19 Jul 2010

Qualifying philanthropy as the art of giving requires explanation on what is giving

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Leatherhead landscape - 50 km South of London

Leatherhead landscape – 50 km South of London

 

In some cases, the approach should be inspired from the strategy of private equity.

Redefine what giving is

If we refer to the definition of philanthropy, the prominent idea is the unlimited way to make it a reality.
Some authors speak about a “private initiatives for the public good” (John W. Gardner), a “voluntary action for the public good” (Robert Payton), “the private giving of time or valuables…for public purposes” (Lester Salamon) or also “the aim of philanthropy…is improvement in the quality of human life” (Robert Bremner).

Philanthropy needs to be segmented in two parts at least : 1) the simple donation in kind (e.g. a collection of arts) or in money ; 2) the donation with a perspective to get money back, without doing it a suspensive condition (what is called “venture philanthropy”).

Towards more sophisticated solutions

To my mind, the simple action of giving might lose some ground in the future in favor of more sophisticated solutions, more specifically when the funding required is of high amount. Either donors will not have enough money to allocate, or they will see in the project an opportunity to set up some income generating activities for the local actors / beneficiaries. In the last case, they might be interested in combining a donation with a loan.

A growing part of the new generation of philanthropists is looking for opportunities to implement sustainable solutions, not just giving on demand and being advised that the money is used properly.
The concept of giving is going to be more and more associated with the wish to have a pregnant impact in the field – somehow to change the world – to ensure that what has been given will have long-lasting results … considering the fact that, if it happens you stop donate, all what has been built up until today will not suddenly collapse.

Some similarities with private equity

In almost every domains (environment protection, community assistance, education, …) – except urgent aid, such as natural disasters (tsunamis, earthquakes …) – it is possible to combine donation with an (ethical) financial logic. It is well-known that engagement of the local actors is higher when they understood and agree with the stakes of the project, when they envision some positive outputs from the project on the local economy. Assisting a community through individual loans (instead of a pure donation) aimed at supporting people growing a business, with a zero interest rate and an undetermined reimbursement date (let’s say between 3 and 5 years for instance) is another way to contribute to sustainable actions.

What does it mean for financial advisors ?

What should be done first ?In the context of global turmoil, where some wealthy clients are being worried about the preservation of their assets, the philanthropy engagement will survive if the clients are convinced that what they give goes in the direction of making the current economic model better off – which in turn will help them secure their own wealth.
I think, that concrete action first should focus on speaking with the client about their personal (and moral) values and expectations in life.

In other words, philanthropy should not be sold as a further option in an already long list of financial products and services, but it should be discussed at early stage, as an integrated part of the process of asset allocation (*).

Looking backwards … it is just a question of consistency between the way you invest and the values you claim. Getting both matters separated shouldn’t make it !

(*) being understood that investment could include other dimensions than the financial one only, such as the social or the ecological return.

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