The Art & Science of Successful...
Transcript of The Art & Science of Successful...
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The Art & Science of Successful Giving
Nicholas TedescoSenior Philanthropic AdvisorThe Philanthropy Centre415-315-8923
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Agenda
• An Overview of Giving Trends
• A Roadmap for Successful Giving
• Developing a Family Giving Strategy
• Case Studies: Innovative Models
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Charity (from caritas: generous love)The voluntary giving of help, typically in the form of money, to support the direct relief of suffering and social problems.
Philanthropy (from philanthrōpía: love for mankind)A pattern of behavior that demonstrates a compassion for one's fellow man by identifying andaddressing society's problems and their root causes.
What are the primary differences between philanthropy and charity?
Defining philanthropy
Source: Next Gen Donors, 21/64, 2013; National Philanthropic Trust, http://www.nptrust.org/history-of-giving/philanthropic-quotes/; Shineman Foundation http://www.shinemanfoundation.org/part-3-philanthropy-vs-charity-whats-difference
Wealth is not new. Neither is charity. But the idea of using private
wealth imaginatively, constructively, and systematically to attack the fundamental
problems of mankind is new.
- John Gardner
Charity looks at the need and not at the cause.
-German Proverb
The best philanthropy is constantly in search of the finalities—a search for a cause, an attempt to
cure evils at their source.
John D. Rockefeller
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One of the chief obstacles which the philanthropist meets in his efforts to do real and permanent good in the world is
the practice of indiscriminate giving.
- Andrew Carnegie
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Top 6 Philanthropic Motivators
1. Sense of duty
2. Desire to give back to society
3. Altruistic desire to help those less fortunate
4. Religious faith
5. Personal experience with the philanthropic area of focus
6. Family legacy
Other Philanthropic Motivators
• Financial motivation (tax and estate planning)
• Desire to support and honor heritage/identity
• Desire to honor ancestors
• Desire for recognition
4Source: Top 6 Motivators from BNP Paribas and Forbes, 2015 BNP Paribas Individual Philanthropy Index
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Philanthropy is a global phenomenon
World Giving Index 2014 Ranking
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• Almost 1/3 of the world gives to charitable causes
• Giving goes beyond financial means and includes volunteerism
• The United States is the only country to be ranked in the top 10 for all three charitable giving behaviors
• Only six of the countries in the Top 20 are member of the Group of Twenty (G20)
The World Giving Index presents data from across the globe over a five year period (2009 – 2013) and measures the nature and scope of giving around the world…
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© 2015 Giving USA FoundationTM
Source: Giving USA FoundationTM / Giving USA 2015; Foundation Center, http://foundationcenter.org/gainknowledge/research/pdf/fy2010_highlights.pdf, http://data.foundationcenter.org/#/foundations/all/nationwide/total/list/2012
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Philanthropic Giving by Year (Billions)
• Giving represents 2% of USD GDP• The growth of giving is undeniable – Over the last 40 years, the level of giving
(measured in inflation-adjusted dollars) has almost tripled• The growth in giving has partially been fueled by an increase in private
foundations. The number of foundations quadrupled from ~22,000 in 1975 to ~87,000 in 2013
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Giving has rebounded since the 2008 crisis and religion and education continue to receive the most support
© 2015 Giving USA FoundationTM
Source: Giving USA FoundationTM / Giving USA 2015
• People give to what they know: place of worship, alma mater, local community
• Six areas have surpassed inflation-adjusted giving levels pre-recession: Arts/Culture/Humanities, Education, Environment/Animals, Human Services, Health, and Religion
• Giving to education increased by nearly 10% between 2012 and 2014 whereas giving to religion has remained relatively flat
• Total charitable giving rose for the fifth consecutive year in 2014 – the single largest influence on this increase was an additional $13.88 billion in gifts made by individuals
• Family foundations represent nearly 46.7% of total giving by all foundations
Source of contributions2014 Contributions: $358.38BN(in billions of dollars – all figures are rounded)
Type of recipient organization2014 Contributions: $358.38BN(in billions of dollars – all figures are rounded)
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Philanthropy is evolving at a rapid pace…
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Much larger discipline Catalytic
Starting earlier and at a more sophisticated
level
Focused on results Entrepreneurial Collaborative
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Conventional
• Giving back generally• Check book approach• Fund good organizations
Venture
• Social entrepreneurship• Giving to groups that can
execute on a specific vision or goal
• Capacity building to increase scale & effectiveness of specific organizations
Catalytic
• Systemic change• Virtual enterprises that
include all possible tools and donor resources
• Multi-sector campaign
…and there is a shift to more deliberate & organized giving
9Source: Catalytic Philanthropy, Mark R. Kramer, Stanford Social Innovation Review, 2009.
