David Adams 4 Apr 2018 03:55pm

Facilitating philanthropy may save the world

Gone are the days of Victorian do-gooders and high-minded meddlers. Philanthropy today is a far-reaching and potent tool for change. David Adams runs the numbers and examines the role of the profession in facilitating it

Caption: Illustrations: Andrew Lyons

What do you think of when you picture a philanthropist? Many will see some of the great figures of the 19th century in their mind’s eye; like Andrew Carnegie, whose legacy is still visible from Carnegie Hall in New York to well built public libraries in English-speaking countries worldwide. Carnegie gave away over $350m during his lifetime (over $70bn in today’s money) and left a further $30m to be distributed to good causes after his death. He wrote and said many things about philanthropy, but one particularly pithy quote sums up the beliefs that underpinned it: “The man who dies rich dies disgraced.”

You may not agree but it is true that the very wealthy have an opportunity, denied to most, to use their money to do good on a grand scale. And accountants have a crucial role to play in facilitating philanthropy: as trusted advisers who can persuade high net worth (HNW) – those with more than $1m of assets – and ultra-high net worth (UHNW) – those with a net worth of over $30m – clients to become philanthropists; or by advising or working within corporates and charities to ensure donations are used as effectively as possible.

A number of factors seem to be boosting philanthropy today. They include the Giving Pledge, a well publicised campaign started by Bill and Melinda Gates in 2010, urging the wealthy to give at least half their net worth to philanthropy, either during their lifetime or upon their death. Individuals who have made the pledge include Warren Buffett, Michael Bloomberg, Mark Zuckerberg, Azim Premji, Elon Musk and Richard Branson. Political events may also play a role: in the US a phenomenon called “rage philanthropy” has been observed, as the actions of President Trump inspire activism among his opponents.

National cultural history can increase philanthropy too. Giving something back is part of the American Dream; and the US possesses an infrastructure to enable philanthropy unequalled anywhere else in the world. But there are giving traditions elsewhere too: in China and other parts of Asia, for example. Charity – zakat – is also one of the five pillars of Islam.

Use of philanthropy seems to increase where wealth in society is distributed more unevenly; and when discretionary government spending in areas such as education, health and the arts is reduced. It can also be encouraged or discouraged by government tax policies: when the tax system is used to incentivise giving, or because very high tax rates serve to discourage it.

Chartered accountant Sir Peter Harrison, founder of the Peter Harrison Foundation [our cover star in June 2015], believes growth in philanthropy is due above all to the success of capitalism. “Entrepreneurs have become wealthy and felt the need to share some of their wealth,” he says. He believes philanthropy in the UK has grown significantly since income tax for high earners in the UK was reduced from the high levels seen in the past: around 90% throughout the 1960s and between 75% and 83% for most of the 1970s. The top rate has not risen above 50% since the late 1980s.

Sir Peter became a philanthropist in 1999 after selling his stake in the computer networking company Chernikeeff. Since then, the Foundation has made over 1,100 grants to more than 700 charities, donating over £43.6m in total. It focuses on three main areas: sport, particularly for disadvantaged and disabled people; care of children and young people with special needs; and education.

Like many philanthropists, Sir Peter was inspired in part by another one: as a young man he worked alongside Sir Charles Hayward, founder of the Hayward Foundation, who donated large sums of money to causes including Great Ormond Street Hospital. “I always admired what he’d done, never thinking I’d get into a similar position,” he says.

However, the data suggests that philanthropists as generous as Sir Peter and Sir Charles are unusual. While most HNW individuals do regularly donate to, or volunteer for, charities, they give only about 0.1% of their liquid assets per year on average, according to research conducted by the campaigning organisation Philanthropy Impact. The rest of us donate around 1% of our assets.

But it’s not just about how much money is donated that’s important – it’s how it is used. Cath Dovey, chair of Philanthropy Impact, says philanthropy should be regarded as “the purest form of risk capital”.

“The person giving this money away has no expectation they’re going to get it back again, so that means the money can be used to try out new ideas, in ways that governments can’t, because they have to be risk averse when using public money,” she explains.

The other trend Dovey feels is of particular significance today is the growth of “strategic philanthropy”, most clearly visible at present in the US. “Strategic philanthropists want to know where the money is going and what it’s achieving,” Dovey explains.

This must be part of the reason why donor-advised funds (DAFs) are now more widely used in the US. These funds are created within a charity, but donors retain some influence over how they are used. They can also be used to donate less liquid assets, such as part ownership of a company or of real estate assets.

This trend towards keeping track of how donations are used is also helping to increase use of social investment, in its various forms; and venture philanthropy, which can include investment in social enterprises, as well as grant-making to charities.

Becoming a social investor may be a first step towards philanthropy, suggests Peter Lewis, chief executive of the Institute of Fundraising (IoF) in the UK. “With social investment people don’t have to give, they can lend or invest,” he says. “That may feel more natural to some business people.”

