smaller number of higher- mates that if there was full take up of Gift value donations to a larger number of Aid the amount recovered by charities lower-value ones. This has increased the would be nearer £1.5 billion, rather than amount of paperwork charities must do to the £751 million it stood at in 2005-06.12 reclaim the Gift Aid money owed to them. Although Gift Aid has increased the amount of money available to charities, Existing Proposals for Changes there is still a significant gap between the In response, in June 2007 the Treasury potential benefits of the scheme and the announced a consultation with the charita- actual benefits accrued. Understanding of ble sector on the issues affecting Gift Aid Gift Aid by donors and charities has and a number of voluntary sector organisa- improved in recent years and research by tions have submitted their views. There are both CAF and HM Revenue and Customs two main proposals for Gift Aid reform shows that the fundamental basic-rate tax that would have a major impact on donors: reclaim by charities is now fairly well understood. Our own poll of senior 1) Flat Rate VAT-Style

employees at Citi in the UK showed that This proposal advocates simplifying the 10 Proposals for the Future of 83 per cent of them used Gift Aid when mechanism by which charities reclaim tax Gift Aid: A Consultation Paper, National Council for Voluntary making donations. However, there is still through Gift Aid. Rather than having to Organisations, July 2007 confusion among higher-rate taxpayers obtain and verify individual declarations 11 CAF op cit over the additional personal tax relief avail- from every donor, charities would automat- 12 NCVO op cit able to them as the recent Ipsos MORI ically receive an amount from the Treasury 13 Charitable Giving by Wealthy People, for HM Revenue and study for HM Revenue and Customs high- based on an assumed percentage of donors Customs by Ipsos MORI, April lighted. The research had a positive out- who are taxpayers. The Social Justice Policy 2007 come in that some of the interviewees said Group (SJP) suggested that this percentage 14 Breakthrough Britain vol 6: Third Sector, Social Justice 14 their giving would increase now that they may be as high as 80-85 per cent. Policy Group, July 2007

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Supporters argue that it would reduce charity and one by the donor. This opens the administrative burden on charities, par- up the issue of whether tax relief should go ticularly beneficial to medium and smaller- entirely to the charity or entirely to the size organisations, and solve the problem of donor. the large amounts of unclaimed Gift Aid. NCVO suggests a change to a system in Critics say it removes the donor incen- which the full rate of a donor’s tax can be tive of Gift Aid entirely. NCVO has sug- reclaimed by the charity, regardless of what gested that this is not a problem because rate they pay: “Given that there is little use “Gift Aid is not a mechanism to drive up of the individual tax rebate to higher-rate giving; it is only a mechanism to drive up taxpayers, government should explore the amount raised through donations.”15 mechanisms to enable these individuals to This appears to be at odds with CAF’s view make Gift Aid donations at the higher tax that: “The aim of allowing higher-rate tax- rate at the time of making a donation as payers to reclaim the marginal rate of cur- well as at the end of the tax year. rently 18 per cent on donations is to incen- Consideration should also be given to the tivise them to both give, and to increase anomalies in the current system, which their giving.”16 These differing views per- provides an individual incentive for chari- fectly illustrate a critical problem: there is table giving to higher-rate taxpayers but little agreement as to the actual purpose of not to other taxpayers”.18 Gift Aid. Philanthropy UK, the Association of It also removes the right of choice from Charitable Foundations (ACF) and CAF the donor over whether or not to make a have all opposed this, arguing that the Gift Aid declaration. CAF argues that it removal of the donor benefit for higher- should remain the right of the donor to rate taxpayers would be detrimental. decide and it should not be a universal right Research conducted by Philanthropy UK,19 of all donations. In CAF’s view, breaking CAF and HM Revenue and Customs20 has the link between donor assent and tax suggested that the higher-rate incentive is reclaim would move Gift Aid from the important for determining the amount of realms of tax reallocation to that of “grant giving even if it is not a direct motivator to monies” and thus fundamentally alter gov- the act of giving. ernment attitudes to it. NCVO agrees: “If Philanthropy UK and others have the scheme were altered, for example argued that the full tax benefit should go through introduction of a ‘flat Gift Aid to the donor. This is based on attitudes of rate’ the nature of this funding would alter wealthy donors, many of whom are advo- from a tax rebate to government funding. cates of the US system of tax relief. This would bring the scheme into public However, this prompts concerns over the expenditure and public spending totals potentially detrimental effect on income controlled by the Chancellor. Thus, the for the charitable sector. David Dixon, Exchequer would then specify the purposes writing in the Philanthropy UK newsletter 15 NCVO, op cit of these monies…Such changes could also claimed that: “Any move to allow the 16 Response to HMRC Gift Aid Consultation, Charities Aid have potentially detrimental implications donor to reclaim all tax relief would be dis- Foundation, September 2007 for the relationship between charities and astrous for charities because only a propor- 17 NCVO, op cit donors.”17 tion of donors would give the tax relief 18 Ibid back to the charity, so many millions of 19 Why Rich People Give, 2) Abolition of dual-rate system pounds in Gift Aid income would be lost Philanthropy UK, 2004 Another proposal advocates abolition of to charities.”21 20 Ipsos MORI, op cit

21 Philanthropy UK e-newsletter the differing treatment of basic and higher- A division between small gifts, on which Summer 2006 rate tax, in which one is reclaimed by the the tax benefit goes to the charity, and

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large gifts on which the full benefit goes to Our interviews, like the research by the donor has been mooted by Ipsos MORI and Philanthropy UK, sug- Philanthropy UK: “A key finding from our gest that the personal tax reclaim acts as an 2004 research [is] that wealthy, active phi- incentive for higher-rate taxpayer donors lanthropists want to be able to claim back in some cases. The evidence is anecdotal the full relief (including the basic rate) in and it is impossible to put a definite figure self assessment. Essentially our research on the value added by the higher-rate suggested that for a gift over £x amount, relief. The Ipsos MORI research highlights the tax relief should go fully to the that the administrative burden of itemising donor.”22 donations on a personal tax return is a pos- sible barrier to reclaiming higher-rate Resolving differences in existing proposals relief. Our interviews suggest that this is In the US any itemising taxpayer can set less likely at the highest levels of giving the value of charitable donations (up to a since the reclaim available outweighs the limit) against their gross income for the administrative burden. year and reduce their tax bill and benefit Any unclaimed personal Gift Aid relief from the tax advantage. However, because remains with the exchequer. In recognition all those in full-time employment in the of the fact that there are higher rate taxpay- UK who are not self-employed pay ers who would prefer their unclaimed ben- income tax through PAYE, tax relief on efit to go to the charitable sector instead, charitable donations comes in the form of proposals have been made to introduce a a reclaim rather than a deduction. The separate tick-box on the Gift Aid declara- difficulties arise due to the differing treat- tion for these higher rate taxpayers. ments of basic and higher-rate tax. The However, this raises issues of extra admin- rationale behind the basic-rate relief is istration for charities and concern for high- that the repaid tax must go to the charity er-rate donors over how the information to which the original donation was desig- on the declaration would be used and nated. The rationale behind the higher whether they would be singled out for sub- rate is that the basic-rate relief must go to sequent fundraising. the designated charity, but the donor must retain choice over what to do with Maximising wealth through Gift Aid the remaining tax (if they reclaim it). An anonymous way of achieving the same Currently Gift Aid tries to be all things result would be to introduce a separate sec- to all people. It aims to enable charities to tion on the tax form to specify use of the maximise the value of donations and act as higher-rate relief and allow individuals to a tax-break for donors to encourage more direct it to an approved charity. This giving. To shift away from the former aim improves on the current system of self- 24 would result in an immediate loss of assessment giving, by distinguishing 22, Consultation on Gift Aid income to charities with no certain between charitable reclaims (the exact Comments from Philanthropy UK and the Association of increase in levels of giving. To shift away amount of which is known in advance as a Charitable Foundations, from the latter aim could reduce the result of the split reclaim mechanism) and September 2007 amounts given by higher-rate tax payers. other tax refunds. It would be possible for 23 Ibid Philanthropy UK tried to bridge this with a higher-rate donor to give their relief to 24 Self- Assessment giving (or SA Donate) is an initiative that its proposal to introduce a limit on dona- any charity under this system, but if indi- enables anyone completing a tions above which the full tax benefit viduals nominated their charitable account self-assessment tax return to nominate a charity from an would go to the donor.23 However, deter- as the recipient they would increase their approved list to receive all or part of any repayment due to mining what counts as a “major gift” is pool of funds for philanthropy and have them. See www.hmrc.gov.uk/ problematic. control over their use. charities/donors/sadonate.htm

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Hedge fund managers’ pay structures: annual lump sums of cash Hedge fund managers are typically paid based on a “2-and-20” structure, consisting of a 2 per cent management fee, on top of which they take 20 per cent of any profits.25 Compensation is paid in a lump sum at year end making hedge fund managers key potential beneficiaries of higher-rate Gift Aid. This also makes them target users of charitable accounts and trusts, given the ability they pro- vide to park funds and use them when desired (see sections 4.2.1. and 4.2.2.).

Furthermore, if the individual’s charita- the donor. Although the benefit to chari- ble account provider was authorised by ties from payroll giving may seem less than higher-rate taxpaying donors to reclaim Gift-Aided cash donations where they the refund directly for their account, the reclaim the basic rate tax relief, in the administrative barrier associated with the longer term the sector benefits from the reclaim would be removed. Given that the provision of a regular, guaranteed source of charitable account providers already pro- income. vide the statements detailing donations Payroll giving schemes are administered that donors use to make reclaims, empow- by a number of different agencies, such as ering them to action the reclaim is the next the Charities Aid Foundation, Charities step. Trust, the Charity Service Ltd and The additional funds to charities and Working For Good. All these agencies are the reclaim for the higher-rate donor under charities in their own right. A small fee – Gift Aid are both attractive, but the donor usually no more than 4 per cent or 35p per element is complex and not fully under- donation, whichever is the greater – may stood. Retaining those benefits, but adopt- be deducted from a donor’s gift to meet the ing a giving methodology that removes the agency’s administration costs. However, barrier of complexity would prompt maxi- some employers will pay the agency’s mum, easy use of the incentive. We discuss charges so that the full amount of the gift charitable accounts as a core methodology can go to the employee’s chosen charity. for efficient and organised philanthropy in Almost £89 million was donated Section 4. through payroll giving from April 2006 to March 2007 (a 4.7 per cent increase from 3.2.2 Payroll Giving and Matching the previous year) and about 645,000 Payroll giving has enabled employees of employees participated in the scheme.26 participating companies to make regular The number of participating employers pre-tax donations to nominated charities rose sharply, by 39 per cent, in this period, directly from their pay since 1987. as more small and medium-size businesses Donations are deducted from the payroll instituted payroll giving after the introduc- before PAYE tax so there is a reduction in tion of the grants programme. This ran the amount of income tax deducted from from January 2005 to December 2006, the donor’s pay providing immediate relief and offered £500 to any SME (with fewer at the donor’s highest rate of income tax. If than 500 employees) that set up a payroll an employee paying basic-rate tax donates giving system, as well as providing match- £10 through payroll giving, they receive ing for the first £10 of each employee’s relief on £2.20 worth of tax, so the effec- monthly donations for six months up to

25 www.hedgeworld.com/ edu- tive cost to them of the donation is £7.80. March 2007. cation/index.cgi?page=hedge_fu For a higher-rate taxpayer the advantage is However, payroll giving remains the sick nd_basics even greater, as a donation of £10 will cost man of charity fundraising, as it fails to 26 www.payrollgivingcentre.org. uk/facts per cent20figures.htm them only £6 and the entire relief goes to gain traction amongst companies and

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employees. Now in its tenth year, payroll incentive for giving. Mark Evans, head of giving attracts overall no more than 3 per family business and philanthropy at Coutts cent of the British workforce.27 In response private bank, summed this up: “One of the to this poor take up, the Institute of things that can be helpful in getting people Fundraising has launched a root-and- started is a corporate matched giving branch review of the scheme following its scheme. That and setting up a charity return to the Home Office of nearly half of account to make it easy to keep track of a £8.3 million Home Office grant.28 The their charitable donations.” grant was given to help the Institute pro- However, some interviewees felt that the mote payroll giving but half the firms ben- full potential of matched funding has not efiting from grant support failed to recruit been reached. Paul Molloy, managing more than one new employee donor. The director of Compton Fundraising, com- Association of Payroll Giving mented: “Matched giving programmes can Organisations was launched in October be very powerful. Unfortunately, they tend 2007 with the aim of improving uptake not to be well publicised – internally or and operations, but it will be no easy task externally. Particularly by the banks. to make payroll giving schemes attractive Consequently, from what I’ve seen, there’s to employers, who often view them as an a great store of potential matched funding administrative chore adding little in the that’s never called upon.” way of competitive advantage. 3.2.3 Share Giving Maximising wealth through payroll giving Share giving was one of the three policies and matching introduced in the 2000 Budget to increase Payroll giving encourages regular, tax effi- giving in Britain, along with the amend- cient donations and we discuss it as a core ments to Gift Aid and the 10 per cent pay- methodology for “funding” a charitable roll giving supplement. However, despite account in section 4. Despite the poor take the fact that the tax benefits available for up in general, there are beacons of success. share giving are the most generous avail- Private bank C. Hoare & Co reports that able, it remains probably the least well- one third of its staff participate in payroll known and least used of tax-efficient giving, thanks in large part to the leadership means of giving. of its senior partners. Royal Mail achieves a In addition to the standard relief on cap- 25 per cent take up in the scheme by its ital gains tax (CGT) that applies to all workforce, because of long term promotion charitable gifts of shares and land, there is within the company, a careful choice of personal income tax relief at the highest charity partners and the services of a profes- level paid by the donor. When shares are sional fundraising partner. donated to a charity, the disposal is treated There is untapped potential to weave pay- as having been made on a no gain, no loss roll giving into the cultural fabric of a com- basis for CGT purposes. The income tax pany in the FSI. It is the first step in creat- relief available is calculated by taking the ing the habit of philanthropy across the market value of the shares at the time of workforce. Linked to an individual’s own the donation, deducting any consideration

company charitable account it can provide a given by the charity and then adding back 27 “Institute of Fundraising solid base of charitable funds, which can be any incidental cost of making the gift. This launches payroll giving review,” Institute of Fundraising Press supplemented by Gift Aid donations, shares amount is treated as income and the tax Release 13 June 2007 and company matching schemes. calculated accordingly. This gives the value 28 Rigby E, “Recriminations begin over payroll giving Our interviews confirmed that match- of the deduction that can be made against scheme”, Third Sector, 6 June ing donations is considered an effective income tax paid for the year. 2007

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Investment banking pay structures: major components of shares Investment bank salaries comprise large annual bonuses which can be the size of base annual salaries many times over. They are designed to make overall remuneration heavily dependent on performance. Senior employees are frequently paid with a large proportion of restricted shares or options: the inten- tion is to align motivations more closely to those of the company and to retain talent. In years of weak company performance they provide a low cost alternative to cash. In 2007 there has been much report- ing of high expected levels of shares and options in bonuses. A windfall of shares or share options once a year at bonus time makes investment bankers a critical target for gifting shares for philanthropy.

For example: you decide to donate price of £30,000 from the charity for the £100,000 worth of shares, which you origi- shares, plus £28,000 in income tax relief on nally bought for £30,000. You have made a the £70,000 gift value, for a total of gain of £70,000 on the shares and if you £58,000. The charity has a gift of £70,000. sold them at the market value you would be However, the charity is “at risk” as it has charged 40 per cent CGT which is paid a purchase price for the shares. £28,000. However by gifting them, you are It was apparent from our interviews that not charged CGT and you would be able to levels of share giving are low and the tax take 40 per cent of the market value of the mechanism is not well understood. For shares in personal income tax relief, in this instance, our poll of senior Citi employees case, that means 40 per cent of £100,000 in the UK showed that only 6 per cent of which is £40,000 relief. You save yourself those polled had ever given shares. There being charged £28,000 in CGT and you was a clear sense from those who did under- benefit from £40,000 in income tax relief. stand the mechanism that there is greater So you have managed to make a tax free gift potential for giving in this way, particularly of £100,000 to charity. If you had given from professionals in the financial services cash, as a higher-rate tax payer you would industry who understand complex financial have received only the difference between and tax structures. basic and higher- rate tax. So the incentive Harvey McGrath, former chairman of to give shares is greater for the donor. Man Group (31), emphasised the potential It is also possible to increase your benefit attractiveness of share giving to profession- by selling the shares to the charity at the als in the FSI when he said: “Yes it seems price they were purchased at, rather than complicated, and I can sympathise, but gifting them in their entirety at the current remember a lot of these people we’re talking market value. So in our example, this about eat and drink this stuff. So I find it would mean that instead of donating the surprising that they don’t appear to be par- £100,000 of shares, you sell them to the ticularly aware of it and clearly don’t under- charity at the original purchase price of stand it. From my point of view, having £30,000. The charity then owns shares enjoyed the opportunity to own equity in worth £100,000 for which they have paid the public company I have worked for, this £30,000 and the remaining £70,000 is regime is attractive. Gifting shares to chari- treated as the amount of the gift. It is on ty at their market value; deducting that this sum that the tax reliefs are calculated. value from taxable income and not having The CGT saving is 40 per cent of £70,000, capital gains liability is very appealing.” which is £28,000. The personal income tax relief is calculated as 40 per cent of £70,000 Maximising wealth through share giving rather than £100,000, which is £28,000. Anna Josse of Prism Charity (70) said: So the donor recoups the original purchase “Gifting shares is incredibly tax efficient

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Share and Share Alike is shares to charities approved by The way it works is that the brainchild of Richard the Eurovestech board each Richard pays the par value for Bernstein, chief executive of year and sees it as his responsi- the shares and the company Eurovestech plc. It has applied bility to carry this on over then gifts them to the chari- to become a registered charity, time and, crucially, to get ties. The shares are of course allowing it to receive company other listed companies to fol- worth their market value. shares and gift them on to low his lead. Lots of people Some would say that the char- charities. ask him questions about risk, ity is then holding a risky When Richard floated his dilution and the administra- piece of paper, and that may high tech venture capital com- tive burden, but he can well be so: Eurovestech is a pany, Eurovestech, on the explain them all away: “When venture capital fund which is London Stock Exchange in you see that issuing a piece of not low risk in investment 2000, he piled most of his paper translates into helping terms. But the charity did not money into the company in a good causes, then you will buy the piece of paper, it was personal investment of £2 mil- realise that there is no catch.” a gift, so if the market value lion on the same terms as Although he is predominantly declines during the time the institutional investors. This motivated by his desire to be charity holds the shares, it will meant that he had little liquid philanthropic, he is also an still be greater than zero when cash assets left for philanthro- entrepreneur and is excited the charity decides to sell; the py, but as the founder and a that his idea could generate charity itself has not taken on significant shareholder, he was millions in long-term finance any of the risk. able to influence the compa- for charities. “Over the last In fact, most of the down- ny’s direction. He has built his five years we have created side falls on Richard, who has career on understanding com- and gifted several million to pay for the shares with his panies and markets: shares which have a value of own money at nominal value: Eurovestech is one of the best over £1.5 million to dozens £77,000 over the past seven performing technology funds of charities, so we have years. The 1p par value of the in Europe, having quadrupled already proven that there is a shares compares to the 21p since 2000. huge, untapped pool of current price, so charities have He felt very aware of funds for charities”, he says. received more than £1.5 mil- wealth creation in the City Richard implements lion of donations. However, and in technology at the Eurovestech’s share gifts him- he does not get tax breaks or height of dot.com boom and self. It is, he says, “very sim- incentives of any kind because he desperately wanted his ple”. In his own words: “Step although he pays for the new company to fulfil its 1, raise it as an item a board shares, they are not gifted by responsibility to society at meeting for a vote; step 2 him but by the company. This large; he also wanted to be announce it to the Stock means that they do not qualify able to engage in philanthro- Exchange; step 3 fill out a under the current tax legisla- py himself. At the outset, he form and file it at Companies tion. In addition, although the decided that this would be House to record that there are shares are a gift paid for by the part of his and the company’s more shares in issue.” He has chief executive, they have to strategy and anybody who set up a stand-alone charitable go through the company’s bought into the company vehicle, Share and Share Alike, profit and loss account as a would have to support this in order to bring other com- “cost” at market value which is charitable initiative. panies on board. The other a communications issue only, Richard is resolute about alternative now, of course, will but significant nonetheless. gifting a certain number of be to give the shares to it. Previously the disposal as a

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“gift” would only be reflected Many would ask why he the donation is unrestricted. on the balance sheet, but bothers. Why not just give the Some know immediately what accounting standards now cash? Quite simply, he feels a they want to do with the require that these donations desire to be philanthropic and funds, sell the shares and allo- be treated as share-based pay- this is the only way he can do cate the capital straight away; ments. it, as Eurovestech does not others hold them for a while. The only real concern with have pools of ready cash. There are encouraging gifting new shares “lies in the Setting up Share and Share signs that Share and Share quantum of shares issued and Alike is the next step. Richard Alike is gathering momentum. gifted”, says Richard. It is true has worked out that if all the In April 2007, online market that any issue of new shares top FTSE100 companies cre- research company Toluna plc, creates dilution to a degree ated new shares and gifted to became the second listed com- and that can have an impact charities just 0.1 per cent of pany to gift shares – to a total on the market price of existing their share stock it would have of five charities chosen by the shares. Richard’s vision lay in an enormous impact. The company’s 100 staff and in putting his strategy for average market value of a November 2007, shareholders Eurovestech into the compa- FTSE 100 company is about in fleet management company ny’s prospectus for its initial £13 billion, a tenth of 1per Helphire plc, approved the public offering, so anybody cent is £13 million pounds for issue of up to £4 million of who bought shares in the each company and so for 100 shares for charitable causes. company at the beginning also companies that is £1.3 billion. As the founder of a tech- bought into the charitable Under this structure, there nology fund, Richard is fierce- share gifting as part of the is also the potential to build ly protective of the rights and core company strategy. up a vast endowment for patents of the companies in But he also counters this Share and Share Alike to which Eurovestech invests. Yet concern by gifting only small manage in the very long in the case of Share and Share amounts of shares at any one term. Indeed, if the top FTSE Alike, he is anxious to get as time: since 2000, there are 2.5 100 companies were to give many companies as possible per cent more shares in issue £1.3 billion of stock, the divi- to copy him. As he says: “If as a result of charitable dona- dends of those shares would three people sitting in one tions. Initially, he was also be £400 million per annum at room in Central London careful to ask charities to hold current average rates. have already gifted more the shares for a year after the Richard says that he sees than £1.5 million to worthy IPO so that their sale could positive reactions from chari- causes, just think how much not affect market perform- ties. They particularly wel- could be raised if other com- ance. come the fact that the use of panies follow suit.”

but the Government has not pushed it and plexities is moved on to Anna; by using a the awareness is very low”. She is con- charitable account or trust, the burden is cerned that people talk about the tax moved on to the provider or administrator incentives on share gifting as being “too (as we discuss in Section 4 on methods). If complex” as they are “about as attractive as the administrative burden is removed from they could be” and it would be a shame if the donor by adopting one of these meth- the government changed them. There are ods, there is potential for an increase in lev- ways to reduce administrative complexity els of share giving, making a significant for donors. By using Prism’s donor-advised contribution to maximising the philan- fund method, the burden of the tax com- thropic pool of funds. Anna supports a

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campaign to raise awareness about the charity in a will. However, there are sev- attractive fiscal incentives for giving shares eral important differences for the benefi- so that more people understand the bene- ciary. Lifetime gifts are preferable because fits of share gifts, whichever methodology once made they are legally irrevocable, is adopted. whereas a gift made in a will can be altered right up until the point of death. 3.2.4 Charitable Remainder The certainty provided by the legal Trusts (CRTs) titling enables charities to engage in long- CRTs are planned giving vehicles available term planning. The donor, as well as ben- in the US. A donor can transfer assets to a efiting from income and inheritance tax special trust fund that has a legally guaran- relief, sees the benefit of the gift, receives teed recipient charity. The donor receives recognition and enjoys a relationship regular payments from the fund, based on with the recipient charity. a percentage of the principal, until his Theoretically it is possible to establish a death or for a maximum period of 20 CRT-like vehicle in the UK, but there are years. On the donor’s death or the spouse’s no tax advantages to doing so. Under UK death, whichever is the later, the funds left law a gift of assets can count as a charitable in the trust go to the nominated charity donation for tax purposes only if a donor (the charitable remainder). All gifts of does not retain any interest in, or control assets into CRTs are free of capital gains over, the gift, and does not derive any tax, and are removed from the donor’s tax- financial benefit from the gift. able estate. In addition, there is an imme- The report of the government’s task diate income tax deduction of between 30 force on voluntary giving to higher educa- and 70 per cent, depending on an actuari- tion in 2004 explained: “These principles al calculation based on the donor’s age and are sound in assessing the true charitable the payout rate. value of a gift. For instance, where a donor There are also other kinds of planned giv- gives a gift of £10,000 and receives bene- ing vehicles in the US, all of which enable fits-in-kind of £1,000 from the charity, the donors legally to gift assets to charity while gift should be treated as £9,000 for tax retaining some benefit during their lifetime. relief purposes. Similarly, where a donor These have been effective in encouraging giv- retains an interest in the gift of an asset, the ing among the so-called “mass affluent” – market value of this interest should be people who perhaps are not rich in cash deducted before calculating the true chari- terms, but who are comfortably off and may table value of the gift for tax relief purpos- have significant illiquid assets such as proper- es. However, instead of performing these ty. Their popularity is attributed to their abil- calculations, the whole gift is treated as ity to remove concerns about future changes ineligible for tax relief.”29 in an individual’s financial situation. The Institute for Philanthropy has also 29 “Increasing Voluntary Giving Individuals are more likely to part with a size- explained that changing the capital gains to Higher Education: Task Force Report to Government”, Task able sum if they are assured of an annual pay- tax treatment of CRTs in particular would Force on Voluntary Giving to out regardless of changes in their personal cir- not, over an extended period of time result Higher Education, 2004 cumstances. This is particularly the case with in “a significant loss of revenue, since it is 30 Lifetime Legacies, Institute for Philanthropy Briefing Paper, gifts of illiquid assets such as property and merely bringing forward the capital gains 2004

there are even vehicles in the US that allow tax relief [on legacy gifts] rather than intro- 31 See, for example, above ref- individuals to gift a property while retaining ducing a new relief.”30 erenced Institute for Philanthropy paper, available at: the right to live in it until death. Despite being raised with Government www.instituteforphilanthropy.org. Many of the features of gifting in this there has been no apparent movement uk/CobraManagedFiles/ Briefing_Paper_on_Lifetime_ way are similar to leaving legacies to towards introducing lifetime legacies.31 Legacies_1.pdf

