A blog by Grant Montgomery, co-founder of Family Care Foundation, a 501c3 that provides emergency services and sustained development for communities, families and children on 5 continents. Articles and commentary on Philanthropy, Global Aid and Development.
The billionaire co-founder of Alibaba.com has set up charitable trusts ahead of the company’s highly anticipated IPO, a move that could mark the start of a new era of Chinese philanthropy.
Alibaba co-founder Jack Ma, along with current CEO Joe Tsai, said Friday that they have established two trusts funded by share options worth about 2% of the company. The philanthropic effort will initially benefit environmental, medical, education and cultural causes in China, according to a statement.
Ma said he established the trusts because “concern and complaints cannot change the current situation. … We must assume responsibility and take action to improve the environment that our children will inherit,” he said.
The establishment of the trusts makes Ma one of China’s first billionaires to set up a major philanthropic endeavor, and puts him in the ranks other successful executives who have pledged large portions of the fortunes to charity. Three of those — Michael Bloomberg, Bill Gates and Warren Buffett — praised Ma’s decision.
When it comes to philanthropy, Gen X and Gen Y/Millennial donors are keenly interested in personal values, measurable impact, and hands-on engagement, a new report from the Johnson Center for Philanthropyat Grand Valley State University and 21/64, a nonprofit consulting practice specializing in next-gen and multi-generational strategic philanthropy, finds.
Based on a national online survey of and interviews with young philanthropists, the report, Next Gen Donors: Respecting Legacy, Revolutionizing Philanthropy found that a relatively small group of Gen Xers (born between 1964 and 1980) and Gen Y/Millennials (born between 1981 and 2000) will inherit more than $40 trillion over the coming decades. And while they are not necessarily more charitably inclined than their parents or grandparents, the sheer volume of funds, foundations, and other types of giving by high-net-worth families is expanding to unprecedented levels, putting them in a position to wield more philanthropic power than any previous generation in American history.
The report also found that next-gen donors seem to be driven by values rather than “valuables”; that they see philanthropic “strategy” as the major distinguishing factor between themselves and previous generations and intend to change how philanthropic decisions and due diligence are conducted; that they want to develop close, hands-on relationships with the organizations or causes they support; and that, as engaged as they already are, they are still figuring out what kind of donors they want to be.
The report highlights the “practical wisdom” and insights of next-gen donors with respect to their hunger for engagement, new ways of learning, and making a difference sooner rather than later.
Congress passed the American Taxpayer Relief Act of 2012 (H.R. 8) in a deal to avert the fiscal cliff. The following provides pieces of the bill relevant to the philanthropic sector.
The charitable deduction will continue to be coupled with an individual’s or household’s corresponding tax rate. In other words, there is no cap on charitable deductions.
The tax rate will be increased to 39.6 percent for individuals making more than $400,000 a year and households making more than $450,000. The previous rate for those earners was 35 percent.
The estate tax will have a $10 million exemption for couples, $5 million for individuals, and a top tax rate of 40 percent.
The bill extends the IRA charitable rollover through December 31, 2013. This provision permits tax-free distributions to an eligible charity from an IRA held by someone age 70½ or older of up to $100,000 per taxpayer, per taxable year.
The provision includes two transition rules to allow donors to make 2012 contributions. First, the extension allows individuals who received an IRA distribution in December 2012 to elect to count that distribution (or a portion thereof) as a 2012 IRA charitable rollover if the individual transfers the amount in cash before February 1, 2013, to an eligible charity. Additionally, the extension allows donors to make distributions directly to eligible charities before February 1, 2013, and elect to have such distributions treated as qualified charitable distributions in 2012. This change may be of particular benefit to donors who would like to take advantage of the rollover in both 2012 and 2013.
In 2013, itemized deductions for higher income taxpayers will be reduced by the lesser of (1) 3 percent of the amount by which the taxpayer’s income exceeds $250,000 for individual filers, $275,000 for heads of households, or $300,000 for married couples filing jointly (these amounts are adjusted annually for inflation) or
(2) 80 percent of the value of the taxpayer’s itemized deductions. This reduction of itemized deductions is referred to as the Pease Limitation.
With the explosion of private enterprise in many parts of the world, there are more wealthy people looking for ways to give back to their communities. Business leaders in areas like Eastern Europe, the former Soviet Union, and China are exploring ways to contribute to society.
Some may wonder where business and philanthropy intersect. I believe that a healthy public sector is absolutely essential to a capitalist economy. When more money is invested in areas such as education and public welfare, it generally strengthens the environment in which businesses operate. This can result in a virtuous cycle where a better business environment leads to better profits that can lead to increased philanthropy.