The other element of philanthropy that should not be overlooked is the near universal desire to have one’s ego stroked. Some philanthropists prefer to remain anonymous. But many are very happy to be publicly associated with good causes, in part because it can be an effective way to attract publicity for the cause, but also, as most would surely admit, because it feels good to do, and to be seen doing, good.

Ego may help encourage some people to establish their own charity to support a specific cause, although the main reason wealthy individuals take this step is because they have a genuine passion. But Andrew Pianca, chairman of the ICAEW Foundation and former chairman of Crowe Clark Whitehill, believes that wealthy individuals who really want to make a difference are usually better off working with an established charity.

“It’s often much easier to go to an existing mainstream charity and set up a restricted fund,” he says. “You can specify anything you want it to be for and you’re saving the money that would otherwise be spent on the administration and operation of a new charity,” he explains.

Aside from Harrison, ICAEW’s membership includes a broad church of philanthropists who have set up their own charities or who have made invaluable contributions to other organisations. Richard Ross is chairman of the Rosetrees Trust, a charity formed in 1987 by his parents, Nat and Teresa Rosenbaum, to support medical research [read our November 2017 interview with him].

Ross is hugely enthusiastic about philanthropy, but acknowledges that it doesn’t come naturally to everyone. “We’re only human: we work very hard to get our money, so the last thing we want to do is to give it away,” he says. He likens the process to adopting a healthier lifestyle. “As you get into it, it makes you feel better, but it’s all about getting past that first step.”

Simon Mordant, executive co-chairman of corporate advisory and investment banking firm Luminis Partners, and his wife Catriona support arts organisations in Australia, where they are based, including the Museum of Contemporary Art Australia; and other charitable organisations elsewhere, including the American Academy in Rome [we interviewed him in January this year]. Mordant also offers his substantial talents as a businessman and financier to the organisations they support. “When we started 30 years ago we used to write out cheques to pretty much anyone who asked, as long as the cause was something we supported,” he recalls. “We’ve narrowed down our support to 10 or 15 organisations where we believe passionately in the leadership and we can help them to realise their vision.”

Another ICAEW member and economia cover star, Amir Dossal, believes most philanthropists could and should do more. Dossal is founder and president of the Global Partnerships Forum (GPF), which builds partnerships between policymakers, entrepreneurs, philanthropists and investors, to support the UN’s 2030 Agenda Sustainable Development Goals (SDGs). These include the elimination of hunger; preventing violence against women and children; gender equality; creation of marine sanctuaries in the oceans; and promotion of education and training for young people worldwide.

Dossal believes philanthropy can make a huge contribution to achieving these ambitious goals. He also wants to see a greater contribution from businesses; and believes accountants could do more to encourage corporate clients to embed charitable purposes into their business models.

“If you are advising companies you can say to them, ‘by the way, here’s how you can use your corporate assets for good’, rather than just use the 2%, 3% CSR component,” he says. But the biggest contribution accountants can make to the growth of philanthropy may be through their roles advising individual clients.

“Philanthropy is the purest form of risk capital. The person giving this money away has no expectation they’re going to get it back again, so that means the money can be used to try out new ideas”

Philanthropy Impact seeks to work with accountants and other advisers of HNW individuals to give them the knowledge they need to encourage clients to become philanthropists. The organisation’s research has identified 23 separate services that advisers could provide to facilitate philanthropy. Accountants are perfectly placed to deliver many of them. Philanthropy Impact has also developed training for advisers to help them offer philanthropy services.

In the US the number of advisers who specialise in working with philanthropists is much larger and there are recognised professional qualifications in the field. This is not yet the case elsewhere. In the UK, Philanthropy Impact’s research shows that while many accountancy and wealth advice firms offer some of the services it has identified, none offer all of them. The research also suggests that if UHNW individuals did take advice on philanthropy they gave 17 times more money on average: £335,000, compared to £19,000.

The availability of better services from advisers could make a huge difference to the scale of philanthropic activity – and advising these individuals represents a significant commercial opportunity for accountants.

Whatever the nature of wealth and philanthropy in the years ahead, accountants, other advisers, businesses and policymakers can all help philanthropists to achieve their goals. “It’s about figuring out how you apply capital where it can create the greatest catalytic effect,” says Dovey. “We know what capitalism can do; we’re starting to experiment with what social investment can do; and we’re only just beginning to understand what philanthropy can do.” Money makes the world go around; and it can also help to change the world for the better.

How members can support good causes

Hundreds of ICAEW members who are not philanthropists (yet) contribute to charities in multiple ways, including as volunteers and trustees. The ICAEW Volunteers programme helps members find suitable volunteering opportunities.

The Institute also supports a number of good causes every year in different ways. As part of this, the ICAEW Foundation works to improve access to the accountancy profession. Its Changing Futures programme provides bursary support to accountancy students in universities across the UK and to individuals studying for professional accountancy qualifications in Ghana and Malawi.

Partnerships with PwC and the EY Foundation provide further bursaries in the UK. The Foundation also supports organisations providing accountancy training for people working in NGOs in Africa and Asia.

To find out more, visit: icaew.com/foundation