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Additional trends we are seeing…
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• Movement from “checkbook” to “strategic philanthropy” (aims to make long-term impact on specific issues by emphasizing innovation, scale, and measurable results in its execution)
• Increase focus on women in philanthropy
• Strong interest in corporate social responsibility
• Interests in “social impact investing” & other forms of alternative investing
• Increase in cross border philanthropy
• Next Generation’s giving strategies (differing from their parents)
• Interests in expert advisory and networking with philanthropic leaders and like-minded donors
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Agenda
• An Overview of Giving Trends
• A Roadmap for Successful Giving
• Developing a Family Giving Strategy
• Case Studies: Innovative Models
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• Governed individually or collectively?
• Level of involvement– extent of family
involvement
• Level of control over distributions
• Level of control over investment strategy
• Level of anonymity
• Time horizon– One generation– More than one
generation
• Amount of initial funding
• Source of funding– cash– publicly traded
securities– private company
stock– art– real estate– other
• Timing of funding
• Future funding plans
• Income tax
• Capital gains
• Estate tax
• Charitable Remainder Trust
• Charitable Lead Trust
• Donor-advised fund
• Private foundation
• Combination
• When do you want to give?
• How much do you want to give?– Currently– Cumulatively
• How much control do you want to retain over your charitable dollars?
A Roadmap for Philanthropic Giving
Determine desiredcharacteristics of entity
Implement the appropriate structure(s)
Defineobjectives
Assess taximplications
Identifyavailableassets
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Hot button issues
ControlAllocation of
time & resources for
operation
Anonymity ImpactPerpetuity vs. spend-down
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What is the right vehicle for your charitable giving?
Vehicle Characteristics
Donor-AdvisedFunds
– Offer many of the advantages of foundations, but can be established with fewer resources and involve less administration
– Contributions generate an immediate income tax deduction, but the assets can be distributed over several years in accordance with the donor’s recommendations
– Donor retains the ability to recommend the allocation of any undistributed monies among a variety of investment vehicles offered through the umbrella organization
PrivateFoundation
– Tax-exempt entity that makes donations to qualified charities over time. Must distribute 5% of fair market value of foundation assets annually. There is a 2% excise tax on net income (which may be reduced to 1%)
– Donor retains high degree of control over the investment and distribution of funds
– Donors can develop expertise in targeted areas and strategies that best address their interests
– Structured approach to giving can help the donor become more involved in a particular area of interest and better understand what gaps remain to be filled
– Distributions can be made for broad charitable purposes, not limited to public charities (e.g. scholarships)
CharitableLead Trusts
(CLT)
– An irrevocable trust in which the donor’s chosen charity receives cash flow from the trust for an initial fixed period of years, after which the remaining assets pass to donor or family members
– May allow donor to gift 100% of the value of gifted assets while retaining some control through the trust structure
– Highly effective wealth transfer vehicle
Charitable Remainder
Trusts (CRT)
– An irrevocable trust that is typically used to provide an income stream to the person who establishes it (and his or her spouse) with the remainder going to charity
– A CRT can last for the lifetime of one or more beneficiaries or for a specific term of years
– Annual payment amounts depend on trust structure
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What is a private foundation?
