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

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C B M R Y G K W C B M R Y G K W The Economist February 25th 2006 A survey of wealth and philanthropy 1

The business of giving Also in this section

To have, not to hold The rise of the new philanthropist. Page 3

The birth of philanthrocapitalism The leading new philanthropists see them- selves as social investors. Page 6

The good company Is corporate philanthropy worthwhile? Page 7

The rise of the social entrepreneur Whatever he may be. Page 9

Virtue’s intermediaries A host of new businesses is trying to make the philanthropic market work better. Page 12 Philanthropy is ourishing as the number of super-rich people keeps Faith, hope and philanthropy growing. But the new donors are becoming much more businesslike about the way their money is used, says Matthew Bishop What the new breed of donors can doand what it can’t. Page 14 IVING away money has never been so turning to philanthropyand of those that Gfashionable among the rich and fam- do, many continue to give in unimagina- ous. Bill Gates, today’s pre-eminent phi- tive ways, say to support an institution lanthropist, has already handed over an such as their alma mater. But the extra unprecedented $31 billion to the Bill and wealth is creating huge new opportunities. Melinda Gates Foundation, mostly to This is a historic moment in the evolution tackle the health problems of the world’s of philanthropy, says Katherine Fulton, poor. Its generosity has earned the couple co-author of a recent report on the indus- Time magazine’s nomination as 2005’s try, Looking out for the Future. If only people of the year, along with Bono, an 5-10% of the new billionaires are imagina- activist rock star. tive in their giving, they will transform phi- The next generation of technology lanthropy over the next 20 years. leaders are already embracing the same For now, it does look as though every- ethos. Pierre Omidyar, the founder of one, from Michael Bloomberg, the billion- eBay, and Je Skoll, the auction site’s rst aire mayor of New York, to hedge-fund ty- chief executive, are each putting their bil- coons and lm stars, is opening their lions to work to make the world a better wallet for a good cause. In Manhattan place. And when the founders of Google, these days, a table for ten at the best chari- Sergey Brin and Larry Page, took their com- table fund-raising dinners can cost $1m. pany public, they announced that a slice of Celebrities are increasingly putting their the search engine’s equity and prots own money into good works, as well as Acknowledgments would go to Google.org, a philanthropic playing their time-honoured role of using In addition to those mentioned in the survey, the author arm that they hope will one day eclipse their fame to raise money from others. The would like to thank, in no particular order, Emily Stonor, Google itself in overall world impact by lm star Angelina Jolie, for example, has Adam Waldman, Lynn Taliento, Alex Nicholls, Frances Cairncross, Pamela Hartigan, Jamie Drummond, Dambisa ambitiously applying innovation and sig- backed up her public advocacy of the Moyo, Jamie Cooper-Hohn, Luc Tayart de Borms, Jim nicant resources to the largest of the cause of refugees with substantial gifts to Barker, Mike Green, Caroline Hartnell, Alliance magazine, world’s problems. refugee organisations. Mark Evans, Lord Bhatia, Martina Gmur, David Giunta, Doug Bauer, Sylvia Mathews, Mark Campanale and Felicity The new enthusiasm for philanthropy The media, which used to take little no- von Peter. is in large part a consequence of the rapid tice of charitable donations, now eagerly wealth-creation of recent years, and of its rank the super-rich by their municence A list of sources can be found online uneven distribution. The world now and berate those they regard as tight-sted. www.economist.com/surveys boasts 691 billionaires, 388 of them self- The latest Business Week list, which ranks made, compared with 423 in 1996, accord- giving in the latest ve years, is topped by An audio interview with the author is at ing to Forbes magazine’s rich list for 2005. Intel’s co-founder, Gordon Moore, and his www.economist.com/audio Not all of these newly wealthy people are wife Betty, pushing Mr and Mrs Gates into1 2 A survey of wealth and philanthropy The Economist February 25th 2006

2 second place. Among America’s super- drew Carnegie, John D. Rockefeller, Joseph mir Putin, averse to concentrations of wealthy, it seems that only Warren Buett, Rowntree and William Wilberforce. This power outside his government, has the world’s second-richest man, still dedi- survey will argue that if the new genera- cracked down on non-governmental orga- cates all his energies to making more tion of philanthropists get it right, they too nisations (NGOs) and their backers. Mikh- money rather than giving away some of can make a real dierence to the world. But ail Khodorkovsky, the former boss of Yu- what he already has. But even he says it for that to happen, philanthropy will have kos, a big oil company, was reportedly will all go to charity when he dies. to shed the amateurism that still pervades Russia’s leading philanthropist before he Nor is the fashion for giving limited to much of it and become a modern, ecient, was jailed after a show trial. America, where philanthropists have long global industry. But just as the world’s wealthy and played a particularly prominent role. In For much of the past half-century, powerful are discovering the joys of giv- Europe, too, entrepreneurs who have America seemed exceptional in its enthu- ing, students of the American model of made a lot of money are starting to hand siasm for philanthropy. Claire Gaudiani, philanthropy are becoming increasingly some of it to charitable causes. Examples in her book, The Greater Good: How Phi- critical of its aws. This is not just a private include Britain’s Dame Anita Roddick, lanthropy Drives the American Economy concern for the donors: because of Amer- founder of the Body Shop, and Arpad Bus- and Can Save Capitalism, makes a dis- ica’s huge tax breaks for charitable dona- son, a colourful French hedge-fund boss. tinction between charity, which is about tions, it is a matter for public scrutiny too. India’s new wealthy, such as Azim Premji easing symptoms of distress, and philan- The cover story of a recent issue of Stan- and Nandan Nilekani, two Bangalore tech- thropy, which is about investing in solu- ford University’s Social Innovation Review nology-rm bosses, are also becoming tions to the underlying problems. The in- is entitled A Failure of Philanthropy. It keen philanthropists; and even the new vestment approach distinguishes the most argues that those American tax breaks are rich of China and Russia are catching the signicant kind of American generosity of most benet to things like elite schools, bug. Roman Abramovich, a Russian oili- from the ‘poorhouse and soup line’ concert halls and religious groups. We garch who became famous for buying method and expresses our values of free- should stop kidding ourselves that charity Chelsea Football Club, has given away dom, the individual, and entrepreneurial- and philanthropy do much to help the many millions to improve living condi- ism, she says. In practice, though, the bor- poor, says the author, Rob Reich. tions in the Kamchatka region of Russia. derline between the two is often blurred. A series of scandals at charitable foun- And so the list goes on. Over the years, many wealthy Ameri- dationsmostly over excessive pay, jobs cans have broadly followed the blueprint for family members and other extrava- The whys and wherefores laid out by Andrew Carnegie in his 1889 es- ganceshas attracted the ire of Congress, Why are they doing it? Many people are say, Wealth. The steel tycoon believed which is threatening tough new legisla- wary of rich folk bearing gifts, suspecting that growing inequality was the inescap- tion. State attorneys-general are taking a them of having hidden business or politi- able price of the wealth-creation that greater interest, too. cal motives, or feeling guilty about how made social progress possible. To prevent Mainstream charities that rely largely they have made their pile, or simply enjoy- this inequality undoing the ties of broth- on donations from the general public have ing an ego trip fuelled by generous tax erhood that bind together the rich and also come under re. The American Red breaks. But there could also be plenty of in- poor in harmonious relationship, he ar- Cross was exposed for diverting money nocent and admirable reasons why the gued that the wealthy had a duty to devote raised for the families of victims of the rich have become so much more open- their fortunes to philanthropy. Not to do so September 11th 2001 terrorist attacks to handed. Never mind the motives: the im- was the worst sort of personal failure: The other purposes. And after the Asian tsu- portant thing is to ensure that this largesse man who dies thus rich dies disgraced. nami and Hurricane Katrina, two fund- is put to good use. As a result, a far higher proportion of raising former presidents, Bill Clinton and Done well, philanthropy can have a hospitals, libraries, universities and wel- George Bush senior, found themselves hugely benecial eectwitness the fare services in America is funded by priv- having to reassure the public that they achievements of past giants such as An- ate donations than in other rich countries, would monitor how the money was used. where governments are spending propor- One of the many things exposed by the tionately more yet are still struggling to collapse of Enron was that corporate phi- It’s a gift 1 meet growing public expectations. Still, lanthropy is often pretty sleazy too. A Philanthropic giving* as % of GDP, 1995-2002 the dierences can be exaggerated. Amer- rm’s executives can ingratiate themselves 0 0.5 1.0 1.5 2.0 ica’s basic health research is largely funded with business partners, and even with by the government, whereas in Britain their own board members, by supporting United States much of it is paid for by the Wellcome their pet causes with funds from the com- Canada Trust, a charitable foundation based in pany’s charitable foundation, without Britain London, albeit set up by an American. breaking the law. Netherlands Britain’s government has recently been Sweden trying to foster the philanthropic spirit, Wasting a fortune France and other European countries are starting But the problem lies far deeper. Founda- to follow suit. Even in China, the govern- tion scandals tend to be about pay and Japan ment seems keen to build up a non-prot perks, but the real scandal is how much Germany sector that caters to social needs, and ap- money is pissed away on activities that Italy pears to be relaxing some of its rules to al- have no impact. Billions are wasted on in- *Cash and other material gifts low philanthropy to play a bigger role. The eective philanthropy, says Michael Por- Source: Johns Hopkins Comparative Nonprofit Sector Project exception is Russia, where President Vladi- ter, a management guru at the Harvard1 The Economist February 25th 2006 A survey of wealth and philanthropy 3

