Monday, February 10, 2014

Disruptive wealth hasn't yet disrupted philanthropic forms

My comments to Marketplace Radio on the Philanthropy 50 report are here.

Twitterers picked up on my observation that this big money was being used in traditional ways. It's true, but you get only so much in a Tweet  - or a 60 second radio interview. The fact that these big philanthropic gifts go to hunger programs, education, health, environmental issues is partly because those are complicated issues that take a long time to progress against. They also are the tax-incentive sanctioned areas for charitable giving.

My point was not on the focus areas of the philanthropy, but the vehicles through which it is being deployed. Foundations, community foundations, donor advised funds - these are 100 year old products for managing philanthropic giving. They have an enormous built-in advantage in the marketplace in the form of the tax deduction attached to these products. These products also benefit from an established sales channel of estate planners, lawyers, trust services, development officers, etc.

What you don't see on the Philanthropy 50 list is innovation in the form in which the giving is done. There are lots of folks at the other end of the giving spectrum foregoing tax deductions to give money through crowdfunding platforms. There are folks at the wealthiest end of the spectrum foregoing traditional foundation forms (and tax deductions) to use LLCs or who are outsourcing some of their research and program costs. There are a variety of ways to structure the giving - but you don't see them on the Philanthropy 50 list.

It's simply striking to me that the list of financial vehicles for philanthropy on a 2014 list looks not unlike such a list compiled in 1954 or 1914 (the year in which community foundations came into being). Perhaps there's room for innovation in form?


Kevin Johnson said...

Not only are many of the financial vehicles that date from a century ago used by many major donors, they still follow the precepts John D. Rockefeller developed for his personal giving. While philanthropic his entire life, Rockefeller got taken. In reaction, he made a number of rules for his giving related to challenge grants, the “best” nonprofits, and timing of giving (never the first in). These same rules seem to drive many givers today. But unwittingly following rules that were created from a point of view of reaction and protecting wealth almost a century and a half in the past are not the kinds of rules that will create new opportunity and address complex problems.

Kevin Johnson

Steven Lawrence said...

While not yet ready to throw up your hands on bringing “disruption” to institutional philanthropy, you're clearly frustrated by the seeming lack of demand for new forms.

But I suppose my question would be: What are the incentives for donors to do things differently than they have before?

A better philanthropic mousetrap must provide the same ultimate outcome (clear public benefit and, ideally, tax relief) but not be harder to use than what came before.

Many of the new models are still in their infancy (e.g., social impact bonds, B corps) and require a lot of specialized knowledge.

Perhaps what we’ll need is a Ron Popeil of philanthropy to figure out how these models can be made more intuitive and easier to embrace by a mass audience.

Lucy Bernholz said...

Kevin and Steven

Thanks for both your comments. I'll write more on this. Seems to me there are market failure opportunities here - though demand is small. Lots of people like to disparage foundations and swear to do their philanthropy differently - then default to same/similar structure. Tax incentives could be looked at as "lock in" for those products.

I'm not a fan of Uber but one wonders where the analogous force is -- "As Uber is to taxis, what is X to foundations?" Yes, it's a high class problem, but with billions of dollars at stake seems worth considering....


Anonymous said...

Lucy - I've been struggling with your question "As #uber is to taxis, X is to foundations?"

In one sense, I wonder if market forces will outpace foundations on this. Market forces - Fidelity, Schwab, Foundation Source etc - made low-cost DAFs and private foundations available to the masses in ways community foundations wouldn’t have. As I understand it, Fidelity Charitable lost money for years as it started, but had patient capital behind it to win customers in the long-term. What if those same entities chose to make it easy for donors to give in an unsectored way? What if they took care of the added due diligence, expenditure responsibility work, and other tax rigamarole to make giving to “other than U.S. 501(c)(3)”s a seamless as possible?

Or, maybe the change will come through citizen-led political action. When will the broader nation of social good doers and donors officially revolt against the “charitable-industrial complex” (as Peter Buffett named it)? Could it be time for that nation to write (OK, crowdsource) its own Declaration of Independence and Bill of Rights? (Maybe a modernized version of AFP’s Donor Bill of Rights?)