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This appears to be partly due to concerns Although it is difficult to give exact fig- about tax abuse. Lord McKenzie of Luton ures, one estimate puts the potential stated as part of the Common’s response income for the charity sector that could during the House of Lords debate on be generated by these vehicles in the long CRTs: “There is evidence that existing term at £10 billion.36 Theresa Lloyd said: reliefs for charitable giving are abused and “It is those incentives which have the we would want to be very careful that any potential to underpin giving by what you new reliefs would not be abused.”32 It is might call the mass affluent; the kind of also partly due to a lack of evidence that people who do give to charity. An they would add significant benefit beyond increasing number of them either don’t the existing tax reliefs. Again, Lord have children, or don’t want to leave them McKenzie said: “With so much more to too much. They have done relatively well achieve through the current reliefs, we out of property, perhaps have savings and need to consider very carefully whether a good pension, but they are not going to any new relief would bring about addi- give a big capital sum because they need tional giving and whether that additional or may need the income, and because giving would outweigh the costs they feel uncertain about the demands of involved.”33 their old age and so on. In the US it also There are claims that there is no applies to gifts in kind such as property. A demand for structures of this kind in the classic experience is the gift of for exam- UK. Lord MacKenzie argued: “Charitable ple a second home, received by the bene- remainder trusts are complex vehicles for ficiary institution on the second death in most donors and charities to understand, a marriage or partnership….. if you look and it is not clear that there is a market for for example at Harvard, their endowment such a method of giving in the UK.”34 went up enormously in the years after However, many people are not aware that charitable remainder trusts had come in – such vehicles exist. I believe such split interest mechanisms account for over 40 per cent of their Maximising wealth through CRTs endowment.” Those of our interviewees who were aware of CRTs mostly thought that the issue 3.2.5 Gifting assets had not been given sufficient considera- In the US the value of any asset gifted to tion. Those with US experience tended to charity can be deducted from income, up think that there were substantial benefits to a maximum of 50 per cent of adjusted associated with being able to make life- gross income (AGI). Any unused deduc- time gifts. Former private equity profes- tion can be carried over to the next tax

32 Lord McKenzie of Luton’s sional and chairman of The Sutton Trust, year, for up to a maximum of five years. contribution to the House of Sir Peter Lampl (68) said: “There’s loads This applies, with a few stated excep- Lords debate on CRTs. See www.theyworkforyou.com/lords/ of people sitting on outrageously over-val- tions, to anything from clothes donated ?id=2006-02-07c.589.3 ued assets in their houses and a lot of to a thrift store to major works of art. 33 Ibid them don’t have anywhere else to leave it, Due to the high value of works of art and 34 Ibid and hey, you know, if you could give your the potential implications of offering tax 35 Lifetime Legacies, Institute for Philanthropy Briefing Paper, house to a university or another charity, relief on gifts of them, there are specific 2004 do some good, and perhaps get some rules concerning these donations. 36 See Lord Lyell of Markyate’s recognition then surely that’s appealing?” Gifts of art are eligible for tax relief in contribution to the House of Lords debate on CRTs, 7 The introduction of lifetime legacies in the US if a donor owns 100 per cent of February 2006. www.theywork the UK could have as big an effect on the an artwork and donates their entire inter- foryou.com/lords/?id=2006-02- 07c.589.3 mass affluent as has been seen in the US.35 est. Then the gift is made free of CGT

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Private Equity Pay Structures – limited partners hold unlisted shares/company stakes Private equity funds are typically structured as limited partnerships. The general partner (GP) of the fund will normally be the promoter of the fund or an entity related to it. The GP will normally receive an annual general partner’s share, used to pay for fund management activities. For a smaller fund (£5m-£30m) the GP share is in the 2 per cent to 2.5 per cent range a year. For larger funds (above £250m) the fee may be only 1 per cent to 1.25 per cent. The manager will also receive fees from portfolio companies once investments are made (usually between 0.5 per cent and 1 per cent). These may go back into the fund to offset the annual management fee and thereby increase the car- ried interest payable.37 The investors in a private equity fund are the limited partners who hold stakes in private compa- nies in which the fund has invested – making them interesting targets should tax breaks for gifts of unlisted shares be introduced. When portfolio companies are divested, the fund will distribute the proceeds to the limited partners until the value of their capital contributions has been returned to them in addition to an amount representing a return on their investment (the “preferred return”). This is usually calculated as 6 to 8 per cent of the fund’s invested capital a year. The general partner is entitled to 20 per cent of the overall profits remaining once the limited partners have received their capital and preferred interest – this is the carried interest.

and the donor can take a deduction of up shares and land or buildings are also eli- to 50 per cent of adjusted gross income gible for income tax relief (see 3.2.3 on (AGI) for the year. Any unused deduc- share giving). This does not include tion can be carried over to the next tax assets such as unquoted shares or tangi- year, for a maximum of five years. ble personal property. There is little evi- Donors used to be able to make gifts of dence of pent up demand for tax relief fractional interests in works of art, but on gifts of unquoted shares but the task this was changed because of concerns force on voluntary giving to higher edu- about tax avoidance – owners would cation did note in its report to make a fractional gift each year and offset Government that: “an adviser to wealthy the value of that gift against their income individuals has commented that in seek- each time. The Pension Protection Act ing to maintain a balanced portfolio of (2006) changed the tax treatment so that shares, individuals may want to give a fractional interest in an artwork can unquoted shares but are reluctant to do only be made if the donor has 100 per so without tax relief.”39 cent ownership of the artwork prior to The debate on gifts of assets in the UK the gift.38 There is also no tax relief on has focused on works of art. The 37 See, for instance, Kensington subsequent fractional donations and if Goodison Review in 2004 recommended Capital Partners website, www.kcpl.ca/private_equity/stru the artwork is not contributed to the that: “Donors of pre-eminent objects to cture

charity within ten years of the initial gift Schedule 3 bodies and registered muse- 38 See www.dol.gov/ebsa/pdf/p or at the donor’s earlier death, the donor ums should be able to offset the gross pa2006.pdf must recapture the full charitable income value of the gift against income before 39 “Increasing Voluntary Giving to Higher Education: Task Force and gift tax deductions plus interest and liability to income tax, eliminating any Report to Government”, Task pay an additional 10 per cent tax on this liability to inheritance tax and capital Force on Voluntary Giving to Higher Education, 2004

amount. gains tax on disposal of the objects, and 40 Goodison N, Goodison Gifts of non-monetary assets in should be able to allocate the value in Review:, Securing the Best for Museums: Private Giving and Britain are made free of CGT. Gifts of instalments against gross income over Government Support, HM so-called qualifying investments of listed successive tax years”.40 The task force on Treasury, January 2004

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For the past seven years jokingly, it seems now a very interest free loans. The whole Vernon Ellis has been inter- “rash decision”. But at the approach is to maximize the national chairman at same time, there is pride in tax efficiency of giving so that Accenture, the management really having made a differ- there is more money to give consultancy and outsourcing ence to a vital project. And longer term. company. Now, his role is part also the whole experience did Taking a longer term view, time and he holds multiple galvanise him to “try to be he is clear that he does not board positions with philan- more organised”. wish to leave too much thropic organisations includ- He set up his own foun- money to his children when ing chairman of English dation, which was “more he dies, saying that it “can be National Opera (ENO) and convenient and tax efficient damaging”. His children the Classical Opera Company and enables easy transfers of agree with this. But he has and trustee of the Royal cash or shares to it every year involved them and other fam- College of Music. In the past whilst eliminating income ily members as trustees of his three years he has also been taxes”. That may sound rather foundation and invites them chairman of Mission, Models clinical and tax driven, but to suggest donations and to and Money (MMM), a Vernon’s approach to his phil- set a direction for the founda- research and advocacy group anthropic activity is to max- tion after he dies. (The estate, for the sustainability of the imise his resources and use after specific donations, will arts. them to the best advantage so pass to the foundation). Vernon has a passion for that he can have as wide an Although he does fund music, so when ENO impact as possible and enjoy some medical and some devel- launched an appeal for the the results of his philanthropy opment projects on an ad hoc restoration of the Coliseum in to the full. basis, his passion is for music. 2001, shortly after he had He is savvy on the tax He is personally involved with become a director there, he advantages that he gains from many of the organisations he naturally wanted to partici- approaching his philanthropy supports, offering his time and pate. They needed to raise £18 in a structured manner and he his management skills to them. million from individuals and was quick off the mark on “You are drawn to what you trusts to complement £23 mil- this. When Accenture went know and people you know lion of public money; the bulk public, the income of all and then you see the long term of this had to be raised before employees was going to be effects of your input first hand the public funders would half what it had been when it which is fun and rewarding.” commit to the project. This was a partnership organisa- And that connection is coincided with the flotation of tion. If he could establish the strengthened not only by his Accenture, for which he charitable trust and make sub- involvement in musical organ- received a significant alloca- stantial gifts to it before the izations, but also by his open- tion of shares. The quest for end of the tax year, he could ing up of his London home to private funders was going well significantly reduce, or even a whole host of musical activi- but a significant gap needed eliminate, the tax on that last ties – rehearsals, auditions, filling if the project was to year of significant partnership master classes and concerts – start on time. Vernon decided earnings. He then structured both fundraising and in prepa- to fill it by committing £5 later gifts over a number of ration for major public con- million. Looking back, he sees years so he could match his certs. He employs an assistant this as an instinctive move to (“much declining”) income to look after these activities help to secure the project. and meanwhile help the and she also acts as the admin- With hindsight, he says half- restoration funding through istrator for a young string

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quartet that is establishing a tion allows me to control cello). Here, a syndicate of new festival in Folkestone. how I distribute the money donors support a musician to Vernon’s philanthropic work over time and to be more buy an upgraded instrument is clearly the enjoyable part of planned in my approach”. in order to develop his or her his life and he couldn’t imagine He is focused on the sustain- musical career and “in 10 to it any other way now. He says ability of charitable organisa- 30 years time when the of others: “When people make tions, particularly in the arts: instrument is sold, the syndi- a lot of money, some tend to “The least satisfying thing is cate will get their share of its take early retirement, play golf, to keep contributing to a pot value at that time, which may hang around on yachts for a that keeps people afloat each or may not be at a gain. This while, then later decide they year because you don’t see is long term “patient capital” have got to do something else much reward. It is more sat- but the return in the interim with their life, so they drift isfying to invest in some- is to see, often at first hand, back into work. In Vernon’s thing in a way that con- the career of a first class case he feels that the philan- tributes to it becoming long musician prosper. thropic side of his life has pro- term sustainable”. This is the Widening the concept of vided part of a backbone of approach he took with the investment still further, purpose. This has been com- Classical Opera Company to Vernon has invested in plemented by one of his which he committed Bridges Community remaining strands of work at £100,000 a year for five years Ventures (see case study on Accenture – to be chairman of in order to help them become page (86), a social venture the global corporate citizenship sustainable. At the end of that fund. He did this through council that, inter alia, co-ordi- period they were going to have his foundation as this com- nates all its charitable giving, to be on their own with a bines an ability to build tax volunteering and pro bono much wider group of commit- free returns for the founda- activities. This too has given ted supporters and this is tion with the satisfaction of him pleasure as he has helped indeed what has happened. seeing a social impact in establish a much more produc- He has also been enlight- deprived areas. tive series of programmes. ened in his use of funds, recog- The share options that When asked whether he is nising that “different types of Vernon received when comfortable with the public investment beyond grant mak- Accenture went public form side of philanthropy he sighs: ing are crucial to the sustain- the financial core of his phil- “I am ambivalent. I actually ability of many music organisa- anthropic money. He is can- don’t like it and have always tions and across the whole did about their value: “If I had refused to talk about specifics philanthropic area.” And he has held on to more of my shares in the past, particularly when personally led some experimen- I would be wealthier now as it comes to money. I suppose tal approaches at one perform- they are worth a lot more that this is partly a defensive reac- ing arts company to improve when I sold them. There are tion to public attitudes which marketing spend and impact lots of people in the City who are themselves ambivalent, through a mixture of giving, are many times wealthier than particularly in the press. On interest free loans and under- me, but I needed and wanted the other hand, I do recognize writing. to give some of my money you need role models in phi- Another example of mov- away as I went along so this is lanthropy to legitimise it”. ing beyond straight giving is how I do it.” Vernon is very strategic Vernon’s participation in five He started gifting shares about his philanthropy. He different “violin trusts” (actu- because he knew of someone says: “Setting up the founda- ally three violins, a viola and a else who did it and “if you

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own stock which you can When asked how much he performing and is focused, as give away over time it is by thinks people should give. He displayed by his financing far the easiest and most tax says: “What is an appropriate strategies, on increasing finan- efficient way to give”. His amount? You can’t generalise. cial sustainability of philan- desire to maximise resources People have different needs thropic organisations. His was an incentive at the start and requirements. But my involvement, from the start, in of his philanthropic journey: impression is that there are a Mission, Models, Money was “First I did Give As You lot of people now with a huge very much focused on increas- Earn, an excellent scheme, capacity to give and that if ing the resilience of arts and particularly when the they knew how to they would cultural organisations and he Chancellor was giving 10 find it very fulfilling.” continues to be involved in a per cent on top – too many Through his active involve- successor project around the people seem unaware of it. ment in the sector, Vernon is development of new Then I went straight to a personally aware of how recip- approaches to financing this foundation”. ients of his funds or loans are sector.

increasing voluntary giving to higher better than Gift Aid. So, if you could give education endorsed this recommenda- that to a wider range of assets, and I’m tion. thinking of private equity assets which Arts organisations are keen to encour- don’t currently qualify, then potentially age donations from private owners to that might encourage people in the public galleries and a US-style tax incen- financial services industry to give more. I tive on gifts of art is one suggestion. The think the issue is valuation but there are principal objection to a tax incentive of valuation procedures in private equity this sort is that it would be exploited as a which are reasonably well established.” tax loophole. In the US, this concern led to the amendment in the Pension Protection Act (2006) mentioned above, 3.3 Maximising Wealth through which removed the ability to gift a frac- Method tional interest in a work of art.41 Maximising means and employing appropriate methods for distributing Maximising wealth through gifting assets philanthropic funds are interrelated. At The ability to gift a diverse range of assets the start of the journey, a higher rate tax- in a tax-efficient way could help to devel- payer is required to process his own Gift op a more sophisticated philanthropic Aid reclaim on a cash gift, but if the indi- culture in the UK, since it encourages vidual later establishes a charitable individuals to consider all of their posses- account or a trust, then the administra- sions in different ways and it further tion is reduced and much of the process- opens up the pool of wealth available for ing of tax incentives is handled by the philanthropy. It could also appeal to account provider or trust administrator. those in financial services who are more We assess these structures and their likely to have significant holdings in non- strength as giving methods in Section 4. standard assets, such as private equity It is important to take advantage of the professionals. As Stephen Dawson, chair fiscal incentives at all stages. Positive 41 See Strom S, “The Man of venture philanthropy group the early experience will help to embed phi- Museums Love to Hate”, The New York Times 10 December Impetus Trust, said: “The tax benefit for lanthropy in individuals’ lives at the 2006 giving shares is, as I understand it, even beginning of their career, encouraging

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them to increase their commitment when cash or shares to it every year while elim- means allow. These are the building inating income taxes.” As his philanthro- blocks for a long-term, sustainable cul- py has evolved, he has also added skills ture of giving. and expertise to the mix, offering his Vernon Ellis, international chairman at business expertise to a research and advo- Accenture (58) has meticulously chosen cacy group for the sustainability of the his methods in order to maximise his arts called Mission, Models and Money resources. He said: “First, I did Give As (MMM). You Earn, an excellent scheme, particu- Just as social capital can be used effec- larly when the Chancellor was giving 10 tively for maximising means in the fund per cent on top – too many people seem raising process, so it can be harnessed for unaware of it. Then I went straight to a deployment of funds and skills to other foundation.” He confirms that setting up charitable organisations. We assess these a foundation is “more convenient and tax hands-on methods for philanthropy in efficient and enables easy transfers of the next section.

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4

Methods

Just as there is a variety of means available knowledge of the voluntary sector to assess for philanthropy, such as cash, shares, which charitable ventures are more likely property, time and skills, so there are dif- to deliver the desired results. Professionals ferent methods of putting them to use. from the financial services and business, These can blend several means or make use who are focused on impact and outcomes of each of them on its own. Such methods in their day jobs, will want this informa- can be direct or via intermediaries and may tion. Some individuals may take on this involve traditional forms of giving or an challenge themselves by joining the board innovation, such as venture philanthropy of an organisation, getting to know it thor- or social investment. Appropriate methods oughly and helping steer its course. In this vary according to the stage in life and way they can maximise any personal finan- career that the giver has reached. Means cial support. Others may want access to and motivations inevitably change over “market intelligence”, provided through time, as do attitudes to risk. Individuals greater disclosure by charities themselves, may wish to experiment with different through third-party internet-based infor- styles of giving depending on their person- mation or specialist providers such as New al and professional circumstances. Philanthropy Capital (NPC) (74). Sir Tom Hunter woke up one morning The degree of personal involvement in to find himself an “unemployed” multimil- philanthropy – the donation of time and lionaire. This positive but dramatic change skills in addition to money – will vary in his circumstances led him to set up the according to the degree of personal moti- Hunter Family Foundation (23). For vation for a particular cause, the opportu- Nicola Horlick (25) personal tragedy led nities for engagement and the practical her to channel much of her time, skills and limitations on time. When Sir Peter Lampl money to organisations acting for children (68) embarked on a personal mission to and cancer. Both Sir Tom and Nicola were widen access to higher education in already engaged in philanthropy to some Britain, he set up The Sutton Trust in extent before their life changing event and order to test new approaches and method- the different methods they employed after- ologies. His hands-on approach contrasts wards – a charitable trust in one case, her with those of others who experiment with cheque book, contacts, time and skills in their philanthropy by funding intermedi- the other – were the right ones for them. aries such as Impetus Trust or Venturesome For most people philanthropy begins (84), or placing their philanthropic money with the simple method of getting with providers such as Prism (70). involved with charities locally or at the Philanthropists today have more workplace. With the benefit of experience opportunities for investing in different and greater means, they become more models than a generation ago: venture focused, with a clearer strategy and defined philanthropy brings to charities a model personal philanthropic goals. This requires based on venture capital investment; a

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variety of funding approaches beyond 4.1.1 Charitable Accounts simple grant-making, such as underwrit- Charitable accounts are vehicles that act ing, mezzanine funding and long-term like bank accounts for charitable giving. “patient” capital provide new options for Individuals make deposits either ad hoc or giving. Social enterprises and community through a regular direct debit/standing development venture capital widen the order or payroll giving, and then use the spectrum for philanthropy. These new funds in the account to make donations to models use tools and a language that chosen charities. Because the account speak clearly to those whose lives are provider is itself a charity, deposits into the spent in financial services. They do not account are automatically eligible for tax replace traditional ways of giving grants reliefs. Most charitable accounts offer a to charities, the bedrock of philanthropy, chequebook and a debit card, and enable but open up a spectrum of financing users to make secure online donations options for the charitable sector that direct from the account. could attract new types of experimental A number of providers offer charitable investors and untapped pools of capital. accounts, the best known being the Charities Aid Foundation (CAF) charity account.1 There is usually a charge to cover 4.1 Alternative Methods for the cost of administering the account – for Philanthropy example in the case of the CAF charity Methods depend on means and vice versa. account the charge is 4 per cent of the Once individuals are able to move beyond gross value of the donation. For this rea- ad hoc giving, the most empowering and son, if a donor wants to give to only one or flexible method of deploying financial cap- two charities, then payroll giving remains ital with the least burden is through a spe- the most efficient mechanism as it avoids cialist charitable account such as the the administration cost. The benefit of the Charities Aid Foundation provides. The charitable account is the flexibility and natural step up from this is to establish a control over the timing and destination of charitable trust which can house an funds, but those benefits need to outweigh endowment. A private trust involves the the administration cost. commitment of both time and money and A donation of £100 to a charitable should be considered only by existing and account would automatically receive the Gift would-be philanthropists with the appro- Aid of £28.21. Deducting the £5.13 admin- priate resources. A managed trust is istration charge (assuming 4 per cent), this administered by a third party, which would leave the donor with £123.08 to give reduces the time commitment. There are to chosen charities. At the end of the tax year also a growing number of vehicles emerg- higher-rate taxpayers can reclaim the addi- ing for pooling financial and social capital. tional £43.92 of tax they have paid. The Some of these are vehicles for financial account provider sends regular statements capital and others are intermediaries that detailing donations made from the account, can appropriately deploy social capital; making it simpler to reclaim personal tax some philanthropic circles or networks relief at the end of the year. Although chari- combine the two. The role of financial ties may have some concerns that they might advisers and the provision of information suffer a loss of income by not being able to on the charitable sector are increasingly reclaim basic rate tax on donations from important for guiding philanthropists to charitable accounts, this should be out- 1 See “Where to go from here” the right methods and the right recipients weighed by the increased amount of regular appendix for details of other of their financial and social capital. tax-effective giving these accounts promote. charitable account providers.