2 Business School. Philanthropy is decades But not everyone is convinced that phi- lanthropy Partners, one of America’s lead- behind business in applying rigorous lanthropists must become more business- ing venture philanthropists. thinking to the use of money. Mr Porter minded. We must reject the ideawell-in- One obvious risk is of a political reac- believes that the world of giving can be tentioned, but dead wrongthat the prim- tion against the philanthropic rich. The transformed by learning from the world of ary path to greatness in the social sectors is new philanthropists are not just into business. Many of the leaders of the new to become ‘more like a business’, wrote spending money. According to Greg Dees generation of philanthropists agree with Jim Collins, a bestselling management au- of Duke University, today’s philanthropy him, so there is a big opportunity over the thor, in a recent monograph, Good to is best dened as mobilising and deploy- next 20 years to gure out how to make Great and the Social Sectors. His reason is ing private resources, including money, philanthropy eective. disarmingly simple: Most businesses are time, social capital and expertise, to im- Many of the new philanthropists are mediocre. prove the world in which we live. well aware that traditional philanthropy is Still, even Mr Collins agrees that the Peggy Rockefeller Dulany, who runs not suciently businesslike. They want to way in which money passes from philan- the Global Philanthropists Circle, makes a bring about a productivity revolution in thropists to the organisations that put it to similar point. With wealth comes educa- the industry by applying the best elements work leaves much to be desired. Here there tion, decision-making power, links to of the for-prot business world they is some reason for hope. In recent years, a elites in other countries and enormous know. That has prompted the industry to host of new rms and institutions have convening power, she says. We are help- adopt (and adapt) some of the jargon fa- been created that, with luck and good ing philanthropists to make use of all these miliar from the world of business. Philan- management, will provide the infrastruc- advantages. It is using money and connec- thropists now talk about social invest- ture and intermediaries of a philanthropic tionswhether personal, family or busi- ing, venture philanthropy, social capital market, an ecient way for philan- nessto create public benet. entrepreneurship and the triple bottom thropists to get their money to those so- A global elite, seeking to change the line. The new approach to philanthropy cial entrepreneurs and others who need world by combining lots of money with is strategic, market-conscious, know- it. These newcomers include management new ideas, cutting-edge business tech- ledge-based and often high-engage- consultants, research rms and a philan- niques, media and marketing savvy, the ment, and always involves maximising thropic investment bank of sorts. mobilisation of citizens and helpful politi- the leverage of the donor’s money. Plenty can still go wrong. There is no cal connections: all this is bound to set Leverage is particularly important to market discipline to force philanthropists alarm bells ringing in some quarters even the new philanthropists. They know that to adopt innovations, however desirable. as it spreads hope in others. Already however large their personal fortunes, And the new philanthropists, along with George Soros, a famous hedge-fund phi- they are dwarfed by the nancial resources the innovators who are trying to help them lanthropist, has become embroiled in con- at the disposal of governments and in the become more ecient, may nd the going troversy over the role of some of the orga- for-prot marketplace. So to make a real harder than expected. The new rich have nisations he funds in various former dierence, they need to concentrate their often made their money very fast, and get communist countries as well as in Amer- resources on problems that are not being intoxicated with their own brilliance into ica itself. And last year Bob Geldof, Bono’s dealt with by governments or for-prot thinking they can quickly achieve results philanthropist partner in rock activism, organisations. Being constrained by nei- in the non-prot sector. They forget that provoked demonstrations in Uganda ther voters nor shareholders, they can take their success may have been due to luck, when he suggested that the country’s pres- risks to nd pioneering new solutions that and that the non-prot sector may be far ident should not stand for re-election. Phi- can then be adopted on a larger scale by more complex than where they have come lanthropy seems sure to become an governments or for-prot rms. from, says Mario Morino of Venture Phi- increasingly hot political potato. 7 To have, not to hold

The rise of the new philanthropist

ILL GATES is much the most generous Mr Gates is given much of the credit for one reason why Mr Gregorianwho is a B philanthropist since records began. the rise in giving among today’s super- mentor to many of the new philanthro- The $31 billion he has donated so far is al- rich. He seems to have discovered his gen- pists around the worldis no fan of the se- ready many times the $6 billion (in 2005 erous streak relatively recently: in 1998, cretive approach to giving. I like people to dollars) given away by a previous giant of The Economist was still criticising him for be public about their philanthropy; it American philanthropy, John D. Rockefel- sitting on his fortune. But since then Bill makes it more competitive if we can see ler. And Microsoft’s founder is only just Gates has made philanthropy the norm who is doing what. getting started. By the end of his life, he in- among the super-rich of the world, says In order to give money away, you rst tends to have handed over most of the rest Vartan Gregorian, who runs the charitable have to have it. The past two decades have of his fortuneput at $46.5 billion in Forbes foundation set up by Carnegie. Giving is seen vast global wealth-creation, but the magazine’s latest rich listto the Bill and now what you are expected to do. winner-takes-all aspect of many of to- Melinda Gates Foundation. The power of Mr Gates’s example is day’s fastest-growing markets, and the1 4 A survey of wealth and philanthropy The Economist February 25th 2006

2 sharp reductions in top marginal income- tax rates and prot and capital taxes al- most everywhere, have caused a rapid in- crease in inequality between the very rich and the rest. The number of billionaires is growing fast, and not just in America: of the 691 billionaires listed by Forbes, 350 live outside America, with Lakshmi Mittal, an Anglo-Indian steel tycoon, coming third overall. According to the latest an- nual survey by Cap Gemini and Merrill Lynch, the number of families with over $30m in investable assets has also risen Mr Gates, eBay’s Messrs Omidyar and Although in many countries the poor rapidly, to 77,500, as has that of million- Skoll and the newest billionaires on the give away a higher proportion of their total aires (dened as people with investable as- block, Google’s Messrs Page and Brin. Like- income than do the rich, it is the wealthy sets of at least $1m, not including their wise, in the nancial industry newly su- who dominate charitable giving. In Amer- main home), now 8.3m worldwide against per-rich hedge-fund stars are following in ica, for instance, families with a net worth 7m in 1997. the philanthropic footsteps of Mr Soros. of $1m or more accounted for 4.9% of the In the technology industry, there are Performance-based donations to charity total number of all donations to charitable now several generations of newly wealthy are now sometimes built into a hedge organisations in 1997, but as much as 42% people who are actively givingthe Hew- fund’s structure. For example, one-third of of the value, according to a study by Paul lett and Packard families, Intel’s Mr Moore, all the fees earned by the Children’s Invest- Schervish of Boston College. The con- ment Fund, one of Europe’s leading hedge centration in bequests is also striking: es- funds, goes to a foundation that helps chil- tates worth $20m or more made up 0.4% of Generosity writ large 2 dren in the developing world. their total number but 58% of their value. America’s top 20 philanthropists In Europe, following in America’s foot- In most countries, total giving has been Amount, steps, the gradual emergence of an equity rising slowly, although the outpouring of Background $bn* culture has generated serious wealth for public sympathy after a series of natural Gordon & Intel co-founder 7.05 owners selling their business in an initial disasters made 2005 a bumper year for do- Betty Moore public oering. A fair amount of this nations. Surveys show that in many coun- Bill & Melinda Microsoft 5.46 money is going into charitable founda- tries the public’s trust in charitable orga- Gates co-founder tions. In Germany, for instance, their num- nisations is falling, and there are growing Warren Buffett Berkshire Hathaway 2.62† CEO ber has increased from 4,000 in 1997 to worries that donations will not be put to over 13,000 now. Germany’s best-known George Soros Investor 2.37 good use. charitable foundation, Bertelsmann, According to an annual survey, Giving Eli & Edythe SunAmerica, KB 1.48 Broad Home founder which is now mentoring some of these USA, total charitable giving in America in James & Virginia American Century 1.21 newcomers, says that half the founders are 2004 rose by 5% to a record $249 billion, Stowers founder actively involved in their foundations, over 2% of GDP. That was more than in any Walton family Family of Wal-Mart 1.10 which for many have become a second ca- other big country, both in absolute terms founder reer. In America, the number of private and as a proportion of GDP. And even if Alfred Mann Medical devices 0.99 charitable foundations has soared from you ignore donations to religious congre- Michael & Dell founder 0.93 about 22,000 in the early 1980s to over gations and add in the value of volunteer- Susan Dell 65,000 today, according to the Centre on ing, America is still a global leader in giv- George Kaiser Oil & gas, banking, 0.62 Philanthropy at Indiana University. ing. A study led by Lester Salamon of real estate In India, where traditional charitable Johns Hopkins University of charitable John Templeton Investor 0.56 giving within communities has dwindled giving in 36 countries, excluding donations Ruth Lilly Eli Lilly heiress 0.56 because of urbanisation, those newly en- to religious congregations, showed that in Michael Bloomberg founder, 0.53 riched by the country’s technology boom the seven years to 2002 such giving in de- Bloomberg NYC mayor are starting to ll the void. The wealthy veloped countries ranged from around Veronica Atkins Widow of 0.50 GDP Robert Atkins bosses of Infosys, Wipro and Dr Reddy are 1.85% of in America to 0.11% in Italy. becoming big philanthropists, joining Mr Salamon also notes that measured Jeff Skoll Founding president 0.49 of eBay more established Indian business philan- against state spending on welfare, chari- Ted Turner CNN founder 0.46 thropists such as the Tata, Birla and Bajas table spending is tiny everywhere. In Kirk Kerkorian Investor 0.45 families. America, such welfare spending equals In Latin America and Asia, whoever 18% of GDP; in Britain, 28%. This shows just Donald Bren Real estate 0.45 has got wealthyhas now got an agenda how hard it will be for the new philanthro- Pierre & Pam EBay chairman, 0.43 UBS Omidyar founder to give, says Martin Liechti of , a Swiss pists to ensure that their money makes a Patrick & Lore IDG founder 0.37 bank. He points out that a generational real impact, especially in rich countries. Harp McGovern shift is under way from the old wealthy, According to an adviser to a leading