• Tax-exempt entity that makes donations to qualified charities
• Structured as either a trust or corporation– Advantages of trust form: Created by instrument
during lifetime or under will without need to incorporate under state laws; governed by trustees so no need for corporate recordkeeping, meetings and compliance with state regulations
– Advantages of corporate form: Enhanced liability protection afforded by incorporation; easier to alter organization by amending by-laws
• Must distribute 5% of fair market value of foundation assets annually
• 2% excise tax on net investment income (may be reduced to 1% if certain requirements are met)
• Reporting and regulatory requirements– Filing annual return with IRS (990-PF)
• Requires details on investments and expenditures for administrative and grant purposes along with list of board members
• Considered public information – Self-dealing prohibitions and regulations around
excess business holdings
• May make grants to individuals, foreign charities, and U.S. organizations that are not public charities
A private foundation provides maximum control and flexibility, together with other key benefits:
• Donor controls and assumes responsibility for asset allocation and investments
• Allows flexibility in structuring control over grantmaking– Family members collectively or individually may
control decision-making– A combination of family and/or trusted advisors– Multi-generational giving
• Contributing to a foundation allows the donor to receive an immediate tax benefit while the ultimate beneficiary of the grant(s) can be determined later
• Can hire family members and pay reasonable compensation
• Can establish either during lifetime or upon death– If lifetime creation, immediate income tax
charitable deduction is available and distribution of foundation property can be controlled
– If testamentary creation, “dollar-for-dollar” estate tax charitable deduction
• Distributions can be made for broad charitable purposes, not limited to public charities
– Allows for gifts directly to individuals in the form of scholarships, awards and hardship/emergency assistance grants
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Private Foundation
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What is a donor-advised fund?
• A donor-advised fund (DAF) is a charitable giving vehicle administered by an entity which qualifies as a public charity and whose sole purpose is to distribute grants to other charities
• Donors establish a donor-advised fund account by making an irrevocable, tax-deductible contribution to the sponsoring organization (public charity) for subsequent disbursement to qualifying charities
• Contributions to a DAF are invested tax free in competitive investment vehicles recommended by the donor
• DAFs are not subject to any distribution requirements
• Donors can recommend qualified charitable organizations to receive grants over time
• Donors may designate one or more advisors to recommend grants; may have committees regarding investments and distributions
• Can name successors or charitable beneficiaries to establish a philanthropic legacy
Benefits of a donor-advised fund
• Can be created immediately with little or no cost
• Donor receives most favorable Federal income tax deduction treatment for contributions
• Donor may be an individual or an institution
• Timing of gifts for tax planning purposes, without the need to select your charitable recipients at the time of donation
• Streamlined recordkeeping, tax reporting, and administration, freeing donor from regulatory and administrative requirements
• Anonymous charitable giving, if desired
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Donor-advised fund (DAF)
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Agenda
• An Overview of Giving Trends
• A Roadmap for Successful Giving
• Developing a Family Giving Strategy
• Case Studies: Innovative Models
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What guides our giving – 20th Century generations
Generation Events and conditions Values and traits
Traditionalist / Matures (1925-1945)
• The Great Depression • Segregation • Holocaust• World War I parents, WWII
• The Korean War• The New Deal• The G.I. Bill• Movies
• Patriotism, loyalty, selflessness• “Waste not, want not”• Save for a rainy day• Faith in community and institutions
Baby Boomers (1946-1964)
• Booming post-war economy• Television• Apollo 11 – Moon Landing• Civil rights movement• Women’s movement• Anti-war movement
• Brown vs. Board of Education • JFK & MLK Jr. assassinations• Founding of State of Israel• Cold War• Six Day War
• Optimism and idealism• Equal rights and activism• Competition
Generation X (1964-1980)
• Watergate• Iran Contra• Downsizing of corporations• Latchkey kids
• AIDS• Crack• Divorce rate tripled
• Skepticism: government, market, and marriage
• Independence• Resourcefulness
Generation Y / Millennials (1981-1999)
• Oklahoma City bombing• Columbine• September 11, 2001• Hurricanes Katrina and Rita
• The Internet• Cell phones and text messaging• Social networking
• Realism• Pragmatism• Diversity
The events and values of each generation can influence how philanthropists approach their giving
Source: Next Gen Donors, 21/64, 2013 18
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What drives Millennials’ giving
Values
• Generally learned from family members
• May fund the same causes as parents and/or grandparents but take different approaches
• Honor and become stewards of family’s philanthropic legacy
Impact
• “See and touch” –interested in hands-on engagement
• Want to know that involvement has contributed to impact
• Open to using new and old strategies, assets, and tools to have an impact
Ties
• Desire connection and relationship with the organizations
• Peer networks to learn, share, and source giving opportunities
• Technology connectivity - internet and social media as primary source of information
Identities
• Want to craft their own philanthropic identity and profile
• Goal of becoming leader and/or disruptor of status quo
Source: Next Gen Donors, 21/64, 2013 19
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Developing a Family Giving Strategy
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How do we make donation decisions?
