the business of givingefc.issuelab.org/resources/15955/15955.pdf · th ese donor s unite d behind a...

The businessof givingA survey of wealth and philanthropyFebruary 25th 2006

Our Founding Investors

In June 2000, the co-founders of Venture Philanthropy Partners—Raul Fernandez, Gov. Mark Warner, andMario Morino—along with 26 other technology and business leaders and several foundations, came together to contribute more than $30 million to capitalize VPP’s fi rst investment fund. These donors united behind a boldvision to alter the status quo for children in need of opportunity and, at the same time, create a different, innovative approach to philanthropy.

Founding Investors:• Peter Barris, Managing General Partner, New Enterprise Associates, and Adrienne Barris• Katherine Bradley, President, CityBridge Foundation, and David Bradley, Chairman,

Atlantic Media Company• John Burton, Managing Director, Updata Capital• Art Bushkin, Chairman and CEO, Stargazer Group• Kathy Bushkin, Executive Vice President and COO, United Nations Foundation• Jean Case, CEO, The Case Foundation, and Steve Case, Chairman and CEO, Revolution• Jack Davies, Founder, AOL International• Steve Denning, Managing Partner, General Atlantic LLC, and Roberta D. Bowman• William Dunbar, Managing Director, Core Capital Partners, and Denise Dunbar• Raul J. Fernandez, Chairman and CEO, ObjectVideo• Joshua M. Freeman, President and CEO, Carl M. Freeman Associates• William Gibson, Managing Partner, The Albermarle Group• Miles Gilburne, Managing Member, ZG Ventures, LLC, and Nina Zolt, Founder and Chair, In2Books• Richard Hanlon, Former Senior Vice President, Investor Relations, AOL Time Warner Inc.• Richard A. Kay, President, Strategic Management Consultants, LLC• George Kettle, George F. Kettle, Enterprises, LLC• Jeong H. Kim, President, Bell Laboratories• Jim Kimsey, Founding CEO and Chairman Emeritus, AOL, Inc.• Len Leader, Former President, AOL Time Warner Venture Group• Ted Leonsis, Vice Chairman, America Online, Inc.• Art Marks, General Partner, Valhalla Partners• Bill Melton, Melton Investments• Phillip Merrick and Caren DeWitt, Co-founders of webMethods, Inc.• Mario Morino, Chairman, Venture Philanthropy Partners, and Chairman, Morino Institute• Kenneth J. Novack, Retired Vice Chairman, Time Warner• Russ Ramsey, Managing General Partner, Capital Crossover Partners, LP, and Norma C. Ramsey,

Director, The Ramsey Foundation• Joe Robert, Chairman and CEO, J.E. Robert Companies• John Sidgmore*, Chairman and CEO, ECI (now deceased)• Doug Smith, Founder/CEO of Omnipoint (now T-Mobile) and Joint Founder, The Amanter Fund,

and Gabriela A. Smith, Joint Founder, The Amanter Fund• Mark R. Warner, former Governor, Commonwealth of Virginia

Institutional Investor:Surdna Foundation

Operations Funder:Morino Institute


























In June 2000, the co-founders of Venture Philanthropy Partners—Raul Fernandez, GMario Morino—along with 26 other technology and business leaders and several foto contribute more than $30 million to capitalize VPP’s fi rst investment fund. These donorsvision to alter the status quo for children in need of opportunity and, at the same time,approach to philanthropy.

Founding Investors:• Peter Barris, Managing General Partner, New Enterprise Associates, and A• Katherine Bradley, President, CityBridge Foundation, and David Bradley,

Atlantic Media Company• John Burton, Managing Director, Updata Capital• Art Bushkin, Chairman and CEO, Stargazer Group• Kathy Bushkin, Executive Vice President and COO, United Nations Foundatio• Jean Case, CEO, The Case Foundation, and Steve Case, Chairman and CEO,

1201 15th Street, NW Suite 420 Washington DC 20005 Tel: 202.955.8085 Fax: 202.955.8087 www.vppartners.org

A Message from Venture Philanthropy PartnersA new generation of wealthy families is turning its attention and significant resources to philanthropy.Fueled by the rapidly created new wealth over the past few decades, these families are approaching theirphilanthropy as they do their business endeavors—seeking to be directly involved; unafraid of addressingtough, entrenched problems; and “giving while living.”While these families and their philanthropy have been compared to the Carnegies and Rockefellers, theirefforts are nascent and at times unproven. However, as The Economist argues in its new special report, “ifthe new generation of philanthropists gets it right, they too can make a real difference to the world.”We are pleased to share this report with you. This wealth and philanthropy survey, called “The Busi-ness of Giving,” is a detailed and in-depth look at this new generation of philanthropists, their focus onresults, and their quest to maximize the social impact of their actions.The Economist cites Venture Philanthropy Partners as “perhaps the best example” of venture philanthropyin practice today. Since our founding in June 2000, VPP has demonstrated an innovative approach toinvesting in nonprofit organizations, one that helps our nonprofit partners generate strong social returnsfor the children and youth they serve and for the National Capital Region in which we all operate.Our initial results are promising, and we have learned much along the way. Yet, in reality, we are justscratching the surface of what needs to be done. Significant changes are needed to ensure that break-through organizations not only continue to grow, thrive, and become sustainable over time, but ultimate-ly multiply their impact for the people and communities they serve.This new generation of philanthropists has the opportunity to help bring about some of these changes.By respecting and building on the efforts of those who have gone before them, by realizing that the socialsector may be far more complex than the business world, and by taking the extra step necessary to ap-preciate and work more with both the new social innovators and established nonprofit leaders, these newphilanthropists will lay the framework for lasting change.And, by relentlessly pursuing innovative approaches, by investing resources wisely and strategically, andthen leveraging those efforts, these families and individuals will have the opportunity to usher in newsolutions to our social challenges, and more importantly, to change the life outcomes in a meaningful wayfor countless people across the globe.

