The business of giving A survey of wealth and philanthropy February 25th 2006 OuOuOurrrFFFoundoundoundinginginging InveInve InveInvestorsstorsstors

InInInIn June June JuneJune 2000, 2000, 2000,2000, the the thethe co co coco-fou-fou-foundernderndersssoooffffVenVenVenturetureture Philanthro PhilanthroPhilanthropypypy Partn PartnPartners—ers—ers—RRRaulaulaul Fern FernFernandezandezandez,,,,GGGov.ov.ov. Mark MarkMark Warn WarnWarnererer,,,,anananddd MMMariariarioooMMMorioriorinonono—a—a—alonglonglonglong with with withwith 26 26 2626 oth oth othothererer technology technologytechnology and andand business businessbusiness le leleadersadersaders and andand sever severseveralalal f oundffoundoundatiatiationsonsons,,,,cccameameame t ogetttogetogetherherher totototo contri contri contricontributebutebute more moremore than thanthan $ $$303030 million millionmillion to toto ca cacapitpitpitalizalizalizeeeVVVPPPP’sP’sP’s fi fi first rst rstrst in in ininvesvesvestmentmentmentttffundffundund....ThThTheseeseese donor donordonorsssunununiteiteiteitedddbbbehindehindehind a aa bol bolbolddd vvvisisisisionionionion to to toto a a aalterlterlterlter the the thethe st st ststatusatusatus quo quoquo for for forfor ch ch chchildrenildrenildrenildren in in inin need need needneed of ofof o oopppportuportuportunitynitynity and andand,,,,aaatttthetthehe sam samsameeetimetimetimeime,,,,crecrecreateateate a aa differe differedifferent,nt,nt, i niinnnononovativativativeveve approapproapproachachach to toto p pphilanhilanhilanthrothrothropy.py.py.

FoundingFoundingFounding Investors: Investors:Investors: ••• PPPetetetererer Ba BaBarrrisrrisris,,,,MaMaManaginaginagingngng G GGeneeneeneralralral Pa PaPartner,rtner,rtner, Ne NeNewwwEEEnterpnterpnterpriseriserise Ass AssAssociatesociatesociates,,,,aaandndnd A AAdridridriennennenneeeBaBaBarrrisrrisris ••• KKKathathatherinerinerineeeBrBrBradladladleyeyey,,,,PresPresPresidenidenidenident,t,t, City CityCityBridgeBridgeBridge Fo FoFoundatundatundationionionion,,,,aaandndnd D DDaviaviavidddBBBradradradleyleyleyley,,,,ChaChaChairmirmirmirman,an,an, AtlanticAtlanticAtlantic Medi MediMediaaaComComCompanypanypany ••• JJJohnohnohn Bur BurBurtontonton,,,,MaMaManaginaginagingngng Director, Director,Director, Up UpUpdatdatdataaaCapitalCapitalCapital ••• AAArtrtrt Bushk BushkBushkinininin,,,,ChaChaChairmirmirmirmananan and andand C CCEO,EO,EO, Starg StargStargazerazerazer Gro GroGroupupup ••• KKKathyathyathy Bushkin BushkinBushkin,,,,ExecutiveExecutiveExecutive Vi ViVicecece Pres PresPresidenidenidenidentttandandand C CCOOOO,O,O, Uni UniUnitedtedted Nati NatiNationsonsons Fo FoFoundatiundatiundationonon ••• JJJeaneanean Case CaseCase,,,,CECECEO,O,O, T TThehehe Cas CasCaseeeFoFoFoundaundaundationtiontion,,,,andandand St StSteveveveeeCaseCaseCase,,,,ChaChaChairmirmirmirmananan and andand CEO CEOCEO,,,,RevRevRevoluoluolutiontiontion ••• JJJackackack Davies DaviesDavies,,,,FoFoFounder,under,under, AOL AOLAOL Intern Intern InternInternationationationalalal ••• StStSteveeveeve Denning DenningDenning,,,,ManManManagingagingaging Par ParPartner,tner,tner, Ge GeGeneralneralneral Atlanti AtlantiAtlanticccLLLLLLC,C,C, and andand R RRobeobeobertartarta D. D.D. Bow BowBowmanmanman ••• WilliamWilliamWilliam Dun DunDunbarbarbar,,,,ManManManagingagingaging Director, Director,Director, Core CoreCore Capita CapitaCapitallllPPPartnartnartnersersers,,,,aaandndnd D DDenienienisesese Du DuDunbarnbarnbar ••• RRRaulaulaul J. J.J. F FFernandezernandezernandez,,,,ChaChaChairmirmirmirmananan and andand CEO CEOCEO,,,,OOObjectVibjectVibjectVideodeodeo ••• JJJoshuoshuoshuaaaM.M.M. Freem FreemFreemananan,,,,PresPresPresidenidenidenidentttandandand CEO CEOCEO,,,,CCCarlarlarl M. M.M. Freem FreemFreemananan Ass AssAssociatesociatesociates ••• WilliamWilliamWilliam Gib GibGibsonsonson,,,,ManManManagingagingaging Par ParPartner,tner,tner, Th ThTheeeAlbeAlbeAlbermarrmarrmarlelelele Group GroupGroup ••• MMMilesilesilesiles Gil Gil GilGilburneburneburne,,,,MaMaManaginaginagingngng M MMembembember,er,er, ZG ZGZG Ven VenVenturesturestures,,,,LLLLLLC,C,C, and andand N NNinainainaina Zolt Zolt ZoltZolt,,,,FoFoFoundundundererer and andand Cha ChaChair,ir,ir,ir, In2 In2 In2In2BooksBooksBooks ••• RRRichardichardichardichard Ha Ha HaHanlonnlonnlon,,,,FoFoFormerrmerrmer Se SeSenionioniorrrViViVicecece Pres PresPresidenidenidenident,t,t, I nvesIInvesnvestortortor Re ReRelationlationlationlations,s,s, AOL AOLAOL Tim TimTimeeeWarneWarneWarnerrrIInc.IInc.nc. ••• RRRichardichardichardichard A. A. A.A. Kay Kay KayKay,,,,PresPresPresidenidenidenident,t,t, S SStratetratetrategicgicgic Manage ManageManagementmentment Con ConConsultasultasultants,nts,nts, L LLLCLCLC ••• GeorGeorGeorgegege Ke KeKetttlettletle,,,,GeGeGeorgorgorgeeeF.F.F.Kettle KettleKettle,,,,EnEnEnterprises,terprises,terprises, L LLLCLCLC ••• JJJeongeongeong H. H.H. Kim KimKim,,,,PresPresPresidenidenidenident,t,t, Bell BellBell La LaLaboraboraboratoritoritorieseses ••• JJJimimimim K K KKimseyimseyimseyimsey,,,,FoFoFoundiundiundingngng CEO CEOCEO and andand Ch ChChairmairmairmananan Eme EmeEmeritus,ritus,ritus, AOL, AOL,AOL, Inc. Inc. Inc.Inc. ••• LenLenLen Leader LeaderLeader,,,,FoFoFormerrmerrmer Pres PresPresidenidenidenident,t,t, AOL AOLAOL Time TimeTime Warn WarnWarnererer Ve VeVenturenturenture Group GroupGroup ••• TeTeTedddLeLeLeonsisonsisonsis,,,,ViViVicecece Chai ChaiChairmanrmanrman,,,,AmeAmeAmericricricaaaOOOnlinlinline,ne,ne, I nc.IInc.nc. ••• AAArtrtrt Ma MaMarksrksrks,,,,GeGeGeneralneralneral Partner, Partner,Partner, Va VaValhalhalhalhalllalalllala Pa Pa PaPartnersrtnersrtners ••• BBBillillillill Mel Mel MelMeltontonton,,,,MeltonMeltonMelton Inv InvInvestmestmestmentsentsents ••• PhillipPhillipPhillip Merrick MerrickMerrick and and andand Care CareCarennnDDDeWitteWitteWitt,,,,Co-fCo-fCo-founounoundersdersders of ofof we wewebMethbMethbMethodsodsods,,,,IInc.IInc.nc. ••• MMMariariarioooMMMorinoorinoorino,,,,ChaChaChairmirmirmirman,an,an, Ven VenVenturetureture Philanthro PhilanthroPhilanthropypypy Part PartPartnernerners,s,s, and andand Chair ChairChairmanmanman,,,,MMMorioriorinonono I nstIInstnstituteituteituteitute ••• KKKennennennethetheth J. J.J. N NNovaovaovackckck,,,,ReReRetiredtiredtired Vi ViVicecece Chai ChaiChairmanrmanrman,,,,TimTimTimeeeWarnerWarnerWarner ••• RussRussRuss R RRamseyamseyamsey,,,,ManManManagingagingaging Gene GeneGeneralralral Pa PaPartner,rtner,rtner, Capi CapiCapitaltaltal Cro CroCrossssovesovesoverrrPaPaPartnertnertners,rs,rs, LP, LP,LP, an anandddNNNormormormaaaCCC....RaRaRamseymseymsey,,,, Director,Director,Director, Th ThTheeeRaRaRamseymseymsey Fou FouFoundatindatindationonon Our Founding Investors ••• JJJoeoeoe R RRobeobeobertrtrt,,,,ChaChaChairmirmirmirmananan and andand C CCEO,EO,EO, J.E J.EJ.E....RobRobRobertertert Com ComCompanpanpaniesiesiesies ••• JJJohnohnohn Sidgm SidgmSidgmoreoreore*,*,*, Chai ChaiChairmarmarmannnaaandndnd C CCInEO,EO,EO, June ECI ECIECI 2000, (now (now(now dec the decdec eascoeaseas-foued)ed)ed)nders of Venture Philanthropy Partners—Raul Fernandez, G ••• DoDoDougugug Smith SmithSmith,,,,FoFoFoundeundeunder/CEOr/CEOr/CEO of ofof Om OmOmnipoinMnipoinnipoinariottMt((now((noworinowno T-M T-MT-M—aobiobiobilongle)le)le)le) andwith andand Jo 26JoJointint intintoth Fou Fou FouFouer nder,technologynder,nder, Th ThTheeeAAA manterandmantermanter business Fun FunFund,d,d, le aders and several fo andandand Gabriela GabrielaGabriela A. A.A. Smith SmithSmith,,,,JoiJoiJointntnt Fou FouFounder,nder,tonder, contri Th ThTheeebuteAmAmAmante antemoreanterrrF FthanFundundund $30 million to capitalize VPP’s fi rst investment fund. These donors ••• MMMarkarkark R. R.R. Warner WarnerWarner,,,,fofofoformerrmerrmer Gov GovGovernernernor,or,or,v Commonis CommonCommonion to alterwealthwealthwealth the stof ofofatus Virg VirgVirg quoininininiaiaiaia for children in need of opportunity and, at the same time, approach to philanthropy. IInstitIInstitnstitutionalutionalutional Inv Inv InvInvestestestor:or:or: SurdnaSurdnaSurdna Foundation FoundationFoundation Founding Investors: • Peter Barris, Managing General Partner, New Enterprise Associates, and A OperOperOperatioatioationsnsns F FFundundunder:er:er: • Katherine Bradley, President, CityBridge Foundation, and David Bradley, MMMorinoorinoorino In InInstitstitstituteuteute Atlantic Media Company • John Burton, Managing Director, Updata Capital • Art Bushkin, Chairman and CEO, Stargazer Group • Kathy Bushkin, Executive Vice President and COO, United Nations Foundatio • Jean Case, CEO, The Case Foundation, and Steve Case, Chairman and CEO, A Message from Ven ture Philanthropy Partners A new generation of wealthy families is turning its Fueled b attention and significant resour y the rapidly created new wealth ces to philanthropy. over the past few decades, these philanthropy as they do their bu families are approaching their siness endeavors—seeking to be tough, entrenched pro directly involved; unafraid of ad blems; and “giving while living.” dressing While these familie s and their philanthropy have be efforts are en compared to the Carnegies an nascent and at times unproven. H d Rockefellers, their the owever, as The Economist argues new generation of philanthropi in its new special report, “if sts gets it right, they too can mak e a real difference to the world.” We are pleased to share this report with you. This wealt ness of Giving h and philanthropy survey, called ,” is a detailed and in-depth look “The Busi- resul at this new generation of philan ts, and their quest to maximize t thropists, their focus on he social impact of their actions. The Economist cites Venture P hilanthropy Partners as “perhaps in practice today. Sin the best example” of venture ph ce our founding in June 2000, V ilanthropy investing i PP has demonstrated an innova n nonprofit organizations, one th tive approach to fo at helps our nonprofit partners g r the children and youth they se enerate strong social returns rve and for the National Capital Region in which we all operate. Our initial results are promis ing, and we have learned much a scratching the surfac long the way. Yet, in reality, we a e of what needs to be done. Sign re just through or ificant changes are needed to en ganizations not only continue to sure that break- ly grow, thrive, and become sustain multiply their impact for the peo able over time, but ultimate- ple and communities they serve. This new generation of ph ilanthropists has the opportunity By respecting and to help bring about some of thes building on the efforts of those w e changes. sector ma ho have gone before them, by re y be far more complex than the b alizing that the social p usiness world, and by taking the reciate and work more with both extra step necessary to ap- the new social innovators and es philanthropists will lay th tablished nonprofit leaders, thes e framework for lasting change. e new And, by relentlessly pursuing in novative approaches, by investin then leveraging those g resources wisely and strategica efforts, these families and individ lly, and solutions to o uals will have the opportunity to ur social challenges, and more im usher in new for c portantly, to change the life out ountless people across the globe. comes in a meaningful way Again, e njoy reading this unique survey,