Do we want to support established
organizations, seed new projects, or both?
What issues will be the focus of our
philanthropy?
What is the theory of how to create change?
Do we want to help solve immediate
problems, longer-term problems, or both?
How will we perform our due diligence
before making grants?
Will our grants be one-time or multi-year?
What will be the size of our grants? $1,000, $10,000? $100,000?
How will we measure success?
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Source: Next Gen Donors, 21/64, 2013.
Four most important influences on learning about giving
Donor
Experiencing philanthropy, e.g. as a donor and a volunteer
Connecting with friends and peers
Learning about philanthropy from family
members
Observing the need for philanthropy
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Best practices for engaging the next generation
Talk about the gifts you’ve given: monetary and otherwise• Speak about your passions, your involvement in giving and volunteerism, and your evolution as a
donor• Discuss community needs and nonprofits in your community that you care about
Intertwine volunteering with family philanthropy• Volunteering is one of the best ways to build a child’s character and self-esteem• Acquire new skills, develop confidence and maturity, put their own problems in perspective, and learn
civic responsibility • Share quality time together, experiences, and develop traditions• Help teens and young adults identify their own passions and areas of philanthropic interest
Teach financial values and literacy• Family philanthropy can be part of a broader process of teaching children about money and finances
• How to spend money responsibly • Value of saving• Evaluating the health of non-profit grantees
Create discretionary pools that enable family members to support their own causes • Allowing young people in family to distribute a portion of funds fairly autonomously • Starting small and building up overtime• To encourage personal giving, some families match family members’ donations with a 1:1 or higher
match • Starting a donor-advised fund, which keeps the legal controls in place
Establish a junior board • Rotate where board meetings are held and/or hold “virtual” board meetings if family members are
spread geographically
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Thoughts and advice from next gen donors
“I’m paying respect to the opportunities that I had, paying respect to the
philanthropy that I learned, but taking that and evolving it into something that
will be more uniquely my own –meaning mine and my husband’s own
– going forward.”
“Those who have a lot must give a lot. It was ingrained in us that if you ‘have’ you
must also ‘give back’.”
“Give us a clear call to action, let’s problem-solve together. Tell us what you are working on, and let’s work on
this together.”
“Philanthropy matters. It is a part of how you engage with the world. It is a part of being responsible member of a
community. It is part of being an adult, doing it. Just doing it matters, doing it both with the funds you have
and with the time you have given away.”
Source: Next Gen Donors, 21/64, 2013.
“Time, Talent, Treasure, Ties”
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“My family has taught me everything I know about giving and how to give. I approach it very differently and, of course, bring
different things to the table as a young person with a fresh perspective…. But everything that I do, my ‘roadmap,’
essentially to giving is based upon what they have taught me.”
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Agenda
• An Overview of Giving Trends
• A Roadmap for Successful Giving
• Developing a Family Giving Strategy
• Case Studies: Innovative Models
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Impact Investing
Source: Bridges Ventures, Sustainable & Impact Investment: How we define the market, August 2012 25
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Impact investing case study: J.P. Morgan Chase Social Finance portfolio ($60mm in total commitments)
MicroVest II: Provides equity capital to low-income financial institutions to help build capital markets serving low-income individualsGeographic focus: Emerging markets
Representative deal: India non-bank financial company that provides financial services to poor women entrepreneurs
January 2009$60mm
LeapFrog I & II: Invests in companies that distribute microinsurance and related products to low-income and excluded peopleGeographic focus: Africa & Asia
Representative deal: : South African life insurer serving people with HIV/AIDS who commit to follow health monitoring/treatment programs
IGNIA: Invests in entrepreneurs with scalable businesses that deliver high impact to low-income populationsGeographic focus: Mexico
Representative deal: Business that helps rebuild communities by acquiring, refurbishing and selling foreclosed homes in low-income housing developments
May 2010$135mm
AACF: Invests in small and medium-sized agriculture-related businesses in East Africa directly benefiting small-holder farmersGeographic focus: East Africa
Representative deal: Floriculture business that exports summer flowers grown by a network of 3,000 small farmers in Kenya