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It is also possible to fund charitable having to make a Gift Aid declaration as accounts with donations of shares. This on a cash payment, since the tax relief has may involve the account provider selling already been claimed. them on the donor’s behalf or buying them CAF is the market leader in the UK, yet from the donor at the bid price, selling it has only 82,000 individual accounts.2 them at full market value and adding the Take-up is low despite the positive feed- proceeds to the account. This removes the back we heard from account holders. Our administrative burden and complexities informal poll of senior Citi employees associated with share giving (see analysis of showed that only 16 per cent of those this on page 51). Shares sold in this way are polled held a charitable account but, of exempt from capital gains tax, and usually those who did, more than two-thirds used qualify for an income tax deduction at the the account more than five times a year. donor’s highest rate of tax. The account Greater use of charitable accounts could provider provides the necessary documen- play a significant role in building up a cul- tation for individuals to facilitate their per- ture of regular, controlled giving in a tax- sonal claim for share relief. efficient way that makes maximum use of If a company has a payroll giving an individual’s resources. The combination scheme, this is a way for individuals to of charitable accounts with double- transfer money to their charitable account matched giving for employees at C. Hoare on a regular basis. Our interviewees who & Co private bank is a prime example of had experience of company charitable what can be done. account schemes were convinced that they made it easier for employees to give. Charitable Accounts and Alexander Hoare, managing partner of C. Cross-Border Giving Hoare & Co said: “Our foundation dou- In a world dominated by globalisation, a ble-matches any employee donation charitable account also helps to simplify through Give As You Earn, which has the the process of cross-border giving. effect that a third of our staff have got London’s position as a global financial cen- accounts at CAF. And because they are tre has made it a magnet for FSI profes- doing it themselves, they are jolly con- sionals from all over the globe and a for- scious of what CAF can do.” eign taxpayer working in London may well As well as empowering individuals, a wish to give in Britain or a UK taxpayer charitable account reduces the administra- wish to give to organisations overseas. tive hassle of processing the tax reliefs on Most countries’ tax breaks on charitable giving. This makes it simple to give regu- giving are restricted to donations made to larly in a tax-efficient way. Stanley Fink, organisations based within that country. deputy chairman of Man Group (31) said: However, tax-effective cross-border has “I use a CAF account myself as a handy, been made possible in Europe by free way to do my giving and I can claim Transnational Giving Europe (TGE), a the higher rate tax and everything. Maybe network of partnerships between organisa- I have to give them one declaration a year, tions such as the Charities Aid Foundation or perhaps two every two years… it takes in Britain, the King Baudouin Foundation the administration out of it.” in Belgium, the Fondation de France, and Anonymity is a huge benefit, especially in America through similar arrangements. for significant donors who worry about By giving a donation to CAF, for instance becoming a visible target for fundraisers. through an individual CAF charity

2 www.cafonline.org/pdf/CAF Donations by charity cheque or online account, a donor can receive immediate tax CharityAccountBrochure.pdf payment can be left nameless rather than relief in the UK. CAF can then forward the

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Example: How a UK donor can make a tax-efficient donation in Belgium via TGE

UK TGE member Belgian TGE member Transfer of (Charities Aid (King Baudouin donation Foundation) Foundation)

Declaration to UK TGE Distribution of Donor tax member of desire to Due diligence by CAF donation releif give to Belgian charity on recipient

Belgian TGE member UK donor Intended donation (King Baudouin Foundation)

donation to the recipient in another coun- trust, which allows them to mange the try (in Europe’s case via another TGE endowment themselves or choose a manag- member, in the case of the US, direct to er to do so. This maximises freedom over the charity), provided it is satisfied that investment decisions but requires a certain this organisation is serving a suitable char- level of administration associated with itable purpose. running of the trust. Or they can set up a For donors who are dual UK-US taxpay- managed trust by giving £10,000 to an ers, it is also possible to receive double relief organisation that provides this service, by using the CAF American donor fund. such as the Charities Aid Foundation. This is a donor advised fund (DAF) into With a managed trust, there is virtually which an individual can make Gift-Aid nothing to think about, other than which donations in the UK; the fund will distrib- charities to support, as there are no report- ute the proceeds to nominated organisations ing requirements and the provider takes in America. As long as the recipient organi- care of all other administration for an sation satisfies both US and UK criteria for annual fee. A trust is an efficient way of tax relief on donations, the donor is issued using bonus income or other sources of with a US tax receipt that he can use to make one-off gifts for philanthropy because a deduction against his US tax bill. assets can be transferred to the account and parked or used. 4.1.2 Charitable Trusts (also called A trust is a legal organisation regulated Foundations) by the Charity Commission (Office of the These are the natural step-up from a char- Scottish Charity Regulator, in Scotland). itable account in terms of empowerment For the purposes of receiving donations, a and control of funds as they can operate charitable trust is treated like a charity so with an endowment. They allow the chari- the donor can benefit from the tax incen- table capital to grow in a tax-efficient way tives associated with Gift Aid, payroll giv- while it is distributed at a rate that suits the ing or share giving. In addition, invest- trustees. Individuals can set up a private ment income from the trust’s endowment

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Michael Hintze is the to find someone else. If you them to start a major capital founder and chief executive are giving thousands rather project. Richard Briance, officer of CQS (Convertible than millions, then you chairman of Trinity Hospice, and Quantitative Strategies), should probably go to the explains that despite being the one of the largest London- Charities Aid Foundation, get sole provider of palliative care based European alternative one of their accounts and to much of London, it has not asset managers. He formed write the cheques. That works developed its funding base The Hintze Family Charitable well.” much beyond its core local Foundation in 2004. Michael has four children supporters. It was recently Michael set up his family and is keen that ultimately faced with the imperative to foundation so that he could they perpetuate this work: rebuild its facilities and the take full responsibility for his “The aim is that this allows board planned a £10 million philanthropy and structure it the whole family to get new build, to be financed in as he wished. He said: “The involved eventually and to part by a £6 million capital foundation allows us more move it on to the next level appeal. control over the way we dis- when they are ready.” The Richard said: “Michael was perse our funds and I want to impact is already far reaching. the first person I approached understand where they go.” The foundation has supported for support. He not only As a successful hedge fund multiple educational, health anchored the appeal with a manager he is also keen to and religious programmes and £500,000 donation but also make his money work as hard the arts. He has supported the agreed to chair it. He subse- as possible and to maximise restoration of Michelangelo’s quently organised a highly returns: “Structurally we want- frescoes in the Pauline Chapel successful dinner hosted by ed to have a situation where of the Vatican and two gal- the Duchess of Cornwall at the funds could sit for a peri- leries at the Victoria and Clarence House. Along the od of time and make money, Albert Museum in London. way, he made a critical contri- and then be dispersed at an He has also supported his bution by using an underwrit- appropriate time.” alma mater, the University of ing offer to kickstart the proj- He employs somebody to Sydney in Australia. Initially ect. The Trinity board was run the foundation full time keen to avoid publicity, only prepared to start the saying: “It is a privilege to be Michael has seen how individ- building when a minimum of able to give, to have a foun- ual acts of philanthropy can £4 million had been secured. dation, so you need to do it provide powerful inspiration Michael underwrote this £4 seriously.” to others. As a result, he is million, allowing us to He recognised that the now comfortable declaring his engage the contractors and foundation structure was the donations publicly in an start the work, thereby best for him when he reached attempt to motivate others to avoiding the escalating costs a stage in his wealth creation do the same. of delay. This underwriting and career that allowed him to His financial competence has now been discharged by take his philanthropy to has naturally influenced his our successful campaign.” another level: “If a person is philanthropy and he uses dif- Like a true money manag- giving away £10 or £20 mil- ferent forms of financing for er, Michael said: “The beauty lion and doing it with a foun- his giving where appropriate. of underwriting is that you dation structure, it is impor- For example, he recently gave can re-use the money.” He tant to have someone to man- a considerable sum to Trinity views the philanthropic sector age it properly and if that isn’t Hospice, and also underwrote as similar to other businesses going to be the giver, he needs a shortfall in order to allow and financial markets. “To

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make a profit or a return is needs to be changed and com- philanthropy then he should do not unreasonable and there is panies have an important role it properly either by giving no reason for a charity to to play in this cultural change: money or bringing it in underprice its services.” “I think company initiatives through networking. And if he Asked if he thinks more like payroll giving and does not do that, then he people would donate shares, as matching are very effective.” should “get off”, not be he has done, if they under- For him, though, the culture involved. It is down to the indi- stood the tax advantages, he of giving is already engrained. vidual, and if Michael had his replies that it is more funda- His maxim is: “Give, get or get way, everyone who had the mental than that – the whole off” –meaning that if an indi- means would give money and culture of giving in the UK vidual decides to get engaged in get involved.

is not taxed and there is no corporation tax perfectly by saying: “It’s obviously an impor- or inheritance tax. If a private trust reaches tant solution for people who want to do their a size where it requires its own office, it will own thing....but for smaller trust donations, not pay business rates. Only if the trust is I would guess for anything below £100,000, very large (and supplying a significant you should seriously think about vehicles amount of products or services that are such as a CAF account, or a community subject to VAT – which is unlikely if it is foundation or some pre-existing trust or simply a grant-making body) is it required foundation that could use the money to sup- to register for VAT. port good programmes already set up.” A private trust must satisfy minimum gov- Nicola Horlick is clear that the trust struc- ernance requirements, have a clear trust deed ture is not for her at present: “There is no setting out its charitable purposes and file an point me setting up foundations when there annual report and accounts. Despite the costs are other people who are doing it perfectly and reporting burdens of setting up a private well. I trust those people, so I am very happy trust, it can offer a systematic framework for just to give that money to ARK for them to philanthropy, often involving family or spend on Aids projects in South Africa.” friends as trustees. Larger trusts may need to However, for a philanthropist who wants to develop a professional staff team for evaluat- be hands-on and run an organisation, a trust ing which charities to support and imple- is the appropriate method and the ability to menting a grant-making programme. control it outweighs the initial set-up and “Setting up the foundation was expensive,” ongoing administration costs. Sir Peter says charity CEO and former investment Lampl needed the structure of The Sutton banker Tom Hughes-Hallett (68), “but that’s Trust (68) in order to develop his models for my fault, because we could easily have gone better access to higher education; Chris and through CAF and for free, but I wanted it to Jamie Hohn needed the fully functioning be more personal than that.” Children’s Investment Fund Foundation Trusts are suitable for donors who want a (40) in order to work actively with local part- tax-efficient framework within which they ners in its HIV-Aids work and other projects. can conduct planned, systematic giving. Any individual setting up a private trust must 4.1.3 Vehicles for Pooling Resources consider whether the benefits offered by the Donor Advised Funds structure outweigh the costs associated with These are pooled vehicles for charitable getting legal advice and the approval of the giving established by a public charity or Charity Commission. Cathy Pharoah, direc- other sponsor. Donors give cash or assets to tor of Third Sector Prospect, summed it up the fund and then recommend who is to

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Sir Peter Lampl is and it instigated his charita- it evolved into his system- Chairman of The Sutton ble giving. changing approach through Trust. He was formerly a pri- “There is a sense in the US The Sutton Trust, supporting vate equity partner and man- that you should be doing projects that provide education- agement consultant, predomi- something more useful – par- al opportunities for young peo- nantly working in the US. ticularly in New York which is ple from non-privileged back- It is difficult to identify pretty philanthropic. You don’t grounds. “We want every child one single factor that prompt- find many people there who to have the opportunity to fulfil ed Sir Peter to set up the have made a lot of money their potential,” says Sir Peter. Sutton Trust in 1997 – two who aren’t doing anything,” He has chosen to dedicate decades living and working in says Sir Peter. He is a big himself wholly to this cause. the US certainly played its advocate of American-style tax He still funds practical proj- part as did his own experience incentives for giving wherever ects, but the Sutton Trust also of school and university in tax is deducted straight from conducts research at multiple Britain. However, he has a income. levels and does significant pol- very specific passion, one that When he returned to icy work. He did not start led Gordon Brown to describe Britain, Sir Peter became with this aim: “I had no the trust as “a national institu- involved with a campaign for intention of doing this. It tion of which we are incredi- banning handguns after the snowballed after the summer bly proud” at its recent tenth Dunblane massacre in March school. I was still in private anniversary party. 1996. It was an issue that was equity then and it was a new A period working for very close to his heart after his area of focus. Now…it is International Paper in years in America. what I do full time.” America introduced him to The success of this cam- The research and policy giving and connected him paign triggered a passion and work is critical to the Trust’s with a cause. The company a thirst for more active philan- ability to influence change. had a payroll giving scheme thropy. It was the right time, “We have funded over 30 and all the donations went to “Frankly I lost the purpose of research projects now so we the chosen corporate charity. making more money and I have done a huge body of In Sir Peter’s words: “It was was looking for what to do research and I think that is pretty clear that you gave next.” And the cause was obvi- terribly important,” says Sir your 2 per cent because if ous: “When I came back to Peter. you didn’t you would stand this country I was shocked at In many ways the Sutton out and that might affect what had happened while I Trust is a catalyst. Not only your career prospects.” had been away to kids not just has Sir Peter recently attracted Then there was financial from poor backgrounds, but his peers and major founda- advice. Sir Peter spent much from ordinary backgrounds tions as donors, but now the of his professional career in too. In Britain, if you are born Government also funds sum- New York, where he was pay- poor, your education reflects mer schools at most universi- ing around 50 per cent tax. that fact and you are likely to ties. At the recent anniversary His financial adviser said to remain poor.” party, Gordon Brown said, him: “Wouldn’t you rather So he set up summer “He is genuinely transforming give that money to some- schools bringing non-privileged lives.” thing you believe in, like children into Oxford Sir Peter says he was not your old university or some University, his alma mater, for a keen on the publicity at first, other charity?” This was part week. This was a hugely suc- but he recognised it was of his adviser’s core advice cessful, practical experience and unavoidable the day he woke

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up and found himself on the In 2005 the Sutton Trust al philanthropy. This is in part front page of The Times. started to raise external funds due to its widely acknowl- Unnerved, he hired a public and the trust’s structure makes edged impact, and also to his relations consultant and soon it possible to work with position at the helm. realised that publicity could donors in two ways. The Sutton Trust commis- help to achieve his aims and Individuals may join the sioned management consult- put pressure on the strategic philanthropy fund, ants the Boston Consulting Government. which supports all the trust’s Group to evaluate its effective- Sir Peter chose to establish new projects, or donors (often ness. The group concluded The Sutton Trust as a stand- trusts or foundations) may that, on average, its projects alone trust. He had a specific support specific initiatives, for result in a present value return focus in terms of mission and example the trust has of £15 to every £1 invested. setting up a charitable trust launched a pathways-to-law Sir Peter comments: “That’s a provided the infrastructure to programme in partnership level of return that most busi- allow him to be strategic with- with the College of Law. nessmen can only dream of. in his focus area. He wanted Sir Peter admits that “tak- And that return does not to be hands-on and to oper- ing money is hard work” – include the wider benefits to ate a living, breathing organ- there is a responsibility to society such as improved isation. In Sir Peter’s words, report to and involve donors. health, reduced crime and “It is neither a think tank But it was not difficult to increased participation in the nor a straightforward chari- attract funds to the trust’s community, which are consid- ty, it is a do tank.” unique approach to education- erable.”

receive grants, how much and when. tions, such as Fidelity. They can be focused Donor Advised Funds (DAFs) provide a on a particular theme or on religious giv- halfway house between charitable accounts ing. Between 1995 and 2006, assets in and charitable trusts. They are similar to DAFs in the US rose from $2.4 billion to charitable accounts and managed trusts in $19.2 billion, and roughly one in five high that all that is required of donors is a con- net worth donors used them as part of tribution of money or assets and input on their giving.3 The minimum contribution recipients, and the whole process can be to a DAF is normally around $10,000. conducted anonymously if desired. Like Donations are treated like any other chari- managed trusts, DAFs can be endowed so table contribution for tax purposes and that they earn investment income in a tax- income tax relief not used in a given year efficient manner, making them appropriate can be carried forward for up to five years. vehicles for long-term, planned giving. In contrast to a private foundation, DAFs They are particularly effective for those are not subject to excise tax on invest- who want to give in a more structured, ments, which in the US is around 2 per strategic way, but do not have the resources cent. There are no annual reporting to justify setting up a trust. requirements and no minimum annual DAFs originated in America where they payout rate. were principally provided by community DAFs are available in Britain but they foundations, charities focused on support- have primarily been operated through ing projects that engage local people and community foundations, creating the

benefit a local area. They are now also impression that DAFs cater only for those 3 Chronicle of Philanthropy, 4 offered by organisations with national who give locally. They do not have the May 2006 and US Trust Survey of Affluent Americans XXVI, April scope and by commercial financial institu- same sort of branding as stand-alone prod- 2007

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Prism is a charity that assists her life, then setting up a Prism has gone to some donors with the administra- trust can be “time intensive, lengths to publicise the effi- tion of their giving, modelled a hassle and a bit of a liabili- ciencies of gifting shares. on American donor advised ty”. With its administrative Anna says: “Gifting shares is funds. It was set up by Anna service, making donations to incredibly tax efficient but Josse and Gideon Lyons. Prism is much more straight- the Government has not Anna and Gideon are forward way for an individ- pushed it and the awareness directors of Regent Capital ual to go about philanthropy is very low.” She is con- plc, which creates and offers until he or she is ready to be cerned that people talk investments to high net worth more hands on about it. about the tax incentives on individuals. During the early Prism is a charity that helps share gifting as being “too stages of setting up their busi- potential donors and charities complex” as they are “about ness, they received many with all the tax implications of as attractive as they could enquiries from clients about giving. It operates a Gift Fund be” and it would be a shame how they should conduct their to receive donations of cash, if the Government changed philanthropic giving. Anna shares or property, which can them. She would like to see a had a professional background then be transferred to their campaign to make people in the charitable sector and own sub-fund. Technically aware of the incentives. felt there was a real opportuni- funds are donated to the Gift Prism takes care of all the ty to address this demand. Fund on a restricted fund basis record keeping. Quarterly They spent a year and a and Prism ensures that clients statements show the status of half researching the charitable make use of maximum tax effi- the donor’s account and where market and realised that there ciencies. Prism takes direction the donations have gone and was a gap in Britain for a US- from clients – both individuals annual statements details the style donor advised fund that and family foundations giving donor’s charitable portfolio by would respond to the needs of substantial amounts to the sector. Donors also receive an its donors. Building on Regent charitable sector – on how they end of year statement to show Capital’s contact base they set would like their donations to any tax they could personally up Prism as a restricted fund be used and administers the be reclaiming. that takes donations and pro- donations on their behalf. Anna is very aware that vides a personalised service to Donations to the Prism donors expect an increasing the donors. They had to have Gift Fund are in the form of level of accountability from been enthusiastic as it took lump sums so they can be ad the charities they support and almost a year to get Prism hoc and unpredictable, some- look for measurable results through the Charity thing which the donor advised from their charitable dona- Commission. fund set up can easily absorb. tions. Prism therefore moni- Anna believes that if the Gifts are frequently in the tors the application of dona- individual is not at the right form of shares, from client’s tions in accordance with the time and right stage in his or investment portfolios, and donors’ wishes.

ucts for giving as they do in America. also tax free; running costs of a DAF tend Community foundations can set up a sep- to be 1 to 2 per cent of funds distributed. arate fund to house donations and allow Britain’s 56 community foundations are the donor to direct the distribution of intermediaries providing high levels of local funds. As they are charities, all donations knowledge at community level. Stephen they receive are eligible for tax reliefs. The Hammersley, chief executive of the investment income on the endowment is Community Foundation Network estimates

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that its members “effectively provide philan- ences. The network has grown to more thropy services for over 12,000 individuals” than 100 members with an annual grant who wish to anchor a part of their philan- budget of £1 million. It is a place where thropy in local communities. He believes a wealthy individuals can assist and inspire number of these people have found the each other to use their wealth responsibly, process of managing their own foundations seeking the highest social impact possible too onerous and community foundations through a collective process which involves offer a valuable intermediary role. its members in assessing, selecting and New DAF providers are emerging that funding projects. Membership is open to will allow donors to determine their giving any individual with over £250,000 in along thematic lines rather than by locality assets (excluding their main residence) and (see Prism case study on page 70 and willing to pool a minimum of £3,000 each Goldman Sachs Gives reference on page year although a careful selection process is 27). The latter is providing the means for used to screen new members. partners of the investment bank across the The Network makes small grants, in the globe to conduct their philanthropy. range £3,000 – £15,000, and tries to select Partners can elect to put a proportion of charities which would otherwise struggle their salary into the DAF and then direct to find funds. Sometimes it commits larg- how it is distributed. The DAF will be er resources (over half a million pounds) managed free of charge by Goldman Sachs for complex multi-year projects, such as Asset Management. It is a powerful tool for Smart Justice – a justice campaigning encouraging staff to give that other compa- organisation initiated by Network for nies can copy. Social Change itself. It illustrates the power of peer support in philanthropy – Other Vehicles individuals learning from each other and It is possible not only to pool financial cap- working collaboratively. It meets a need ital, but also to pool social capital. For for individuals wanting to progress on example, Social Venture Partners (SVP) is a their philanthropic journey. One Network group, now in its tenth year, which decides member is quoted on the website as saying: how to distribute pooled donations to local “I was actively looking for an alternative to charitable ventures and back them with simply having standing orders to Oxfam volunteer time. It originated in Seattle, and other large charities. I came across the Washington and has spread to other US Network for Social Change at a conference states as well as Canada and Japan. The and liked the idea of having a closer con- partnerships are organised locally, usually a nection to the smaller charities that were city chapter, with partners each agreeing to funded, the opportunity of meeting like- contribute at least $5,000 annually. An minded people, and the potential for being international network, SVP International creative with my giving”. has also been established.4 SVP finds that More recently The Funding Network their model of team philanthropy encour- (TFN) has been established to allow fun- ages individuals to give more money (a 25 ders and charities to interact at funding per cent increase annually) and volunteer events.5 These are the charity equivalent of more of their time. Dragon’s Den or the “first Tuesday” in ven- In Britain, the Network for Social ture capital, providing a lively and infor- Change has been a semi-formal giving cir- mal marketplace where ideas and funding cle for philanthropists for over 20 years, meet. The Funding Network has a lower pooling resources and making funding bar to membership that the Network for 4 www.svpinternational.org decisions at twice yearly member confer- Social Change, requiring a smaller mem- 5 www.thefundingnetwork.org.uk

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bership fee and no minimum funding the values-based component to their commitment. All projects are sourced by advice. Coutts also provides regular dis- members themselves, who act as sponsors cussion forums for its clients, charity lead- promoting them to other members. The ers and philanthropy specialists. Citi average grant size is £5,000 and recently believes that the global reach of its bank- TFN has expanded from London to ing operations gives it unique ability to regional centres in the UK and has intro- match its clients to high quality projects in duced two international chapters. The any part of the world, providing due dili- events have a buzz and liveliness that gence and brokering services for a client’s brings considerable fun to philanthropy, donations. Both Coutts and Hoare are while ensuring that what is funded has banks with 400-year histories and long been fully evaluated. It is a format which traditions of giving philanthropy advice to could appeal to those from the FSI who their clients. Hoare’s managing partner, like working with entrepreneurs and enjoy Alexander Hoare, says that advising clients the buzz of ‘the pitch’. on philanthropy “is in the company’s DNA; it is part of the ethos”. He sees “a 4.1.4 Advisers role for the private banks – we’ve got all Private wealth managers, in particular the the components of a donor advised fund.” private banks, are waking up to the busi- Independent advisers on the values and ness of philanthropy. Today’s wealthy, softer side of philanthropy are few in whether they have inherited their money number but have had considerable influ- or made it in business, are looking to their ence on the development of philanthropy banks and financial advisers for guidance in recent years. In 2006 the Institute for on giving as a part of their wealth manage- Philanthropy introduced the philanthro- ment. Philanthropy is emerging as a new py workshop which provides individuals asset class and advisers who want to stay and families with professional advice and ahead must learn to advise their clients on project visits. This emerged through the what makes a good charitable investment US-based Rockefeller Foundation, which and what are the social returns and the has advised generations of philanthropists risks involved. As a first step for independ- this way for many years. New ent financial advisers (IFAs), the Securities Philanthropy Capital (74), as well as pro- and Investment Institute, the professional viding market intelligence on charities body for financial advisers, has introduced through a database of pre-screened chari- a module in “effective philanthropy” to the ties and in-depth research, provides tai- syllabus for its new Masters programme on lored advice on “the strategy of giving” for wealth management due to begin in 2008. a fee to anyone intending to give at least As for the private banks, a recent poll £20,000 to charity. identified just five that are able to provide the depth of service required by today’s philanthropists: Coutts, UBS, Citigroup, 4.2 Market Intelligence HSBC and C Hoare & Co.6 Some banks, To potential donors the charitable world is like UBS, have developed a strong in- a wide open field which can be off-putting house team of philanthropy specialists and confusing. When trying to decide who work alongside wealth managers. which organisations to support in a partic- Others, such as Coutts, have strategic ular charitable area or when trying to find partnerships with specialist intermediaries out more about charities that they are like the Community Foundation Network already considering supporting, many peo- 6 Wealth Bulletin, March 2007, www.wealth-bulletin.com or New Philanthropy Capital (74) to add ple would understandably like to find

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good, independent information. Until a analysis. Guidestar was pioneered in the few years ago, this was nearly impossible. US as an informal portal for the non-prof- The situation has improved thanks in it sector and launched in the UK in 2003. large part to the work of a growing number With global ambitions, Guidestar of organisations that are trying to promote International has collaborations in some “market intelligence” for the charitable sec- European countries as well as South Africa, tor. The idea is that by providing more India and the US. information about the range of charities Founded by former investment bankers, and more information about what they do New Philanthropy Capital (NPC) (74), and how they fit into a broader cause or publishes authoritative, research-based sector, donors can make better choices reports on charitable sectors and individual about the organisations they support and charities. Unsurprisingly given its origins, give more effectively. The overall aim is to NPC views philanthropy as a form of improve the quality of donors’ giving expe- investment based on good market intelli- riences and in turn have a positive effect on gence. the overall quantity of giving. A recent development is the Big Give Paul Bernstein of Absolute Return for (www.biggive.org.uk), a new website Kids (ARK) (42), says that people in launched by the Reed Foundation, the financial services tell him that they struggle charitable arm of Alec Reed’s recruitment to find the great projects that they are group. It is designed to provide rich indi- looking for, “which says that if they found viduals with information on suitable phil- them they would give more”. ARK applies anthropic projects for investment. The stringent business assessment models to emphasis is very much on high net worth, the charities it invests in and this is its since charities can only load projects on to main attraction for FSI professionals. the site that require funding of £100,000 As with any burgeoning industry, the or more. More than simply information organisations in the charity market intelli- provision, it is also a type of matchmaking gence sector cater to a wide range of differ- service: wealthy donors can browse the site, ent groups. Guidestar operates a web- filtering by categories, to find a project that based platform designed to enable poten- interests them. The aim is to motivate tial donors to obtain basic information on them to consider making very large gifts all 168,000 charities registered in the (there is even a category for £10 million England and Wales.7 It supplements data projects). In future, the Big Give aims to available from the Charity Commission on offer “seeing is believing” events when high their website, but is supplemented by net worth donors will be invited to visit entries which charities make about them- specific projects on the site. selves.8 Guidestar intends to add charities, The area of market intelligence applied to social enterprises and informal voluntary charities and social enterprises helps a groups and to include organisations oper- potential funder to understand the perform- ating in Scotland and Wales. The website’s ance of an organisation with regard to its advanced search facility allows for search- mission and it measurement of social value ing by eleven parameters including project creation. There are tools being developed to areas, income or provision of information measure these efficiencies and effectiveness. about performance. All this information is New Economics Foundation9 (nef) has free of charge to view, but Guidestar is built on the work of the California-based 7 www.guidestar.org.uk developing paid-for services called ‘charity foundation, Roberts Enterprise Develop- 8 www.charity-commis- intelligence’ for those, like funders or ment Fund, to develop Social Return on sion.gov.uk researchers, seeking a more sophisticated Investment (SROI) tools for the UK. These 9 www.neweconomics.org