*Given or pledged during 2001-05 who tended to practise traditional charity, Swiss private bank, around one-quarter of †Includes a $2.5bn bequest by his deceased wife Susan Buffett to the new wealthy, who are open to more its super-rich clients are already commit- Source: Business Week entrepreneurial approaches. ted to philanthropy. A further 40% are ac-1 The Economist February 25th 2006 A survey of wealth and philanthropy 5

hierarchy of needs, and suggests that now- Good examples can help to stimulate A fashion for giving 3 adays more people are getting to the stage largesse. In Britain, the Beacon Prize, Total giving* in the US, $bn Maslow described as the highest need, launched in 2003 to celebrate philanthro- 2004 prices for a purpose beyond ourselves. They pists, was an attempt to reverse a long stag- 250 want to make a dierenceit used to hap- nation in giving. There are signs that, pen in their 60s and 70s, now it is in their slowly, British culture may be changing. 200 30s and 40s. There is a mood now in Britain that there 150 Faced with the world’s many and ur- are niches that the government doesn’t ll, gent problems, a lot of wealthy people are and that if you have talent, money and 100 asking themselves: if I can help, why not? time you should get into these gaps. Thirty Mr Gates read a World Bank World De- years ago, a businessman would have 50 velopment Report and realised he could do said, ‘I pay my taxes, the government 0 something to improve public health in the should do it’, says Mr Handy, the manage- 1964 70 75 80 85 90 95 2000 04 world’s poorest countries. That made it ment guru. It is getting like Americaif *By individuals, bequests, foundations and corporations seem absurd to leave his philanthropy un- you are wealthy, you want to be on the giv- Sources: Giving USA Foundation; The Foundation Centre til old age, as he had previously intended. ing list as well as the rich list. A lot of giving is stimulated by personal In continental Europe, a tradition of 2 tively thinking about it, and another 15% experience. Wealthy people often want to giving anonymously (not least to avoid the are just starting to put it on their agenda. show gratitude for something that helped taxman’s attention) has meant there is less What motivates them? them succeed, such as a school or a sup- peer pressure to give, and few role models Religion has always played a big part in portive community. Similarly, they may for would-be new philanthropists. To help giving (Christians, Jews, Muslims and want to support a life-saving hospital or change that, Ise Bosch, a member of the Sikhs all traditionally aim to give away a play a part in nding a cure for a disease family behind the eponymous electronics set proportion of their income). In Amer- that has aicted someone close to them, company, is now writing a how-to book ica, religious giving accounts for a stagger- or help a poor country they have visited. on philanthropy. She has also formed a ing 62% of total donations, according to In- Indeed, newly wealthy Americans often network called Pecunia for wealthy Ger- diana University’s Centre on Philanthropy give to causes abroad, says Mary Duke of man women interested in giving. Panel Study, and donations to religious HSBC, a bank. Promoting education and causes outweigh those to non-religious ghting disease and poverty in Africa are Transcendental meditation ones in every income group. In Europe, re- now high priorities. The Middle East too is Many baby-boomers, with their children ligious giving is generally lower. In Britain, rising up the agenda, in hopes of improv- through college, their houses paid for and a recent study by the Charities Aid Foun- ing America’s battered image in much of plenty of money tucked away for retire- dation, a non-prot body, found that faith- the region. So-called diaspora philan- ment, are now beginning to think about based organisations accounted for 10% of thropywhere people from, say, Mexico their legacy, which often involves philan- the 500 largest charities’ income. Among or India who have prospered abroad, send thropy. In an age where everything is up the super-rich of the Muslim world, the Is- gifts homeis also increasingly popular. for sale, transcendence can be bought lamic prohibition of things such as alco- Many rich people feel that they have through philanthropic giving, argued a hol, pork, gambling and conventional - been fortunate and want to give some- working paper, Strategic Legacy Creation: nancial services has opened up a role for thing back. But eBay’s founder, Mr Omi- Toward a Novel Private Banking Proposi- philanthropy: those whose portfolios in- dyar, dislikes the phrase. The classic busi- tion, published by the University of St clude such activities can purify them by ness executive reaches his late 40s and Gallen, Switzerland, in 2004. While a giving the resulting prots away. says I want to give back. But what does that bank cannot make people literally immor- The rich are trying to gure out a moral mean he has been doing? Taking away? tal, it cancreate legacies for its clients that biography of wealth, and philanthropy What a sorry way to think about your ca- satisfy their need for transcendence, ac-1 can provide part of the purpose side of liv- reer, he says. It is hard to tell whether ing the good life, even if you are not reli- some of the new wealthy feel guilty, but gious, reckons Mr Schervish. Becoming certainly many of them think, like Carne- International benefactors 4 very rich can rob you of your old ambi- gie, that philanthropy is part of a social The largest foundations in America and Europe tions and give you a need for new ones. contract: both a duty and an insurance pol- Assets, $bn* Why did Sir Tom Hunter, a Scottish retail icy against populist redistribution. Bill & Melinda Gates Foundation (US) 28.80 entrepreneur, become a philanthropist? Social norms and peer pressure clearly The Wellcome Trust (Britain) 18.82 Aged 37, I got a massive cheque. I had play a part. The fund-raising events in Lon- The Ford Foundation (US) 10.69 achieved all my goals at that time. So I don laid on by Mr Busson for his charitable J. Paul Getty Trust (US) 9.64 started to think, what shall I do now? foundation, Absolute Return for Kids There is a search for a narrative, about (ARK), seem to be prising open the wallets The Robert Wood Johnson Foundation (US) 8.98 making a dierence with your life, which of many people in hedge funds who Lilly Endowment (US) 8.59 is vaguely religious and gives you a buzz, would not have contributed otherwise. Fondazione Cariplo (Italy) 8.27 says Charles Handy, a management guru And not everybody’s motives are lofty: Ms Fondazione Monte dei Paschi di Siena (Italy) 7.13 who is putting the nishing touches to a Fulton, the co-author of a new report on W.K. Kellogg Foundation (US) 6.80 book about philanthropy in Britain, Be- philanthropy, argues that a lot of philan- The William & Flora Hewlett Foundation (US) 6.49 yond Success: The New Philanthropists. thropy is motivated by pleasureego grati- *Financial years ending 2004 Mr Handy points to Abraham Maslow’s cation and reputation enhancement. Sources: The Foundation Centre; foundation reports 6 A survey of wealth and philanthropy The Economist February 25th 2006