September 2011$25mm
Social Entrepreneurs Fund: Supports scalable, high-impact social enterprises serving the most deprived 25% of the population in the UKGeographic focus: UK
Representative deal: Community transport business which reinvests its profits to fund local transport services for mobility-impaired
January 2011£12mm
GHIF: Invests in the development of drugs, vaccines, diagnostics that address global health challenges that impact developing countriesGeographic focus: Emerging markets
Representative deal: Oral, single-dose cholera vaccine that is effective in less than 7 days
December 2012$108mm
EcoEnterprises: Invests in small and medium-sized enterprises that create positive conservation and community impactsGeographic focus: Mesoamerica, Andean region of South America
Representative deal: Company selling tea beverages made from the leaves of the native Amazonian tree
September 2013$35mm
Novastar: Invests in entrepreneurs with scalable businesses that deliver high impact to low-income populationsGeographic focus: East Africa
Representative deal: Distributor of clean cookstoves and other basic products in peri-urban and rural environments
April 2014$80mm fund1
FIRST: Invests in entrepreneurs with scalable businesses that deliver high impact to low-income populationsGeographic focus:Brazil
Representative deal: Network of affordable healthcare clinics offering high-quality services to low-income individuals where the government health programs are poorly established
October 2014$125mm fund2
Sep. 2014$400mm
June 2010$77mm
1 Target; first close in April 2014 at $44mm 2 Target; first close set for October 2014 at $70mm
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Impact Investing Case Study: Building the market for conservation finance In 2014, JPMorgan Chase became the founding sponsor
of NatureVest, a new initiative of The Nature Conservancy, which will work toward increasing the amount of private capital invested in projects that protect and restore critical land and water ecosystems.
NatureVest seeks to transform the way we manage, invest in and sustain our natural capital – the soil, clean air and water, and other valuable resources that nature provides.
NatureVest will capitalize on the growing impact investment sector to advance investment in conservation.
Funding Gap in Natural Capital Investment ($BN)
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Social entrepreneurship
Identifies and solves social problems on a large scale
Acts as a “change agent” for society by seizing opportunities others miss to improvesystems as well as invent and disseminate new approaches
Seeks to generate “social value” rather than profits
A social entrepreneur…
The work is targeted not towards immediate, small –scale effects, but sweeping, long termchange
Examples:
Muhummad Yunus, Founder of the Grameen Bank - an institution that providesmicrocredit loans to those in need to help them develop financial self-sufficiency. The bankhas brought in a net income of $10MM + since 1983.
Sanjit “Bunker” Roy, Founder of Barefoot College - an organization which specializes inteaching illiterate women from poor villages how to become doctors, engineers, andarchitects.
The approach…
Source: PBS, CNN Fortune 28
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Social entrepreneurship: Case studies
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Prize philanthropy
A philanthropic tool which uses a prize to incentivize performance
The most common forms of prizes are:
Incentive based: Sparks new behaviors, research and innovation.
Recognition based: Rewards excellence and raises the winner’s visibility and message
Why and when to use it?
Effective tool for raising public awareness, influencing public perception, and mobilizing new talent and capital
Encourages innovation that can further a foundation’s strategic goals and delivers significant social change
The best conditions for promoting a philanthropic prize are when a foundation has clear objectives it wants to fulfill, but the ultimate solution is either unknown, or demands new models or thinking
Know the objective
Understand the size of your potential participant pool
Have a clear selection criteria and judging processes
Create opportunities for participants to share ideas and build upon one another's work
Market the prize, both to source the right candidate pool and to publicize the winner, other candidates and their ideas.
Source: Foundation Source, McKinsey & Company
What is it?
How to make prize philanthropy work for your foundation…
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Prize philanthropy: Case studies
Dorothy and Lillian Gish were sisters and famous actresses from the silent film era. As sole trustee, J.P. Morgan administers, funds, and oversees the nomination and selection
process for an annual $300,000 arts prize –one of the largest arts prizes in the world.
This $2MM XPRIZE aims to:1) Incentivize breakthroughs in ocean pH
sensor technology to radically transform our understanding of ocean acidification
2) Catalyze growth in the global ocean service industry
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Important information
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