Having been all hard-nosed and ruthless in the making of their fortunes, too many would-be philanthropists go all soft and silly when it comes to giving them away, says Caroline Garnham
BILL AND MELINDA Gates have challenged the world’s billionaires to give away 50 per cent of their fortunes before they die. Over 40 billionaires have taken up the challenge.
Andrew Carnegie, the great Victorian philanthropist who built schools, libraries and the marvellous Carnegie Hall in New York, has inspired Bill and Melinda Gates in their attitude towards philanthropy. In the opinion of Carnegie, the person best able to give money for philanthropic causes effectively is the person who made the fortune, and if he fails to give it away during his lifetime he should be taxed heavily on death. The state then should use the founder’s wealth to educate, heal and assist those less advantaged.
But Carnegie lived in a different era. In Victorian days the state was not as responsible for the disadvantaged as it is today, and the wealthy were not taxed so heavily. So is it fair that the wealthy should be made to feel guilty for not giving away half their wealth to a needy cause when it has already suffered a substantial tax charge?
Wealth owners were asked by Family Bhive, the social media website for ultra-high-net-worths, whether they agreed with Carnegie’s liking for high taxation on death as a mark of the state’s ‘condemnation of the selfish millionaire’s unworthy life’. Only 10 per cent agreed, 60 per cent disagreed, and 30 per cent said they would find it easier to agree if the state spent money more efficiently and effectively.
However, Carnegie was working within his own culture and community and therefore could anticipate how money or goods made available for philanthropic causes could be misused and take such measures as was necessary to avoid such misappropriation or abuse. Bill and Melinda Gates do not just want to help the disadvantaged in the US — their strategy is to help those in developing countries, too. But how many donors have stopped giving after discovering that their money given to support the victims of, for example, the tsunami was misappropriated?
Considerable research must be done to identify how to avoid the misappropriation or abuse of the charity funds. Not enough attention is given to researching how donations could be siphoned off for other purposes. Michael Green, co-author of Philanthrocapitalism with Matthew Bishop, tells how he delivered children’s playground equipment into a community in Romania, only to find it stolen (and no doubt sold) by the following week.
Olga Alekseeva of Philanthropy Bridge Foundation describes how a philanthropist funded the building of a toilet in an orphanage, only to discover that denial of access was being used a year later as a punishment by the carers for orphans who misbehaved.
Philanthropists should have a strategy with targets and objective criteria with which to measure success, and should adopt a hard-nosed approach. Having a strategy helps to focus on specific issues and avoid being swayed by the latest sob story or shocking statistic.
In today’s philanthropic culture there is too much focus on the world’s problems and not enough on effective solutions. How many charities give donors regular feedback on how their donation is used? This is a pity. Regular, honest feedback would encourage donors to give again. There is not enough accountability to be effective, nor enough rigorous commercial discipline in ways of setting targets, measuring success and reporting the success or otherwise to the donors. But it is not only a coherent strategy which is needed; it is also crucial to consider succession.
Carnegie is probably right in saying that the person to deliver effective implementation of long-term solutions is the person who made the fortune. After the death of a foundation’s founder, bureaucracy and indecision often plague them, and not only do the founder’s philanthropic projects begin to suffer, but also charities seeking donations are made to jump through increasing bureaucratic hurdles. There is also the danger that personal preferences take greater importance in the decision process of funding causes and family and friends appear in prominent positions on the foundation board for ever-increasing salaries.
In order to stem the tide of entropy in the effectiveness of the foundation’s philanthropic aims after the death of the founder, family governance principles and processes need to be incorporated into the terms and conditions of the foundation charter. It is very often not sufficient to have these principles embodied in a non-binding constitution or letter of wishes. If it is not binding, it simply will not survive the conflicts and power struggles in a family or board of advisers.
In many respects the philanthropic structures could learn a lot from the family governance procedure in the more sophisticated offshore financial structures. If the founder wants his philanthropic aims to continue after his death, he should consider incorporating family governance principles and processes into his philanthropic foundation.