2 cording to the author, Maximilian Martin, break and then continue to live in it until now a philanthropy adviser at UBS. his death, when the remaining value of the Certainly, people tend to become more asset goes to the designated charity. generous as they grow richer, both in life One of the strongest trends in Ameri- and in death. Mr Schervish points out that can philanthropy in recent years has been between 1992 and 1997 the value of nal the rapid growth of donor-advised funds, estates in America rose by 65%, but chari- oered by money management compa- table bequests went up by 110%. For the nies such as Fidelity, whose fund is now largest estates, the shift was even greater. America’s fth-biggest charity. These One possible explanation is the growing funds allow individuals to commit them- concern of wealthy parents that if they selves to a donation and claim their tax de- leave too much to their kids, they will give duction, but defer nominating a bene- them a nasty dose of auenza, also ciary and actually paying out the money known as trust-fund baby syndrome. A until a later date. This has led Congress to lot of people say they are not going to pass suspect foul playthough not by Fidelity, on much of their wealth to their kids, for which has a decent average pay-out rate of fear of spoiling them, says Joe Toce of 25% of donated money each year. HSBC. But as they get older, and grand- Would scrapping inheritance tax, as children come along, they often end up taxpayers to deduct their donations from President George Bush wants to do, hit passing on a lot to their descendants. their taxable income. charitable giving in America by removing Nevertheless, when the baby-boom In Britain, too, the tax system has be- one of the main penalties for not giving? generation dies, vast amounts of money come much more philanthropy-friendly. Judging by how vigorously charities have will be passed on, and a large chunk of that Other parts of Europe are following been lobbying against the move, they seems destined for philanthropic pur- slowly. The European Foundation Centre clearly fear that they would lose out. But posesnot least because involving chil- is lobbying for better tax treatment John Whitehead, a former boss of Gold- dren and grandchildren in the running of a throughout the European Union. A par- man Sachs and now the eminence grise of foundation is increasingly seen as a way to ticular concern is the harsh tax regime that New York philanthropy, believes that even give them a sense of purpose and to pass some countries apply to giving abroad. if giving carried fewer tax advantages, it on family values. The recent tax reforms in Britain have would not fall by as much as people fear, not changed the tendency to give out of in- for most of it is from the heart, not the Self-interest come rather than assets, in sharp contrast pocketbook. A secondary motive may be the desire to to the Americans, says Les Hems of the In- At any rate, many people reckon that take advantage of the many tax incentives stitute for Philanthropy in London. There philanthropists’ motives are beside the and other xes that can make a wealthy is currently no British version of America’s point. As Mr Gregorian of the Carnegie person look virtuous at an appealingly popular charitable remainder trusta Corporation says, Why they give is not low cost. America has the most generous device that allows a donor, say, to give important; the act of giving, and how eec- treatment of charitable giving, allowing away his house, claim an immediate tax tively they give, is what matters. 7 The birth of philanthrocapitalism

The leading new philanthropists see themselves as social investors

ELATIVE to the corporate environ- three things are needed for such a philan- allocating their money to make the great- Rment, we are in the 1870s. But phi- thropic marketplace to work. est possible dierence to society’s pro- lanthropy will increasingly come to resem- First, there must be something for phi- blems: in other words, to maximise their ble the capitalist economy, predicts Uday lanthropists to invest insomething social return. Some might operate as rel- Khemka, a young Indian philanthropist that, ideally, will be created by social en- atively hands-o, diversied social inves- and a director of the SUN Group invest- trepreneurs, just as in the for-prot world tors and some as hands-on, engaged ment company owned by his family. Like entrepreneurs create companies that end venture philanthropists, the counter- many of the new generation of philan- up traded on the stockmarket. parts of mainstream venture capitalists. thropists, he has big but well-dened am- Second, the market requires an infra- All this may sound ne in theory. How- bitions. I want to help develop the infra- structure, the philanthropic equivalent of ever, the history of philanthropy suggests structure of philanthropy, he says. stockmarkets, investment banks, research that there are many potential pitfalls. The need for philanthropy to become houses, management consultants and so America’s early charitable foundations more like the for-prot capital markets is a on. This is what Mr Khemka wants to con- were built by entrepreneurs. Carnegie and common theme among the new philan- centrate on. Rockefeller would have understood the thropists, especially those who have made Third, philanthropists themselves need new investment-oriented model. Having their fortune in nance. As they see it, to behave more like investors. That means seen their own economic activity trans-1 The Economist February 25th 2006 A survey of wealth and philanthropy 7

Is corporate philanthropy The good company worthwhile?

ORPORATE giving has long had a the eponymous computer-maker and tion, Messrs Porter and Kramer note that C reputation as the sleaziest corner of Jean-Pierre Garnier of GlaxoSmithKline. Nestlé, for example, now invests a lot in philanthropy. Although usually nomi- All of them arguesome more convinc- what it calls milk-production systems nally independent of the companies ingly than othersthat their philanthropy in developing countries, realising that a whose names they take, corporate foun- is good for shareholders, at least in the decent infrastructure is needed to ensure dations in practice are often treated as a long run. Mr Benio argues that giving a reliable supply. sort of slush fund into which the chief ex- his sta time to volunteer in the commu- The dominant trend in corporate phi- ecutive can dip to help a pet cause, en- nity improves his company’s ability to re- lanthropy is to do giving that reinforces a hance his status in the community or cruit top talent. rm’s core strategy, argues Trevor Neil- even cement a business relationship with Corporate philanthropy is also be- son of the Global Business Coalition on a donation to a cause close to a business coming more important in developing HIV/AIDS. Thanks to shareholder pres- partner’s heart. Corporate philanthropy countries, where rms may feel the need sure, increasingly the only acceptable phi- has been coming under greater scrutiny to support local communities by contrib- lanthropy is the sort that enhances since the collapse of Enron, because uting through their foundations to health prots. Mr Neilson is a keen advocate of many people believed that donations to care, education and so on. In an article in cause-related government relations, various Enron board members’ good a new book, The Accountable Corpora- which means that a rm will help a gov- causes may have made them less willing ernment to deal with a social problem in to hold the rm’s top executives to ac- the hope of getting favourable treatment count. Companies are now having to in the future. For example, 26 companies work harder to justify their philanthropy so far have made commitments to help on strategic grounds. the Chinese government with its AIDS The best justication, and perhaps the strategy, which Mr Neilson says will al- only intellectually rigorous one, is that low them to form a valuable relationship philanthropy is in the enlightened long- with the government. Perhaps. term interest of shareholders. This is a key Some of the new philanthropists be- argument in a new book, Compassion- lieve that they are doing good simply by ate Capitalists: How the Leading CEOs are running their business. Thus, Mr Omi- Doing Well by Doing Good, by Marc Be- dyar argues that eBay does its bit by em- nio, the boss of salesforce.com. The powering people and promoting trust book contains two dozen articles by cap- between strangers. Most importantly, it is tains of industry, including Alan Hassen- creating wealth to be shared around. feld of Hasbro, Jerey Swartz of Timber- After all, without wealth-creation there land, Steve Case of AOL, Michael Dell of would be no chance of philanthropy.

2 form the world, they thought that the Agenda: Creating Value, published in the formation about what they do, and are foundations they left behind would be Harvard Business Review in 1999, Michael particularly secretive about their failures. transformative organisations, says Carl Porter and Mark Kramer described wide- As a result, says Mr Fleischman, founda- Schramm, head of the Ewing Marion spread aws in America’s foundations tions keep reinventing the wheel. Kauman Foundation. Those foundations that mostly remain to this day. For in- As for foundation governance, it is a did remarkable things. Set up as conduits stance, little eort is devoted to measuring nightmare, says Robert Monks, a veteran for making grants as well as running the results, and foundations have unjusti- campaigner for better corporate gover- programmes that would benet from the ably high administration costs. nance: Perpetual existence, no need to money, they thought big, concentrated on Michael Bailin, head of the Edna conform to competitive standards, it is all clear goals and were willing to invest McConnell Clark Foundation, has de- too much for human nature. Hence the pa- heavily for long periods to achieve them, scribed the typical foundation as auto- latial oces, fancy conferences and says Mr Schramm. The Rockefeller Foun- cratic, ineective and wilful, elitist, clois- increasingly lavish pay for the professional dation, for example, found a cure for yel- tered, arrogant and pampered. There are philanthrocrats. low fever and drove the green revolution chronic problems in the way foundations Arguably the biggest problem is the in agriculture. Carnegie, among other operate, says Joel Fleischman, former way that foundations make grants to orga- things, built thousands of public libraries. head of the unusually impressive Atlantic nisations they support. Whereas Carnegie Yet this long-term investment ethos has Philanthropies, who is writing a book on was willing to invest for the long term, proved to be the exception, not the rule. In the successes and failures of foundations. more recently foundations have tended to a landmark article, Philanthropy’s New He says that most of them provide little in- chop and change, says Mr Fleischman. Me-1 8 A survey of wealth and philanthropy The Economist February 25th 2006