Mario Morino V Carol Thomp PP Chairman and Co-Founder son Cole VPP Managing Partner

120 1 15th Street, NW S uite 420 Washington DC 2 0005 Tel: 202.95 5.8085 Fax: 202.955 .8087 www.vppartners.org Reprinted from the issue of February 25, 2006. © 2006 The Economist Newspaper Limited. Further Reproduction Prohibited.

The Economist February 25th 2006 A survey of wealth and philanthropy 1

The business of giving Also in this section Philanthropy is flourishing as the transform philanthropy over the next 20 To have, not to hold number of super-rich people keeps years.” growing. But the new donors are For now, it does look as though everyone, The rise of the new philanthropist. Page 3 becoming much more businesslike from Michael Bloomberg, the billionaire about the way their money is used, mayor of New York, to hedge-fund tycoons The birth of philanthrocapitalism says Matthew Bishop and film stars, is opening their wallet for a The leading new philanthropists see them- good cause. In Manhattan these days, a table selves as social investors. Page 6 IVING away money has never been so for ten at the best charitable fund-raising din- Gfashionable among the rich and famous. ners can cost $1m. Celebrities are increasing- Bill Gates, today's pre-eminent philanthro- ly putting their own money into good works, The good company pist, has already handed over an unprece- as well as playing their time-honoured role of Is corporate philanthropy worthwhile? dented $31 billion to the Bill and Melinda using their fame to raise money from others. Page 7 Gates Foundation, mostly to tackle the health The film star Angelina Jolie, for example, has problems of the world's poor. Its generosity backed up her public advocacy of the cause The rise of the social entrepreneur has earned the couple Time magazine's nom- of refugees with substantial gifts to refugee ination as 2005's “people of the year”, along organisations. Whatever he may be. Page 9 with Bono, an activist rock star. The media, which used to take little The next generation of technology leaders notice of charitable donations, now eagerly Virtue’s intermediaries are already embracing the same ethos. Pierre rank the super-rich by their munificence A host of new businesses is trying to make the Omidyar, the founder of eBay, and Jeff Skoll, and berate those they regard as tight-fisted. philanthropic market work better. Page 12 the auction site's first chief executive, are each The latest Business Week list, which ranks putting their billions to work to “make the giving in the latest five years, is topped by Faith, hope and philanthropy world a better place”. And when the founders Intel's co-founder, Gordon Moore, and his of Google, Sergey Brin and Larry Page, took wife Betty, pushing Mr and Mrs Gates into What the new breed of donors can doand their company public, they announced that a second place. Among America's super- what it can’t. Page 14 slice of the search engine's equity and profits wealthy, it seems that only Warren Buffett, Gwould go to Google.org, a philanthropic arm the world's second-richest man, still dedi- that they hope will one day “eclipse Google cates all his energies to making more itself in overall world impact by ambitiously money rather than giving away some of applying innovation and significant what he already has. But even he says it resources to the largest of the world's prob- will all go to charity when he dies. lems”. Nor is the fashion for giving limited to The new enthusiasm for philanthropy is America, where philanthropists have long in large part a consequence of the rapid played a particularly prominent role. In wealth-creation of recent years, and of its Europe, too, entrepreneurs who have made a uneven distribution. The world now boasts lot of money are starting to hand some of it 691 billionaires, 388 of them “self-made”, to charitable causes. Examples include Acknowledgments compared with 423 in 1996, according to Britain's Dame Anita Roddick, founder of the In addition to those mentioned in the survey, the author Forbes magazine's “rich list” for 2005. Not all Body Shop, and Arpad Busson, a colourful would like to thank, in no particular order, Emily Stonor, Adam Waldman, Lynn Taliento, Alex Nicholls, Frances of these newly wealthy people are turning to French hedge-fund boss. India's new wealthy, Cairncross, Pamela Hartigan, Jamie Drummond, Dambisa philanthropy—and of those that do, many such as Azim Premji and Nandan Nilekani, Moyo, Jamie Cooper-Hohn, Luc Tayart de Borms, Jim continue to give in unimaginative ways, say two Bangalore technology-firm bosses, are Barker, Mike Green, Caroline Hartnell, Alliance magazine, Mark Evans, Lord Bhatia, Martina Gmur, David Giunta, to support an institution such as their alma also becoming keen philanthropists; and Doug Bauer, Sylvia Mathews, Mark Campanale and Felicity mater. But the extra wealth is creating huge even the new rich of China and Russia are von Peter. new opportunities. “This is a historic catching the bug. Roman Abramovich, a moment in the evolution of philanthropy,” Russian oiligarch who became famous for A list of sources can be found online says Katherine Fulton, co-author of a recent buying Chelsea Football Club, has given www.economist.com/surveys report on the industry, “Looking out for the away many millions to improve living con- An audio interview with the author is at Future”. “If only 5-10% of the new billionaires ditions in the Chukotka region of Russia. And www.economist.com/audio are imaginative in their giving, they will so the list goes on. A survey of wealth and philanthropy The Economist February 25th 2006