What really excites me is how business has informed the philanthropic sector. Historically, corporate philanthropy was little more than a one-time gift of money that met an immediate need, often totally unrelated to a company’s mission. Today, however, there is a new area—strategic philanthropy—involving corporations that find ways to link their philanthropy to their business strategy. Companies increasingly are finding synergies between these two areas so that both profit and philanthropic efforts are under the same strategic umbrella.
Many large corporations have embraced strategic philanthropy. Networking technology giant Cisco offers free technology courses and certifications that are taught using Cisco equipment. American Express provides travel agent training online, free of charge. Dannon sells its Danone Dahi, a nutrient-enriched yogurt tailored to the health needs of many of India’s impoverished children, at a low cost.
These philanthropic efforts help society, but they also result in profit for the company. By creating a financial return to the company they can then reinvest these funds to create a sustainable philanthropic effort. There is an old Chinese proverb that says: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Strategic philanthropy is the modern equivalent of teaching someone to fish.
–Excerpts of an article by Philip L. Cochran, associate dean Indiana University Kelley School of Business
Excerpts of an opinion on the question “Are charities more effective than Government?”, by John Briscoe, professor of environmental engineering at Harvard University, and a former World Bank official:
The priorities of charities are appropriately set by those who finance and manage those charities. But it seldom stops there. [Apart from non-governmental organizations that focus on health and education,] governments typically and necessarily see things like jobs as overwhelming priorities and sectors like infrastructure as critical for creating jobs and reducing poverty. I know of not a single nongovernmental organization that focuses on job creation, the provision of electricity at scale, or transport.
As a senior official in the World Bank I saw this dynamic at work every day. NGOs would lobby their governments for more attention to health, education and the environment. Rich country governments would then use their position on the board of the World Bank to push for these priorities.
Over the last 20 years this has led to a profound distortion in the priorities of the bank, with the social sectors becoming dominant and, for a long time, infrastructure lending – the original mandate of the Bank – falling to less than 10 percent of total lending.
An interesting evolution over the last decade has been the rise of countries like China, India and Brazil that give high priority to things like infrastructure, and as their weight in the global system has increased, this has led to somewhat of a rebalancing of priorities at an institution like the World Bank, but, more important a rebalancing in options for developing countries.
These countries, having recently emerged from poverty, know that it is not by putting the social cart before the economic horse that development and poverty reduction happen. They have little patience for the pleas of philanthropists rich and poor to deny poor countries the option of following the only known road to poverty reduction.
An opinion on the question “Are charities more effective than Government?”, by Leslie Lenkowsky, professor of public affairs and philanthropic studies at Indiana University:
The idea that charity can take the place of government spending is absurd on its face. The U.S. federal government alone spends far more than the $300 billion Americans donated to nonprofit groups last year. Moreover, much of that giving goes for purposes that would be low on any government’s priority list.
But that is exactly why philanthropy is valuable and deserves encouragement through tax and other public policies.
The basic debates in any type of government are always over what is in the public’s interest. But another way is by allowing each of us to give money or time – often collaborating with others — to try out what we think will address particular aspects of the public interest. That is the domain of philanthropy. It is especially important for people with ideas that may be unpopular, innovative, or directed at a minority of the population.
Those with more money and time can, of course, have more influence in philanthropy. But they can have more influence in politics as well. And in philanthropy, because its focus is on the particular, not the general, a little giving can go a long way. You don’t have to be rich to be a successful donor.
Philanthropy, in short, is an expression of pluralism. Its goals differ from those of politics and the standards applicable to government actions, such as fairness, do not fit what it does.
Most of us feel generous in December, the top month for charitable donations, reports the Atlas of Giving. But regardless of when you give, you want to make sure that the funds are actually used to do real good.
A 2012 study from the Chronicle of Philanthropy reports that the median amount American households donate to charity each year is $2,564. That’s a nice chunk of change, but not if you’re divvying it up among dozens of organizations.
“For every gift, there are fixed costs associated with stewarding and tracking it,” adds Patrick Rooney, director of the Center on Philanthropy at Indiana University. “So the smaller the gift, the larger the percentage that goes to transaction and administrative costs.”
Jason Franklin, who teaches nonprofit management and philanthropy at New York University and is executive director of Bolder Giving, a nonprofit focused on helping Americans give more effectively, suggests using the 50/20/30 rule: Half your giving should be focused on one charity — the gift you’ll spend the most time thinking about.
Then set aside 20% for small impulse gifts and the final 30% for institutions you support on a regular basis, like your alma mater or your church.