2 lissa Berman of Rockefeller Philanthropy Advisors argues that there is too much em- phasis on funding individual programmes and too little on the sustainability of the non-prot organisation running the pro- gramme. Overheads are seen as a bad thing, and grants tend to be short-term. Should the new generation of philan- thropists try something dierent from the traditional foundation? Ebay’s Mr Omi- dyar thinks so. He has folded his Omidyar Foundation into Omidyar Network, which is free to make for-prot investments as well as philanthropic donations to pursue helped by its huge size, which allows it to like with their money, so they can play a its mission of individual self-empower- do things that are beyond everyone else. useful role as providers of start-up risk cap- ment. After a few years trying to be a tra- Its clear mission is to tackle global health ital for government services. ditional philanthropist, I asked myself, if inequalities in six main areas: infectious Networks, too, are an increasingly pop- you are doing good, trying to make the disease, HIV/AIDS, tuberculosis, reproduc- ular way of leveraging money and experi- world a better place, why limit yourself to tive health, global health strategies and ence. Peggy Rockefeller Dulany’s Global non-prot? he explains. Although there is global health technologies. Philanthropists Circle brings together a separate chequebook for the foundation, about 50 super-rich families from 20 coun- his investment team is free to put his Leverage is all tries to exchange ideas and experiences, money in either for-prot or non-prot Crucially, it has found ways of using its mainly with a view to nding solutions to projects. The team’s main criterion is money to the greatest eect. Mr Gates’s big international poverty and inequality. Of- whether the investment will further the idea is to overcome the market failure af- ten this will involve the use of connections social mission. icting poor consumers of health care by and inuence as well as money. Similarly, the Google Foundation is deploying his money on behalf of the However, there is still a lack of global part of Google.org, which can mix for-pro- poor to generate the supply of drugs and giving consortiums that take on single is- t and non-prot investments. However, treatments they need. For instance, the sues, says Mr Khemka. He hopes to bring unlike Omidyar Network, Google.org is an money provides market incentives for together philanthropists from around the arm of Google, so this is corporate philan- drug companies to put some of their re- world who want to tackle climate change. thropywhich raises a further series of dif- sources to work for the needy. Some foundations are now exploring cult questions (see box, previous page). The Gates Foundation also favours new ways of funding organisations. Mr Sa- In principle, large foundations should partnerships, even though it is big enough lamon of Johns Hopkins University thinks be the most eective vehicle for philan- to pursue many projects on its own. Again, that they should start to behave more like thropy, argue Messrs Porter and Kramer. it is looking for maximum eectiveness. philanthropic banks, oering a range of - Not only are they free from both political Other philanthropists are following simi- nancial products such as loans and loan and commercial pressures, they also em- lar strategies. For instance, Britain’s Dame guarantees as well as grants. ploy professional sta that smaller outts Stephanie Shirley wanted to fund research Some philanthropists are also begin- would not be able to aord. But the sta of- into an autism gene, the total cost of which ning to think about how best to harness all ten become the biggest problem, espe- she reckoned would be £1 billion ($1.7 bil- their assets to the causes they support, cially in foundations whose founder has lion). She stumped up £50m herself and is rather than just concentrating on the long been dead. raising similar sums from other donors money they are currently giving away. The new philanthropists are mostly around the world. Another hot idea at This point was brought home recently to young enough to be able to keep an eye on the moment, championed by the X-Prize Je Skoll, one of whose philanthropic mis- their foundations for many years to come. Foundation, is to donate large cash prizes sions is to make lms with a social mes- Nonetheless, says Mr Fleischman, they that will generate lots of further spending sage. His latest lm is based on the book might consider setting a closing date for from those competing to win them. Fast-Food Nationyet he had not their foundation. For instance, the John M. Mr Omidyar recently donated $100m checked his investment portfolio to see if Olin Foundation, a big source of nance to Tufts University to invest protably in he owned shares in food companies such for conservative organisations, recently providers of micronance to the poor. He as McDonald’s that are attacked in the lm. shut itself down. As John Miller recounts hopes to attract private capital to turn what Over the past year or so, many of the in his new book, A Gift of Freedom, Olin has largely been a subsidised business into super-rich have started to ask themselves had stipulated that all of his legacy should a protable one, operating on a far bigger what exactly their assets are doing, says be spent within a generation of his death, a scale than today. D.K. Matai, an Indian-born software entre- sunset model that kept it nimble, unbu- Other new philanthropists are piloting preneur who runs the Philanthropia Trin- reaucratic and true to its founder’s ideas. new models for welfare provision that, ity, another international network of phi- The new philanthropists also need to once they have proved themselves, can be lanthropists. What is the point of earning be clear what they want to do, and stick taken up by governments and made avail- a high return in China if my money is help- with it. That is one lesson from the Gates able much more widely. Governments ing to build Dickensian working condi- Foundation, which has already notched tend to be risk-averse, whereas philanthro- tions? If I have $5 billion, and am giving $4 up some remarkable achievements pists are free to take whatever risks they billion away, do I really want a 17% return1 The Economist February 25th 2006 A survey of wealth and philanthropy 9

2 on activities that are wrecking the world? Grassley is proposing a ve-yearly review more art than scienceparticularly when To deal with that problem, the investment of foundations’ charitable status and a for- it comes to the fuzzier goals of some phi- industry will need to improve on the strat- mal government ratication regime. But lanthropists, such as empowering peo- egies and products it currently oers for Mr Meyerson thinks it would be far better ple, increasing the eectiveness of civil ethical or socially responsible invest- for the government properly to enforce the society or ghting climate change. ment, which often amount to little more laws that are already in place. Measures involving the so-called dou- than avoiding shares in, say, tobacco, arms Better regulation is on the agenda in ble bottom line (nancial plus social per- manufacturing or oil. Britain, too, where charity is still governed formance) or triple bottom line (nancial, The phrase most often used to describe by an act passed in 1601. The governance social and environmental) are readily sus- the new approach to giving is venture of charities and non-prots is generally ceptible to statistical manipulation. So are philanthropy. This was rst used in the poor, says Geraldine Peacock of Britain’s popular concepts such as changed lifea 1960s by one of the Rockefellers, but is still Charity Commission, which under new combination of the number of people af- practised relatively rarely. Perhaps the best legislation due to take eect this year will fected by an initiative and the extent to example is a rm called Venture Philan- become much more independent of gov- which it improves their lives. thropy Partners. Run by Mario Morino, ernment. Like Senator Grassley, Ms Pea- One danger is to pay too much atten- who made his fortune in software, it spe- cock thinks that a charity should be li- tion to managing inputs, which are easier cialises in mid-sized non-prot organisa- censed for a limited timesay ve to measure than output. Another is to con- tions in the Washington, DC, area that yearsand then have to reapply. centrate donations on those activities that work well enough, but lack the capital and Encouragingly, many of the older foun- can be easily measured, such as the num- talent to expand. With a $30m fund raised dations themselves are becoming more ber of vaccinations given, even where that through a community foundation, Mr Mo- concerned about eectiveness, and have may not be the most eective way of tack- rino behaves much like a venture capital- started demanding more information on ling a problem. ist. He is working intensively with 12 non- how the money they provide is spent, says Donors also need to strike the right bal- prot organisations, helping them to de- Mr Fleischman. The recent transformation ance, so that on one hand they ask for velop a business plan for growth and to of the Edna McConnell Clark Foundation enough information to be able to monitor recruit managers and board members. shows that an inecient old organisation the eectiveness of the organisations they can turn itself into a cutting-edge opera- fund but on the other they do not bog them Old dogs, new tricks tion. It used to hand out grants in the tradi- down in form-lling bureaucracy. The New foundations may be learning from tional manner for a wide range of good Gates Foundation has a good reputation the mistakes of the old ones; but what can causes. But in the late 1990s, a new head, for getting the mix right and tailoring it to be done to reform established foundations Mr Bailin, decided to concentrate its activi- individual circumstances. that are underperforming? With Amer- ties in a single eld, youth development. The risk with any metric is that people ica’s Congress showing increased interest Working closely with its chosen organisa- will come to see it as a description of real- in foundations, Senator Charles Grassley tions, notably Harlem Children’s Zone, it ity, rather than a tool for a conversation has proposed tough new laws. His reforms has helped them become more eective about that reality, says Rowena Young of would dramatically transform the rela- and serve many more people. the Skoll Foundation. One metric or an- tionship between the federal government The biggest question of all is how to other can function well only when manag- and foundations, says Adam Meyerson measure the performance of a philan- ers know why they are measuring and for of the Philanthropy Roundtable, an indus- thropic organisation. A huge amount of whomIn the world of social value-cre- try body. Among other things, Senator work is going on in this eld, but it is still ation, context is king. 7 The rise of the social entrepreneur