The whys and wherefores the rich and poor in harmonious relation- Bill Clinton and George Bush senior, found Why are they doing it? Many people are ship”, he argued that the wealthy had a duty themselves having to reassure the public that wary of rich folk bearing gifts, suspecting to devote their fortunes to philanthropy. Not they would monitor how the money was them of having hidden business or political to do so was the worst sort of personal fail- used. motives, or feeling guilty about how they ure: “The man who dies thus rich dies dis- One of the many things exposed by the have made their pile, or simply enjoying an graced.” collapse of Enron was that corporate philan- ego trip fuelled by generous tax breaks. But As a result, a far higher proportion of hos- thropy is often pretty sleazy too. A firm's exec- there could also be plenty of innocent and pitals, libraries, universities and welfare serv- utives can ingratiate themselves with busi- admirable reasons why the rich have become ices in America is funded by private dona- ness partners, and even with their own board so much more open-handed. Never mind the tions than in other rich countries, where gov- members, by supporting their pet causes with motives: the important thing is to ensure that ernments are spending proportionately more funds from the company's charitable founda- this largesse is put to good use. yet are still struggling to meet growing public tion, without breaking the law. Done well, philanthropy can have a huge- expectations. Still, the differences can be exag- ly beneficial effect—witness the achievements gerated. America's basic health research is Wasting a fortune of past giants such as Andrew Carnegie, John largely funded by the government, whereas in But the problem lies far deeper. D. Rockefeller, Joseph Rowntree and William Britain much of it is paid for by the Wellcome “Foundation scandals tend to be about pay Wilberforce. This survey will argue that if the Trust, a charitable foundation based in and perks, but the real scandal is how much new generation of philanthropists get it right, London, albeit set up by an American. money is pissed away on activities that have they too can make a real difference to the Britain's government has recently been try- no impact. Billions are wasted on ineffective world. But for that to happen, philanthropy ing to foster the philanthropic spirit, and philanthropy,” says Michael Porter, a man- will have to shed the amateurism that still other European countries are starting to fol- agement guru at the Harvard Business School. pervades much of it and become a modern, low suit. Even in China, the government “Philanthropy is decades behind business in efficient, global industry. seems keen to build up a non-profit sector applying rigorous thinking to the use of For much of the past half-century, America that caters to social needs, and appears to be money.” Mr Porter believes that the world of seemed exceptional in its enthusiasm for phi- relaxing some of its rules to allow philanthro- giving can be transformed by learning from lanthropy. Claire Gaudiani, in her book, “The py to play a bigger role. The exception is the world of business. Many of the leaders of Greater Good: How Philanthropy Drives the Russia, where President Vladimir Putin, the new generation of philanthropists agree American Economy and Can Save averse to concentrations of power outside his with him, so “there is a big opportunity over Capitalism”, makes a distinction between government, has cracked down on non-gov- the next 20 years to figure out how to make charity, which is about easing symptoms of ernmental organisations (NGOs) and their philanthropy effective.” distress, and philanthropy, which is about backers. Mikhail Khodorkovsky, the former Many of the new philanthropists are well investing in solutions to the underlying prob- boss of Yukos, a big oil company, was report- aware that traditional philanthropy is not lems. The “investment approach distinguish- edly Russia's leading philanthropist before he sufficiently businesslike. They want to bring es the most significant kind of American gen- was jailed after a show trial. about a productivity revolution in the indus- erosity from the ‘poorhouse and soup line’ But just as the world's wealthy and power- try by applying the best elements of the for- method and expresses our values of freedom, ful are discovering the joys of giving, students profit business world they know. That has the individual, and entrepreneurialism,” she of the American model of philanthropy are prompted the industry to adopt (and adapt) says. In practice, though, the borderline becoming increasingly critical of its flaws. some of the jargon familiar from the world between the two is often blurred. This is not just a private concern for the of business. Philanthropists now talk about Over the years, many wealthy Americans donors: because of America's huge tax breaks “social investing”, “venture philanthropy”, have broadly followed the blueprint laid out for charitable donations, it is a matter for “social entrepreneurship” and the “triple bot- by Andrew Carnegie in his 1889 essay, public scrutiny too. The cover story of a tom line”. The new approach to philanthro- “Wealth”. The steel tycoon believed that grow- recent issue of Stanford University's Social py is “strategic”, “market-conscious”, “knowl- ing inequality was the inescapable price of Innovation Review is entitled “A Failure of edge-based” and often “high-engagement”, the wealth-creation that made social progress Philanthropy”. It argues that those American and always involves maximising the “lever- possible. To prevent this inequality undoing tax breaks are of most benefit to things like age” of the donor's money. the “ties of brotherhood” that “bind together elite schools, concert halls and religious Leverage is particularly important to the groups. “We should stop kidding ourselves new philanthropists. They know that howev- that charity and philanthropy do much to er large their personal fortunes, they are 1 It’s a gift help the poor,” says the author, Rob Reich. dwarfed by the financial resources at the dis- Philanthropic giving* as % of GDP, 1995-2002 A series of scandals at charitable founda- posal of governments and in the for-profit 0 0.5 1.0 1.5 2.0 tions—mostly over excessive pay, jobs for marketplace. So to make a real difference, family members and other extravagances— they need to concentrate their resources on United States has attracted the ire of Congress, which is problems that are not being dealt with by Canada threatening tough new legislation. State attor- governments or for-profit organisations. Britain neys-general are taking a greater interest, too. Being constrained by neither voters nor Netherlands Mainstream charities that rely largely on shareholders, they can take risks to find pio- Sweden donations from the general public have also neering new solutions that can then be France come under fire. The American Red Cross adopted on a larger scale by governments or Japan was exposed for diverting money raised for for-profit firms. Germany the families of victims of the September 11th But not everyone is convinced that philan- Italy 2001 terrorist attacks to other purposes. And thropists must become more business-mind- *Cash and other material gifts after the Asian tsunami and Hurricane ed. “We must reject the idea—well-inten- Source: Johns Hopkins Comparative Nonprofit Sector Project Katrina, two fund-raising former presidents, tioned, but dead wrong—that the primary The Economist February 25th 2006 A survey of wealth and philanthropy 3 path to greatness in the social sectors is to become more efficient, may find the going other countries and enormous convening become ‘more like a business’,” wrote Jim harder than expected. “The new rich have power,” she says. “We are helping philan- Collins, a bestselling management author, in often made their money very fast, and get thropists to make use of all these advantages. a recent monograph, “Good to Great and the intoxicated with their own brilliance into It is using money and connections—whether Social Sectors”. His reason is disarmingly thinking they can quickly achieve results in personal, family or business—to create pub- simple: “Most businesses are mediocre.” the non-profit sector. They forget that their lic benefit.” Still, even Mr Collins agrees that the way success may have been due to luck, and that A global elite, seeking to change the world in which money passes from philanthropists the non-profit sector may be far more com- by combining lots of money with new ideas, to the organisations that put it to work leaves plex than where they have come from,” says cutting-edge business techniques, media and much to be desired. Here there is some rea- Mario Morino of Venture Philanthropy marketing savvy, the mobilisation of citizens son for hope. In recent years, a host of new Partners, one of America's leading venture and helpful political connections: all this is firms and institutions have been created that, philanthropists. bound to set alarm bells ringing in some with luck and good management, will pro- One obvious risk is of a political reaction quarters even as it spreads hope in others. vide the infrastructure and intermediaries of against the philanthropic rich. The new phi- Already George Soros, a famous hedge-fund a philanthropic capital market, an efficient lanthropists are not just into spending philanthropist, has become embroiled in way for philanthropists to get their money to money. According to Greg Dees of Duke controversy over the role of some of the those “social entrepreneurs” and others who University, today's philanthropy is best organisations he funds in various former need it. These newcomers include manage- defined as “mobilising and deploying pri- communist countries as well as in America ment consultants, research firms and a phil- vate resources, including money, time, social itself. And last year Bob Geldof, Bono's phi- anthropic investment bank of sorts. capital and expertise, to improve the world lanthropist partner in rock activism, pro- Plenty can still go wrong. There is no mar- in which we live.” voked demonstrations in Uganda when he ket discipline to force philanthropists to Peggy Rockefeller Dulany, who runs the suggested that the country's president should adopt innovations, however desirable. Global Philanthropists Circle, makes a simi- not stand for re-election. Philanthropy seems And the new philanthropists, along with the lar point. “With wealth comes education, sure to become an increasingly hot political innovators who are trying to help them decision-making power, links to elites in potato. To have, not to hold

The rise of the new philanthropist

ILL GATES is much the most generous In order to give money away, you first super-rich hedge-fund stars are following Bphilanthropist since records began. The have to have it. The past two decades have in the philanthropic footsteps of Mr $31 billion he has donated so far is already seen vast global wealth-creation, but the Soros. Performance-based donations to many times the $6 billion (in 2005 dollars) “winner-takes-all” aspect of many of charity are now sometimes built into a given away by a previous giant of today's fastest-growing markets, and the hedge fund's structure. For example, one- American philanthropy, John D. sharp reductions in top marginal income- third of all the fees earned by the Rockefeller. And Microsoft's founder is only tax rates and profit and capital taxes Children's Investment Fund, one of just getting started. By the end of his life, he almost everywhere, have caused a rapid Europe's leading hedge funds, goes to a intends to have handed over most of the increase in inequality between the very foundation that helps children in the rest of his fortune—put at $46.5 billion in rich and the rest. The number of billion- developing world. Forbes magazine's latest “rich list”—to the aires is growing fast, and not just in In Europe, following in America's foot- Bill and Melinda Gates Foundation. America: of the 691 billionaires listed by steps, the gradual emergence of an equity Mr Gates is given much of the credit for Forbes, 350 live outside America, with culture has generated serious wealth for the rise in giving among today's super-rich. Lakshmi Mittal, an Anglo-Indian steel owners selling their business in an initial He seems to have discovered his generous tycoon, coming third overall. According to public offering. A fair amount of this streak relatively recently: in 1998, The the latest annual survey by Cap Gemini money is going into charitable founda- Economist was still criticising him for sit- and Merrill Lynch, the number of families tions. In Germany, for instance, their num- ting on his fortune. But since then “Bill with over $30m in investable assets has ber has increased from 4,000 in 1997 to over Gates has made philanthropy the norm” also risen rapidly, to 77,500, as has that of 13,000 now. Germany's best-known charita- among the super-rich of the world, says millionaires (defined as people with ble foundation, Bertelsmann, which is now Vartan Gregorian, who runs the charitable investable assets of at least $1m, not mentoring some of these newcomers, says foundation set up by Carnegie. “Giving is including their main home), now 8.3m that half the founders are actively involved now what you are expected to do.” worldwide against 7m in 1997. in their foundations, which for many have The power of Mr Gates's example is one In the technology industry, there are become a second career. In America, the reason why Mr Gregorian—who is a men- now several generations of newly wealthy number of private charitable foundations tor to many of the new philanthropists people who are actively giving—the has soared from about 22,000 in the early around the world—is no fan of the secre- Hewlett and Packard families, Intel's Mr 1980s to over 65,000 today, according to the tive approach to giving. “I like people to be Moore, Mr Gates, eBay's Messrs Omidyar Centre on Philanthropy at Indiana public about their philanthropy; it makes it and Skoll and the newest billionaires on University. more competitive if we can see who is the block, Google's Messrs Page and Brin. In India, where traditional charitable doing what.” Likewise, in the financial industry newly giving within communities has dwindled A survey of wealth and philanthropy The Economist February 25th 2006