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New Philanthropy Capital series of in-depth reports on As well as these generally (NPC) is a charity that advises areas of charitable activity. available resources, NPC donors and funders on how to These are freely available on advises individual donors and give more effectively through a its website; the idea being that helps with building a charita- combination of published anyone with an interest in a ble portfolio. The level of research and tailored advice. particular social problem engagement of these donors NPC was founded in 2002 could make this his first port varies greatly. Sue Wixley, the by senior figures from the of call to find out more about head of marketing, says: financial services industry. the key issues and the most “Some donors have little They felt that the lack of easi- effective organisations working time, so we meet them and ly available, high-quality infor- in the field. put together a portfolio of mation on the not-for-profit NPC divides its informa- charities. They then write sector was a barrier to greater tion provision mission into us one cheque, we distrib- engagement for many donors. three main streams: reports on ute the money to the chari- Senior research analyst Tris areas of charitable activity; ties and provide them with Lumley says: “Investing is “charity recommendations” in an update in a year’s broadly about confidence. If the style of investment analyst time…other donors have we look at investment banking research notes; and tailored time and want to get hands- and the advice provided by advice for individual donors. on involved. We work with investment research and analy- The freely available them to educate them about sis, it’s about giving confi- research reports are intended what they want to do and dence, talking openly about as a resource for anyone seek- to make choices about risk and talking about returns. ing information about a par- which charities to support.” If you don’t have all those ele- ticular area of charitable activ- One of the things NPC has ments, a barrier remains.” ity. The business case for pro- found is that although donors What was needed, they viding this service is a strong like to have a source of decided, was a central source one, claims Tris: “As with any detailed, accurate information of accurate, independent sort of market information, available, they are also keen to information. This had the we aim to be an intermedi- meet and get the opinions and potential to attract significant ary that takes transaction perspectives of other donors. additional funds into the char- costs out and shares Sue says: “By doing so, and by itable sector. By focusing on economies of scale. Our reading about them in our the impact that donors can research team does huge newsletter, they see more role have if they give their money amounts of due diligence models of people that look effectively, they can be that few individual philan- like themselves and they have inspired to give more, and thropists would be able to an idea of what others are giv- with more confidence. do, and we’re then able to ing to charity, so it’s easier to As well as the focus on the share that.” gauge where they are com- information affecting dona- The charity recommenda- pared to their peers.” tions to individual charities, tions are intended to give a NPC is a charity, and relies NPC aims to have a broader snapshot of the work done by on funding from three role in developing the culture individual organisations: the sources: grants from private of information availability in problems they are addressing, funders and charitable trusts the sector as a whole. Since its the difficulties they face and for research into specific social beginnings in 2002, alongside the impact further funding issues, fees from donors for its research on specific organi- could have. These are also advice on making specific sations, NPC has produced a freely available on the website. donations or grants, and core

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funding from NPC trustees just getting to the point where He also believes that and members. we’re looking at repeat busi- greater focus on giving strate- Fees for advice to individ- ness because people have given gically can add a healthy dose ual donors are based on a per their first tranche of money. of peer competition to philan- diem rate, and are designed to But we’re finding that they do thropy, particularly among cover costs rather than pro- keep coming back, so far.” City high fliers. “I think it’s a duce a profit. Typically fees Measurement and metrics are critical mass thing. When you will amount to between 2 per at the core of what NPC does, reach a certain point and your cent and 5 per cent of the and they are keen to encourage great mate who works in total donated, depending on others to take their message on another company is taking a the level of advice and addi- board. “We’re aware of growing very intelligent, smart tional research required. As numbers of instances,” says Tris, approach to philanthropy and has been found in other cases, “where people are using our you’re sat there in this fantasti- the indications are that publicly available information cally sophisticated organisa- wealthy donors are willing to and then advising clients based tion, giving money out com- pay a fair rate to ensure that on that. And that’s fantastic, pletely ad hoc with no real their money is spent effective- because we want to get that stuff thought, you might suddenly ly. Sue is cautiously optimistic: out there. We’d be charging for start to think ‘hmm, we look a “We’re five years on now, and it otherwise!” little bit less sophisticated…’”

tools, says nef, “can be used to measure the given me what I need in terms of mentor- financial value of social and environmental ing, structure and support. I like the drive as well as economic returns”. They can be and urgency they bring” said one charity applied not just to social enterprises but to CEO quoted in a study by the Saïd local government departments and compa- Business School at Oxford University.10 She ny corporate social responsibility pro- was referring to a group of business people grammes – wherever organisations are helping her grow and stretch her organisa- accountable for the social and environmen- tion. The money they brought was invalu- tal value they create. able to her, but so too were the business While the mission of a charity can never skills and commercial mindset. be reduced to a spreadsheet, there is much People who create value in business see unreported information which would help the opportunity to bring skills and tools funders reach decisions about effectively to the charity sector. We have already donating their money and skills. Attracting examined the impact volunteering and potential philanthropists from financial mentoring can have on philanthropic services requires good communication activity in Chapter 2 in our analysis of the from charities on why supporting them is a role of companies as key motivators. It rational endeavour based on consistent may be worthwhile for a team of account- judgements about performance and ants or investment bankers to spend a impact. weekend painting a charity’s youth centre. It may serve to connect them with their community, do something they have 4.3 Personal engagement and skills never done before, get a dull job done transfer that nobody else wants to do and bond 10 John R, Beyond the Cheque: “They have energised us, provided high with their colleagues, but the same How Venture Philanthropists Add Value, Skoll Centre Working level guidance, given us great networks, amount of time helping with marketing, Paper, Saïd Business School, provided us with excellent people and cash flow projections or a supply chain 2007

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Pilotlight is an organisation and skills to help. However, duce a business plan. that aims to build the capacity too often this did not work Critically, this is done by of charities arranging coaching out and “things fell apart very helping the charity to develop and mentoring by teams of quickly…it was all under- the skills needed to produce business professionals. standable because on both its own plan. It can be diffi- Fiona Halton, Pilotlight’s sides were busy people, per- cult to get businesspeople founder, discovered that many haps working on different who are used to producing businesspeople were keen to timescales, and they both felt business plans quickly to see give more than money because guilty about telling the other the value of this. But Fiona “their time is more precious party they couldn’t do it.” believes that “the most cru- than their money in some There must, Fiona felt, “be cial thing to get across to ways”. But there were often another way of involving people the volunteers is that they’re problems when they tried to who were often highly intelli- coaching, not telling…they get involved with charities. gent and wanted to get interest- often think that the answer Fiona originally ran excur- ed in philanthropy.” The solu- is a plan that can be written sions for wealthy donors to see tion was to set up an organisa- in a couple of weeks…We the work being done by front- tion that could act as an inter- say, however, that for a line charities. These trips often mediary to bring together “the charity or a social enterprise had a marked effect on donors two different worlds.” to really benefit from what who saw a charity helping As a crucial part of the we’re doing, the process is a clients with great needs. “They process, Pilotlight staff inter- slow burn and they’re being loved the idea, I think because view potential charities and coached.” there were the battlelines and potential volunteers in order Pilotlighters are all are peo- the needs, and they could see to match skills with needs as ple who have considerable the work being done.” effectively as possible. experience of running teams However, it became clear If this match between char- or projects. When they join, that this approach wasn’t nec- ities and “Pilotlighters” is they are placed in teams of essarily solving the problems made effectively, it quickly four with complementary of the charities: “I don’t think becomes apparent where value skills and matched with the donors realised that they’d give can be added. Finn Green, a charities. The key features of a cheque and then four weeks Pilotlighter from the private their subsequent involvement later I might get a phone call equity industry, recalls, “the are that: from the charity to say, ‘we’re most exciting part of Pilotlight running out of money again.’ for me was the first meeting  The whole process is han- It was not that the money was with a charity, where the dled by a Pilotlight project being misused; simply that the director of the charity was manager, including organ- charities were usually operat- expressing the problems they ising and running meet- ing on a crisis footing. They were experiencing, and those ings, taking minutes and were, according to Fiona “very problems were kind of the so on. good at running the charitable things I’d been trained to deal  On average, members side of things and finding the with at work – like strategic attend one meeting every beneficiaries, but not always planning, personnel and time four to six weeks lasting great at necessarily running management. I realised those around two to three hours the business”. are the things I deal with in – based around their own Some donors could see my day job all the time!” availability what was happening and were The first project with a  A typical assignment lasts keen to use their experience charity is generally to pro- roughly 18 months

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 Each member makes a stantial resource in the middle, they have got to grips with: “It contribution to Pilotlight to ensure that members’ time is has taken us years to work out of £1,300 per annum –the used as effectively as possible how we do the metrics. We are organisation itself is a reg- and to be able to ‘translate’ – now very confident that we can istered charity sustained speaking both the language show change in a charity’s by the members’ dona- of business and of charities capacity, and we have a full- tions. such that all parties under- time evaluation manager.” stand each other clearly.” The calculations are tai- The decision to charge volun- Pilotlight is aware that many lored to each individual chari- teers was taken when it of its members are keen to have ty and agreed at an early stage became clear to Fiona from some way of quantifying the of the process. The key point discussions at the outset that, impact of their work with a for Fiona is that “it’s got to be “Our members will give to charity. This has been one of simple, it’s not got to get in have their time used properly.” the most difficult aspects of the way of running the chari- Pilotlight volunteer Finn developing the Pilotlight ties, and it’s definitely not one Green says: “You need a sub- process, but one that they feel size fits all.”

issue could be more valuable for sustain- lanthropy: “I want to see the pleasure of ing an entire charitable organisation in giving. I want my children to see the the long run. pleasure of giving now, not when I am However, short volunteering assignments old.” Former Goldman Sachs partner are a good entry point to the charity sector; Scott Mead says: “Within the culture of Tom Hughes-Hallet, former banker and the companies, it should be emphasised now CEO of Marie Curie Cancer Care (40) that someone who makes a commitment believes “there is something about offering to spend some time on charitable work volunteering opportunities because once you will not jeopardise their career; in fact volunteer I think you are quite likely to they will become a more rounded per- give.” Volunteering is a popular form of son, they will engage more in their com- charitable engagement in the UK: a 2007 munity and they’ll be an ambassador for survey by the Office of the Third Sector in their company. I think there should be the Cabinet Office found that 59 per cent of more encouragement and support broad- their sample group of more than 2,000 peo- ly to do that.” ple had given formal volunteering help.11 Private equity group Permira reports that And among the senior Citi employees whom a quarter of its London staff have been we surveyed, 38 per cent had given time as involved with social enterprises through its well as money in the past year. The main venture philanthropy partnership with the barrier for busy professionals is time. Community Action Network (CAN) (82). Climbing up the ladder in a financial Permira’s Benoit Vauchy, who coaches the services company puts pressure on indi- CEO of a social enterprise, feels their model vidual’s time. Man Group (31) actively is powerful “because there is a skill gap in encourages its staff to get involved in social enterprises when they grow bigger”. charities that interest them, matches an Without the backing of his firm, Benoit, in individual’s fundraising efforts and most the early days of his buy-out career, would importantly, gives several days off each not otherwise have found the time for this 11 Helping Out: A National year for staff to actively get involved. depth of involvement. When Jim O’Neill, Survey on Volunteering and 33 Charitable Giving, Cabinet Man Group’s deputy chairman, Stanley chief economist at Goldman Sachs ( ), Office/Office of the Third Sector, Fink, says about his own personal phi- and others set up the venture philanthropy 2007

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The Kilfinan Group is a benefit of their knowledge and of things. As the group has group of senior businesspeople experience to their counter- grown in size from the origi- who mentor the chief execu- parts in the charitable sector. nal eight members, it has tives of charities. The Kilfinan Group’s focus become sensible to bring the Nick Ferguson, a veteran of is tight, according to Nick: matching process “in house”. the private equity industry “We’re selective in that we will There is now a part-time exec- and a keen philanthropist, had only do chief executives of utive staff member, Amanda mentored the head of a charity charities. That’s all we do: Delew, who is responsible for since the mid-1990s. It CEOs to CEOs.” So the pairing mentors and mentees, seemed to have worked so he group members have relation- and for monitoring the on- got eight friends together, ships with the chief executives, going relationships. mostly from financial back- not the charities themselves. The time commitments are grounds, to start mentoring As Tom puts it: “It’s very per- not onerous for either side, charity heads and proposed: sonal, it’s not about Marie according to Nick: “It varies “We’ll do it for three years, Curie, it’s about Nick and from relationship to relation- and if it hasn’t worked, have a Tom.” ship. If there’s some of sort of dinner and give it up.” In a typical meeting, Tom crisis it’s more, but on average That was five years ago and says, “I go and sit in Nick’s people see their mentees four the dinner hasn’t happened office with a problem, and it’s or five times a year for three yet. In fact, the response from normally a singular problem, a hours, and then they’re there charity chief executives made difficult one where there’s for phone calls and so on.” it clear fairly early on that it probably not an answer. It And Tom thinks that to keep wasn’t going to happen any may well be a problem that I the relationship working well, it time soon. feel I’ve talked through with is important not to meet too Tom Hughes-Hallett, CEO my colleagues, and sometimes often: “It’s very refreshing in of Marie Curie Cancer Care, not; maybe a really difficult that way. It’s not, ‘Oh Nick, who is mentored by Nick, says personnel issue at board level. how lovely to see you – I’ve got that his motivation for getting And we’ll talk it through. another problem!’ It’s like going involved was that “it’s quite Nick is incredibly good at it to see your consultant if you’re lonely being a charity chief because he always has a view ill; it’s very clinical.” executive actually. It’s an and isn’t frightened of giving Nick decided to keep going unusual governance structure it…You come back with with the Kilfinan Group after in the sense that you’ve got no advice from someone you the self-imposed initial lifespan shareholders and, even more greatly respect, which is very of three years because of the unusually, most of us are dele- clear and you can either enormous amount of positive gated to as the sole officer. So accept or not. But it gives feedback the members of the whereas in a company, a plc, you the confidence to do group received from the chari- the delegation is to a board, in something quite brave.” ty CEOs who took part: “We the charity sector it’s to a chief Obviously a key part of the had a professional survey executive.” process is ensuring the match done on the people who’d So it helps the charity chief between a mentor and a been there – we wanted to executives because they have prospective mentee. When the make sure everyone wasn’t someone who can act as a “crit- group was first set up they just being polite. But it got ical friend” and talk thorough enlisted the help of New great reviews from the heads problems with. Likewise it pro- Philanthropy Capital (some of of charities and so we decid- vides an opportunity for senior whose founders Nick knew ed to build it up…We’re now businesspeople to offer the well) to take care of this side up to 50 people.”

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The group is organised into this sharing in the chapter, experience working, it is chapters of about 15 people, where we can give each other essential that the group work who meet twice a year. At these advice, and identify recurrent in these chapters. Otherwise meetings, Nick says, “we share issues. And then we go off and “if there are too many people round the table the issues that have a pizza together, because round each table then they we’ve heard from our mentees. it’s quite a fun network of peo- won’t be able to interact prop- Everybody understands that the ple to be in!” erly and get to know each mentor/mentee discussions are In order to keep this other and be able to swap strictly confidential except for exchange of knowledge and notes.”

organisation SHINE they quickly realised things Impetus has been able to do is plug that they had more than money to con- people from the business world, whether it tribute: “We brought the business mentality is financial services or whatever, into char- that we had from being in the City – we ities very, very quickly and they are useful wanted to give in a way that would apply virtually instantly.” Stephen is sanguine commercial techniques”. about the opportunities now available for For a few, engagement becomes a full- people to give both time and money to time occupation, and they go native. In an charitable ventures, feeling it is “a very unusual move, Tom Hughes-Hallett (23) important message that needs to get out”. switched from a lucrative position in For the new breed of very wealthy investment banking to running a national young entrepreneurs that have emerged cancer charity at the age of 47. Tom had from the City in the recent period of volunteered for a number of charities, so unprecedented wealth creation, the ideal knew the sector. At the prompting of his philanthropic methodology is one that wife: “Why don’t you make the evening blends money with skills. Chris Mathias job the day job, because you seem to enjoy (18) is explicit in his use of both his it a lot more?” Tom made his move and has money and his expertise saying: “I never not regretted it: “I love it. It’s the best job give money simply by giving money, I’ve ever had and I don’t know why I didn’t because the impact of money and time is do it earlier really.” far greater. I learnt that from Impetus and After a post-university stint in Africa, there’s no doubt in my mind”. There are a Stephen Dawson spent the next 30 years number of philanthropic models emerg- building a career in venture capital, with ing that are based on increasingly com- little thought to philanthropy other than a plex financing structures and that require niggle at the back of his mind about how hands-on management from seasoned fin- his donations to local charities could have anciers and business professionals in order more impact. While easing out slowly from to succeed. These opportunities that running ECI Ventures, the London-based require technical expertise as well as a venture capital firm, and a plc chairman- large cheque book are ideal for keeping ship, Stephen set up Impetus Trust, a ven- career philanthropists engaged, motivated ture philanthropy firm that provides devel- and inspired to do more. opment capital and business skills to medi- The potential impact that FSI profes- um-size charities. Now retired, he spends sionals can have by engaging successfully up to four days a week on his role as a vol- with charities can be enormous. But it unteer executive as well as the trust’s chair- requires focus and effort to ensure that man. His own transition has been success- these skills are employed properly, so that ful and he recognises that “one of the great the engagement is successful and the

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donor is not frustrated. One of the diffi- models of Venturesome (84) have all the culties our interviewees often alluded to is products of crossover experimentation that people from finance services and peo- from the venture capital industry. ple from charities with no experience of At the same time there is growing aware- one another’s worlds find it hard to com- ness that positive social transformation is municate. To overcome this difficulty and not the sole preserve of traditional chari- to try to maximise the benefit on both ties. Social enterprises and socially respon- sides, there are a number of organisations sible businesses aim to trade goods or serv- such as Pilotlight (76) that act as interme- ices profitably while also generating addi- diaries between charities and volunteers tional public benefit. Both supply and from the commercial sector, to ensure demand are in search of new partnerships. that the relationship works for both sides. The Ethical Property Company (88) is Pilotlight’s founder Fiona Halton says: structured as a Plc, raises capital from “The particular type of skills giving we do shareholders, whose business is supplying needs, we feel, to be intensively bro- high-quality business premises for charities kered.” and community organisations. On retiring In the same way as an FSI professional’s from Goldman Sachs, David Blood (91) skills in finance and management develop was frustrated by the contrast between as they move up the career ladder, their investing in businesses and investing in engagement with charities can develop too. charities. In setting up Generation For those at the top of their profession, it Investment Management (with US Vice may not be appropriate or possible to President Al Gore), David wanted to “har- spend time thrashing out the strategy of a ness the power of capital, and capital mar- small charity. However, the huge skills and kets, to address other things…given the experience of these individuals can be har- challenges we face” by investing in sustain- nessed in other ways and the Kilfinan able businesses. Group (78) exists to facilitate CEO to There is a steady blurring of this divide CEO mentoring. It is an informal network between fully commercial and fully chari- of senior business people, predominantly table investment, and a new breed of holis- from the FSI, who act as mentors to chief tic advisers is emerging to help people to executives from the charity sector. By invest their wealth across a range of asset focusing on the personal relationship classes and to blend business and philan- between top people from business and top thropic values. Investing for Good (89) people from charities in this way the offers investment advice and consultancy exchange of ideas and experience is very on integrating these different types of effective. investments into clients’ profiles. These partnerships are providing wealthy people with a new array of invest- 4.4 New Methods for Philanthropy ment opportunities, where financial and The new philanthropy models that have social return can be thought of as blended emerged in the past ten years have largely rather than distinct. Whether providing been developed by individuals or compa- grants for a venture philanthropy opera- nies in the financial services industry. They tion, buying shares in a socially responsible want to combine charitable finance with company or investing in sustainable busi- business and finance thinking for the per- nesses, capital can be put to work creative- manent benefit of the recipient charity or ly for social good; and these new opportu- enterprise. Venture philanthropy, social nities should open up more business minds venture capital and the mezzanine funding to philanthropy in its broadest meaning

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since their models should appeal directly to firm Doughty Hansen, in partnership the financier or entrepreneur. with Coutts Bank has set up Smart Fund with Cranfield Trust providing consulting 4.4.1 Venture Philanthropy services to charitable ventures. Although In the late 1940s, an Oxford-based busi- it is not unusual for such firms to dis- nessman, Cecil Jackson-Cole, was instru- charge their social responsibilities mental in creating Oxfam out of the through a traditional grant-making trust wartime Oxford Committee for Famine (Doughty Hanson and Execution each Relief. For the next three decades he has its own foundation), there is a new deployed his own business capital and acu- trend to engage deeper with charitable men to launch a string of charitable enter- organisations through venture philan- prises including ActionAid and Help the thropy. Aged International; his legacy foundation Not surprisingly, the entrepreneurial, continues to help new ventures to start up Anglo-Saxon approach of venture philan- or grow to this very day. Jackson-Cole thropy has attracted most interest in practised venture philanthropy in all but America and Britain, but it is taking root name. in continental Europe too – the European Over the past 15 years, initially in Venture Philanthropy Association (EVPA) America, but now throughout Europe, has grown rapidly. EVPA was set up in venture philanthropy is growing rapidly. 2004 as a peer network for venture philan- Venture philanthropists view charities and thropists across the continent. Its five social enterprises as investments in need of founders, from the Netherlands, France, the capital and advice required for sustain- Italy and Britain, are all well established in able growth. Like venture capitalists they European private equity. It had a member- will back a venture run by a capable man- ship of 75 in 2007 and its annual confer- agement team with development finance ences attract more than 300 participants, and consulting, mentoring and access to many from private equity. networks. Their goal is to build a stronger, A stellar list of European private equity more sustainable organisation that will firms (including Blackstone, Apax, Bain deliver greater social impact. These new Capital, KKR and Goldman Sachs) social venture capitalists run small portfo- together launched the Private Equity lios of ventures, exercise due diligence and Foundation (44) in 2006 as the industry’s focus on building an organisation’s internal attempt to pool philanthropic resources. capacity. They may solicit help from man- agement consultants, accountants and 4.5.2 Risk or Mezzanine Funding other experts as they turn these organisa- The Office of the Third Sector acknowl- tions around. edges that charitable organisations have gen- Stephen Dawson, a career venture cap- erally been sceptical about using loans to italist, retired from ECI Ventures to finance their development and growth and launch Impetus Trust in 2002, now a rap- take up of these financing options is slug- idly growing venture philanthropy fund gish.12 Charitable boards tend to be risk with a portfolio of nine charities or social averse and are often ill-equipped to under- enterprises. The private equity firm stand the risks and benefits associated with Permira has teamed up with a social debt financing. This, coupled with collateral entrepreneur network to create and personal liability issues, has resulted in

Breakthrough (82), a venture philanthro- many charities not making use of financing 12 Third Sector Access to py fund focused on “scaling up” social that may be highly appropriate for them. Finance, Research by SQW Ltd for to the Cabint Office Office of enterprises, and recently private equity However, research by the National Council the Third Sector, May 2007

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Breakthrough is a venture of the Community Action advice; Training for Life is a philanthropy partnership Network (CAN), he knew he training and employment between private equity firm had found the right partner- scheme for vulnerable people; Permira and social enterprise ship. CAN is a practitioner Timebank is an innovative practitioner network CAN. network rooted in the rapidly charity providing volunteering Adele Blakeborough is chief growing social enterprise sec- opportunities for over 250,000 executive of CAN and Damon tor and well placed to under- volunteers; FareShare addresses Buffini is the chairman of stand the constraints social poverty in communities in Permira and sits on the entrepreneurs face in develop- partnership with major super- Breakthrough advisory panel ing their organisations to the market chains and food retail- which selects those social point where they can have ers. These enterprises have enterprises for investment. national impact. In 2005 annual turnovers of between Permira’s chairman, Damon CAN and Permira launched £1.4 and £3.6 million. Buffini, recalls sitting down Breakthrough – to help social The Breakthrough advisory with his partners four years entrepreneurs develop their panel, responsible for invest- ago with the thought: “We all enterprises in this way. ment decisions, performance do things individually as phi- Permira capitalised the initia- and resources includes Adele lanthropists, but wouldn’t it tive with an initial €1 million Blakebrough, Damon Buffini be great if we could harness injection of non-returnable and senior representatives the power of the firm, not just grant for a two-year pilot pro- from companies in fields the power of money, to create gramme. Based on the pilot’s including strategy consulting, real impact?” Damon’s hunch success, CAN and Permira accounting and brand man- was that “by taking what the launched Breakthrough II agement. Damon sees the firm does – enterprise – and (investing a further €2 mil- investment process as no push coupling that to an area lion) in 2007 and are opening over: “We wanted a rigorous which would touch the lives up this fund for contributions investment process with real of hundreds or thousands of from other investors. commercial discipline, so that people, it would be a very Breakthrough seeks sustain- the social enterprises would efficient way of giving.” able and profitable social demonstrate real growth in Permira set about looking for enterprises with a minimum social impact.” such an opportunity. The light turnover of £500,000 and The first Breakthrough bulb lit up when Damon and three-year trading history, fund invested an average of his partners came across the with ambitions for growth and £105,000 directly into each of concept of “social entrepre- a credible business plan for the portfolio enterprises split neurs” – highly motivated expansion. These businesses between working capital, individuals who believe that need a strong leadership team expansion capital, increased enterprise can help solve and appetite for the kind of management capacity and out- intractable social problems. hands on involvement on sourced consulting. Non- “That resonated with us very offer. financial support to the port- directly; we are entrepreneurs folio managers is provided by who have built a business up Breakthrough has five social CAN’s chief executive (peer from scratch. Here were peo- enterprises in its portfolio. support), Permira staff (men- ple who believed in enterprise, Green-Works recycles office toring) as well as the CAN could build a business and furniture and provides jobs and team and external consultants have a long term perspective.” training for disadvantaged peo- (project support). Damon saw When Damon met Adele ple; Law for All delivers high- the direct involvement of Blakebrough, chief executive quality social welfare legal Permira staff as critical. At a