Whatever he may be

BS, a Swiss private bank that counts crossroads between capital and ideasso of help. Héctor Castillo Berthier, who runs Umany of the world’s richest people why not bring the people with capital to- an innovative project for troubled Mexi- among its clients, is conducting an interest- gether with the people who have ideas? can teenagers, came third in last year’s ing experiment in Brazil, Mexico and Ar- The social entrepreneurs that are short- Mexican prize, but still got a crucial dona- gentina. It has formed an alliance with listed must have been working success- tion and free use of oce space. Ashoka, a global organisation that identi- fully with Ashoka for at least three years. Ashoka is not alone in bringing social es and invests in leading social entrepre- Winning the prize is not really the point. entrepreneurs together with the wealthy neurs. The alliance is oering a new prize Simply being selected to be in the room and powerful. Social entrepreneurs now for social entrepreneurship, which UBS’s with a bunch of wealthy people gives the rub shoulders with the world’s business Martin Liechti admits is an excuse to bring social entrepreneurs great credibility with and political elite at the World Economic together two groups of people who might potential donors, and even runners-up Forum in Davos, under the auspices of a otherwise never meet. As the biggest have a good chance of coming away with a sister organisation to WEF, the Schwab wealth manager in the region, we are at the new nancial backer or some other form Foundation for Social Entrepreneurship.1 10 A survey of wealth and philanthropy The Economist February 25th 2006

low philanthropist from eBay, Mr Skoll, Shining examples 5 thinks social entrepreneurship has some- Leading social entrepreneurs thing going for it. The mission of his Organisation Nationality Background eponymous foundation is to advance sys- temic change to benet communities Jeroo Billimoria ChildLine India Foundation India Children’s rights around the world by investing in, connect- Somsook Boonyabancha Community Development Institution Thailand Land rights ing and celebrating social entrepreneurs. Peter Eigen Transparency International Germany Anti-corruption Among other things, Mr Skoll has en- Oded Grajew Instituto Ethos Brazil Citizen sector dowed the Skoll Centre for Social Entrepre- David Green Project Impact United States Public health neurship at Oxford University’s Saïd Busi- Alice Tepper Marlin Social Accountability International United States Labour ness School. This is part of a growing trend Pearl Nwashili StopAIDS Organisation Nigeria Public health for academic institutions, including nowa- Fabio Rosa IDEAAS Brazil Renewable energy days most business schools, to take the Orri Vigfusson North Atlantic Salmon Fund Iceland Environment phenomenon seriously. Harvard Business School started teaching a course on social Muhammad Yunus Grameen Bank Bangladesh Microfinance enterprise 12 years ago. Source: Ashoka Mr Schramm worries that some of these courses are more likely to turn stu- 2 This year, the people selected included way to go. In 2004, Bill Bradley, a former dents against capitalism. But Mr White- Rory Stear, founder of Freeplay, a com- presidential hopeful for the Democrats, head, a former Goldman Sachs boss who pany dedicated to the spread of cheap, sus- and two McKinsey consultants claimed in is the driving force behind the HBS course, tainable energy for all; Jim Fruchterman of an article in the Harvard Business Review sees it as part of a trend among the elite in the Benetech Initiative, a non-prot orga- that, in America alone, there was a $100 many countries who increasingly want to nisation that makes technology available billion opportunity for the non-prot sec- make not just money but a dierence. to disadvantaged communities; and Victo- tor to improve its eciency through better The money may not be as good as in busi- ria Hale, founder of OneWorld Health, management. But is social entrepreneur- ness, but a bright young person can have which works with the Gates Foundation ship the best way to achieve that? more of an impact on any non-prot in his (among others) to make low-cost drugs There is no easy answer, not least be- rst ve years than on Goldman Sachs, available in poor countries. cause nobody is sure what exactly the term which is full of bright young people. In means. In a book charting the rise of social their rst year they could make ten sugges- Waiting for a productivity miracle entrepreneurship, How to Change the tions that would improve the non-prot Ashoka was founded in 1980 by Bill Dray- World: Social Entrepreneurs and the operation because they have been trained ton, a former McKinsey consultant, who Power of New Ideas, David Bornstein in practical business ways of thinking. expects the rise of social entrepreneurship notes that most discussion of social entre- to generate huge benets. He says it is now preneurship tends to revolve around how People like you and me helping to bring about a productivity mir- business and management skills can be Certainly the number of business-school acle in what he calls the citizen half of the applied to achieve social ends. He him- graduates going into the non-prot sector world (education, welfare and so on), a self sees social entrepreneurs as transfor- has increased. That appeals to the new phi- sector that for three centuries has lagged mative forces: people with new ideas to lanthropists, who want to see people like behind the business half of the world, address major problems who are relent- themselves in charge of the non-prot where productivity has soared and vast less in the pursuit of their visions. The late organisations they support. But these new amounts of wealth have been created management guru Peter Drucker, typically professionals may achieve as much by us- thanks to its competitive, entrepreneurial quick to spot the trend, dened social en- ing the latest management techniques to culture. The emergence of more social en- trepreneurs as people who raise the per- improve the performance of existing non- trepreneurs, and their improved access to formance capacity of society. prot organisations than by creating new growth capital as they get better connected Mr Schramm of the Kauman Founda- ones through social entrepreneurship. to philanthropists, is creating enormous tion, which promotes a better understand- Mr Collins, the management guru, says productivity opportunities for the citizen ing of entrepreneurship, says that being an getting the right people is arguably even sector, argues Mr Drayton. entrepreneur means being a risk- more important in the non-prot world The citizen sector is dened somewhat taker, but a high risk of failure may be the than it is in business, because it is often loosely, but is largely made up of govern- last thing that many non-prots need. harder for non-prots to get rid of employ- ment plus the non-prot sector. Both gov- And, surely, every entrepreneur is a social ees once they are on the bus. Business ernment and non-prots have tradition- entrepreneur, says Mr Schramm. A suc- leaders can re people more easily and can ally been run ineciently. The product- cessful entrepreneurcreates wealth spend money on buying talent. But some ivity miracle detected by Mr Drayton is and without wealth there is no surplus social entrepreneurs have found their own due both to a shift from government provi- capital to turn over to charitable activity. ways of securing top talent. Wendy Kopp, sion to more ecient private provision (by Mr Omidyar, too, is uncomfortable who in 1989 founded Teach for Americaa both for-prot and non-prot organisa- with the label, which he feels implies a dis- non-prot organisation that gets graduates tions) and by an increase in the eciency approval of prots that he does not share. from top universities to spend the rst two of the non-prot sector. I think of myself as an entrepreneur, and I years of their careers teaching children The improvement in non-prot orga- have a social view, but I don’t call myself a from low-income familiesmade it clear nisations’ eciency may still have some social entrepreneur, he says. But his fel- from the start that only the best would do.1 The Economist February 25th 2006 A survey of wealth and philanthropy 11