centration in bequests is also striking: by giving the resulting profits away. Generosity writ large 2 estates worth $20m or more made up 0.4% “The rich are trying to figure out a moral America’s top 20 philanthropists of their total number but 58% of their value. biography of wealth, and philanthropy can Amount, In most countries, total giving has been provide part of the purpose side of living Background $bn* rising slowly, although the outpouring of the good life,” even if you are not religious, Gordon & Intel co-founder 7.05 public sympathy after a series of natural reckons Mr Schervish. Becoming very rich Betty Moore disasters made 2005 a bumper year for can rob you of your old ambitions and give Bill & Melinda Microsoft 5.46 Gates co-founder donations. Surveys show that in many you a need for new ones. Why did Sir Tom Warren Buffett Berkshire Hathaway 2.62† countries the public's trust in charitable Hunter, a Scottish retail entrepreneur, CEO organisations is falling, and there are grow- become a philanthropist? “Aged 37, I got a George Soros Investor 2.37 ing worries that donations will not be put massive cheque. I had achieved all my Eli & Edythe SunAmerica, KB 1.48 to good use. goals at that time. So I started to think, Broad Home founder According to an annual survey, Giving what shall I do now?” James & Virginia American Century 1.21 Stowers founder USA, total charitable giving in America in “There is a search for a narrative, about 2004 rose by 5% to a record $249 billion, making a difference with your life, which is Walton family Family of Wal-Mart 1.10 founder over 2% of GDP. That was more than in any vaguely religious and gives you a buzz,” Alfred Mann Medical devices 0.99 other big country, both in absolute terms says Charles Handy, a management guru Michael & Dell founder 0.93 and as a proportion of GDP. And even if who is putting the finishing touches to a Susan Dell you ignore donations to religious congrega- book about philanthropy in Britain, George Kaiser Oil & gas, banking, 0.62 tions and add in the value of volunteering, “Beyond Success: The New Philanthropists”. real estate America is still a global leader in giving. A Mr Handy points to Abraham Maslow's John Templeton Investor 0.56 study led by Lester Salamon of Johns hierarchy of needs, and suggests that nowa- Ruth Lilly Eli Lilly heiress 0.56 Hopkins University of charitable giving in days more people are getting to the stage Michael Bloomberg founder, 0.53 Bloomberg NYC mayor 36 countries, excluding donations to reli- Maslow described as “the highest need, for gious congregations, showed that in the a purpose beyond ourselves. They want to Veronica Atkins Widow of 0.50 Robert Atkins seven years to 2002 such giving in devel- make a difference—it used to happen in Jeff Skoll Founding president 0.49 oped countries ranged from around 1.85% their 60s and 70s, now it is in their 30s and of eBay of GDP in America to 0.11% in Italy. 40s.” Ted Turner CNN founder 0.46 Mr Salamon also notes that measured Faced with the world's many and urgent Kirk Kerkorian Investor 0.45 against state spending on welfare, charita- problems, a lot of wealthy people are ask- Donald Bren Real estate 0.45 ble spending is tiny everywhere. In ing themselves: if I can help, why not? Mr Pierre & Pam EBay chairman, 0.43 America, such welfare spending equals 18% Gates read a World Bank World Omidyar founder of GDP; in Britain, 28%. This shows just Development Report and realised he could Patrick & Lore IDG founder 0.37 Harp McGovern how hard it will be for the new philanthro- do something to improve public health in pists to ensure that their money makes a the world's poorest countries. That made it *Given or pledged during 2001-05 †Includes a $2.5bn bequest by his deceased wife Susan Buffett real impact, especially in rich countries. seem absurd to leave his philanthropy Source: Business Week According to an adviser to a leading until old age, as he had previously intend- Swiss private bank, around one-quarter of ed. because of urbanisation, those newly its super-rich clients are already committed A lot of giving is stimulated by personal enriched by the country's technology boom to philanthropy. A further 40% are actively experience. Wealthy people often want to are starting to fill the void. The wealthy thinking about it, and another 15% are just show gratitude for something that helped bosses of Infosys, Wipro and Dr Reddy are starting to put it on their agenda. What them succeed, such as a school or a sup- becoming big philanthropists, joining motivates them? portive community. Similarly, they may more established Indian business philan- Religion has always played a big part in want to support a life-saving hospital or thropists such as the Tata, Birla and Bajas giving (Christians, Jews, Muslims and Sikhs play a part in finding a cure for a disease families. all traditionally aim to give away a set pro- that has afflicted someone close to them, or In Latin America and Asia, “whoever has portion of their income). In America, reli- help a poor country they have visited. got wealthy...has now got an agenda to gious giving accounts for a staggering 62% Indeed, newly wealthy Americans often give,” says Martin Liechti of UBS, a Swiss of total donations, according to Indiana give to causes abroad, says Mary Duke of bank. He points out that a generational University's Centre on Philanthropy Panel HSBC, a bank. Promoting education and shift is under way from the old wealthy, Study, and donations to religious causes fighting disease and poverty in Africa are who tended to practise traditional charity, outweigh those to non-religious ones in now high priorities. The Middle East too is to the new wealthy, who are open to more every income group. In Europe, religious rising up the agenda, in hopes of improv- entrepreneurial approaches. giving is generally lower. In Britain, a ing America's battered image in much of Although in many countries the poor recent study by the Charities Aid the region. So-called “diaspora philanthro- give away a higher proportion of their total Foundation, a non-profit body, found that py”—where people from, say, Mexico or income than do the rich, it is the wealthy faith-based organisations accounted for 10% India who have prospered abroad, send who dominate charitable giving. In of the 500 largest charities' income. Among gifts home—is also increasingly popular. America, for instance, families with a net the super-rich of the Muslim world, the Many rich people feel that they have worth of $1m or more accounted for 4.9% of Islamic prohibition of things such as alco- been fortunate and want to “give some- the total number of all donations to chari- hol, pork, gambling and conventional thing back”. But eBay's founder, Mr table organisations in 1997, but as much as financial services has opened up a role for Omidyar, dislikes the phrase. “The classic 42% of the value, according to a study by philanthropy: those whose portfolios business executive reaches his late 40s and Paul Schervish of Boston College. The con- include such activities can “purify” them says I want to give back. But what does that The Economist February 25th 2006 A survey of wealth and philanthropy 3

Transcendental meditation A fashion for giving 3 4 Many baby-boomers, with their chil- International benefactors Total giving* in the US, $bn dren through college, their houses paid for The largest foundations in America and Europe 2004 prices and plenty of money tucked away for Assets, $bn* 250 retirement, are now beginning to think Bill & Melinda Gates Foundation (US) 28.80 200 about their legacy, which often involves The Wellcome Trust (Britain) 18.82 philanthropy. “In an age where everything The Ford Foundation (US) 10.69 150 is up for sale, transcendence can be J. Paul Getty Trust (US) 9.64 100 bought through philanthropic giving,” The Robert Wood Johnson Foundation (US) 8.98 argued a working paper, “Strategic Legacy Lilly Endowment (US) 8.59 50 Creation: Toward a Novel Private Banking Fondazione Cariplo (Italy) 8.27 0 Proposition”, published by the University Fondazione Monte dei Paschi di Siena (Italy) 7.13 1964 70 75 80 85 90 95 2000 04 of St Gallen, Switzerland, in 2004. “While W.K. Kellogg Foundation (US) 6.80 *By individuals, bequests, foundations and corporations a bank cannot make people literally The William & Flora Hewlett Foundation (US) 6.49 Sources: Giving USA Foundation; The Foundation Centre immortal, it can...create legacies for its *Financial years ending 2004 clients that satisfy their need for transcen- Sources: The Foundation Centre; foundation reports mean he has been doing? Taking away? dence,” according to the author, What a sorry way to think about your Maximilian Martin, now a philanthropy The recent tax reforms in Britain have career,” he says. It is hard to tell whether adviser at UBS. not changed the tendency to give out of some of the new wealthy feel guilty, but Certainly, people tend to become more income rather than assets, in sharp contrast certainly many of them think, like generous as they grow richer, both in life to the Americans, says Les Hems of the Carnegie, that philanthropy is part of a and in death. Mr Schervish points out that Institute for Philanthropy in London. There social contract: both a duty and an insur- between 1992 and 1997 the value of final is currently no British version of America's ance policy against populist redistribution. estates in America rose by 65%, but charita- popular “charitable remainder trust”—a Social norms and peer pressure clearly ble bequests went up by 110%. For the device that allows a donor, say, to give play a part. The fund-raising events in largest estates, the shift was even greater. away his house, claim an immediate tax London laid on by Mr Busson for his char- One possible explanation is the growing break and then continue to live in it until itable foundation, Absolute Return for concern of wealthy parents that if they his death, when the remaining value of the Kids (ARK), seem to be prising open the leave too much to their kids, they will give asset goes to the designated charity. wallets of many people in hedge funds them a nasty dose of “affluenza”, also One of the strongest trends in who would not have contributed other- known as “trust-fund baby syndrome”. “A American philanthropy in recent years wise. And not everybody's motives are lot of people say they are not going to pass has been the rapid growth of donor- lofty: Ms Fulton, the co-author of a new on much of their wealth to their kids, for advised funds, offered by money manage- report on philanthropy, argues that “a lot fear of spoiling them,” says Joe Toce of ment companies such as Fidelity, whose of philanthropy is motivated by pleasure— HSBC. “But as they get older, and grand- fund is now America's fifth-biggest chari- ego gratification and reputation enhance- children come along, they often end up ty. These funds allow individuals to com- ment.” passing on a lot to their descendants.” mit themselves to a donation and claim Good examples can help to stimulate Nevertheless, when the baby-boom gen- their tax deduction, but defer nominating largesse. In Britain, the Beacon Prize, eration dies, vast amounts of money will a beneficiary and actually paying out the launched in 2003 to celebrate philanthro- be passed on, and a large chunk of that money until a later date. This has led pists, was an attempt to reverse a long stag- seems destined for philanthropic purpos- Congress to suspect foul play—though not nation in giving. There are signs that, slow- es—not least because involving children by Fidelity, which has a decent average ly, British culture may be changing. “There and grandchildren in the running of a pay-out rate of 25% of donated money is a mood now in Britain that there are foundation is increasingly seen as a way to each year. niches that the government doesn't fill, give them a sense of purpose and to pass Would scrapping inheritance tax, as and that if you have talent, money and on family values. President George Bush wants to do, hit time you should get into these gaps. Thirty charitable giving in America by removing years ago, a businessman would have said, Self-interest one of the main penalties for not giving? ‘I pay my taxes, the government should do A secondary motive may be the desire to Judging by how vigorously charities have it’,” says Mr Handy, the management guru. take advantage of the many tax incentives been lobbying against the move, they clear- “It is getting like America—if you are and other fixes that can make a wealthy ly fear that they would lose out. But John wealthy, you want to be on the giving list person look virtuous at an appealingly low Whitehead, a former boss of Goldman as well as the rich list.” cost. America has the most generous treat- Sachs and now the eminence grise of New In continental Europe, a tradition of giv- ment of charitable giving, allowing taxpay- York philanthropy, believes that even if giv- ing anonymously (not least to avoid the ers to deduct their donations from their ing carried fewer tax advantages, it would taxman's attention) has meant there is less taxable income. not fall by as much as people fear, for peer pressure to give, and few role models In Britain, too, the tax system has “most of it is from the heart, not the pock- for would-be new philanthropists. To help become much more philanthropy-friendly. etbook.” change that, Ise Bosch, a member of the Other parts of Europe are following slowly. At any rate, many people reckon that family behind the eponymous electronics The European Foundation Centre is lobby- philanthropists' motives are beside the company, is now writing a “how-to” book ing for better tax treatment throughout the point. As Mr Gregorian of the Carnegie on philanthropy. She has also formed a European Union. A particular concern is Corporation says, “Why they give is not network called Pecunia for wealthy the harsh tax regime that some countries important; the act of giving, and how effec- German women interested in giving. apply to giving abroad. tively they give, is what matters.” A survey of wealth and philanthropy The Economist February 25th 2006 The birth of philanthrocapitalism