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company conference he told during its expansion. Solutions or another, with the them about Permira’s commit- included a ring-fenced work- Breakthrough project. “Giving ment to the project. “I invited ing capital reserve account, time, expertise and competen- Adele and two of the social mentoring from a Permira cy is something private equity entrepreneurs we had agreed executive and technical advice can bring,” says Permira’s to support to speak,” explains from Permira’s IT department Benoit Vauchy, who has Damon, “and asked staff if on an upgrade to the account- worked intensively with they would like to get ing system. Gordon D’Silva at Training involved through mentoring.” There are several reasons for Life. “It is much more He was surprised by the take why this innovative approach valuable than just money.” up. “We had more volunteers sits well within Permira’s organ- Damon considers the than we could accommodate isational culture. First, there is Breakthrough project successful at the time.” a clear alignment with the enough to say: “I would con- Across the portfolio, company’s core business prac- sider rolling it out to Permira’s turnover in the first fund of tice of helping to grow other offices, although for the Breakthrough enterprises has stronger, more robust and time being we are focused on grown an average 20 per cent responsive enterprises – the getting to work in the UK.” during the two years of the principles and tools of venture Damon believes the firm has fund. Social impact has grown investing can be applied as learned that a package of faster, at 40 per cent (evalua- much to social enterprises as money and staff time “really tion included metrics like purely commercial ones. magnifies impact”, and that tonnes of furniture resold, “What CAN does – scaling “social enterprise, addressing number of disadvantaged peo- up enterprises – that’s what social needs through commer- ple into work, number of vol- we do here at Permira,” says cial thinking, has really unteers placed). “Breakthrough Damon. “The issues we try to opened our eyes – it has funding made a big difference address with CAN are similar changed people’s attitudes to to our business,” says Training to our day-to-day business.” philanthropy.” for Life CEO, Gordon Secondly, Breakthrough is The partnership between D’Silva. “Support with work- working to provide Permira’s CAN and Permira is an ing capital reserve is scarce staff, at different levels of the important development for today, but the opportunity to company, with opportunities venture philanthropy. It sig- work with individuals with the to become actively involved nals that private equity firms level of expertise that Permira with the social enterprises it (not only individuals from has is just as valuable.” In supports; not only during due that industry) view venture developing Training for Life, diligence and selection, but philanthropy as a relevant Gordon faced the challenges of throughout the lifetime of the model for corporate philan- cash flow (with contract pay- engagement. A quarter of thropy, providing access to ments in arrears) and a step- Permira’s London-based staff grant capital and the skills change in business processes has been involved, in one way found within private equity.

for Voluntary Organisations (NCVO) sug- Foundation launched a loan programme in gests that demand for loan finance is rising 2003 to complement its traditional grant- steadily. Futurebuilders, set up in 2004 to making. The Adventure Capital Fund, ini- provide loan funding and development tially capitalised with Home Office funding, grants for organisations engaged in delivery is aimed at local community enterprises and 13 Voluntary Sector Strategic Analysis 2007-08, National of public services, has greatly influenced a uses a mix of loans and grants, backed with Council for Voluntary reluctant sector.13 The Esmée Fairbairn a tailored support package. Organisations

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Venturesome helps donors the application falls outside recycling means that the support small and medium- traditional grant-makers’ crite- funds invested in the volun- size charities, recycling their ria, does not involve a specific tary sector through money to achieve more project, has too large a com- Venturesome work hard, per- impact. John Kingston found- mercial component or because haps being recycled four or ed Venturesome after a career competition for funding in five times. This contrasts with that had crossed the private the sector is intense. Some both the commercial banking and charitable sectors. charities actively seek debt, sector (recycled many times John Kingston spent his from banks or specialist against security) and the one- early career with ICFC (later to lenders, as part of a longer- off donation of a traditional become 3i) before moving to term funding strategy. grant-maker (not recycled). the large UK charity, Save the Venturesome concentrates on Venturesome does not nec- Children. With a foot in each underwriting and unsecured essarily expect a higher finan- camp, John realised that several lending products; on occasion, cial return for this increased of the financing mechanisms a stake in the performance of risk, but expects, and moni- familiar from venture capital the organisation may be part tors, social outcomes. The and investment banking could of the investment (quasi-equi- total return is therefore made be adapted for organisations ty). The primary target market up of both financial and social with charitable purposes. He is small and medium-size elements. took his ideas to CAF propos- charities; Venturesome has also Venturesome provides three ing the launch of a new risk worked with social enterprises types of finance: fund to test this proposition. with a clearly defined charita- Venturesome was launched in ble purpose.  Pre-funding of capital early 2002 to explore alterna- The heart of the fundraising: bridging tive approaches to the financ- Venturesome model is to bal- finance ing of organisations with a ance financial risk with  Working capital: underpin- social purpose. Venturesome potential social impact; the ning cash flow/financial works with these organisations key concepts in its approach stabilisation to help them to analyse their are recycling and social return.  Development capital: financial needs, to manage the Venturesome is not a grant- building new streams of timing of raising funds through maker, and therefore there is an income generation, and/or underwriting and to invest risk expectation that investments the charity’s capacity to capital in these organisations will be paid back or “recycled”. grow using unsecured loans and It is able to assume higher equity-like investments. It has financial risk than a conven- During its first five years, been backed by five individuals tional bank lender, which, in Venturesome used mostly pre- from the financial services sec- the absence of security, would funding and working capital tor as well as several grant- assess the charity or project as tools, but today the emphasis making foundations and a too risky or as having too high is providing development cap- bank. an appraisal and monitoring ital to charities and social As a risk fund, cost. As a result, recycling rates enterprises, Venturesome seeks to sup- are projected to be lower – a Venturesome has gained port charities that find it dif- bank lender would project rates considerable understanding of ficult to raise funds from of more than 98 per cent, the risk levels associated with more traditional sources, whereas Venturesome projects the different financial needs of such as grants or bank bor- an average recycling range of 75 charities. It classifies its deals rowing. This may be because to 80 per cent. Such a rate of along a risk spectrum, from

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“low” (hard development capi- Venturesome provided a short- tations. By early 2007 tal and closed working capital) term £60,000 loan, which was Venturesome had not yet to “high” (open working capi- repaid in full and on time at received any return. However, tal and soft development capi- the end of the project. the charity’s overall financial tal), illustrated in the follow- position has changed radically ing investments:14 Viva Networks (2003) for the better over the past (Soft development three years and its operational Questscope (2004) capital – quasi-equity) work has grown substantially. (Closed Working Capital) Viva Networks works with Since its launch, Questscope is a British-regis- street children overseas and Venturesome has made 150 tered charity working in Jordan wished to seek donations from commitments, worth £10 mil- with marginalised young peo- individuals through a direct lion. Of that, £4.9 million ple. Questscope was grant mail appeal. Venturesome pro- has already been recycled, with funded (about £2 million) by vided a £75,000 development losses of around 5 per cent. the World Bank and the capital, quasi-equity facility The first fund raised by European Union to deliver a linked to performance of Venturesome (the project. However grant pay- fundraising from individuals Venturesome Investment ments from both institutions over five years. Despite a suc- Fund) now totals £7 million, could arrive as much as 14 cessful pilot, the roll-out of supported by CAF and 12 months after the date of expen- the mailing coincided with the others including a mainstream diture – leading to significant tsunami disaster of 2005 and bank, grant-making founda- working capital problems. performance was below expec- tions and private individuals.

More than ten years ago, and long Tesdell, president of the Community before the current fashion for debt arrange- Development Venture Capital Alliance, in ments took hold, the Charities Aid New York, it “combines the tools of tradi- Foundation (CAF) set up Investors in tional venture capital – equity investment Society to provide loan finance to charities. and entrepreneurial assistance – with the Building on that early and modest experi- goals of community development, to stim- ment CAF collaborated with John ulate the creation of new businesses, high Kingston, who moved from Save the quality jobs and healthier communities.” Children (UK) and had a venture capital CDVC funds provide equity capital to background, to create a new risk fund businesses in underinvested markets, seek- called Venturesome (84). Venturesome ing financial returns as well as the creation wanted to increase the range of funding of good jobs, wealth and entrepreneurial options available to charities and over time capacity. Like traditional venture capital contribute to building a healthier social funds they seek high growth opportunities, investment market that could absorb and excellent business ideas and strong man- benefit from new resources. agement teams, but in needing to balance social and financial returns, tend to make 4.2.3 Social Venture Capital smaller equity investments (£125,000 to Bridges Ventures (86) is the first European £1 million) in businesses that most readily example of a well-established American provide employment for low skilled, entry- model – a community development ven- level workers – in manufacturing, service 14 Bolton M, Kingston J and Ludlow J, The Venturesome ture capital (CDVC) fund, which invests or retail industries. There are more than 60 Model: Reflecting on our Approach and Learning 2001-06, in businesses in low-income, underinvest- such funds in America, managing $870 Charities Aid Foundation, 2007; ed communities. In the words of Kerwin million. The US-based Community www.cafonline.org

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Bridges Ventures is a ven- to social and environmental people across Britain to sup- ture capital company with a impact.” port the companies in which social mission. Michele Financial returns to the it invests. Giddens has been a director of fund partners and investors in Bridges invests in commer- Bridges since the inception of five years time, when the first cial enterprises in economical- the first £40 million fund in ten-year fund is wound up, are ly deprived areas. The invest- 2002. Bridges raised £75 mil- likely to be substantial. On ments tend to be small for the lion for a second fund in 2007. exiting the first investment, in sector, between £125,000 and Bridges was borne out of label printer Harlands of Hull, £1 million. The portfolio is the Social Investment Bridges made an internal rate balanced between early stage, Taskforce, led by Sir Ronald of return (IRR) of 84 per cent. management buy-out and Cohen, which in 2000 called The social impact of that property-backed ventures. It for the Government to put up investment was also significant seeks high-growth opportuni- £100 million to create venture since 50 jobs were saved ties, excellent business ideas capital funds that would through turning around the and strong management teams finance inner-city regenera- company and five more were and aims to bring the best of tion. The Government did not added. venture capital investment to produce £100 million, but To engrain Bridges social these opportunities – a long- agreed that if some private mission right through the term outlook, hands-on sup- money could be raised for a company, there is a charitable port and understanding of the first fund, it would match it. trust that owns a portion of issues growth brings. Apax Partners (Sir Ronald the shares of the management There are targets for social Cohen), 3i and entrepreneur company and it will be gifted impact – companies invested Tom Singh, Founder of New a portion of the carried inter- in must create jobs in the Look, formed the first fund. est that goes to the team, “so local economy, source materi- They were determined to cre- that there is effectively a moti- als from local suppliers or ate the first European example vation to succeed on behalf of stimulate economic growth in of a community development the charity as well as for self- the community. Bridges aims venture capital fund, a model interest”. to back local entrepreneurs long established in the US, Bridges is an entrepreneur- who can develop into role which invests in businesses in ial venture and Michele is very models for success and aspi- low-income, underinvested committed to it. She says that ration in their community. communities. This group of it attracts top quality staff, It applies venture capital successful business and finance who prefer the Bridges mis- checks and balances on its professionals saw the potential sion to that of other more investments just like any ven- for a business model that mainstream funds. Of the big ture capital fund and it sub- could blend social aims for individual investors associated jects the social impact to as low income communities with with Bridges, she says, they rigorous targets and manage- a final return for private sector tend to be “very wealthy, ment as the financial and investors. entrepreneurial, to think out- business side of things. “We When describing the of-the-box and take risks”, so are a mission driven investor model Michele says, the Bridges opportunity and the controls on perform- “Bridges has a dedicated appeals to them. Bridges has ance of all types are there social and environmental also set up the Bridges through who we are and what purpose. It’s not philanthro- Entrepreneurs’ Club, compris- we do,” explains Michele. py and it’s not pure profit ing more than 20 successful The £40 million for the first maximisation without regard entrepreneurs and business fund was raised half from pri-

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vate investors and half from the have lost significant amounts of The biggest investors in the Government as a “subordinated money,’ they would have said first fund were high street component”, meaning that the ‘how sweet’ and they might banks, just like any other ven- Government took more risk have given a few thousand ture capital fund. In the second and a lower return than the pounds of charitable money fund, Bridges has attracted pen- private investors. Michele says: but they would not have made sion funds, individuals and “The government subordinat- an investment.” other private equity investors ed funding was the real key The Government money who see this “as a way of giving to raising the first fund, it effectively turned £20 million back”. One of the most diffi- was catalytic money.” invested in the most deprived cult things for Bridges is to Many investors had lost parts of the country into £40 know whom to target within money on small regional regen- million; it helped to get the an institution because there is eration projects and she says: first mission-driven venture not yet a special asset class for “If we had gone to the private capital investor off the ground social investment alone. Often sector and said ‘we want to and it has now raised £75 mil- they have to go straight to the invest in the most deprived 25 lion for its second fund without top of an investing organisation per cent of the country, we are any government seed-funding in order for the CEO to decide putting together a team that at all. However, Michele does where such an investment does not exist yet, nobody has not pretend this was easy. She is would go in the portfolio and really done it in the UK and, candid that they had to this can make it difficult for actually, some people who have approach a lot of people to potential investors to decide done small deals in the regions achieve that £75 million. whether to invest at all.

Development Venture Capital Alliance is Circle Fund provides micro loans (similar to the network for these funds and has itself the Grameen Bank in Bangladesh) for entre- recently invested in Bridges Ventures. preneurs in Norwich. Bigger CDFIs, such as Charity Bank and Triodos Bank which are 4.3.4 Developments in the Social helping the Ethical Property Company (88) Enterprise and Investment Market to raise money, are specialist finance One of the Government’s recent innovations providers covering the whole country. for social investment in Britain has been the CDFIs provide finance for a wide range introduction of Community Development of organisations, many of which are social Finance Institutions (CDFIs). These are sus- enterprises. These are businesses which tainable, independent bodies supplying capi- trade (and aim to do so profitably) with a tal and business support to individuals and clear social purpose. Many, like Cafédirect, organisations that create wealth in disadvan- The Big Issue, the Eden Project or Jamie taged communities or underserved markets. Oliver’s Fifteen restaurant, are well known There are about 60 CDFIs in the UK and in brands. But there are an estimated 55,000 2005 the total loan and investment portfolio social enterprises in the UK, and the stood at £181 million with loans ranging majority are small, locally based ventures – from £1 million to £50 million.15 For exam- some stay small and local while others have ple, HBV Enterprise is a CDFI working in ambitions for growth.16 seven London boroughs, providing start-up, The introduction of community invest- 15 The State of Community small enterprise and micro loans, with a spe- ment tax relief (CITR) in 2002 boosted Development Finance, the cial focus on women and black and ethnic investment in CDFIs by individuals, foun- Community Development Finance Association, 2005

minority groups. The Women’s Employment dations and companies. CITR offers a tax 16 Annual Small Business and Enterprise Training Unit run by the Full incentive to investments made through Survey, DTI, 2005

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The Ethical Property without compromising its gain system through its Company (EPC) is a profit- social goals – providing stockbroker Brewin making business that provides quality workspace for organ- Dolphin, meaning that quality workspace for organi- isations with strong social shares can be sold if a buyer sations with a strong social purpose, contributing to is available. In practice, EPC purpose. urban regeneration and a finds an excess of buyers over Affordable, high-quality positive environmental sellers – at a level of liquidity office space for charities, social impact. Established as a plc it satisfying their shareholders. enterprises and community chooses to raise capital Last year turnover increased 9 organisations has never been through share issues. With the per cent with profits after tax easy to find. In 1982 Andrew help of Triodos Bank and totalling more than £250,000. King purchased a property in Malcolm Lynch Solicitors, the The company has returned a Colston Street, Bristol to first share issue was launched dividend to shareholders over house the many co-operatives in May 1999, raising £1.72 the past six years. springing up around the city, million. A second share issue EPC can deliver sharehold- offering tenants reasonable in 2002 raised an additional er value while maintaining rents, shared premises and £4.2 million and last year a clear social and environmental resources and a sympathetic third share issue raised £3.6 goals. The company reports landlord. Further properties million. The company has an annually on its environmental were purchased in Bristol and £11.4 million borrowing facil- and social impact, for example later in London, with expan- ity through Triodos Bank, of its properties’ carbon emissions sion financed through Triodos which £7.4 million is on a were reduced by 59 per cent in Bank. In 1998 Andrew and revolving credit basis. 2006; high tenant satisfaction, his business partner, Jamie There are well over 1,000 access and investment in Hartzell, set up the Ethical shareholders in the company, socially excluded areas. Property Company plc to roll investing amounts ranging The number of social pur- out a property portfolio across from £100 to over £700,000. pose plcs in Britain – such as

17 In order to be accredited by four other cities. Today EPC There are two institutional Cafédirect, Traidcraft, Good the Secretary of State for the owns and manages 12 centres investors: Henderson Investors Energy and Triodos maximum three-year period, a CDFI must fulfil a number of cri- occupied by 130 tenant organ- and Morley Fund Renewable Energy Fund – is teria, such as: (i) be set up with the intention of carrying on its isations in six locations, a Management, but all the rest growing. Like EPC they com- activities for at least five years; property portfolio valued at are individuals. EPC is the bine the disciplines of a plc in (ii) at least 75 per cent of its activities must be directed at the over £17 million. first social enterprise where raising capital publicly and provision of finance and busi- From the beginning EPC ethical unit trusts have made a managing shareholder ness advice for small or medi- um-size enterprises (SMEs) for was designed to be a prof- substantial investment in an investors. They combine the disadvantaged communities; (iii) itable company, delivering unquoted company. Shares creation of shareholder value it must only provide finance to enterprises that have been value for its shareholders are traded on a matched bar- with tangible social benefits. unable to obtain funding from other sources, are located in specific geographic areas of dis- advantage or are operated by, or for the benefit of, certain disad- accredited CDFIs. The relief is worth up to worth £5,000 each year for five years. To vantaged groups. In order to 25 per cent of the money invested, spread qualify for relief under the CITR scheme, comply successfully with the terms of accreditation CDFIs over five years (5 per cent a year) and is the CDFI must be accredited by the must also invest within a certain worth 8.33 per cent gross a year for high- Secretary of State for Business, Enterprise time. By the end of the first year 17 of accreditation, 25 per cent of er-rate taxpayers, 6.41 per cent a year for and Regulatory Reform. the capital raised by the CDFI standard-rate taxpayers and 7.14 per cent a The introduction of the community must be invested, 50 per cent by the end of the second year and year for main-rate corporation tax payers. interest company (CIC) in 2005 was 75 per cent by the end of the For example, an investment of £100,000 designed to boost the social enterprise sec- third year, with the 75 per cent limit maintained subsequently would entitle the investor to tax relief tor. CICs are companies that operate for the

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Investing for Good provides believe in or you can invest in point for an index of social investment advice and market them.” The way Caroline investment opportunities. The data on social investment and explains their position is that platform currently has data on philanthropy to professional “charities do a fantastic job in about 150 companies which financial advisers. It aims to dealing with the symptoms of includes accounts, prospectus- open up access for investors to a specific problem and what es, term sheets and a whole social investment and philan- social enterprise is doing is host of information. In future thropic opportunities. trying to tackle the causes and each company will be cate- Caroline Mason and Geoff the two approaches are very gorised under a risk profile. Burnand started up this complimentary”. Investing for Good is struc- unique adviser-to-the-advisers This is a new way of think- tured as a community interest consultancy in 2004. Geoff ing for many of the advisers company, not because it pro- was a wealth manager himself that they talk to, so they pres- vides them with any tax advan- and Caroline was, in her ent them with specific exam- tage, but because of what it says words, “the doer, someone ples and case studies. about their mission. who makes ideas happen”. Education is often used as an Also Caroline believes that Although they admit that they example area since so many the Government has been a were somewhat ahead of their wealthy individuals value it catalyst in the development of time, things have moved on more than any other cause and social enterprise in the past pretty fast: “Eighteen months there are lots of different ways few years and the introduction ago we couldn’t get through to support it. Advisers can tell of CICs was one of their key the door on social investment, their clients “they can donate initiatives, along with commu- only on philanthropy, and to their school or invest in a nity investment tax relief. now the link has been made in social business like the Unique Although set up in 2004, terms of consumerism so peo- Coffee Bar that takes children Investing for Good has been ple understand that what they who have fallen out of main- regulated only since April and spend their money on has a stream education and specialis- in that time Caroline believes broad impact and that means es in getting them into work.” that it has added at least £6 their investments too,” says Caroline believes that the million of additional wealth to Caroline. main barrier to this new way social investments: about £2 The initial aim was to of thinking about managing million from philanthropic advise advisers on philan- personal wealth is “the conver- money and £4 million from thropy. Geoff and Caroline sation between adviser and investment money. The advis- thought it strange that client that says, ‘You need to ers with whom they have most wealth managers evaluated be doing something more influence are neither the blue every detail of their cus- interesting’”. And she firmly chip private banks nor the tomers’ lives without ever believes that “the City likes very retail type IFAs, but the actually understanding their new things”. ones in the middle, the bou- values and “what touches Investing for Good offers tique wealth managers. them”. Here was a new investment advice and consul- One of the barriers to opportunity in advising on tancy on how to integrate increasing the pool of fund- social investment, by which these different types of invest- ing available for social they mean business with a ments into clients’ profiles. It investment is the client’s core social and environmen- is regulated by the Financial decision about which pool of tal mission. “You can say to Services Authority. It has also funds to tap, their philan- your clients, you can either recently initiated a market data thropic pool or their invest- give to the causes that you platform, which is the starting ment pool. Social investment

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perhaps needs a separate in some cases the private Returns for clients may not asset class, even though as banks buy them in nominee be equivalent to a market Caroline says, “a bond is a accounts. That said, to get on return because there will be a bond, a share is a share”. to Investing for Good’s radar, social return in there too. The issue is the risk profile. companies have to be sound. Most of the investment When an adviser profiles a Groups like Charity Bank, opportunities are profit-mak- client, he assesses his attitude Triodos, Venturesome and ing but profits will probably to risk and structures a portfo- CAN are critical for setting up be ploughed back into the lio accordingly: “They cannot deal flow and for capacity organisation. Caroline says just bung an oddity in the building because they act as that the community element middle of that portfolio if it “angel” investors, who put in of many of these investments does not fit,” says Caroline. money before the social busi- is very important to the sales In reality what happens is nesses become more broadly pitch when trying to get new that clients either use their attractive as investments. investors on board. Local ini- charitable portfolio because Another barrier is the fact tiatives resonate well because the risk profile is simply too that it is complex. Caroline investors can easily see the high for their regular portfolio says: “It’s new, it involves social change that their invest- (most of these companies are compliance, it’s regulated, it’s ment is driving and this is all small and illiquid) or a sepa- about investments and it all part of the attraction of social rate portfolio is structured for starts getting a bit blurry and investment over plain vanilla their “oddity” investments, or a bit difficult.” philanthropy.

benefit of the community rather than for the Department for Health is holding a the benefit of the owners of the company. social enterprise investment fund (SEIF) Investing for Good (89), an adviser on phi- of £73 million over a four year period to lanthropy and social investment to financial stimulate and encourage the develop- advisers is an example of a CIC. The crucial ment of a vibrant social enterprise sector test is the “community interest test”, which in the delivery of health and social care assesses whether “a reasonable person might services. consider that its activities are being carried The independent Commission on on for the benefit of the community”, based Unclaimed Assets was set up in November on its statement of community interest. 2005, chaired by Sir Ronald Cohen, to pro- There is a CIC regulator, who is responsible pose recommendations for monies in finan- for approving companies’ applications to be cial institutions that have been untouched registered as CICs and monitoring their by their owners for a considerable period of subsequent activities. CICs are also subject time. A survey published by the commis- to an “asset lock”, which prevents them sion, reported that two-thirds of the British from transferring assets at less than full mar- public believe that money in inactive ket value unless they are transferred to accounts should be used to fund charitable another asset-locked organisation or a char- projects. Countries including the US, ity. This is intended to reassure investors Ireland, Australia, New Zealand and Spain that the CICs profits are devoted to the ben- have legal frameworks in place for putting efit of the community. these assets to productive use. The Dormant The Government aims to boost the Bank and Building Society Accounts Bill, delivery of public services in the social announced in the Queen’s Speech in enterprise sector through the develop- November 2007, proposes that money lying ment of CDFIs and CICs. From 2007 in dormant bank accounts in England will