2 By last year, over 97,000 people had ap- But the main problem for many non- of consolidation. There are about 40 plied to work for her organisation, but only prot organisations is how to get bigger. homelessness projects in London; only 14,000 had been accepted. Ms Kopp’s abil- One of the problems is that well-run non- eight are any good, he says. ity to pick and choose boosted her credibil- prots don’t necessarily grow, says Nigel There is also a role to be played by phi- ity with her philanthropic backers and en- Morris, the co-founder of Capital One, a lanthropists in encouraging non-prots to abled her to raise more money. credit-card company. True, growth isn’t develop other sources of nance, to reduce A growing number of non-prots now everything. Indeed, Mr Collins worries their dependence on the goodwill of do- have state-of-the-art marketing depart- that non-prots will put scale before genu- nors. Providing fee-generating services is ments. Indeed, it can sometimes seem that ine eectiveness: One of the markers of one strategy. Doing work for the govern- the marketing has become more impor- mediocre companies is that they become ment is another. Many non-prots have tant than the mission. One technique is to obsessed with scale and growth, he says. long generated revenues in this way. use charity muggers on commission to But donors need to decide if they simply Philanthropists can even encourage collar people in the street and get them to want to buy services from a non-prot, or non-prots to move towards becoming sign a standing order. For a while this was whether they want to invest in helping the for-prots, able to stand entirely on their used in Britain by Oxfam, but the develop- organisation grow. If growth is important own feet. This is what Mr Omidyar hopes ment charity now thinks that raising to them, they need to become a lot less to achieve with his $100m donation to money this way does not pay. Far better to squeamish about overheads. Tufts University to invest protably in mi- tap into the public’s concern about where cronance. But the idea may face a lot of its charitable donations are going, as Ox- The virtue of overheads cultural resistance. How do you get the fam has done with its hugely successful In the business sector, people are very citizen sector to change its attitudes so that Christmas gift catalogue, oering gifts comfortable with the idea of investing in it allows institutions to have incomes that such as sponsoring a goat in an African vil- an organisation, and the need to build up are at least equal to outgoings? asks Ash- lage for £24 or providing safe water for its infrastructure. In the social sector, the oka’s Mr Drayton. 1,000 people for £720. The public want to tendency is to invest only in a programme; He is now trying to promote for-prot be transactional, to have a more direct rela- there is very little investment in building partnerships between big companies and tionship with where their money is go- organisations, says Mr Collins. Yet often, community groups in some of the most ing, says Barbara Stocking, Oxfam’s boss. in yielding to public pressure to keep impoverished parts of the world. Work- Many non-prot organisations have down overheads, non-prots sacrice ef- ing with both sides, we map a new value- been wary of working with big donors be- ciency for virtue, says Carnegie’s Mr added chain, ranging from product design cause their money can come with too Gregorian. to production to distribution to servicing; many strings attached. But that is starting There is no merger-and-acquisition that delivers a far better service to the ulti- to change. Oxfam now wants to raise more market in the non-prot world. And for all mate customer faster, better and more eco- money from the sort of wealthy philan- sorts of reasons, there are far too many nomically. Ending centuries of non-com- thropists it has not targeted in the pastif non-prots. Philanthropists could help by munication brings so much value that only because in Britain there haven’t been encouraging consolidation, says John both business and citizen groups emerge many of them, says Ms Stocking. I’m not Studzinski, co-head of HSBC’s investment as huge winners as well, he says. sure we have been asking for enough bank and an active philanthropist. In For example, community groups in money, she muses. homelessness work, I’m a great advocate Mexico’s slums now work with Cemex, a huge cement rm, to create a market for its cement among the slum dwellers, greatly reducing the cost of adding extra rooms to their dwellings, providing funds for the non-prot groups and turning a (still small) prot for Cemex. The social entre- preneurs running the community group have the trust of the locals without which the big company would never be able to enter the market, says Mr Drayton. Other similar hybrid value-added chains that combine business and social purposes are being developed between groups of for- est-dwellers and forestry rms, and small farmers and irrigation companies. Meanwhile, Ashoka hopes that its rela- tionship with UBS will ourish, and that prizes will soon be awarded across Latin America and Asia. But as well as highlight- ing the growing role of social entrepre- neurs, this experiment also points to an- other new trend: a more active role for intermediaries in the emerging philan- thropic capital market. 7 12 A survey of wealth and philanthropy The Economist February 25th 2006

Virtue’s intermediaries

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

EGEND has it that New Philanthropy able a successful operation to grow fast. fee it oers detailed analysis of the data LCapital (NPC) was founded in the Gold- The biggest constraint on our growth such as which organisations do what in a man Sachs canteen in London in 2001. has been the ability to recruit top talent, particular area, how much a charity pays After Goldman went public, Gavyn Da- says Mr Davies. Only a few people are its chief executive relative to the average, vies, then its chief economist, and another willing to come out of a career in banking and so on. top banker, Peter Wheeler, had pocketed to do this. An analyst at NPC can expect to Mr Schmidt is now busy setting up sim- enough money to enable them to do some earn £22,000-48,000 ($38,000-84,000), a ilar services abroad. Last year GuideStar serious giving. But when they tried to pin small fraction of what they would make at was launched in Britain, putting data on- down the best place for their money to Goldman. line that had been sitting on paper in Char- create maximum impact, We found there In any marketplace, knowledge is ities Commission and tax-oce cabinets, wasn’t enough information produced in a power. NPC is attracting interest in Amer- largely unlooked at, says Les Hems of the hard-headed, independent, high-quality ica, which currently has no direct equiva- Institute for Philanthropy, the parent orga- way, made available to all, recalls Mr Da- lent. The big foundations, in particular, do nisation of the British end of GuideStar. vies. So they decided to create NPC as the lots of research, but they tend to keep it to The institute was founded in 2000 to help equivalent of an equity-research rm for themselves. The nearest counterpart to foster charitable giving in Britain, not least the philanthropic marketplace. NPC in America is Geneva Global (GG), by starting, and then spinning o, new It had the added attraction of providing but it covers only giving opportunities out- organisations that solve particular pro- leverage, the holy grail of the new givers. side America. GG’s 140 employees work blems. Britain’s Treasury gave it £2.9m, top- We wanted our own charitable dona- with a network of over 500 voluntary as- ping up £1m raised from donors. Now tions to be the foundation of a much bigger sociates in over 100 countries. It mostly GuideStar is trying to secure continuing edice. This was an investment designed concentrates on small projects, which it public funding, as well as fees from licens- to have a levered eect on other people’s thinks have a greater impact. ing data to organisations such as NPC. giving, says Mr Davies. We wanted to in- Other versions of GuideStar are planned crease giving by enabling donors to be Famous brands in India, South Africa and Australia. more condent that they were having an In philanthropy, the stu that will deliver Not everyone is impressed. Mr Porter, impact on people’s lives. most often gets least, says GG’s boss, Eric the Harvard strategy guru, thinks that For now, the research eort, headed by Thurman. Brands count for a lot in the GuideStar’s gures are too supercial to be Martin Brookes, a former senior economist world of giving, and many people like to much use in judging, say, the performance at Goldman Sachs, is conned to the char- give to familiar organisations. For instance, of foundations. He helped establish the ity sector in Britain. NPC is not providing the Red Cross, despite heavy criticism of its Centre for Eective Philanthropy, which ratings at present, but the equivalent of handling of donations after September among other things produces donor per- buy recommendations through sector 11th 2001, collected almost 70% of the ception reports based on condential sur- reports such as Grey Matters, Growing money given for relief work after Hurri- veys of organisations that receive money Older in Deprived Areas. In preparing cane Katrina wrecked New Orleans. from foundations. Initially foundations these reports, NPC asks the charities seek- GG challenges the big charities by nd- were reluctant to publish the reports, espe- ing funds four simple questions: What is it ing a small, local group that is doing some- cially the critical ones, but that is starting to you do? Why? What is success? And what thing well and is ready to scale up its oper- change. Smart non-prots are realising is evidence of success? The rm also does ations. It sends potential donors a monthly that they can do well by being more trans- some secondary research, such as summa- catalogue with a choice of evaluated pro- parent, and talking about their successes rising and translating academic work and jects, and later provides feedback on what and failures, says Tony Knerr, a philan- making it more widely available. their money has achieved. We want to be thropy consultant. When you come into this world from known for making a direct connection be- The social sectors do not have rational Goldman, you realise how screwed up it is tween the money you raise and lives capital markets to channel resources to as a market, says Mr Brookes. We are try- changed, says Mr Thurman. those who deliver the best results, says ing to x the plumbing. They are not For more comprehensive information Mr Collins. According to a recent article in alone. Eorts are under way to develop about who is doing what in the philan- Stanford’s Social Innovation Review, in philanthropic versions of most of the thropic world, there is GuideStar. Nick- America raising $100 can eat up anything main sectors of the capitalist marketplace: named the Bloomberg screen of philan- from $22 to $43. In Britain, the average cost social-investment banking, social-invest- thropy, it was founded in America in 1994 of nance to charities is around 25%, ment management, private banking, con- by Buzz Schmidt and makes available on- which is very high relative to other indus- sulting, data services and research. line, free of charge, the tax-return data led tries, notes NPC’s Mr Brookes. Though currently the organisations pro- by 1.5m charitable organisations, together The traditional grant-making process is viding these services are relatively small, with additional information. It has more a large part of the problem. Donors would there appears to be enough demand to en- than 400,000 registered users, and for a generally rather fund a project than invest1 The Economist February 25th 2006 A survey of wealth and philanthropy 13