The leading new philanthropists see themselves as social investors

ELATIVE to the corporate environment, invest heavily for long periods to achieve into Omidyar Network, which is free to make “Rwe are in the 1870s. But philanthropy them, says Mr Schramm. The Rockefeller for-profit investments as well as philanthrop- will increasingly come to resemble the capi- Foundation, for example, found a cure for ic donations to pursue its mission of “indi- talist economy,” predicts Uday Khemka, a yellow fever and drove the “green revolution” vidual self-empowerment”. “After a few years young Indian philanthropist and a director in agriculture. Carnegie, among other things, trying to be a traditional philanthropist, I of the SUN Group investment company built thousands of public libraries. asked myself, if you are doing good, trying to owned by his family. Like many of the new Yet this long-term investment ethos has make the world a better place, why limit generation of philanthropists, he has big but proved to be the exception, not the rule. In a yourself to non-profit?” he explains. Although well-defined ambitions. “I want to help landmark article, “Philanthropy's New there is a separate chequebook for the foun- develop the infrastructure of philanthropy,” Agenda: Creating Value”, published in the dation, his “investment team” is free to put he says. Harvard Business Review in 1999, Michael his money in either for-profit or non-profit The need for philanthropy to become Porter and Mark Kramer described wide- projects. The team's main criterion is whether more like the for-profit capital markets is a spread flaws in America's foundations that the investment will further the social mis- common theme among the new philanthro- mostly remain to this day. For instance, little sion. pists, especially those who have made their effort is devoted to measuring results, and Similarly, the Google Foundation is part of fortune in finance. As they see it, three things foundations have unjustifiably high adminis- Google.org, which can mix for-profit and are needed for such a philanthropic market- tration costs. non-profit investments. However, unlike place to work. Michael Bailin, head of the Edna Omidyar Network, Google.org is an arm of First, there must be something for philan- McConnell Clark Foundation, has described Google, so this is corporate philanthropy— thropists to “invest” in—something that, ide- the typical foundation as “autocratic, ineffec- which raises a further series of difficult ques- ally, will be created by “social entrepreneurs”, tive and wilful, elitist, cloistered, arrogant tions (see article). just as in the for-profit world entrepreneurs and pampered”. There are “chronic problems In principle, large foundations should be create companies that end up traded on the in the way foundations operate”, says Joel the most effective vehicle for philanthropy, stockmarket. Fleischman, former head of the unusually argue Messrs Porter and Kramer. Not only are Second, the market requires an infrastruc- impressive Atlantic Philanthropies, who is they free from both political and commercial ture, the philanthropic equivalent of stock- writing a book on the successes and failures pressures, they also employ professional staff markets, investment banks, research houses, of foundations. He says that most of them that smaller outfits would not be able to management consultants and so on. This is provide little information about what they afford. But the staff often become the biggest what Mr Khemka wants to concentrate on. do, and are particularly secretive about their problem, especially in foundations whose Third, philanthropists themselves need to failures. As a result, says Mr Fleischman, founder has long been dead. behave more like investors. That means allo- “foundations keep reinventing the wheel.” The new philanthropists are mostly young cating their money to make the greatest pos- As for foundation governance, it is a night- enough to be able to keep an eye on their sible difference to society's problems: in other mare, says Robert Monks, a veteran cam- foundations for many years to come. words, to maximise their “social return”. paigner for better corporate governance: Nonetheless, says Mr Fleischman, they might Some might operate as relatively hands-off, “Perpetual existence, no need to conform to consider setting a closing date for their foun- diversified “social investors” and some as competitive standards, it is all too much for dation. For instance, the John M. Olin hands-on, engaged “venture philanthropists”, human nature. Hence the palatial offices, Foundation, a big source of finance for con- the counterparts of mainstream venture cap- fancy conferences and increasingly lavish pay servative organisations, recently shut itself italists. for the professional philanthrocrats.” down. As John Miller recounts in his new All this may sound fine in theory. Arguably the biggest problem is the way book, “A Gift of Freedom”, Olin had stipulat- However, the history of philanthropy suggests that foundations make grants to organisa- ed that all of his legacy should be spent with- that there are many potential pitfalls. tions they support. Whereas Carnegie was in a generation of his death, a sunset model America's early charitable foundations willing to invest for the long term, more that kept it nimble, unbureaucratic and true were built by entrepreneurs. Carnegie and recently foundations have tended to chop to its founder's ideas. Rockefeller would have understood the new and change, says Mr Fleischman. Melissa The new philanthropists also need to be investment-oriented model. “Having seen Berman of Rockefeller Philanthropy Advisors clear what they want to do, and stick with it. their own economic activity transform the argues that there is too much emphasis on That is one lesson from the Gates world, they thought that the foundations they funding individual programmes and too lit- Foundation, which has already notched up left behind would be transformative organi- tle on the sustainability of the non-profit some remarkable achievements—helped by sations,” says Carl Schramm, head of the organisation running the programme. its huge size, which allows it to do things that Ewing Marion Kauffman Foundation. Those Overheads are seen as a bad thing, and grants are beyond everyone else. Its clear mission is foundations did remarkable things. Set up as tend to be short-term. to tackle global health inequalities in six conduits for making grants as well as run- Should the new generation of philanthro- main areas: infectious disease, HIV/AIDS, ning the programmes that would benefit pists try something different from the tradi- tuberculosis, reproductive health, global from the money, they thought big, concen- tional foundation? Ebay's Mr Omidyar thinks health strategies and global health technolo- trated on clear goals and were willing to so. He has folded his Omidyar Foundation gies. The Economist February 25th 2006 A survey of wealth and philanthropy 3

Leverage is all and loan guarantees as well as grants. ratification regime. But Mr Meyerson thinks Crucially, it has found ways of using its Some philanthropists are also beginning to it would be far better for the government money to the greatest effect. Mr Gates's big think about how best to harness all their properly to enforce the laws that are already idea is to overcome the market failure afflict- assets to the causes they support, rather than in place. ing poor consumers of health care by deploy- just concentrating on the money they are cur- Better regulation is on the agenda in ing his money on behalf of the poor to gen- rently giving away. This point was brought Britain, too, where charity is still governed erate the supply of drugs and treatments they home recently to Jeff Skoll, one of whose phil- by an act passed in 1601. “The governance need. For instance, the money provides mar- anthropic missions is to make films with a of charities and non-profits is generally ket incentives for drug companies to put social message. His latest film is based on the poor,” says Geraldine Peacock of Britain's some of their resources to work for the needy. book “Fast-Food Nation”—yet he had not Charity Commission, which under new leg- The Gates Foundation also favours part- checked his investment portfolio to see if he islation due to take effect this year will nerships, even though it is big enough to pur- owned shares in food companies such as become much more independent of gov- sue many projects on its own. Again, it is McDonald's that are attacked in the film. ernment. Like Senator Grassley, Ms Peacock looking for maximum effectiveness. Other Over the past year or so, many of the thinks that a charity should be licensed for philanthropists are following similar strate- super-rich have started to ask themselves a limited time—say five years—and then gies. For instance, Britain's Dame Stephanie what exactly their assets are doing, says D.K. have to reapply. Shirley wanted to fund research into an Matai, an Indian-born software entrepreneur Encouragingly, many of the older founda- autism gene, the total cost of which she reck- who runs the Philanthropia Trinity, another tions themselves are becoming more con- oned would be £1 billion ($1.7 billion). She international network of philanthropists. cerned about effectiveness, and have started stumped up £50m herself and is raising sim- “What is the point of earning a high return demanding more information on how the ilar sums from other donors around the in China if my money is helping to build money they provide is spent, says Mr world. Another “hot” idea at the moment, Dickensian working conditions? If I have $5 Fleischman. The recent transformation of the championed by the X-Prize Foundation, is to billion, and am giving $4 billion away, do I Edna McConnell Clark Foundation shows donate large cash prizes that will generate really want a 17% return on activities that are that an inefficient old organisation can turn lots of further spending from those compet- wrecking the world?” To deal with that prob- itself into a cutting-edge operation. It used to ing to win them. lem, the investment industry will need to hand out grants in the traditional manner Mr Omidyar recently donated $100m to improve on the strategies and products it cur- for a wide range of good causes. But in the Tufts University to invest profitably in rently offers for “ethical” or “socially respon- late 1990s, a new head, Mr Bailin, decided to providers of microfinance to the poor. He sible” investment, which often amount to lit- concentrate its activities in a single field, hopes to attract private capital to turn what tle more than avoiding shares in, say, tobac- youth development. Working closely with its has largely been a subsidised business into a co, arms manufacturing or oil. chosen organisations, notably Harlem profitable one, operating on a far bigger scale The phrase most often used to describe the Children's Zone, it has helped them become than today. new approach to giving is “venture philan- more effective and serve many more people. Other new philanthropists are piloting thropy”. This was first used in the 1960s by The biggest question of all is how to meas- new models for welfare provision that, once one of the Rockefellers, but is still practised ure the performance of a philanthropic they have proved themselves, can be taken up relatively rarely. Perhaps the best example is a organisation. A huge amount of work is going by governments and made available much firm called Venture Philanthropy Partners. on in this field, but it is still more art than more widely. Governments tend to be risk- Run by Mario Morino, who made his fortune science—particularly when it comes to the averse, whereas philanthropists are free to in software, it specialises in mid-sized non- fuzzier goals of some philanthropists, such as take whatever risks they like with their profit organisations in the Washington, DC, “empowering people”, “increasing the effec- money, so they can play a useful role as area that work well enough, but lack the cap- tiveness of civil society” or “fighting climate providers of start-up risk capital for govern- ital and talent to expand. With a $30m fund change”. ment services. raised through a community foundation, Mr Measures involving the so-called double Networks, too, are an increasingly popular Morino behaves much like a venture capital- bottom line (financial plus social perform- way of leveraging money and experience. ist. He is working intensively with 12 non- ance) or triple bottom line (financial, social Peggy Rockefeller Dulany's Global profit organisations, helping them to develop and environmental) are readily susceptible to Philanthropists Circle brings together about a business plan for growth and to recruit statistical manipulation. So are popular con- 50 super-rich families from 20 countries to managers and board members. cepts such as “changed life”—a combination exchange ideas and experiences, mainly with of the number of people affected by an ini- a view to finding solutions to international Old dogs, new tricks tiative and the extent to which it improves poverty and inequality. Often this will New foundations may be learning from their lives. involve the use of connections and influence the mistakes of the old ones; but what can be One danger is to pay too much attention as well as money. done to reform established foundations that to managing inputs, which are easier to However, there is still a lack of global giv- are underperforming? With America's measure than output. Another is to concen- ing consortiums that take on single issues, Congress showing increased interest in foun- trate donations on those activities that can be says Mr Khemka. He hopes to bring together dations, Senator Charles Grassley has pro- easily measured, such as the number of vac- philanthropists from around the world who posed tough new laws. His reforms would cinations given, even where that may not be want to tackle climate change. “dramatically transform the relationship the most effective way of tackling a problem. Some foundations are now exploring between the federal government and founda- Donors also need to strike the right bal- new ways of funding organisations. Mr tions”, says Adam Meyerson of the ance, so that on one hand they ask for Salamon of Johns Hopkins University Philanthropy Roundtable, an industry body. enough information to be able to monitor thinks that they should start to behave Among other things, Senator Grassley is pro- the effectiveness of the organisations they more like philanthropic banks, offering a posing a five-yearly review of foundations' fund but on the other they do not bog them range of financial products such as loans charitable status and a formal government down in form-filling bureaucracy. The Gates A survey of wealth and philanthropy The Economist February 25th 2006