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Generation Investment realised that “I had a slightly does not have to compromise Management is a sustainable different idea of what might be financial returns. And he investment company. David fun. My vision was, and still is, thinks the idea is beginning to Blood co-founded Generation that maybe we can move away catch on. “A number of huge with former US Vice-President from the model of half your funds in Europe, the US and Al Gore in 2004. life, or whatever proportion, be Australia have taken meaning- David Blood is the manag- commercial and some of it not- ful steps to incorporate sus- ing partner of Generation for-profit. What if you actually tainability or environmental Investment Management, combined them – is that possi- factors into how they think which aims to place issues of ble? And that is in some about investing. Not because environmental, economic and respects what Generation is they want to impose their val- social sustainability at the trying to do.” ues on portfolios or they want heart of its investment He believes strongly in the to make ethical statements, research. benefits this sort of approach but because they actually David’s interest in sustain- can have for important causes: realise it’s relevant to business. ability is rooted in his “You can harness the power of And what we do at upbringing: “When I was 12 capital, and capital markets, to Generation always comes back years old I lived in Brazil, address other things – and we to what is relevant for business where there was a significant need to, given the challenges and profitability and invest- disparity of wealth and sig- we face.” It can also benefit ing, because we think that is nificant poverty, and as a 12 individuals in the business sustainable.” year old you can be highly world who “don’t necessarily David has come to realise influenced.” This experience want to check their values at that there is a broad spectrum has led him through the the door, and who want to of possible ways to approach whole of his working life to work in organisations that philanthropic giving. “If you “try and understand markets are doing the right thing in think about the continuum of and what they mean to the some way, shape or form.” returns there will be some broader group of people”. The hope is that, “if you people who are prepared to That is not to say that the blend things like this, you provide pure philanthropic model he has arrived at did may find that one plus one in capital, ie no return; there not require some learning fact equals three.” may be some people who along the way. David admits: Rather than take an want subsidised returns, so “When I started at Goldman approach that seeks to separate there’s a slice of philanthropy Sachs, my model was the tra- social return and financial there…and then there are ditional one of ‘you make return, and justify any drop in some people who are going to money and you either decide the latter on the basis of the want full returns, but want to to spend it or give it away’, former, Generation subjects its do it in a way that is useful. and I was going to be more in investments to the same rigor- These might be different peo- the latter category. I had no ous measures as any other ple, or they might be one per- inkling that I would actually investment manager would. son with different pockets of try to bring them together.” The key difference is that sus- money.” The real change came when tainability issues are incorpo- David clearly fits the latter he retired from Goldman rated into the measurement mould. His philanthropy Sachs, where he was CEO of process. runs the gamut from tradi- Asset Management. He was David believes it is possible tional giving via a family still only 44, and could have to demonstrate to investors foundation to his work with taken any number of jobs, but that sustainable investment Generation, which is fully

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for-profit but has core values guish his giving from his day of his alma mater, Hamilton of sustainability. job. It is clear that his work College. Generation itself also has a with Generation, although David’s philanthropy has linked foundation into which very much run along for-prof- extended to a large number of 5 per cent of company profits it lines, is driven by the same causes across a wide geograph- go. The main work of this general motives that have driv- ical reach. His central interest, foundation at the moment is en his giving. The experience, however, is in poverty and sus- advocacy: raising the profile of knowledge and passion that he tainability. He has also found sustainability issues, in partic- has brought to Generation that having a connection to an ular the environment, and must be viewed as a key part organisation has been an how they relate to business of his overall philanthropic important factor in his giving. and capital markets. But contribution. “Most things we have given a David has broader hopes for As well as his day job with fair amount of money to, the foundation in the longer Generation, David has given we’ve been actively involved term: “In addition to advocacy time and skills through in. And then we’ve given a fair work it will probably make involvement with a number of amount to organisations direct investments using our organisations at board level. where we know people who investment acumen and part- He is currently vice-chairman are involved and therefore nering it with our interest in of SHINE and a board mem- support them…if you’re real- the environment and our ber of Acumen Fund, a US- ly heavily involved and interest in poverty.” based non-profit global ven- you’re confident in the vision As David’s philanthropic ture fund. He was formerly a and the organisation and the approach has permeated his trustee of New Philanthropy people, then it’s certainly whole life, it is hard to distin- Capital and sat on the board easier to write cheques.”

be used to fund youth services, financial retired early from managing $350 billion inclusion and a social investment wholesaler at Goldman Sachs Asset Management, the as described by the Commission on two founded Generation Asset Manage- Unclaimed Assets. The bill also proposes ment (91). that ministers in Scotland, Wales and “Markets are ways of recognising and Northern Ireland will be free to choose on measuring values,” says Al Gore, but they which causes to spend unclaimed assets in find it hard to put a price on “the environ- their provinces. ment, communities, employees, ethics, management quality, social, environmental Bringing Sanity to the Investment Market and ethical values”. He describes two historic Former US Vice-President Al Gore believes waves of investment practice that tried to the entire capital market is “functionally remedy this. The first, born out of the anti- insane…if the only tool you can use to apartheid movement was “negative screen- measure value is modernisation; those ing” – not investing in South Africa, tobac- things that do not come with a price tag co, armaments or gambling. The second can seem as if they have no value”.18 When wave did not discriminate against any indus- he left the White House he became try but would “do deep research and find the involved in financial services but found it most respectable companies” for those “unsatisfying because it did not integrate investing in areas such as tobacco or casinos. 18 Quotations are from Al Gore’s speech to the Skoll World the values that I feel are important to build This second approach “ended up being, in Forum, Saïd Business School, the eye of the fiduciaries community, an University of Oxford, March into the market process”. Through his 2006 friendship with David Blood, who had inch deep and a mile wide,” he says.

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Generation aims to bring some “sani- recognise and deal with value inside the ty” to this investment market by finding market system so that it takes account of “a way to integrate sustainability values the values that are what humanity is all into traditional equity analysis, in a way about.” that adds value and clearly does not incur Sustainable investment is not philan- a penalty”. Al Gore believes we are oper- thropy, but shares its value proposition ating planet earth as if it were “a business that finance can be used to bring about in liquidation”. A new breed of invest- public benefit – by investing in companies ment houses, like Generation, is needed, that create wealth and have a positive social he says “to modify the way we measure, and environmental impact.

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5

Conclusions and Recommendations

Philanthropy in the City of the individuals is reflected in the levels Some enlightened City figures have been of giving. In fact, statistics tend to show inspired to set up innovative organisations that it is not.” that use their skills to maximise the cre- ation or distribution of philanthropic wealth. Their motivations varied: Sir Peter The Potential Lampl (68) was inspired by his desire that Pay structures in the City make it impossi- every child in Britain should “have the ble to assess the total levels of compensa- opportunity to fulfil their potential”; tion and the means available for philan- David Blood (91) by his upbringing in thropy. However, exceptional wealth cre- Brazil where he was “highly influenced by ation in the last ten years means that finan- seeing poverty”. Once motivated, some cial services professionals could lead have found the mechanics straightforward: Britain closer to US levels of giving. 1 International Comparisons of Chris Mathias (18) said it was “dead easy” Individual giving levels in the US stand at Charitable Giving, CAF, 2006 to establish his family foundation along- 1.67 per cent of GDP and in the UK at 2 Ibid side his investment company; for others 0.73 per cent of GDP, which is a difference 3 UK Giving 2005/06, Charities 1 Aid Foundation/National Council the process has been more challenging; Jim of 0.97 per cent. However, with giving to of Voluntary Organisations, O’Neill (33) had to negotiate hard with religious organisations removed from these 2006. Although CAF/NCVO have recently published UK Giving the Charity Commission for the SHINE percentages, the difference is 0.4 per cent 2006/07, we have used 2005/06 2 figures to remain consistent with trustees to run their own endowment. of GDP. The monetary level of individual the FSI figures we have used for These are the two key steps to beginning a giving in Britain is £8.9 billion.3 A further our calculations here journey in philanthropy: being motivated 0.4 percent contribution, to take the UK 4 There are 1.07 million FSI pro- fessionals in the UK, 319,000 in and getting access to the vehicles for imple- individual giving level to the same as the London with an average salary mentation. US, is £4.8 billion. If all of the 1.07 mil- of £105,531 and 751,000 out- side London with an average Every individual with a new idea helps lion FSI professionals in the UK gave 5 per salary of £50,130. (319,000 x to develop the philanthropic capital mar- cent of their gross income, they would £105,531) + (751,000 x 50,130) = £71 billion. 5 per cent of £71 ket which will define philanthropy as a sec- contribute just over £3.5 billion per billion is £3.55 billion. Sources: tor. But these new developments are frag- annum.4 MacKenzie D, Economic If they contributed a further 5 per Contribution of UK Financial mented. Our interviewees agreed unani- cent from this year’s estimated bonus pool Services 2007, International Financial Services London, 2007 mously that levels of individual philan- of £7.4 billion, they would contribute and Annual Survey of Hours and thropy, in terms of personal time, skills and almost £4 billion.5 So a 5 per cent philan- Earnings 2007, The Office of National Statistics money, are not commensurate with indi- thropic contribution from financial servic-

5 5 per cent of £7.4 billion is vidual wealth creation in the City over the es professionals, just 1.07 million people £370 million. “Bonus pool is pre- past 15 years. Former Man Group chair- out of a British workforce of 31.6 million dominantly bonuses from invest- ment banks”, Centre for man Harvey McGrath (31) says: “There is people, could almost raise the £4.8 billion Economics and Business substantial wealth being generated by required to take Britain, as a nation, to US Research 6 6 www.statistics.gov.uk/pdfdir/ financial services in the UK, but I am not levels of giving. That is without being able lmsuk1207.pdf sure that the growth in wealth in the hands to make any assessments on capital gains,

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carried interest or management fees, which Our interviews suggest that a powerful constitute a major component of financial way to build a philanthropic culture is to services professionals’ wealth.7 encourage individuals to experiment with However, our research focused on pro- philanthropy as early as possible in their fessionals in the financial services not only career. One senior private equity profession- because of their existing and potential al said that in his experience: “It is a very wealth, but also because of their financial important value for people to learn to give expertise and business management skills money to things at an early age, and it is not that are directly relevant to the develop- the amount of money that matters, it is ment of the philanthropic sector. Just as doing it.” This would be on a low-key and with availability of wealth for philanthro- small-scale basis, relative to means and time py, it is impossible to quantify the poten- available, but is crucial to engaging high net tial impact of the social and financial capi- worth individuals at a later stage of their tal FSI professionals offer. Philanthropy, career. Individuals are unlikely to “give including social investment, requires the large”, in time or money, unless they have infrastructure and expertise seen in other first given a little. Michael Hintze (66), who financial markets if it is to develop into a is now a major philanthropist, was certain financing sector in its own right and FSI that, “I have always given money, all the way professionals possess the social and finan- through. Now the money being given is a cial capital to drive that development. lot more spectacular, but it is the give early, give often approach that is important.” However, companies should provide oppor- Building a culture tunities for inspiration and access to infra- To make philanthropy commensurate with structure at all career stages, so that poten- FSI wealth and to use FSI social capital to tial philanthropists already near the top of maximise the creation or distribution of their career who were not encouraged early finance for philanthropy, more profession- can catch up fast and act as leaders in defin- als need to be motivated and the practical ing the long-term philanthropy culture. barriers need to be lowerd so that means and methods are simple and accessible. Building a culture requires a sustained Philanthropy as a Journey change in attitudes so that eventually many The recommendations that follow aim more individuals grow up in families like both to build a culture over the long term that of Stanley Fink, where “it was always a and to harness some of the immediate question of how much [his parents] could wealth and skills available. We consider the afford, not whether they would say yes or treatment of an individual’s engagement in no”. Many of today’s wealthy individuals philanthropy as a journey, similar to climb- have not come from such backgrounds and ing a career ladder but without a retire- unless a life-changing experience occurs, ment date. Man Group deputy chairman they need to be confronted with a motiva- Stanley Fink (31) agreed: “It is a journey. I tional opportunity. Many companies fill think different people have different styles, the role of second home and second fami- but it is a journey where you actually get to ly for many FSI professionals given the the other side through certain events and long working hours, and have a critical role you start to think about life and inheri- to play. They can connect staff with causes tance, and that changes the mode and scale

or raise the profile of philanthropic role of your giving.” At some stage an individ- 7 These figures do not take into models, and they can provide access to ual is inspired to philanthropy, the journey consideration the amount already being given by FSI pro- infrastructure to make it easier to give. begins and individuals progress at different fessionals

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paces and in different directions depending goal in life; balancing work with philan- on their motivations, means available and thropy; more organised in approach; methods employed. Once inspired to start focused on social outcomes; possibly the journey, the importance of easy travel using a personal philanthropic vehicle, should not be underestimated. doing social investment and creating We see the journey as evolving through greater impact through partnerships. three stages:

1 Getting started: The individual is like- The package for cultural change ly to be involved only in ad hoc giving, Motivation, means and giving method are usually reactive and guided by the interwoven from the outset. Although moti- media (the tsunami disaster appeal), or vation is the key to getting started on the to colleagues and friends undertaking journey, there is no use in an individual sponsored activities. He or she is unlike- being inspired to action but not knowing ly to give time (except for perhaps run- how to act. The infrastructure must be acces- ning a marathon) or to know how to sible in order to take the leap to making the give skills; though they may be aware of gift or employing time and skills. tax efficiency. Our package of recommendations is 2 Growing and learning: The individual designed to inspire more individuals to is starting to gain momentum with giv- action and to break down barriers so that ing; becoming more selective and con- philanthropy is easier for them. No single sidered in approach; maximising tax proposal will bring about a cultural over- effectiveness; setting up a charitable haul; a multi-pronged approach is required. account or trust; beginning to use time and skills; possibly experimenting with finance, perhaps by gifting shares or Conclusion underwriting charitable loans; maybe The aim of these recommendations is to teaming up with friends or peers at inspire professionals in the financial services work. sector, who have benefited from substantial 3 Raising the game: The individual is wealth creation in the past 15 years (despite embracing philanthropy as a deliberate the recent credit crunch), to stretch their

Recommendations for building a culture of philanthropy8 8 Our research and recommen- dations do not cover the demand side of the philanthropy Breaking Down Barriers equation, by which we mean the role of beneficiary charities in 9 encouraging more philanthropy, 1. Opt-out “white label” charitable account nor which causes are the most Action  Charitable account providers should establish “white label” charitable account popular. In addition, we have not assessed traditional corporate schemes in partnership with financial institutions and other companies as part of a social responsibility (CSR) as package for new employees this report is about inspiring indi- viduals. However, we have con-  Employees should have to opt out rather than opt in sidered the role of the company  in encouraging individual philan- Charitable account providers should lead a City-wide campaign to mobilise com- thropy among its employees. panies to take up this initiative and use www.givinginthecity.org.uk (see below) as 9 A white label product or serv- a virtual co-ordination point ice is one produced by one  company (the producer) that Companies should work with charitable account providers to establish this initia- other companies rebrand to tive and should find top company directors to lead this initiative internally make it appear as if it is their product or service

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Conclusions and recommendations

 Employees should be encouraged to put a proportion of total compensation (income plus bonus, or other compensation components, in the form of cash, shares or share options) into the account every year  Payroll giving donations should “feed” the account, which can be topped up with other transfers of cash or shares  Charitable accounts should be portable, like pensions, when professionals move companies Rationale  Establishes a simple infrastructure for employees once they are inspired to start giving  Provides a platform from which employees can easily migrate to a managed trust or ultimately their own foundation/endowment  Empowers an individual to manage their own philanthropy journey and encour- ages organised giving  Creates a culture where it is normal to have a charitable account and colleagues would be surprised if anybody opted out  Leverages existing infrastructure to make regular giving common practice  Relieves both the donor and the receiving charity from administering tax reclaims on cash and regular (non charitable account) cheques  Raises the profile of payroll giving  Simplifies cross-border giving for global professionals

2. Simplification of personal Gift Aid reclaim into a charitable account Action  HM Revenue and Customs should allow individuals to empower charitable account providers to reclaim the higher rate personal Gift Aid relief on their behalf Rationale  Maximises the tax efficiencies of a charity gift account which is already eligible for all other existing reliefs  Leverages the existing services associated with a charity gift account since the provider already produces the annual statement of gifts for the current tax reclaim process  Eases administration for individuals on the donor benefit  Increases the pool of philanthropic funds by directing the personal Gift Aid relief back into the gift account  Likely to increase the donor benefit claims of Gift Aid  Has the dual effect of raising awareness about donor benefits on higher rate Gift Aid and about the function of charity gift accounts  Retains positive structural elements of Gift Aid but eases implementation  Gives due credit to the success of Gift Aid in raising money for charities and in incentivising donors

3. www.givinginthecity.org.uk Action  A neutral body should drive the development of a website for financial services professionals about philanthropy that is funded by FSI companies and developed with a number of carefully selected expert partners  Information should be packaged for very financially literate professionals and aimed at potential and actual high net worth individuals  The website should be linked to websites and intranets of financial institutions, regulatory and industry bodies  The website should lead the Citywide campaign for opt-out charitable accounts

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Rationale  Connects individuals to a “virtual giving circle”  Acts as a one-stop shop of information for busy financial professionals at any stage of their journey  Speaks to financial professionals in their own language through the everyday medi- um of the computer screen

4. Gold standard for philanthropy advice Action  A relevant professional body should introduce a gold standard for financial advisers so that they include comprehensive philanthropy advice in their spectrum of finan- cial advice  This could be the professional body for independent financial advisers (IFAs), the Securities and Investment Institute, or the IFAs trade body, the Association for IFAs Rationale  Encourages philanthropy on to the main menu of financial advice ranging from tax efficient cash gifts and managing endowments to investing in trading social enterprise organisations  Gives IFAs a visible, quality target to work towards for expertise on the full menu of philanthropy products (including where to go for softer “values” advice)  Drives the development of philanthropy options as a sector product (like ISAs for personal saving)  Targets IFAs as a specific group who can influence the broader sector, including private bankers and wealth managers, and raises the profile of philanthropy among other financial advisers and in general, to build on the example of Coutts who already train their private bankers in Philanthropy

5. Targeted awareness campaign on gifting shares Action  Charitable account providers should front a campaign, targeted at City profession- als, explaining the attractive tax incentives available for gifting shares  IFAs should be able to explain these incentives in order to be eligible for their phi- lanthropy gold standard Rationale  Further raises awareness of the convenience of charitable accounts, which can accept shares and sell them for cash transfers to charities  Increases the available funds for philanthropy by tapping into the pool of shares and share options that form the backbone of pay for some FSI professionals  Share options are attractive gifts for donors as often they cannot be used for imme- diate financial gain so have no instant value.

6. Broader tax incentives for giving Action  Government should consider introducing tax-efficient lifetime giving vehicles such as charitable remainder trusts  Government should consider widening the existing tax breaks on gifts of shares and land to include unlisted shares and/or works of arts Rationale  Including belongings in the personal assets available for philanthropy would fur- ther embed a culture of giving  Allows for philanthropic use of illiquid assets and increases the pool of funds avail- able for philanthropy  Targets high net worth individuals with diverse portfolios and may encourage them to give more

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Conclusions and recommendations

Inspiring Individuals to Action

7. Individual Social Responsibility (ISR) Action  Individuals should take responsibility for their own philanthropy and act as leaders in their company and broader communities  Individuals should demonstrate leadership by considering charity or social enter- prise board positions both for wealth creation and for wealth distribution, as well as advising or mentoring Rationale  Building a long-term culture of philanthropy depends on individual social respon- sibility as well as company social responsibility, not least because FSI employees frequently move company  The philanthropy sector needs more visible, individual leaders in order to build both its culture and infrastructure  Taking on board positions raises an individual’s profile as a leader, spreads skills and increases the impact of giving for the individual  Active involvement with causes is a key long-term motivator for career philanthropists  Profile through active leadership may deflect unwanted media and public focus on purely monetary gifts

8. Employer support Action  Company programmes should use existing internal frameworks to build up social responsibility among staff  Companies should provide the infrastructure and initiatives to encourage employ- ees at all levels to engage in philanthropy (“seeing is believing” experiences at early stage, mentoring or giving infrastructure at later stage)  Companies should consider adopting initiatives that are relevant to their core busi- ness so that staff expertise and company infrastructure is employed appropriately  Companies should provide incentives through generous and sustained schemes of matched giving Rationale  Companies have an influential role to play in shaping the philanthropic culture of their employees as individuals – particularly in FSI where professionals work long hours and the company acts as the individual’s community  Programmes and frameworks for corporate social responsibility developed over recent years have a critical role to play in inspiring individuals to their own action  Companies should adopt their own individual approaches to developing philan- thropy careers for individuals. There is no one-size-fits-all approach

9. Promotion of leaders Action  Companies should promote role models internally, providing “giving leaders” with opportunities to talk openly about their philanthropy and “doing leaders” with opportunities to present their latest projects and initiatives  Companies must foster strong leaders to develop a culture of philanthropy among employees and new initiatives must be adopted and continuously marketed at the most senior level Rationale  Leadership is critical to the development of philanthropy  Giving a high profile to philanthropists creates aspiration and educates employees about causes

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 Junior staff frequently aspire to be the boss – philanthropy should be part of the aspiration  The more leaders a company produces, the more it will innovate and support new initiatives to inspire individuals

10. Apply technical resources for innovative philanthropy Action  Financial services professionals should consider applying their technical financial skills to their philanthropy to make alternative forms of funding and expertise available to the philanthropic and social enterprise sectors  Companies should give them access to apply their skills through intermediaries or direct mentoring schemes  IFAs should become fully conversant with the range of financing options possible in the broad definition of philanthropy (including recycling, underwriting, social investment) Rationale  Philanthropy is about finance, FSI professionals have a unique understanding of finance and markets  FSI professionals are critical to the development of the social investment market infrastructure  London is the current global finance capital and is perfectly positioned to become the leading capital market for innovation in social enterprise and charitable funding

means and minds towards innovative philan- We hope that these recommendations thropy. They are also a call to companies, will motivate individuals to deploy effective providers of philanthropy services, and the and diverse financial solutions to maximise Government to adapt or apply the infrastruc- the creation or distribution of philanthrop- ture available so that it is easier for individuals ic wealth and become leading lights in their to engage their money, time and skills in phil- professional and local communities. But it is anthropic activities. A detailed schedule of rec- not just about money. We need to harness ommendations along the three stages of the the energy and intellect of the financial sec- philanthropic journey and targeted at each of tor for the benefit of philanthropy. The our three core constituencies: individuals, combination of money and energy can companies and Govern ment is in Appendix 2. become a beacon to our broader society.