The phrase ‘philanthropy in Africa’ has often tended to conjure up two quite diverse images. On the one hand, there are the well‑intentioned multi‑million dollar budgets of large (often international) foundations. On the other, the well‑established cultures and practice of small grassroots‑contributions and systems of social solidarity at the community level – the significance of which has never really been tapped by the formal development sector.
Across the continent, however, a new generation of local philanthropic institutions is emerging, some seeded with money from outside the continent, others entirely home‑grown – and all seeking to draw on local resources and tap into different forms of wealth, which include cash but also include other, less tangible, forms of social capital such as trust and credibility. These organizations seek to occupy the spaces between large, formal philanthropy and more local level mobilization of communities and their assets, and to build bridges between the two. At the same time they also promote a form of development which is community‑led and community‑owned.
Although the first self‑described ‘community foundations’ may only have been established in Africa in the late 1990s, the idea was not falling on fallow turf but rather offered a more formalized framework for naturally occurring traditions of giving and sharing. Those traditions are well encapsulated in the African philosophy of Ubuntu, defined by Liberian peace activist, Leymah Gbowee, as ‘I am what I am because of who we all are.’ The idea of Ubuntu means that you are known for your generosity. Instead of thinking of ourselves as individuals, separated from one another, we are connected and what anyone does affects the whole world. Generosity spreads outwards in a ripple that benefits the whole of humanity.
Africa is a continent rich with traditions of solidarity and reciprocity. In Kenya, for example, the practice of harambee as a form of local fundraising to cover the costs of funerals, weddings and school fees, was well‑established and drew heavily on a local culture of giving which had a social as well as a financial aspect.6 And in Southern Africa, ilima (coming together to help those without) was a mechanism for the sharing of communal labor for harvesting and house‑building.
A recent report by Jenny Hodgson and Barry Knight, “Mapping a Baseline of African Community Foundations” focuses on this group of institutions. They include community foundations, other types of community philanthropy institutions and local foundations – all operating throughout the African continent.
Forbes Insights and Credit Suisse conducted a study of some of the world’s wealthiest to gain deeper insight into their motivations, strategies and financial philosophies. The research shed light on the total lifecycle of philanthropy — from the moment an individual first decides to use his or her fortune to do good to the legacy he or she plans to leave behind — and the spirit of giving they hope will live on in their descendants.
Those who participated in the study bring the same tenacious, pragmatic approach to giving away their wealth as they brought to amassing it in the first place. This makes sense; when you get right down to it, business and giving are not really all that different. Both require a results-driven approach, a strong strategic vision, the ability to surround oneself with the right team for the job and the understanding that the biggest risks most often result in the biggest rewards. Fifty-three percent found applying their business experience to their philanthropy an effective and successful approach to giving – a sentiment that only increases with wealth.
More of the wealthy respondents partner with businesses (40%) for their philanthropic endeavors than with government agencies (22%) or other non-profits (28%). Eight in 10 of the wealthiest preferred to give to early- or growth-stage endeavors, rather than the more established organizations. Why allow yourself to get snagged in the stickiness of so much red tape when you can use other channels to move more quickly?
But what surprised us most in our Forbes Insights study was not just the scope and scale of the wealth they plan to disburse, but how quickly they plan to do so.
And more than half – 54% — of respondents to the study planned to leave more than a quarter of their assets to charity. Close to half of those with more than $20 million in investable assets plan to leave half or more of their wealth to charity; nearly 1 in 5 of those with over $50 million in investable assets plan to give it all away. A massive level of giving, to be sure – but those with the greatest amounts to give planned to give it away the fastest.
It’s not often – well ever, really – that 150 of the world’s 400 wealthiest billionaires gather in one place at one time, particularly to talk about how they plan to give all those billions away. But that’s just what philanthropists Bill and Melinda Gates, Warren Buffett, Jacqueline Novogratz, Leon Black and Steve Case – and their peers – gathered together to do this past June.
Forbes Insights, together with Credit Suisse, used this unprecedented gathering to better understand how the world’s wealthiest approach giving back. What we found surprised us: yes, legacy is important, but not as important as making an impact as quickly as possible. And billions of dollars can make a tremendous impact — it can truly change the world.
More than half of Summit attendees who participated in the poll said that they expected to see a meaningful return on their philanthropic investment within 10 years, while four in 10 were prepared for an impact that stretched beyond their lifetime.
And they were risk takers, applying the same aggressive approaches in their charitable endeavors that they used in their business activities. Two-thirds invested in either early- or growth-stage philanthropic endeavors, rather than the old tried-and-true established charities with long track records.
In short: they were looking to make their mark, take risks, and solve the world’s most intractable problems – the huge knots that no one had yet been able to untangle.