Foundation has a good reputation for getting will come to see it as a description of reality, function well only when managers know the mix right and tailoring it to individual rather than a tool for a conversation about why they are measuring and for whom...In circumstances. that reality,” says Rowena Young of the Skoll the world of social value-creation, context is “The risk with any metric is that people Foundation. “One metric or another can king.” The good company Is corporate philanthropy TheIs corporate good philanthropy company worthwhile? worthwhile?

ORPORATE giving has long had a reputa- Well by Doing Good”, by Marc Benioff, the “The dominant trend in corporate philan- Ction as the sleaziest corner of philanthro- boss of salesforce.com. The book contains two thropy is to do giving that reinforces a firm's py. Although usually nominally independent dozen articles by captains of industry, includ- core strategy,” argues Trevor Neilson of the of the companies whose names they take, cor- ing Alan Hassenfeld of Hasbro, Jeffrey Swartz Global Business Coalition on HIV/AIDS. porate foundations in practice are often treat- of Timberland, Steve Case of AOL, Michael Thanks to shareholder pressure, increasingly ed as a sort of slush fund into which the chief Dell of the eponymous computer-maker and the only acceptable philanthropy is the sort executive can dip to help a pet cause, Jean-Pierre Garnier of GlaxoSmithKline. All of that enhances profits. Mr Neilson is a keen enhance his status in the community or even them argue—some more convincingly than advocate of “cause-related government rela- cement a business relationship with a dona- others—that their philanthropy is good for tions”, which means that a firm will help a tion to a cause close to a business partner's shareholders, at least in the long run. Mr government to deal with a social problem in heart. Corporate philanthropy has been com- Benioff argues that giving his staff time to the hope of getting favourable treatment in ing under greater scrutiny since the collapse volunteer in the community improves his the future. For example, 26 companies so far of Enron, because many people believed that company's ability to recruit top talent. have made commitments to help the Chinese donations to various Enron board members' Corporate philanthropy is also becoming government with its AIDS strategy, which Mr good causes may have made them less will- more important in developing countries, Neilson says will allow them to form a valu- ing to hold the firm's top executives to where firms may feel the need to support able relationship with the government. account. Companies are now having to work local communities by contributing through Perhaps. harder to justify their philanthropy on strate- their foundations to health care, education Some of the new philanthropists believe gic grounds. and so on. In an article in a new book, “The that they are doing good simply by running The best justification, and perhaps the Accountable Corporation”, Messrs Porter and their business. Thus, Mr Omidyar argues that only intellectually rigorous one, is that phi- Kramer note that Nestlé, for example, now eBay does its bit by empowering people and lanthropy is in the enlightened long-term invests a lot in what it calls “milk-production promoting trust between strangers. Most interest of shareholders. This is a key argu- systems” in developing countries, realising importantly, it is creating wealth to be shared ment in a new book, “Compassionate that a decent infrastructure is needed to around. After all, without wealth-creation Capitalists: How the Leading CEOs are Doing ensure a reliable supply. there would be no chance of philanthropy. The rise of the social entrepreneur

Whatever he may be

BS, a Swiss private bank that counts prize is not really the point. Simply being selected included Rory Stear, founder of Umany of the world's richest people selected to be in the room with a bunch of Freeplay, a company dedicated to the spread among its clients, is conducting an interest- wealthy people gives the social entrepreneurs of cheap, sustainable energy for all; Jim ing experiment in Brazil, Mexico and great credibility with potential donors, and Fruchterman of the Benetech Initiative, a Argentina. It has formed an alliance with even runners-up have a good chance of com- non-profit organisation that makes technolo- Ashoka, a global organisation that identifies ing away with a new financial backer or gy available to disadvantaged communities; and invests in leading “social entrepreneurs”. some other form of help. Héctor Castillo and Victoria Hale, founder of OneWorld The alliance is offering a new prize for social Berthier, who runs an innovative project for Health, which works with the Gates entrepreneurship, which UBS's Martin Liechti troubled Mexican teenagers, came third in Foundation (among others) to make low-cost admits is an excuse to bring together two last year's Mexican prize, but still got a cru- drugs available in poor countries. groups of people who might otherwise never cial donation and free use of office space. meet. “As the biggest wealth manager in the Ashoka is not alone in bringing social Waiting for a productivity miracle region, we are at the crossroads between cap- entrepreneurs together with the wealthy and Ashoka was founded in 1980 by Bill ital and ideas—so why not bring the people powerful. Social entrepreneurs now rub Drayton, a former McKinsey consultant, who with capital together with the people who shoulders with the world's business and expects the rise of social entrepreneurship to have ideas?” political elite at the World Economic Forum generate huge benefits. He says it is now help- The social entrepreneurs that are shortlist- in Davos, under the auspices of a sister organ- ing to bring about a productivity miracle in ed must have been working successfully with isation to WEF, the Schwab Foundation for what he calls the “citizen half of the world” Ashoka for at least three years. Winning the Social Entrepreneurship. This year, the people (education, welfare and so on), a sector that The Economist February 25th 2006 A survey of wealth and philanthropy 3