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Switzerland and Germany, Scorpio Payroll Giving Amongst High Earners: Partnership Ltd, 2007 Qualitative Research Findings, NOP Schervish P, “Major Donors, Major Consumer on behalf of The Giving Motives: The People and Purposes Campaign, 2002 Behind Major Gifts”, in Burlinghame Philanthropy UK Special Report on UK D and Hodge J, New Directions for Giving, Philanthropy UK newsletter, Philanthropic Fundraising, Summer September 2006 1997 Romney-Alexander D, Payroll Giving in the Schervish P, The Modern Medici: Patterns, UK: Donor Incentives and Influences on Motivations and Giving Strategies of the Giving Behaviour, International Journal Wealthy, Boston College Social of Nonprofit and Voluntary Sector Welfare Research Institute, 2000 Marketing, vol 7 number 1, 2001 The Business of Giving: A Survey of Wealth Saxton J and Denye A, Share Giving – Sheer and Philanthropy, The Economist, Feb Indifference: A Research Report on the Use 2006 of Share Giving by Charities, nfpSynery on behalf of The Giving Campaign, 2004 UK Philanthropy Smith R and Whittington P, Charity – the A Blueprint for Giving, The Giving spectre of over-regulation and state depend- Campaign, 2004 ency, Centre for Policy Studies, 2006 Analysis of Giving Through Gift Aid, CAF The 21st Century Donor, nfpSynergy, 2007 Briefing Paper, 2006 The UK Voluntary Sector Almanac 2007 Analysis of UK Payroll Giving, CAF UK Giving 2005/2006, CAF Briefing Paper, 2005 Campaign Review: 2001-2004, The Giving Campaign US Philanthropy Charity Trends 2007, CAF, 2007 Charitable Contributions, Internal Revenue Denye A, Evans E and Saxton J, Looking a Service, 2007 Gift Aid Horse in the Mouth: a research Deducting Generosity: The Effect of report on charities’ attitudes to Gift Aid Charitable Tax Incentives on Giving, and its marketing, nfpSynergy, 2003 Independent Sector, 2003 Giving Good Advice, The Giving Fleishman J,The Foundation: A Great Campaign, April 2004 American Secret – How Private Wealth is Helping Out: A National Survey on Changing the World, 2006 Volunteering and Charitable Giving, Fulton K and Blau A, Cultivating Change in Cabinet Office/Office of the Third Sector, Philanthropy: a Working Paper on How 2007 to Create a Better Future, Monitor Hepburn G, Gazing Idly: Directions for Company Group LLP, 2005 Community Foundations over the Next Fulton K, Blau A and Kasper G, The Seeds Twenty Years, paper presented at of Change in Philanthropy, Monitor Community Foundation Network Company Group LLP, 2005 conference, 2007 Harvard Law School, The Hale and Dorr MacKenzie S, A Guide to Giving, 2nd Legal Services Center, Art Law Client Edition, Philanthropy UK, 2005 Newsletter, vol 2, number 1, Spring McSmith A, “The Big Question: Why do 2007 wealthy Americans donate so much to Havens J, O’Herlihy M and Schervish P, charity and rich Britons so little?” The “Charitable Giving: How Much, by Independent, 27 June 2007 Whom, to What and How?” in Powell

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& Steinberg (eds) The Non-Profit Approach and Learning 2001-6, CAF, Sector: A Research Handbook, Yale 2007 University Press, 2006 Burgess K, “Business buys into giving International Comparisons of Charitable something back”, Financial Times, 1 Giving, CAF Briefing Paper, 2006 July 2007 Kasper G, A Legacy of Innovation, Developing a Social Equity Capital Market Monitor Company Group LLP, 2005 2006, nef/CAF, 2006 Philanthropy in the 21st Century, speech Dey I and Pfeifer S, “The low-key rise of by Hilary Browne-Wilkinson to the the smart-trousered philanthropist”, Institute for Philanthropy, 2004 Daily Telegraph, 22 October 2006 Promoting Philanthropy: Global Challenges Equity-like capital for social ventures, and Approaches, Bertelsmann Bridges Community Ventures, 2004 Foundation, 2004 Fahmy D, “Business-suited philanthropists: Reich R, “A Failure of US Philanthropy: Corporate experts are helping improve American charity shortchanges the the management practices, growth and poor, and public policy is partly to performance of non-profit organisa- blame”, Stanford Social Innovation tions”, Financial Times, 22 May 2007 Review, Winter 2005 Grenier P, Venture Philanthropy in Europe: Reich R, “Philanthropy and its Uneasy Obstacles and Opportunities, European Relation to Equality,” in Taking Venture Philanthropy Association, 2006 Philanthropy Seriously: Beyond Noble Impact Report, Impetus Trust 2007 Intentions to Responsible Giving, Intelligent Giving: A Strategic Approach to Damon W and Verducci S (eds), Effective Charitable Donations, Indiana University Press, 2006 Deloitte/ New Philanthropy Capital Reich R, “Toward a Political Theory of Investing For Change, The Children’s Philanthropy”, Stanford University, see Investment Fund Foundation, 2007 www.law.ucla.edu/docs/reichucla2.pdf John R, Venture Philanthropy; the Rise of Schervish P, “Inclination, Obligation and High Engagement Philanthropy in Association: What we Know and Europe, Skoll Centre Working Paper, What We Need to Learn About Saïd Business School, University of Donor Motivation”, in Burlinghame Oxford, 2006 D (ed) Critical Issues in Fundraising, John R, Beyond the Cheque: How Venture John Wiley & Sons, 1997 Philanthropists Add Value, Skoll Centre Seidenstricker M (ed), “Giving: US Working Paper, Saïd Business School, Philanthropy”, e-Journal USA Society University of Oxford, 2007 & Values, 2006 Lumley T, Langerman C, Brookes M, Wright K, Generosity versus Altruism: Funding Success: NPC’s Approach to Philanthropy and Charity in the US Analysing Charities, New Philanthropy and UK, Civil Society Working Paper Capital, 2005 17, the Centre for Civil Society, 2002 McGeehan S, Inside Out 2005: The State of Community Development Finance, Community Development Finance New Trends in Philanthropy/Social Association, 2006 Investment Measuring Real Value: a DIY Guide to Alexeeva O, “Philanthrocapitalism: Myth Social Return on Investment, nef, 2007 or Reality?” Alliance, March 2007 Nixon S, “The City’s New Boom Market: Bolton M, Kingston J and Ludlow J, The Philanthropy”, The Spectator, 18 Venturesome Model: Reflecting on our November 2006

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Reconsidering UK Community Development Increasing Voluntary Giving to Higher Finance, nef, 2007-11-28 Education: Task Force report to Social Enterprise Action Plan: Scaling New Government, Task Force on Voluntary Heights, Cabinet Office/ Office of the Giving to Higher Education, 2004 Third Sector, 2006 Proposals for the Future of Gift Aid: A Thomas D, “The New Philanthropists”, Consultation Paper, NCVO, 2007 The Daily Telegraph, 21 April 2007 Research on Third Sector Access to Finance: Unlocking Value: The Scope for Report to the Office of the Third Sector, Environmental, Social and Governance SQW Ltd, 2007 Issues in Private Banking, UNEP Response by the Social Enterprise Coalition Finance Initiative Asset Management to the joint HM Treasury and Cabinet Working Group, 2007 Office consultation on the operation of Venture Capital for Sustainability, Eurosif, CITR and other tax incentives, Social 2007-11-28 Enterprise Coalition, 2007 Woods R, “The New Victorians”, Sunday Response to HMRC Gift Aid Consultation, Times, 25 February 2007 CAF, 2007 Sargeant A, Jay E and Lee S, Opportunities for the Development of Planned Giving Policy Research and Proposals Products for the UK Donor Market, Breakthrough Britain vol 6: Third Sector, Report to the Giving Campaign, 2002 Social Justice Policy Group, 2007 Sargeant A, Jay E and Lee S, Planned Briefing Paper on Lifetime Legacies, Giving in the USA: How Does it Work, Institute for Philanthropy, 2004 What Income Does it Generate and Consultation on Gift Aid Comments, Could it be Effective in the UK? Report Philanthropy UK/ Association of to the Giving Campaign, 2002 Charitable Foundations, 2007 Social Enterprise Zones, Conservative Party Goodison N, Goodison Review, Securing Social Enterprise Zones Task Force, the Best for our Museums: Private 2007 Giving and Government Support, HM The Social Investment Bank: Its Treasury 2004 Organisation and Role in Driving House of Lords debate on CRTs, 7 Development of the Third Sector, The February 2006 www.theyworkforyou. Commission on Unclaimed Assets, com/lords/?id=2006-02-07c.589.3 2007

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Appendix 1: Where to go from here…

What to do Where to go Website

Determine how to finance  Philanthropy UK’s A www.philanthropyuk.org/AGuidetoGiving philanthropy Guide to Giving

Set up a Charitable Account  Charities Aid www.cafonline.org/ Foundation www.cafonline.org/Default.aspx?page=7025  Charities Trust www.charitiestrust.org/content/freedom_account  Stewardship www.stewardship.org.uk/sov_account.htm  South West www.charitablegiving.co.uk/voucheraccount.asp Charitable Giving  Charity Cheques www.charitycheques.org.uk/charity_cheques_account.html  Impact Giving www.impactgiving.org.uk Charity Account

Set up payroll giving  Payroll Giving Centre www.payrollgivingcentre.org.uk

Find further info on  The Institute for www.instituteforphilanthropy.org.uk/ philanthropy Philanthropy  Philanthropy UK: www.philanthropyuk.org

Find info on tax  Tax Effective www.tax-effective-giving.org.uk/ Giving:  Charities Aid www.cafonline.org Foundation  The Association of www.acf.org.uk Charitable Foundations:  HM Revenue & www.hmrc.gov.uk/charities/index.htm Customs charity information:

Give expertise  Pilotlight www.pilotlight.org.uk  Cranfield Trust www.cranfieldtrust.org

Find info on charity sectors  New Philanthropy www.philanthropycapital.org /individual charities Capital

Find info on individual  GuideStar www.guidestar.org.uk charities  Charity Commission www.charitycommission.gov.uk

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What to do Where to go Website

Find projects to fund  The Big Give www.thebiggive.org.uk

Find out more about  Community www.communityfoundations.org.uk Community Foundations Foundation Network

Get social investment advice  Investing For Good www.investingforgood.co.uk

Find venture philanthropy  European Venture www.evpa.eu.com organisations Philanthropy Association

Find out about  Community www.cdfa.org.uk CDFIs Development Finance Association

Give tax-effectively within  Giving in Europe www.givingineurope.org Europe

Give tax-effectively to the US  CAF American www.cafonline.org/pdf/CAF%20ADF%20solution%20v2h.pdf Donor Fund

Set up a Donor Advised  Prism www.prismcharity.co.uk Fund

Join a Giving Circle  The Network For www.thenetworkforsocialchange.org.uk Social Change  The Funding www.thefundingnetwork.org.uk Network

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Appendix 2: Detailed Schedule of Recommendations

We considered the three key constituencies that is, to raise their game once they of individuals, companies and Govern - are in the high net worth category and ment/policymakers when we put together to increase their practical participation our recommendations for reform. This in multiple ways once they are at a detailed schedule expands the ten core rec- stage in their career that time allows ommendations that we have made in the report and breaks down the recommenda- The recommendations are relevant for (i) tions for each of the three target audiences. financial and related service professionals The philanthropy journey is a theme at all stages of their career, (ii) financial, throughout the report and in Section 6 legal and philanthropic advisers to high provides a context for our recommenda- net worth individuals, (iii) company tions. These focus on: human resources teams and group lead- ers, (iv) government and policy formers. 1 Getting started: how to encourage They are relevant to human resources finance professionals to begin giving teams and senior business managers not 2 Growing and learning: how to get in terms of the more traditional corpo- them to trade up and to consolidate rate social responsibility use of corporate their activity at a higher and more profits, but to the extent that specific imaginative level, gradually developing remuneration structures, access to giving it as their means allow vehicles and motivational opportunities 3 Raising the game: how to encourage can inspire employees towards philan- them to give more money and time, thropy.

Detailed recommendations for individuals, companies and government

Practical/individual recommendations

Rationale Getting started  Take responsibility for your own philanthropy and set up a specific charitable account  These accounts can take cash or shares either as one-off transfers or via direct debit which benefit from the associated tax incentives, or from gross earnings via payroll giving  If your company adopts a white-label charitable account programme (as recommended for companies below), deposit payroll giving funds to bank account and top up with transfers of cash or shares that bene- fit from tax incentives (and reclaim of higher rate tax benefit via chari- table account provider authorisation as recommended for government below)

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 Encourages organised, controlled, planned giving  Creates culture where this is normal behaviour and it would be unusual to make charitable donations without a charity cheque book  Removes complexities of tax efficiencies as administration is con- ducted by the charitable account provider and visible balance is gross of all immediate rebates  Simplifies cross-border giving  Provides platform from which to migrate to managed trust or ulti- mately own foundation Growing and learning  To give frequent gifts and have flexibility to select multiple beneficiar- ies, if giving more than £10,000, consider setting up a managed trust, eg CAF trust (for small number of large gifts, payroll giving direct to charities may still be most efficient method)  Maintain a special charitable account for irregular, ad hoc gifts (to be able to continue giving anonymously when desired)  Allows individuals to hold shares and other financial assets as an endowment and earn investment income on them, thereby increas- ing funds available for philanthropy  Encourages long-term financial stability for philanthropy and allows for planned philanthropy without cost of setting up own foundation before scale makes it feasible  Engage with charities to which you donate when your schedule and earning power allows. Visit charity or project sites, engage in dialogue with recipients  Connection with the cause is a strong motivator. Once individuals experience the emotional return of their investment, they rarely step away again  Get involved with a giving circle (as recommended for companies below) or set up your own (like a book club) to meet like-minded pro- fessionals and expand the potential of your own philanthropy  Makes philanthropy fun, peer support motivates others, helps indi- viduals realise their own potential or maximise group potential  Become a philanthropy leader in your company  Sets example, develops aspirational culture about philanthropy among employees, self perpetuates – the more philanthropy leaders a company produces, the more it will support new initiatives to inspire individuals  Intermediaries such as financial advisers, lawyers and accountants should be targeting individuals at this stage with a menu of philan- thropy options as part of core financial advice  Provides choice and promotes ingenuity on philanthropy options, encourages individuals to see philanthropy as a wide spectrum of options and as a real industry, creates culture in which planned giving is normal Raising the game  Develop a managed trust into own foundation and/or endowment and if furnished with the right expertise, use own financial skills to manage it and maximise return

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Appendix 2

 Leverage finance skills for philanthropic gain, become a role model, have control of performance of assets and of funds for philanthropy  Branch out from plain vanilla philanthropy to more complex financing such as underwriting, social investment, angel investment in high risk social enterprise as the market develops  Leverage finance skills, assets and networks for philanthropic gain  Take on charity or social enterprise board positions, advise and mentor through intermediary schemes to maximise professional expertise and experience  Further increases personal reward and maximises impact of giving to beneficiary, spreads financial and management expertise  Decide to be public or private about giving  Once in the public eye, can further motivate philanthropic activi- ty because of wider sphere of influence  Use influence within your own company

Company

Rationale Getting started  Assist every employee to set up a white-label charitable account and join forces with other companies to lead a City campaign for this which is co-ordinated through www.givinginthecity.org.uk. Employees should have to request to opt-out rather than opt-in  Employees should be encouraged to put a proportion of total compen- sation in the account every year  Can be funded regularly via payroll giving and annually by bonus/share waiver scheme to provide regular deposits and easiest tax efficiency  The opt-out scheme creates culture in which this is normal employee practice  Empowers employees to build up charitable bank balance giving them benefit of control over philanthropy and ability to reach multiple beneficiaries if desired (payroll giving is more appropriate for a few gifts to a few charities)  Raises profile of payroll giving but empowers the employee if some of payroll giving donations go to their own charitable account  Simplifies cross-border giving for companies with international employees  Encourage bonus or profit share (investment banks, hedge funds) or “carried interest” or “preferred return” (private equity) voluntary waiv- er scheme whereby individuals waive a percentage of the total compen- sation, in cash or in shares, which goes to their charitable account  FSI companies to consider allowing share options that are waived to charity accounts to vest immediately to build charity nest egg  It is easier to give away share options before they have a specific cash value

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 Builds charity nest egg, particularly in years when pay levels are lower than hoped  Current tax incentives on gifts of shares and share options are extremely attractive for both donor and recipient of gift  Promote payroll giving as best way of funding charitable account to make multiple gifts and conduct frequent philanthropy, or as best way to give a few, larger donations to specific charities  Endorses the white-label charity bank account scheme but recog- nises value of payroll giving, emphasises company support of phi- lanthropy and entrenches culture  Charitable account providers, in partnership with FSI companies, should conduct a marketing campaign targeted at financial profession- als on the current, attractive tax incentives for gifting shares  Further raises awareness of charitable accounts, which can accept shares into the account and sell them for cash transfers to charities  Awareness of tax incentives for gifting shares is low but they are very attractive, take up could be much higher  Increases available pool of funds for philanthropy by further tap- ping into pool of shares and share options which often form back- bone of pay  Gifting shares and share options can be attractive as they often cannot be used for immediate financial gain so have no instant value to the donor  A far higher proportion of financial professionals are likely to own shares than any other group, so a targeted campaign can be justi- fied  FSI companies should consider supporting the introduction of a gold standard accreditation scheme for financial advisers offering a compre- hensive menu of philanthropy and social investment options in their financial advice  The Securities and Investment Institute (SII) could consider building on their new module of “effective philanthropy” in the Masters syl- labus for Independent Financial Advisors (IFAs)  Encourages philanthropy and social investment on to main menu of financial advice  Visible sign of quality, coupled with increasing consumer demand for advice, may mobilise market for provision of philanthropy advice  Drives development of philanthropy options as a sector product (like ISAs)  Targeting IFAs should have a knock-on effect to the broader sector including other private bankers and wealth managers and finan- cial advisers in general, to build on the example of Coutts, who already train their private bankers in philanthropy  Ask employees to recommend their favourite charities to receive corpo- rate foundation donations to complement their payroll giving funds  Motivates employees because leverages their payroll giving

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Appendix 2

 Suggest at least one charity which is in the local area or part of the company’s business community so that employees can see the benefit of their giving every day  Seeing is believing and creates commitment  Introduce a well-promoted matching scheme for payroll giving and for one-off donations, with targets for maximum matching levels based on levels of company profitability in any one year  Creates incentive for employees and embeds philanthropic culture in the company  Raise profile of employees who can act as philanthropy role models internally  Junior people frequently aspire to be their boss, this makes philan- thropic activity part of the aspiration  Create giving circles to encourage positive peer pressure  Make philanthropy the fun part of the day job  Develop vehicles that encourage role models and aspiration  Help individuals to manage their own potential or maximise group potential  Promote company philanthropy and individual role models as part of recruitment process  Embeds philanthropic culture in the company and makes it part of the reason to work there  Creates feeling of positive aspiration throughout the company  Encourage employee charity days or go further and develop a strategic programme that involves significant staff time and skills as part of the donation  Makes engagement with philanthropy part of what the company does  If resources do not permit the above, use intermediaries such as Pilotlight, Kilfinan and Cranfield Trust to outsource use of employee time  Makes use of operational capacity and skills  Support development of www.givinginthecity.org.uk website and link to company intranet/homepage (once it has been established)  Facilitate access to information provision on philanthropic finance for highly literate financial services professionals  For multinational companies: offer advice and information on tax- effective cross-border giving and charitable tax relief for employees with international interests (expatriates as well as nationals with expa- triate spouses)  Expands philanthropy impact and complements employees fre- quent resonance with global causes  Caters to current high levels of international employees in the City  For business schools and companies: introduce creative philanthropy component including education on non-profit capital market and social entrepreneurship to MBA and executive MBA programmes  Targets future FSI leaders who increasingly go through MBA system

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Growing and learning  Introduce access for individuals at this stage of wealth creation to financial advice that incorporates philanthropy and social investment menu of options  Creates the “company expectation of what you do” sentiment around philanthropy  Provides charities and social banks with access to high net worth professionals otherwise difficult to reach  Give employees emerging as keen philanthropists more company visi- bility and responsibility in this area, eg on selection board for compa- ny charities to support  Makes employee philanthropists more visible internally  Creates culture of aspiration  Invite CEOs of innovative and philanthropic organisations known to the company to speak to employee groups  Keeps those already interested in philanthropy abreast of current work and informs them of the new ideas/models in the sector Raising the game  Promote employees at this stage of their giving as beacons internally by encouraging them to give talks, make visits and take colleagues with them  Creates culture of aspiration  Provide vehicles (like donor advised funds) or readily accessible legal/administrative services from within company resources to those wishing to set up their own charitable vehicles  Makes it easy and accessible for “cash rich time poor” professionals  Embeds philanthropic culture in the firm  Create the opportunity and expectation for employees at an appropri- ate stage of their career to take board positions in charities and more hands-on roles to maximise professional expertise and experience  Further increases personal reward and maximises impact of giving to beneficiary  Benefit to company of widening skill set and experience of employ- ees: can have positive impact on their day job

Government policy Rationale Getting started phase  Establish new mechanism that allows donor to empower charitable account provider to recover higher-rate tax proportion of Gift Aid directly into special charitable account  Requires HM Revenue and Customs to separate the money returned as Gift Aid reclaim from general amount of reclaimed tax and requires individuals to empower charitable account provider to reclaim on their behalf (a natural step given that they produce the statement used for reclaim)  Simplifies administration related to tax incentives  Raises awareness about charitable accounts, increased take up of which should increased organised and regular giving

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Appendix 2

 Directs donor benefit element of Gift Aid back into bank account and increases individual’s philanthropic pool of funds available  Introduces concept of maximising available assets for philanthropy through attractive mechanisms and incentives. Likely that higher proportion of Gift Aid would be claimed since even individuals who are not tax-motivated would prefer to see their charitable account funds increase by 40 percent  Embeds giving in national culture by incorporating it into annual tax return Consolidation phase  Consider introducing tax efficient lifetime giving vehicles (as with charitable remainder trusts in US).  Consider allowing donors to retain benefits from assets legally titled to charity upon death with immediate tax break  Embeds giving further into national culture  Allows donation of illiquid assets and increases asset pool for phil- anthropic giving  Performs similar function to legacy gifts, but with benefit of being able to enjoy gift during life  Consider extending the current tax relief on gifts of listed shares, land and buildings to gifts of other assets, eg unlisted shares, art etc  Ability to donate further assets tax effectively may encourage financial professionals with diverse portfolios to give more  Including other assets and belongings in the pool of available funds for philanthropy would further embed a national culture of giving Raising the game phase  Continue support of social enterprises as key players on the third sec- tor landscape  Further encourage the use of grants and non-grants for charities and social enterprises, using old and new mechanisms in unproven mar- kets, with the ultimate aim of creating certainty about the future for social enterprises so that a liquid secondary market can develop  Shows leadership and drives development of social economy  Certainty and supportive signals may help to build a social capital market infrastructure  Encourages high net worth individuals to cross over their invest- ment and philanthropy pools of capital; funds the growing social enterprise sector in the UK through intermediaries in order to support the model and create the market

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Appendix 3: Methodology

Summary lanthropy, taxation and transnational giv- Our study was based on a qualitative ing in the US and Europe. This helped us methodology. The focus was 55 face-to- to understand practice in other countries face, in-depth interviews with individuals and provided useful points of comparison from the financial services, philanthropy for our analysis. and policy sectors. We also e-mailed a Our analysis has focused on the supply questionnaire to 460 senior Citi employees of philanthropic capital and not on the and conducted a review of literature relat- demand from charities and social enter- ing to the financial services sector, philan- prises. We recognise that the demand side thropy and taxation regimes with regard to has a distinct role to play in generating charitable giving and social investment. increased philanthropic capital from the supply side. There has been a growing focus on the professionalism of charities Scope and social enterprises in their fundraising We analysed practices of philanthropy in from all types of individual and corporate the UK financial services industry, which is donors. Many are developing sophisticat- a broad term.1 Our interviews centred on ed ways of communicating their social private equity professionals, investment impact in a highly competitive environ- bankers, private bankers and asset man- ment. These charities and social enterpris- agers, but the recommendations are aimed es have a critical role to play in unlocking at a wide range of sub-sectors in the FSI – donations of money and skills from FSI from those we interviewed to those in professionals, through the way they insurance, law and consumer banking and approach and communicate with them. professional service firms that operate How they do this is beyond the scope of within the industry’s “ecosphere”, such as this report. law firms, strategy consultants and market- ing and human resource companies. We 1. A comprehensive list of sub- sectors in the financial services hope that our report and its recommenda- Interviews industry could include: banking – tions will be of interest to and impact on We chose in-depth interviews as the cen- private, investment, commercial, retail, credit card issuers; asset this entire financial services sector. Most tral component of our qualitative approach management – pension funds, UK-based interviewees were from compa- to enable us to gain a detailed understand- hedge funds, private equity, ven- ture capital, other fund man- nies based in London, except two (Bristol ing of attitudes and behaviour in personal agers; broking – stocks, com- and Ayrshire, Scotland). This geographical philanthropy, with a particular focus on modities, money; insurance – general, life, reinsurance; mar- bias reflects the location of the vast major- motivations. We used a script for all inter- ket-making/trading – cash, futures, derivatives; advis- ity of financial service sector activity in the views but the process was two-way, ers/deal makers – corporate City of London. Our primary interest was enabling us to constantly review and react finance boutiques; investment consultants; financial trade body the philanthropy of individuals rather than to our findings and adapt the interview representatives; lawyers; companies (eg CSR). However, in this structure accordingly. We kept the inter- accountants; consumer credit companies in the form of pawn- report we recognise and actively encourage views unstructured enough to enable us to brokers, doorstep lenders; clear- companies to facilitate and support the probe personal matters around the motiva- ing, settlement and payment systems; regulators; central philanthropic endeavours of its individual tions for charitable giving, levels of gen- banks; ratings agencies; infor- employees. We carried out desk research erosity (compared to personal wealth) and mation technology specialists; financial public relations and a small number of interviews on phi- personal taxation. Many of our intervie-

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Appendix 3

wees said this was the first time they had All tapes were transcribed and “marked up” spoken out about their motivations so our methodically within the analysis frame- interview technique had to carefully work. The interview process took place in respect that. London, Warwick and Madrid between 26 We identified five interviewee con- July and 26 November 2007. stituencies (percentage of total interviews):

1 Senior professionals in the financial Case Studies services sector (47 per cent) As the research project progressed we 2 Professional philanthropy and wealth decided that using a selected number of advisers (25 per cent) mini case studies would strengthen the 3 Founders of innovative philanthropy narrative of the final report and act as organisations – with a background in motivational tools in themselves. Where an the financial services industry (10 interview illustrated an aspect of our analy- per cent) sis particularly well, we sought permission 4 Executive staff in innovative philan- to conduct further enquiry or a supple- thropy organisations (10 per cent) mentary interview in order to build up a 5 Policy specialists – professional ana- case study. Interviewees were given an lysts, government and political parties opportunity to review draft case studies (8 per cent) before publication.