2 in building an organisation. If a charity has now scaling up philanthropy advisory ser- money in the bank, they will ask why they vices way beyond traditional tax and in- should provide any more, and what ex- heritance advice and asset management. A actly their donation will be used for. growing amount of consulting advice, too, Not everybody is so short-sighted. For is available to philanthropists and those example, the Ford Foundation is encourag- they fund. Rockefeller Family Advisors is ing the greater use of debt and debt-like in- probably the leading consultancy con- struments because there is a growing centrating solely on the giving side. number of income-generating activities, and donors want to help borrowers to get a Advise and consult credit rating so they can go to the commer- Some of the big management consultants cial market, says Susan Berresford, the are also expanding their non-prot busi- foundation’s boss. nesses. In 1999, McKinsey created a sepa- In Britain, Venturesome has been ar- rate non-prot practice specialising in ranging unsecured loans for charities, typi- three main areas: global public health, cally bridging nance for those waiting to foundations, and international aid and de- be paid a promised grant. And in America velopment. In general, it charges half its College Summit, which aims to raise the regular fee for such work, though for a par- proportion of young people going to col- ticularly deserving cause it may drop it lege in low-income areas, recently secured even further or forgo it altogether. Its cli- $15m in growth capital to fund its ambi- Something similar may be under way in ents include the Gates Foundation and tious expansion plans for the following the philanthropic world, ranging from in- Bono’s campaigning organisation, DATA three years. Previously, it had to raise - vestments that pay a decent return on (Debt, AIDS, Trade, Africa). nance for expansion one project at a time, money put to worthy uses to structures Bain adopted an even more ambitious a costly, time-consuming process. that allow donors to give their money strategy. In 2000, it launched Bridgespan, The man responsible for the capital in- away more eectively. In America, Goo- a stand-alone consultancy and executive- jection, George Overholser of Non-Prot gle.org has just invested $5m in the Acu- search business for non-prots. Run by the Finance Fund Capital Partners, reckons men Fund, which channels donors’ former head of Bain, Tom Tierney, Bridge- this is only the rst of many private place- money to a portfolio of entrepreneurial span aims lower than McKinsey, at mid- ments of donor capital for non-prots. NFF poverty-ghting organisations. sized non-prots. It now employs 75 peo- Capital helps non-prots to raise capital In Britain, NPC and the Charities Aid ple who typically earn 30-40% less over a for the organisation as a whole, rather than Foundation recently launched a couple of ve-year period than they would at Bain. for an individual project. Mr Overholser funds that will allocate money to a portfo- Even so, last year it had 1,700 applications claims to have a pipeline of ten charities he lio of charities, monitor its impact and for 18 jobs. Bain would like Bridgespan to considers suitable for similar nancing. keep the donors informed about progress. spread to other countries, but there is The rst two funds concentrate on chari- plenty left to do at home, says Mr Tierney: A confusion of capital ties in particular sectors, as their names We are serving only 10% of our demand The inadequate accounts of non-prots suggest: the Engaging Young Lives Fund right now, and turning down the vast ma- have proved a big complication. In Amer- and the Fullling Older Lives Fund. jority of approaches from serious clients. ica at least, all inows of money are treated A host of new tax-favoured opportuni- Perhaps the boldest, or craziest, idea is as revenue, even if it is really investment ties have been coming on stream at the to launch a social stockmarket. Mr Skoll capital. Yet to raise growth capital, as Col- same time, guided by Sir Ronald Cohen, a thinks it may happen one day, though no lege Summit has done, it is crucial to distin- private-equity grandee, philanthropist one has any idea what sort of security guish between money a non-prot re- and chairman of the British government’s might trade on the exchange. Perhaps ceives for services rendered and money it Social Investment Taskforce. For example, there could be some sort of system involv- is given to build its organisation. Mr Over- Bridges Community Ventures, which in- ing social merit points, he muses; some- holser has devised a common reporting vests in businesses in deprived areas of thing akin to the recent development of method to track how the money is being Britain, has done well with its rst fund carbon-emissions trading. spent, to be used both by donors and for and is raising another. Charity Bankthe The proliferation of market services is internal management purposes. This will compassion of a charity and strength of a going to be very good for philanthropy, introduce concepts from the for-prot bankhas been set up to provide banking says Mr Myerson of the Philanthropy world, such as burn rate (the rate at services exclusively to charities. Last year, Roundtable. There will be more services, which capital is being used), giving all con- the government launched the Community more choice, more information, more cerned a better idea of how well the ex- Interest Company, which engages in com- opportunities to capture people’s philan- pansion is going. Now non-prots can mercial activities for community purposes thropic imagination. But in the end, those work backwards from their expected long- that are not primarily driven by prot. who are trying to produce a philanthropic term sustainable sources of nance to They can pay dividends and borrow, but version of the capital markets must an- work out their current need for capital, and can be sold for full value only if the money swer a billion-dollar question: how do you how to structure it, says Mr Overholser. remains in the charitable sector. measure success? The original sort has an In the capital markets, there has been a Driven by growing demand from incontrovertible answer: prots. But a phil- proliferation of investment opportunities, wealthy clients, private banks such as anthropic equivalent will be nothing like from mutual funds to complex derivatives. Goldman Sachs, HSBC, Coutts and UBS are as straightforward. 7 14 A survey of wealth and philanthropy The Economist February 25th 2006

Faith, hope and philanthropy

What the new breed of donors can doand what it can’t

HE growing enthusiasm of the rich for philanthropists trying to do the same done. The new philanthropists will have Tphilanthropy, together with their thing, often unaware that they are dupli- to get used to public scrutiny, cynicism determination to see their money used to cating each other’s good works. More and even active hostilitytogether with a better eect, has prompted talk of a new transparency would help to avoid wasting good dose of Schadenfreude if and when golden age of philanthropy. But much scarce resources and promote consolida- their schemes fail. remains to be done before today’s bene- tion in parts of the sector. Failures also This should not surprise them. They cent billionaires can claim to follow in the need to be more frankly acknowledged, so are, after all, making increasing use of footsteps of such giants of giving as Carne- that philanthropists can learn from each mass-marketing and public campaigns to gie, Rockefeller and Rowntree. other’s mistakes. support their causes, as Bono did with his The willingness of so many of the new Compared with the resources of gov- initiatives Make Poverty History and wealthy to apply part of their fortune to ernments and businesses, philanthropic One around last year’s G8 summit, seed- making the world a better place is cer- capital is still tiny, so it needs to be used nanced by Mr Gates and Mr Soros. The tainly welcome. True, there are questions with the utmost care to ensure that it will ip side of that is the risk of an equally to be asked about what exactly is motivat- make a real dierence. Yet many of the ac- high-prole public backlash if they do not ing them, and whether they are doing the tivities funded by philanthropy do not add deliver. But they should persevere, not right things to tackle society’s problems. much value and could be funded by more least because they are far likelier to make Yet philanthropy, free of the short-term risk-averse investors, such as the state. an impact if they can get the public on their pressures from voters and shareholders That said, some of the new philanthro- side. And even if some of their projects do that constrain governments and for-prot pists are doing their best to use their not come o, many will. companies, may be one of the best hopes money in innovative ways which, if suc- One way in which these new philan- for solving problems such as the spread of cessful, could then quickly be scaled up by thropists are already making a dierence is AIDS, poverty and climate change. government or business. Indeed, a grow- by improving the running of a big chunk The new philanthropists rightly insist ing number of them recognise that the best of societycharities, non-prots, non-gov- on making their money go further, be- way to attract the capital needed to ernmental organisations and the social cause in the past a lot of donors’ cash has achieve scale quickly is to nd potentially sectorwhere amateurishness and ine- been wasted. One way of introducing protable ways of solving problems. ciency used to be the norm. They are intro- more leverage is to adapt elements of the The third thing that is needed to make ducing the best techniques from business capital markets for use in this sector. Many philanthropy better is greater accountabil- and ensuring that market forces are being innovative businesses have sprung up to ity. Democracy and plutocracy do not sit given a much bigger role. This amounts to provide some of the infrastructure of this comfortably together, and even when do- an industrial revolution in what Rockefel- new philanthrocapitalism. But in the ab- nors’ money is being spent in non-democ- ler called the business of benecence. It sence of market forces, much giving re- racies, the democratic world is likely to has only just started, but rich and poor mains less eective than it should be. take a growing interest in what is being alike should hope that it succeeds. 7

To-do list Future surveys To improve matters, the rst thing that is Oer to readers Reprints of this survey are available at a price of needed is better measurement of the im- £2.50 plus postage and packing. Countries and regions pact of philanthropy. When Carnegie built A minimum order of ve copies is required. Chicago March 18th libraries, or the Rowntrees and Cadburys China March 25th built social housing, it was easy to see the Corporate oer South Africa April 8th benets with your own eyes. But how do Customisation options on corporate orders of 500 Poland May 6th you know whether Omidyar Network is or more are available. Please contact us to discuss Business, nance and economics and ideas achieving its goal of helping more and your requirements. New media April 22nd more people discover their own power to Send all orders to: International banking May 20th make good things happen? Mr Davies, The Rights and Syndication Department Business in India June 3rd the co-founder of New Philanthropy Capi- 26 Red Lion Square Logistics June 17th tal, concedes that measurement is dicult, London WC1r 4HQ but insists it is not impossible: Some of Tel +44 (0)20 7576 8000 these things from an economic point of Fax +44 (0)20 7576 8492 view are unmeasurable, but no more so e-mail: [email protected] than measuring GDP in the service sector, Previous surveys and a list of forthcoming which we do, though it is very hard. surveys can be found online The second requirement is greater www.economist.com/surveys transparency. There are still far too many