suggestions that would improve the non-prof- Shining examples 5 Leading social entrepreneurs it operation because they have been trained in practical business ways of thinking.” Organisation Nationality Background Jeroo Billimoria ChildLine India Foundation India Children’s rights People like you and me Somsook Boonyabancha Community Development Institution Thailand Land rights Certainly the number of business-school Peter Eigen Transparency International Germany Anti-corruption graduates going into the non-profit sector has Oded Grajew Instituto Ethos Brazil Citizen sector increased. That appeals to the new philan- David Green Project Impact United States Public health thropists, who want to see people like them- Alice Tepper Marlin Social Accountability International United States Labour selves in charge of the non-profit organisa- Pearl Nwashili StopAIDS Organisation Nigeria Public health tions they support. But these new profession- Fabio Rosa IDEAAS Brazil Renewable energy als may achieve as much by using the latest Orri Vigfusson North Atlantic Salmon Fund Iceland Environment management techniques to improve the per- Muhammad Yunus Grameen Bank Bangladesh Microfinance formance of existing non-profit organisations than by creating new ones through social Source: Ashoka entrepreneurship. Mr Collins, the management guru, says get- for three centuries has lagged behind the formance capacity of society”. ting the right people is arguably even more “business half of the world”, where produc- Mr Schramm of the Kauffman important in the non-profit world than it is tivity has soared and vast amounts of wealth Foundation, which promotes a better under- in business, because it is often harder for have been created thanks to its competitive, standing of entrepreneurship, says that being non-profits to get rid of employees once they entrepreneurial culture. The emergence of an entrepreneur means being a risk-taker, but are “on the bus”. Business leaders can fire more social entrepreneurs, and their a high risk of failure may be the last thing people more easily and can spend money on improved access to growth capital as they get that many non-profits need. And, surely, buying talent. But some social entrepreneurs better connected to philanthropists, is creat- “every entrepreneur is a social entrepreneur,” have found their own ways of securing top ing enormous productivity opportunities for says Mr Schramm. “A successful entrepre- talent. Wendy Kopp, who in 1989 founded the citizen sector, argues Mr Drayton. neur...creates wealth—and without wealth Teach for America—a non-profit organisation The citizen sector is defined somewhat there is no surplus capital to turn over to that gets graduates from top universities to loosely, but is largely made up of government charitable activity.” spend the first two years of their careers plus the non-profit sector. Both government Mr Omidyar, too, is uncomfortable with teaching children from low-income fami- and non-profits have traditionally been run the label, which he feels implies a disap- lies—made it clear from the start that only the inefficiently. The productivity miracle detect- proval of profits that he does not share. “I best would do. By last year, over 97,000 peo- ed by Mr Drayton is due both to a shift from think of myself as an entrepreneur, and I ple had applied to work for her organisation, government provision to more efficient pri- have a social view, but I don't call myself a but only 14,000 had been accepted. Ms Kopp's vate provision (by both for-profit and non- social entrepreneur,” he says. But his fellow ability to pick and choose boosted her credi- profit organisations) and by an increase in philanthropist from eBay, Mr Skoll, thinks bility with her philanthropic backers and the efficiency of the non-profit sector. social entrepreneurship has something going enabled her to raise more money. The improvement in non-profit organisa- for it. The mission of his eponymous founda- A growing number of non-profits now tions' efficiency may still have some way to tion is “to advance systemic change to bene- have state-of-the-art marketing departments. go. In 2004, Bill Bradley, a former presidential fit communities around the world by invest- Indeed, it can sometimes seem that the mar- hopeful for the Democrats, and two ing in, connecting and celebrating social keting has become more important than the McKinsey consultants claimed in an article entrepreneurs”. mission. One technique is to use “charity in the Harvard Business Review that, in Among other things, Mr Skoll has muggers” on commission to collar people in America alone, there was a “$100 billion endowed the Skoll Centre for Social the street and get them to sign a standing opportunity” for the non-profit sector to Entrepreneurship at Oxford University's Saïd order. For a while this was used in Britain by improve its efficiency through better manage- Business School. This is part of a growing Oxfam, but the development charity now ment. But is social entrepreneurship the best trend for academic institutions, including thinks that raising money this way does not way to achieve that? nowadays most business schools, to take the pay. Far better to tap into the public's con- There is no easy answer, not least because phenomenon seriously. Harvard Business cern about where its charitable donations are nobody is sure what exactly the term means. School started teaching a course on social going, as Oxfam has done with its hugely suc- In a book charting the rise of social entrepre- enterprise 12 years ago. cessful Christmas gift catalogue, offering gifts neurship, “How to Change the World: Social Mr Schramm worries that some of these such as sponsoring a goat in an African vil- Entrepreneurs and the Power of New Ideas”, courses are more likely to turn students lage for £24 or providing safe water for 1,000 David Bornstein notes that most discussion against capitalism. But Mr Whitehead, a for- people for £720. “The public want to be trans- of social entrepreneurship tends to revolve mer Goldman Sachs boss who is the driving actional, to have a more direct relationship around “how business and management force behind the HBS course, sees it as part of with where their money is going,” says skills can be applied to achieve social ends”. a trend among the elite in many countries Barbara Stocking, Oxfam's boss. He himself sees social entrepreneurs as who increasingly want to make not just Many non-profit organisations have been “transformative forces: people with new money but “a difference”. The money may wary of working with big donors because ideas to address major problems who are not be as good as in business, but “a bright their money can come with too many strings relentless in the pursuit of their visions”. The young person can have more of an impact on attached. But that is starting to change. Oxfam late management guru Peter Drucker, typical- any non-profit in his first five years than on now wants to raise more money from the ly quick to spot the trend, defined social Goldman Sachs, which is full of bright young sort of wealthy philanthropists it has not tar- entrepreneurs as people who raise the “per- people. In their first year they could make ten geted in the past—if only because in Britain A survey of wealth and philanthropy The Economist February 25th 2006 there haven't been many of them, says Ms in the non-profit world. And for all sorts of sides, we map a new value-added chain, rang- Stocking. “I'm not sure we have been asking reasons, there are far too many non-profits. ing from product design to production to dis- for enough money,” she muses. Philanthropists could help by encouraging tribution to servicing; that delivers a far better But the main problem for many non-prof- consolidation, says John Studzinski, co-head service to the ultimate customer faster, better it organisations is how to get bigger. “One of of HSBC's investment bank and an active and more economically. Ending centuries of the problems is that well-run non-profits philanthropist. “In homelessness work, I'm a non-communication brings so much value don't necessarily grow,” says Nigel Morris, the great advocate of consolidation. There are that both business and citizen groups emerge co-founder of Capital One, a credit-card com- about 40 homelessness projects in London; as huge winners as well,” he says. pany. True, growth isn't everything. Indeed, only eight are any good,” he says. For example, community groups in Mr Collins worries that non-profits will put There is also a role to be played by philan- Mexico's slums now work with Cemex, a scale before genuine effectiveness: “One of thropists in encouraging non-profits to devel- huge cement firm, to create a market for its the markers of mediocre companies is that op other sources of finance, to reduce their cement among the slum dwellers, greatly they become obsessed with scale and dependence on the goodwill of donors. reducing the cost of adding extra rooms to growth,” he says. But donors need to decide Providing fee-generating services is one strat- their dwellings, providing funds for the non- if they simply want to buy services from a egy. Doing work for the government is anoth- profit groups and turning a (still small) prof- non-profit, or whether they want to invest in er. Many non-profits have long generated rev- it for Cemex. The social entrepreneurs run- helping the organisation grow. If growth is enues in this way. ning the community group have the trust of important to them, they need to become a lot Philanthropists can even encourage non- the locals without which the big company less squeamish about overheads profits to move towards becoming for-profits, would never be able to enter the market, says . able to stand entirely on their own feet. This Mr Drayton. Other similar “hybrid value- The virtue of overheads is what Mr Omidyar hopes to achieve with added chains” that combine business and “In the business sector, people are very his $100m donation to Tufts University to social purposes are being developed between comfortable with the idea of investing in an invest profitably in microfinance. But the groups of forest-dwellers and forestry firms, organisation, and the need to build up its idea may face a lot of cultural resistance. and small farmers and irrigation companies. infrastructure. In the social sector, the tenden- “How do you get the citizen sector to change Meanwhile, Ashoka hopes that its relation- cy is to invest only in a programme; there is its attitudes so that it allows institutions to ship with UBS will flourish, and that prizes very little investment in building organisa- have incomes that are at least equal to outgo- will soon be awarded across Latin America tions,” says Mr Collins. Yet often, in yielding ings?” asks Ashoka's Mr Drayton. and Asia. But as well as highlighting the to public pressure to keep down overheads, He is now trying to promote for-profit part- growing role of social entrepreneurs, this “non-profits sacrifice efficiency for virtue,” nerships between big companies and com- experiment also points to another new trend: says Carnegie's Mr Gregorian. munity groups in some of the most impover- a more active role for intermediaries in the There is no merger-and-acquisition market ished parts of the world. “Working with both emerging philanthropic capital market. Virtue’s intermediaries

A host of new businesses is trying to make the philanthropic market work better

EGEND has it that New Philanthropy they were having an impact on people's lives.” ices and research. Though currently the LCapital (NPC) was founded in the For now, the research effort, headed by organisations providing these services are Goldman Sachs canteen in London in 2001. Martin Brookes, a former senior economist at relatively small, there appears to be enough After Goldman went public, Gavyn Davies, Goldman Sachs, is confined to the charity demand to enable a successful operation to then its chief economist, and another top sector in Britain. NPC is not providing ratings grow fast. banker, Peter Wheeler, had pocketed enough at present, but the equivalent of “buy” recom- “The biggest constraint on our growth has money to enable them to do some serious mendations through sector reports such as been the ability to recruit top talent,” says Mr giving. But when they tried to pin down the “Grey Matters, Growing Older in Deprived Davies. “Only a few people are willing to best place for their money to create maxi- Areas”. In preparing these reports, NPC asks come out of a career in banking to do this.” mum impact, “We found there wasn't the charities seeking funds four simple ques- An analyst at NPC can expect to earn £22,000- enough information produced in a hard- tions: What is it you do? Why? What is suc- 48,000 ($38,000-84,000), a small fraction of headed, independent, high-quality way, cess? And what is evidence of success? The what they would make at Goldman. made available to all,” recalls Mr Davies. So firm also does some secondary research, such In any marketplace, knowledge is power. they decided to create NPC as the equivalent as summarising and translating academic NPC is attracting interest in America, which of an equity-research firm for the philan- work and making it more widely available. currently has no direct equivalent. The big thropic marketplace. “When you come into this world from foundations, in particular, do lots of research, It had the added attraction of providing Goldman, you realise how screwed up it is but they tend to keep it to themselves. The leverage, the holy grail of the new givers. “We as a market,” says Mr Brookes. “We are try- nearest counterpart to NPC in America is wanted our own charitable donations to be ing to fix the plumbing.” They are not alone. Geneva Global (GG), but it covers only giving the foundation of a much bigger edifice. This Efforts are under way to develop philan- opportunities outside America. GG's 140 was an investment designed to have a levered thropic versions of most of the main sectors employees work with a network of over 500 effect on other people's giving,” says Mr of the capitalist marketplace: social-invest- voluntary associates in over 100 countries. It Davies. “We wanted to increase giving by ment banking, social-investment manage- mostly concentrates on small projects, which enabling donors to be more confident that ment, private banking, consulting, data serv- it thinks have a greater impact. The Economist February 25th 2006 A survey of wealth and philanthropy 3