One interview was a charity chief executive who had previously held a senior post in Questionnaire financial services. We polled 460 UK-based employees of Interviews lasted 45 to 75 minutes. Citi at managing director level, using an e- Most were carried out with one intervie- mailed questionnaire on their personal wee, but occasionally there were two inter- charitable giving over the past 12 months; viewees or a single interviewee was joined the use of Gift Aid and payroll giving; and by a colleague or adviser. The same two factors that would encourage greater giv- interviewer pairs were used throughout, ing. We received 123 completed question- with the note-taker common to both, naires. ensuring continuity of style and reporting. A letter was sent to all interviewees in advance to explain the purpose of the Desk Research research and introduce the interviewers. At We carried out a review of literature to the beginning of each interview permission obtain data on the financial services indus- was sought to record the interview, which try, philanthropy and social investment was granted in almost all cases. We and tax regimes for effective philanthropy. explained that the interview was carried The bulk of this research centred on the out in confidence and was non-attributa- UK but also included the US and Europe ble unless we sought written permission. for comparative purposes.

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Appendix 4: Glossary

Blended Value: a theory that proposes that Community Development Finance all organisations, whether for-profit or not, Institution (CDFI): sustainable, inde- create value that consists of economic, pendent organisation that provides finan- social and environmental value compo- cial services with two aims: to generate nents – and that investors (whether market social and financial returns. CDFIs supply rate, charitable or some mix of the two) capital and business support to individuals simultaneously generate all three forms of and organisations whose purpose is to cre- value through providing capital to organi- ate wealth in disadvantaged communities sations. The outcome of all this activity is or under-served markets. There are 76 value creation that is non-divisible and, CDFI’s registered as members or associate therefore, a blend of these three elements. members with the sector’s trade body, the Community Development Finance Charitable Account: vehicle that acts like Association. a bank account for charitable giving. Account holders can make regular deposits Community Development Venture via direct debit or payroll giving, or ad hoc Capital: a particular type of CDFI that deposits of cash or shares. All deposits specialises in equity investments. CDVC immediately receive all relevant tax relief. funds are relatively new to Britain and are usually run for profit, offering a financial Charitable Remainder Trust (CRT): a return to investors, although sometimes at form of split interest trust, much used in a lower estimated return than convention- the US. It allows a donor to make an irrev- al venture capital. The best known British ocable gift to a charity during their life- example is Bridges Ventures. time, of shares, property or cash, while retaining the benefit of the income or use Community Foundations: charities com- of the gift for the term of their life. The mitted to supporting projects that engage donor can make deductions against capital local people in making their communities gains tax at the time of the gift and its better places to live. They connect people value is not counted as part of their estate with causes. There are around 60 commu- for the purposes of inheritance tax. CRTs nity foundations in the UK, covering inner are not available in the UK. cities and rural areas, according to Philanthropy UK’s A Guide to Giving. Charitable Trusts: tax-efficient vehicles that provide a framework for planned, sys- Community Interest Company (CIC): tematic charitable giving. They are legal a new type of limited liability company entities that require a donor, a group of designed specifically for social enterpris- trustees and a declaration of charitable es and for those wishing to operate for purposes. Many trusts are endowed, so the benefit of the community rather they receive income from an endowment than for the benefit of the owners of the of land or invested capital. Trusts can company. CIC status is subject to a either be grant-making trusts, in which “community interest test” and an “asset case they give money to other charitable lock” stipulation, which prevents trans- organisations to use, or operating trusts, in fer of assets at less than market value to which case they directly perform charitable organisations that are not themselves activities. CICs or charities.

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Appendix 4

Community Investment Tax Relief be made through payroll giving or as one- (CITR): offers a tax incentive to invest- off gifts. ments made through accredited CDFIs. The tax incentive comes in the form of a Mezzanine Finance: hybrid of debt and tax relief, which reduces the investor’s equity financing. Mezzanine financing in income tax (or corporation tax) liability. the private sector is typically used to Donor Advised Fund: a charitable vehicle finance the expansion of existing compa- that acts as a sponsor to many funds as an nies, and is basically debt capital that gives alternative to direct giving or setting up a the lender the rights to convert to an own- private foundation. Through the vehicle, ership or equity interest in the company if the donor has an easy-to-establish, low- the loan is not paid back in time and in cost way of conducting philanthropy of his full. In the charitable sector, mezzanine choice that also takes advantage of tax financing takes the form of loans and incentives for giving. Community founda- investment support that fill the gap tions pioneered their development. between grants and bank loans

Gift Aid: the most commonly-used UK Patient Capital: long-term finance for tax relief on donations. Under the Gift Aid development, with soft terms, including scheme, charities can reclaim the basic rate little ceding of control and sub-market tax on donations made by UK taxpayers. financial returns, in return for social gains. Higher rate taxpayers can also claim the difference between higher rate and basic Payroll Giving: tax-effective way of mak- rate tax as personal tax relief. ing regular gifts. Employees of companies operating a payroll giving scheme can Give As You Earn: The UK’s largest pay- make elect to make regular donations from roll giving scheme, operated by CAF. their gross salary, thus receiving an effec- tive deduction at their highest rate of Giving Circles: form of philanthropy con- income tax. sisting of groups of individuals who pool their funds and other resources and decide Social Enterprise: a business with prima- jointly the recipients of donations. Giving rily social objectives whose surpluses are circles are often focused on giving within a principally reinvested for that purpose in local community. the business or in the community, rather than being driven by the need to maximise High Net Worth Individual: individual profit for shareholders and owners. with over £500,000 of investable assets. An individual with more than £15 million of Social Entrepreneurship: the use of inno- investable assets is referred to as an Ultra vative, entrepreneurial business skills to High Net Worth Individual.1 address social and environmental prob- lems. This will often involve revenue gen- Lifetime Legacies: See Charitable Rem - eration but is not required. A social entre- ainder Trusts preneur may or may not be associated with a non-profit organisation. Matched Giving: incentive scheme in which an employer matches charitable Social Investment: a way of creating new donations by employees. This is usually on or scaling up existing streams of financing a pound-for-pound basis, but may be two- for civil society organisations and social 1. Barclays Wealth Insights White Paper – UK Landscape of to-one or greater. Matched donations may enterprises as well as other initiatives that wealth, 2007

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seek to offer sustainable solutions to devel- power as a shareholder to encourage better opment. Strategies employed include mis- environmental and social behaviour from sion-related investment, venture philan- the companies they invest in. thropy, institutional building and social enterprise development programmes Venture Philanthropy Fund: a philan- through vehicles such as micro-lending, thropic fund that aims to develop the capac- loan guarantees, equity investments, ity of selected charities or voluntary organi- patient capital and philanthropic venture sations through financial support and, as capital. importantly, strategic and management advice. They adopt a collaborative approach Socially Responsible Business: the prac- to planning and setting targets for future tice of integrating ethical behaviour and development linked to financing. proactive positive concern and action for the public good by private sector entities Venture Philanthropy: an approach to whose main purpose is the creation of charitable giving that applies venture cap- enterprise and profit. ital investment principles – such as long- term investment and hands-on support – Socially Responsible Investment: a term to the social sector. Its key characteristics used to describe any area of the financial are high engagement; tailored financing; sector where the social, environmental and multi-year support; the provision of non- ethical principles of the investor (whether financial support, such as strategic plan- an individual or institution) influence ning advice, executive coaching and which organisation or venture they choose access to other networks; organisational to place their money with. It also encom- capacity building; and performance meas- passes how an investor might use their urement.

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Appendix 5: Technical Comparison of US and UK Means and Methods

Gifts

Key features Pros Cons

Cash UK  Cash gifts are eligible for Gift  A basic rate taxpayer is able to  Lack of understanding or Aid; in order for Gift Aid to ap- make a donation of eg £100 to awareness of the Gift Aid ply the donor must make a decla- a charity at a real cost to them mechanism means that the ration that they wish it to do so of only £78 capital available to charities  Under Gift Aid a charity can  A higher rate taxpayer is able has not been maximised claim back the full amount of to make a gift of £100 for a  The system of reclama- basic rate tax on a gift to them, real cost of only £60 tion for higher-rate taxpay- as long as the donor has paid ers is sometimes criticised sufficient tax in that year to for being too complicated cover the amount reclaimed  Deductible amount: a higher rate taxpayer can, in addition, claim back the difference between the basic rate tax reclaimed by the charity and his own rate (ie 40% - 22% = 18%)

US  Deductible amount: The full  Deductions can be taken amount of a cash donation to straight from gross income, so charity can be deducted from there is no need to reclaim tax an individual’s tax return, up to a maximum of 50% of adjusted gross income (AGI)  Limits on deductions: in some cases the deduction is limited to 20% or 30% of AGI, depending on the type of organisation it is given to  If contributions for the year exceed the allowed percentage of AGI, the deduction can be car- ried over into the next tax year, up to a maximum of 5 years

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Key features Pros Cons

Shares & Securities, Land or Buildings UK  Capital gains tax (CGT)  The CGT and income tax  Level of awareness and under- relief: Gifts of shares or secu- relief combined give an effec- standing of share giving is low rities, like any non-cash asset, tive deduction of 68% – hence are treated as a disposal on a a gift of £100K of shares can no-gain, no-loss basis for be argued to have a real cost to CGT purposes you of £32K  Deductible amount: income  If gifting windfall shares or tax relief: this is calculated by part of stock portion of bonus, taking the fair market value this is a highly tax efficient way (FMV) of the qualifying to make a charitable donation investments at the time of donation, less any considera- tion given by the charity, plus any incidental costs of making the gift. This amount can then be deducted from the donor’s taxable income for the year

US  Deductible amount: the  Deductions can be taken full FMV of a donation of straight from gross income, so shares or sec urities to there is no need to reclaim tax charity can be ded ucted, up to a maximum of 50% of AGI  Limits on deductions: if sale of the shares at the time of donation would have resulted in a capital gain, they are treated as capital gain proper- ty and the deduction is limit- ed to  30% of AGI if given to a qualifying 50% organisa- tion.  20% of AGI if given to an organisation that is not 50% qualifying  If contributions for the year exceed the allowed percentage of AGI, the deduction can be carried over into the next tax year, up to a maximum of 5 years

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Appendix 5

Key features Pros Cons

Art Works UK  There is no tax relief on gifts of art in the UK

US  Deductible amount: same as  Deductions can be taken Changes following the Pension for shares, securities, land and straight from gross income, so Protection Act 2006: buildings, if the art work is there is no need to reclaim tax  No deduction may now be 100% owned made for a contribution of a  It used to be possible for a fractional interest in an art- donor to make a gift of an work unless immediately undivided fractional share of before the contribution the his or her entire interest in a entire work was owned by the work of art and take a deduc- donor and/or the charity tion equal to the fair market  If a donor makes subsequent gifts value of the fractional share (if or bequests of additional interests the property was used by the in the property after making the charity for its exempt purposes) initial contribution, the value of or the donor’s basis in the frac- the property at the time of the tional share (if the charity’s use subsequent contribution is was unrelated) deemed to be the lesser of the FMV at the time of the initial contribution or the FMV at the time of the subsequent contribu- tion. Thus, no income or estate tax deduction will be allowed for appreciation occurring after the date of the initial gift  If the donor’s entire interest is not contributed to the charity within 10 years of the initial gift, or at the donor’s earlier death, they must recapture all charitable income and gift tax deductions plus interest and pay an additional 10% tax on the recaptured amount

Gifts in Kind UK  There is no tax relief on gifts in kind in the UK

US  Deductible amount: the FMV of gifts in kind, such as clothes, household goods etc can be deducted against income

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Key features Pros Cons

Volunteering UK  There is no tax relief associate with volunteering in the UK

US  Although time given to a chari- table cause cannot directly be deducted against income, some out-of-pocket expenses incurred during the course of charitable volunteering such as petrol costs or overnight accommodation may be taken as deductions

Vehicles

Payroll Giving UK  Employees of participating  For charities, payroll giving  Relies on the employer having companies can make regular donations provide a guaranteed a payroll giving scheme pre-tax donations to nominat- income stream  The start-up costs for a compa- ed charities direct from the  Donor: Unlike Gift Aid, the ny setting up a scheme need to payroll. Hence there is a reduc- entire tax benefit from payroll be considered tion in the amount of income giving goes to the donor  The lack of direct contact tax taken from the donor’s pay,  Charity: For charities, payroll between the donor and the giving immediate tax relief at giving donations provide a charity can make it difficult to the donor’s highest rate of guaranteed income stream establish a motivational con- income tax nection  UK payroll giving schemes are administered by a number of approved charities, which charge a small fee (usually no more than 4% or 35p per donation)

US  Employees of participating  There is concern that work- companies can make regular place giving in the US has pre-tax donations to nominat- become stale; the percentage of ed charities direct from the employers offering such payroll. Hence there is a reduc- schemes has fallen in recent tion in the amount of income years tax taken from the donor’s pay,  The lack of direct contact giving immediate tax relief at between the donor and the the donor’s highest rate of charity can make it difficult to income tax establish a motivational con- nection

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Appendix 5

Key features Pros Cons

 Historically, workplace giving campaigns in the US were organised by the local branch of United Way, which is a national network of more than 1,300 locally-governed fundraising organisations

Charitable Acount UK  A charitable account, such as the  Because CAF is a charity, pay-  For donors making few dona- CAF Charity Account, works ments into the account are eli- tions, and in larger amounts, it like a bank account designed gible for all the usual tax may be less expensive (and not especially for charitable giving. reliefs: Gift Aid, payroll giving, much more complicated) to The donor decides how much share giving give directly to chosen causes to give and pay into the account  Because tax has already been cla - because of the saving on the  Once an account has been set imed back on the amount in the 4% transaction fee up, the donor receives a charity account, the overall ad m - chequebook and debit card inistrative costs associated with cl - with which to make donations, aiming back tax on donations are as well as regular statements reduced for the receiving charity  There is an administration  For higher rate taxpayers, the charge for money going three-monthly statements pro- through a charitable account. vide a useful record of giving For a CAF Charity Account and help donors to make their this is normally 4% of the gift personal tax claim

US  The tax system in the US means that there is no need for charitable accounts

Private Foundation/Charitable Trust UK  A private foundation/charitable  As a charitable trust is a chari-  Set up and administration costs trust is a legally incorporated ty, donations to it are eligible  Annual reporting requirement charitable body that is not a for all the usual tax reliefs public charity or supporting  In addition, the trust will be organisation subject to other tax benefits:  A charitable trust must have a 1 No tax on investment income board of trustees and a trust 2 No corporation tax deed, stating its charitable pur- 3 No inheritance tax poses 4 No business rates 5 No need to VAT register (except in the case of very large trusts that supply a sig- nificant amount of goods/services subject to VAT)

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Key features Pros Cons

US Same as for UK, except:  High level of control over  Required to distribute at least  Required to distribute 5% of administration of gifts 5% of assets per annum assets annually  Public disclosure can lend pres-  Must submit an annual tax  Federal excise tax on invest- tige to family name return ment income (typically 1-2%)  Ability to hire staff to manage  Federal excise tax on invest- foundation ment income (typically 1-2%)  Start up costs  Donations of appreciated assets (other than qualifying shares) are made on a cost rather than FMV basis  Full responsibility for manag- ing assets and for ensuring that grantees are eligible

Private Operating Foundation UK  N/A

US  Private operating foundations As for non-operating foundation, are private foundations that use except: the bulk of their resources to  Limits on deductions: limited provide charitable services or to 50% of AGI for all assets run charitable programmes of other than shares subject to a their own. long-term capital gain, on  They make few, if any, which there is a 20% limit grants to outside organisa-  Contributions subject to long- tions and, like private inde- term capital gains can be pendent and private family deducted at FMV basis foundations, they generally do not raise funds from the public  A private foundation may qualify as an operating foun- dation if 85% or more of the lesser of its adjusted net income or minimum invest- ment return is used directly for the active conduct of its exempt activities

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Appendix 5

Key features Pros Cons

Donor Advised Fund (DAF) UK  Available primarily through  As the CFs and DAFs are char-  If DAF is through a communi- community foundations ities, contributions to them are ty foundation, giving tends to (CF) subject to all available tax relief be geographically rather than  Giving via a CF or donor advised  Can give anonymously thematically focused fund (DAF) can be done in a  Virtually no set-up costs, number of ways, with varying unlike setting up a charitable degrees of control over the desti- trust nation of grants:  Low annual costs  Donations can be pooled in a single, general fund, so that donors can contribute to a wide variety of causes (in a specific area for a CF)  Donations can be directed to themed funds, which address issues such as children or older people  Donors can establish tailor- made named funds

US  A donor advised fund (DAF) is  Deductions: contributions to the  Lack of final control over grant a fund set up by a public chari- DAF are immediately tax making- can only make recom- ty or other sponsor, into which deductible mendations a donor gives cash or assets and  Limits on deductions: limited to  Lack of control over invest- then recommends the amount, 50% of AGI for all assets other ments – may be able to make timing and destination of than shares subject to a long-term some recommendations grants from the fund capital gain, on which there is a  No income  It is crucial to realise that the 30% limit  No ability to hire staff sponsor, rather than the donor,  Assets removed from taxable estate has final approval on grants  Contributions subject to long- term capital gains can be deduct- ed at FMV  No set-up charges, no annual reporting requirements.  All aspects can be handled anony- mously if desired  Low contribution minimums – normally $10K  No annual distribution require- ment  No federal excise tax  Offers possibility of an ongo- ing legacy that a yearly bequest does not

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Give and let give

Key features Pros Cons

Legacy Bequest UK  Gifts to charities made in a will  Enables a reduction of IHT  Donor does not see the benefit are exempt from inheritance burden in estate planning of the donation or receive any tax (IHT). Such gifts are fully recognition during their lifetime revocable within the lifetime of  Not favoured by charities because: the donor  the gift is revocable  There are a number of types  the amount is unpredictable of legacies:  the charity has no access to 1 Pecuniary Legacy – a gift of the gift before the donor’s an ac tual and defined sum of death money 2 Specific Legacy – a gift of an item or items, say a collection of books, paintings etc 3 Residual Legacy – a gift of a certain proportion of the residuary estate 4 Reversionary Legacy – a sum of money or proportion of the estate that will be held in trust during the lifetime(s) of one or more named persons. On the death of the last of these life tenants, all or part of the trust funds become the property of the charity 5 Conditional legacy – a charity may be named in a will as a long stop. In effect, this is a pro- vision against the eventuality of the testator dying intestate. For example, for an individual plan- ning to leave estate to spouse but he/she dies first, then the amount may be left to a charity

US  The mechanism is the same as  Donor does not see the benefit in the UK of the donation or receive any recognition during their lifetime  Not favoured by charities because:  the gift is revocable  the amount is unpredictable  the charity has no access to the gift before the donor’s death

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Appendix 5

Key features Pros Cons

Charitable Remainder Unitrust (CRUT) UK N/A

US  A CRUT is an irrevocable trust, Donor: Donor: normally established via a multi-  CGT on the sale of highly  Payouts are variable ple agreement between a donor, a appreciated assets reduced or recipient charity and a third party eliminated (usually the donor’s lawyer or a  Donated assets are removed bank) from the donor’s taxable estate  The donor transfers assets to the  Income tax deduction of trust. The use of this principal by between 30% and 70% the charity is deferred. Subsequent (depending on beneficiaries’ additional donor contributions are ages and payout rate) allowed  Allows donation of illiquid  The unitrust must make annual assets payments, equal to a fixed per-  Guaranteed lifetime payments, centage (at least 5% and not more thus there is no fear about than 50%) of the trust’s value future changes in financial situ- each year to one or more benefici- ation aries  Subsequent contributions can  CRUTs must last as long as the be made beneficiaries live or for a set period  Can choose own fund manager of time (not more than 20 years) in order to maximise invest-  Donors can claim an income tax ment returns de d uction for the present value of the assets they place in the trust. Charity: De d uctions are limited to 50% of  Receive a clear and irrevocable AGI for all assets other than sha res commitment from donors subject to a long-term capital gai n,  Can rely on eventual receipt of on which there is a 30% limit a lump sum

Charitable Remainder Annuity (CRAT) UK N/A

US A CRAT is the same as a CRUT (see  Same as for a CRUT, except above), with a few exceptions: that subsequent contributions  Annuity may take only one form cannot be made  Annual payments must be made re gar d less of earnings in any given year  The amount of annual payments is established at inception and never varies  Additional contributions are not allowed

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Give and let give

Key features Pros Cons

Pooled Income Fund (PIF) UK N/A

US  A PIF is a trust (sometimes Donor:  Lacks the control over manage- also called a charitable mutual  CGT on the sale of highly ment of assets that a CRT has fund). Multiple donors con- appreciated assets reduced or tribute assets to (ie buy shares eliminated in) the pooled fund of a specif-  Donated assets are removed ic charity. The assets are then from taxable estate invested by fund managers and  Income tax deduction of the resulting earnings distrib- between 30% and 70% uted among the donors (depending on beneficiaries’  The arrangement is irrevocable ages and payout rate) – donors cannot withdraw  Allows donation of illiquid assets from the fund assets  The donor (and/or other stated  Guaranteed lifetime payments, beneficiaries) receives an annu- thus there is no fear about al payment for life, which future changes in financial situ- varies annually according to ation the performance of the fund Charity:  Receive a clear and irrevocable commitment from donors

Charitable Lead Trust (CLT) UK N/A

US  A CLT is almost the opposite  Deductions: Annual distribu- of a CRT: it is a trust in which tions to the CLT are immedi- the annual payments of the ately tax deductible for the trust (the “lead” interest) are donor Payments to charity off- received by a charity and the set inheritance or gift tax liabil- remainders (the assets) are ities on the remaining trust received by the donor assets passing to the donor’s  The donor makes an annual heirs trust payment to the charity  Limits on deductions: for a set period of time. At the Deductions are limited to 50% end of that period the assets of AGI for all assets other than return to the donor or another shares subject to a long-term named beneficiary capital gain, on which there is a 30% limit

Charity:  Provides a guaranteed income stream for a set period of time

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Appendix 5

Key features Pros Cons

Charitable Gift Annuity (CGA) UK N/A

US  A CGA is a contractual rela- Donor:  Lacks the control over manage- tionship between a donor and  Immediate CGT deferral on ment of assets that a CRT has a charity. The donor agrees to appreciated assets give a cash gift (or other asset)  Steady guaranteed annual pay- to the charity, which the ments for life, a portion of charity invests. The charity each of which is tax exempt agrees to pay a lifetime  An income tax deduction can income to the donor be made equal to the amount (and/or another named of the contribution less the beneficiary) present value of the payments  When all beneficiaries have that will be made during life died, the charity obtains the (based on an actuarial calcula- remainder of the donation tion)  Payments to donors are regu- lated, and annuity rates fixed, by the American Council on Gift Annuities  A donor can also take out a deferred payment CGA where, as the name suggests, payments to the donor are deferred, typically until retire- ment age

Retained Life Estate UK N/A

US  A retained life estate is a con- Donor: tract under which a donor  If the property can be claimed transfers a property to a charity as a “personal residence” with the stipulation that the then the donor can take an donor (or another named ben- immediate deduction against eficiary) should remain in resi- income tax to the value of dence for life the charitable remainder interest  As the property has been irrev- ocably gifted, it is also removed from the donor’s estate, thus reducing estate tax  A donor can make a substantial gift without giving up liquid assets

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Give and let give

Key features Pros Cons

Life Insurance Gift UK N/A

US  Life insurance policies can be contributed to a charity as a planned gift  The donor simply names the charity as the beneficiary (either primary or secondary) of the policy, and the gift can be for all or part of the pro- ceeds  If the donor also transfers own- ership of the policy to the charity the gift becomes irrevo- cable, and the donor can take a deduction against income tax

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London is the financial capital of the world, home to extraordinary wealth and skills. There are a growing number of ventures in which these skills are being used in imaginative ways to create and distribute philanthropic wealth. But they are few relative to the social and financial capital available. If the impetus created by these ventures is properly harnessed, it Give andletgive could drive the development of a philanthropic capital market as vibrant and diverse as the financial markets they have sprung from. The development of a philanthropic culture within the financial services industry could lead to a more generous and creative national culture of philanthropy in Britain. Give and let give This report assesses current attitudes to philanthropy amongst high net worth individuals in the financial sector, as well as examining some of the philanthropic initiatives that have emerged from the City. We consider the experiences of those Building a culture of philanthropy who have successfully connected the worlds of finance and in the financial services industry philanthropy, in order to see what lessons can be learned to help build a wider philanthropic culture in the industry. We look at the

range of individual motivations for getting started in Rob John,RhodriDaviesandLouisaMitchell philanthropy as well as the means for giving and the methods employed to achieve philanthropic aims.

Achieving a cultural shift is an enormous task. In order to engage more financial services professionals in philanthropy, opportunities for emotional encounters must be created and barriers to giving must be broken down. This report proposes a package of practical recommendations for change, as well as considering examples of enlightened City professionals who have already taken up the challenge.

Rob John, Rhodri Davies and Louisa Mitchell

£10.00 ISBN: 978-1-906097-13-4

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