Famous brands realising that they can do well by being more poses. This will introduce concepts from the “In philanthropy, the stuff that will deliv- transparent, and talking about their successes for-profit world, such as “burn rate” (the rate er most often gets least,” says GG's boss, Eric and failures,” says Tony Knerr, a philanthro- at which capital is being used), giving all con- Thurman. Brands count for a lot in the world py consultant. cerned a better idea of how well the expan- of giving, and many people like to give to “The social sectors do not have rational sion is going. Now non-profits can work familiar organisations. For instance, the Red capital markets to channel resources to those backwards from their expected long-term sus- Cross, despite heavy criticism of its handling who deliver the best results,” says Mr Collins. tainable sources of finance to work out their of donations after September 11th 2001, col- According to a recent article in Stanford's current need for capital, and how to structure lected almost 70% of the money given for Social Innovation Review, in America raising it, says Mr Overholser. relief work after Hurricane Katrina wrecked $100 can eat up anything from $22 to $43. In In the capital markets, there has been a New Orleans. Britain, the average cost of finance to chari- proliferation of investment opportunities, GG challenges the big charities by finding ties is around 25%, which is very high relative from mutual funds to complex derivatives. a small, local group that is doing something to other industries, notes NPC's Mr Brookes. Something similar may be under way in the well and is ready to scale up its operations. It The traditional grant-making process is a philanthropic world, ranging from invest- sends potential donors a monthly catalogue large part of the problem. Donors would gen- ments that pay a decent return on money put with a choice of evaluated projects, and later erally rather fund a project than invest in to worthy uses to structures that allow donors provides feedback on what their money has building an organisation. If a charity has to give their money away more effectively. In achieved. “We want to be known for making money in the bank, they will ask why they America, Google.org has just invested $5m in a direct connection between the money you should provide any more, and what exactly the Acumen Fund, which channels donors' raise and lives changed,” says Mr Thurman. their donation will be used for. money to a portfolio of entrepreneurial For more comprehensive information Not everybody is so short-sighted. For poverty-fighting organisations. about who is doing what in the philanthrop- example, the Ford Foundation is encouraging In Britain, NPC and the Charities Aid ic world, there is GuideStar. Nicknamed the the greater use of debt and debt-like instru- Foundation recently launched a couple of “Bloomberg screen of philanthropy”, it was ments because “there is a growing number of funds that will allocate money to a portfolio founded in America in 1994 by Buzz Schmidt income-generating activities, and donors of charities, monitor its impact and keep the and makes available online, free of charge, want to help borrowers to get a credit rating donors informed about progress. The first the tax-return data filed by 1.5m charitable so they can go to the commercial market,” two funds concentrate on charities in partic- organisations, together with additional infor- says Susan Berresford, the foundation's boss. ular sectors, as their names suggest: the mation. It has more than 400,000 registered In Britain, Venturesome has been arrang- Engaging Young Lives Fund and the Fulfilling users, and for a fee it offers detailed analysis ing unsecured loans for charities, typically Older Lives Fund. of the data—such as which organisations do bridging finance for those waiting to be paid A host of new tax-favoured opportunities what in a particular area, how much a char- a promised grant. And in America College have been coming on stream at the same ity pays its chief executive relative to the aver- Summit, which aims to raise the proportion time, guided by Sir Ronald Cohen, a private- age, and so on. of young people going to college in low- equity grandee, philanthropist and chairman Mr Schmidt is now busy setting up similar income areas, recently secured $15m in of the British government's Social Investment services abroad. Last year GuideStar was growth capital to fund its ambitious expan- Taskforce. For example, Bridges Community launched in Britain, putting data online that sion plans for the following three years. Ventures, which invests in businesses in had been sitting on paper in Charities Previously, it had to raise finance for expan- deprived areas of Britain, has done well with Commission and tax-office cabinets, largely sion one project at a time, a costly, time-con- its first fund and is raising another. Charity unlooked at, says Les Hems of the Institute suming process. Bank—“the compassion of a charity and for Philanthropy, the parent organisation of According to George Overholser of Non- strength of a bank”—has been set up to pro- the British end of GuideStar. The institute was Profit Finance Fund Capital Partners, who vide banking services exclusively to charities. founded in 2000 to help foster charitable giv- helped to raise the money, this is only the Last year, the government launched the ing in Britain, not least by starting, and then first of many private placements of donor Community Interest Company, which spinning off, new organisations that solve capital for non-profits. NFF Capital helps engages in commercial activities for commu- particular problems. Britain's Treasury gave it non-profits to raise capital for the organisa- nity purposes that are not primarily driven £2.9m, topping up £1m raised from donors. tion as a whole, rather than for an individual by profit. They can pay dividends and bor- Now GuideStar is trying to secure continuing project. Mr Overholser claims to have a row, but can be sold for full value only if the public funding, as well as fees from licensing pipeline of ten charities he considers suitable money remains in the charitable sector. data to organisations such as NPC. Other ver- for similar financing. Driven by growing demand from wealthy sions of GuideStar are planned in India, clients, private banks such as Goldman Sachs, South Africa and Australia. A confusion of capital HSBC, Coutts and UBS are now scaling up Not everyone is impressed. Mr Porter, the The inadequate accounts of non-profits philanthropy advisory services way beyond Harvard strategy guru, thinks that GuideStar's have proved a big complication. In America traditional tax and inheritance advice and figures are too superficial to be much use in at least, all inflows of money are treated as asset management. A growing amount of judging, say, the performance of foundations. revenue, even if it is really investment capi- consulting advice, too, is available to philan- He helped establish the Centre for Effective tal. Yet to raise growth capital, as College thropists and those they fund. Rockefeller Philanthropy, which among other things pro- Summit has done, it is crucial to distinguish Philanthropy Advisors is probably the lead- duces donor perception reports based on between money a non-profit receives for serv- ing consultancy concentrating solely on the confidential surveys of organisations that ices rendered and money it is given to build giving side. receive money from foundations. Initially its organisation. Mr Overholser has devised a foundations were reluctant to publish the common reporting method to track how the Advise and consult reports, especially the critical ones, but that is money is being spent, to be used both by Some of the big management consultants starting to change. “Smart non-profits are donors and for internal management pur- are also expanding their non-profit business- A survey of wealth and philanthropy The Economist February 25th 2006 es. In 1999, McKinsey created a separate non- mid-sized non-profits. It now employs 75 ing social merit points,” he muses; some- profit practice specialising in three main people who typically earn 30-40% less over thing akin to the recent development of areas: global public health, foundations, and a five-year period than they would at Bain. carbon-emissions trading. international aid and development. In gener- Even so, last year it had 1,700 applications “The proliferation of market services is al, it charges half its regular fee for such work, for 18 jobs. Bain would like Bridgespan to going to be very good for philanthropy,” says though for a particularly deserving cause it spread to other countries, but there is plen- Mr Myerson of the Philanthropy Roundtable. may drop it even further or forgo it altogeth- ty left to do at home, says Mr Tierney: “We “There will be more services, more choice, er. Its clients include the Gates Foundation are serving only 10% of our demand right more information, more opportunities to and Bono's campaigning organisation, DATA now, and turning down the vast majority capture people's philanthropic imagination.” (Debt, AIDS, Trade, Africa). of approaches from serious clients.” But in the end, those who are trying to pro- Bain adopted an even more ambitious Perhaps the boldest, or craziest, idea is to duce a philanthropic version of the capital strategy. In 2000, it launched Bridgespan, a launch a social stockmarket. Mr Skoll markets must answer a billion-dollar ques- stand-alone consultancy and executive- thinks it may happen one day, though no tion: how do you measure success? The orig- search business for non-profits. Run by the one has any idea what sort of security inal sort has an incontrovertible answer: former head of Bain, Tom Tierney, might trade on the exchange. “Perhaps profits. But a philanthropic equivalent will Bridgespan aims lower than McKinsey, at there could be some sort of system involv- be nothing like as straightforward. Faith, hope and philanthropy

What the new breed of donors can do
and what it can’t

HE growing enthusiasm of the rich for social housing, it was easy to see the benefits The third thing that is needed to make Tphilanthropy, together with their determi- with your own eyes. But how do you know philanthropy better is greater accountabili- nation to see their money used to better whether Omidyar Network is achieving its ty. Democracy and plutocracy do not sit effect, has prompted talk of a new “golden goal of helping “more and more people dis- comfortably together, and even when age of philanthropy”. But much remains to cover their own power to make good things donors' money is being spent in non- be done before today's beneficent billion- happen”? Mr Davies, the co-founder of New democracies, the democratic world is likely aires can claim to follow in the footsteps of Philanthropy Capital, concedes that measure- to take a growing interest in what is being such giants of giving as Carnegie, Rockefeller ment is difficult, but insists it is not impossi- done. The new philanthropists will have to and Rowntree. ble: “Some of these things from an economic get used to public scrutiny, cynicism and The willingness of so many of the new point of view are unmeasurable, but no more even active hostility—together with a good wealthy to apply part of their fortune to so than measuring GDP in the service sector, dose of Schadenfreude if and when their “making the world a better place” is cer- which we do, though it is very hard.” schemes fail. tainly welcome. True, there are questions to The second requirement is greater trans- This should not surprise them. They are, be asked about what exactly is motivating parency. There are still far too many philan- after all, making increasing use of mass-mar- them, and whether they are doing the right thropists trying to do the same thing, often keting and public campaigns to support things to tackle society's problems. Yet phi- unaware that they are duplicating each their causes, as Bono did with his initiatives lanthropy, free of the short-term pressures other's good works. More transparency “Make Poverty History” and “One” around from voters and shareholders that con- would help to avoid wasting scarce resources last year's G8 summit, seed-financed by Mr strain governments and for-profit compa- and promote consolidation in parts of the Gates and Mr Soros. The flip side of that is nies, may be one of the best hopes for solv- sector. Failures also need to be more frankly the risk of an equally high-profile public ing problems such as the spread of AIDS, acknowledged, so that philanthropists can backlash if they do not deliver. But they poverty and climate change. learn from each other's mistakes. should persevere, not least because they are The new philanthropists rightly insist Compared with the resources of govern- far likelier to make an impact if they can get on making their money go further, because ments and businesses, philanthropic capital the public on their side. And even if some of in the past a lot of donors' cash has been is still tiny, so it needs to be used with the their projects do not come off, many will. wasted. One way of introducing more utmost care to ensure that it will make a real One way in which these new philanthro- leverage is to adapt elements of the capital difference. Yet many of the activities funded pists are already making a difference is by markets for use in this sector. Many inno- by philanthropy do not add much value and improving the running of a big chunk of vative businesses have sprung up to pro- could be funded by more risk-averse society—charities, non-profits, non-govern- vide some of the infrastructure of this new investors, such as the state. mental organisations and the social sec- philanthrocapitalism. But in the absence of That said, some of the new philanthro- tor—where amateurishness and inefficiency market forces, much giving remains less pists are doing their best to use their used to be the norm. They are introducing effective than it should be. money in innovative ways which, if suc- the best techniques from business and cessful, could then quickly be scaled up by ensuring that market forces are being given To-do list government or business. Indeed, a growing a much bigger role. This amounts to an To improve matters, the first thing that is number of them recognise that the best industrial revolution in what Rockefeller needed is better measurement of the impact way to attract the capital needed to achieve called the “business of beneficence”. It has of philanthropy. When Carnegie built scale quickly is to find potentially prof- only just started, but rich and poor alike libraries, or the Rowntrees and Cadburys built itable ways of solving problems. should hope that it succeeds.