Again, enjoy reading this unique survey,

Mario MorinoCarol Thompson ColeVPP Chairman and Co-Founder VPP Managing Partner

Philanthropy is flourishing as thenumber of super-rich people keepsgrowing. But the new donors arebecoming much more businesslikeabout the way their money is used,says Matthew Bishop

GIVING away money has never been sofashionable among the rich and famous.

Bill Gates, today's pre-eminent philanthro-pist, has already handed over an unprece-dented $31 billion to the Bill and MelindaGates Foundation, mostly to tackle the healthproblems of the world's poor. Its generosityhas earned the couple Time magazine's nom-ination as 2005's “people of the year”, alongwith Bono, an activist rock star.

The next generation of technology leadersare already embracing the same ethos. PierreOmidyar, the founder of eBay, and Jeff Skoll,the auction site's first chief executive, are eachputting their billions to work to “make theworld a better place”. And when the foundersof Google, Sergey Brin and Larry Page, tooktheir company public, they announced that aslice of the search engine's equity and profitswould go to Google.org, a philanthropic armthat they hope will one day “eclipse Googleitself in overall world impact by ambitiouslyapplying innovation and significantresources to the largest of the world's prob-lems”.

The new enthusiasm for philanthropy isin large part a consequence of the rapidwealth-creation of recent years, and of itsuneven distribution. The world now boasts691 billionaires, 388 of them “self-made”,compared with 423 in 1996, according toForbes magazine's “rich list” for 2005. Not allof these newly wealthy people are turning tophilanthropy—and of those that do, manycontinue to give in unimaginative ways, sayto support an institution such as their almamater. But the extra wealth is creating hugenew opportunities. “This is a historicmoment in the evolution of philanthropy,”says Katherine Fulton, co-author of a recentreport on the industry, “Looking out for theFuture”. “If only 5-10% of the new billionairesare imaginative in their giving, they will

transform philanthropy over the next 20years.”

For now, it does look as though everyone,from Michael Bloomberg, the billionairemayor of New York, to hedge-fund tycoonsand film stars, is opening their wallet for agood cause. In Manhattan these days, a tablefor ten at the best charitable fund-raising din-ners can cost $1m. Celebrities are increasing-ly putting their own money into good works,as well as playing their time-honoured role ofusing their fame to raise money from others.The film star Angelina Jolie, for example, hasbacked up her public advocacy of the causeof refugees with substantial gifts to refugeeorganisations.

The media, which used to take littlenotice of charitable donations, now eagerlyrank the super-rich by their munificenceand berate those they regard as tight-fisted.The latest Business Week list, which ranksgiving in the latest five years, is topped byIntel's co-founder, Gordon Moore, and hiswife Betty, pushing Mr and Mrs Gates intosecond place. Among America's super-wealthy, it seems that only Warren Buffett,the world's second-richest man, still dedi-cates all his energies to making moremoney rather than giving away some ofwhat he already has. But even he says itwill all go to charity when he dies.

Nor is the fashion for giving limited toAmerica, where philanthropists have longplayed a particularly prominent role. InEurope, too, entrepreneurs who have made alot of money are starting to hand some of itto charitable causes. Examples includeBritain's Dame Anita Roddick, founder of theBody Shop, and Arpad Busson, a colourfulFrench hedge-fund boss. India's new wealthy,such as Azim Premji and Nandan Nilekani,two Bangalore technology-firm bosses, arealso becoming keen philanthropists; andeven the new rich of China and Russia arecatching the bug. Roman Abramovich, aRussian oiligarch who became famous forbuying Chelsea Football Club, has givenaway many millions to improve living con-ditions in the Chukotka region of Russia. Andso the list goes on.

Reprinted from the issue of February 25, 2006.© 2006 The Economist Newspaper Limited. Further Reproduction Prohibited.

www.economist.com/audioAn audio interview with the author is at

www.economist.com/surveysA list of sources can be found online

AcknowledgmentsIn addition to those mentioned in the survey, the authorwould like to thank, in no particular order, Emily Stonor,Adam Waldman, Lynn Taliento, Alex Nicholls, FrancesCairncross, Pamela Hartigan, Jamie Drummond, DambisaMoyo, Jamie Cooper-Hohn, Luc Tayart de Borms, JimBarker, Mike Green, Caroline Hartnell, Alliance magazine,Mark Evans, Lord Bhatia, Martina Gmur, David Giunta,Doug Bauer, Sylvia Mathews, Mark Campanale and Felicityvon Peter.

To have, not to holdThe rise of the new philanthropist. Page 3

The birth of philanthrocapitalismThe leading new philanthropists see them-selves as social investors. Page 6

The good companyIs corporate philanthropy worthwhile? Page 7

The rise of the social entrepreneurWhatever he may be. Page 9

Virtue’s intermediariesA host of new businesses is trying to make thephilanthropic market work better. Page 12

Faith, hope and philanthropyWhat the new breed of donors can do�andwhat it can’t. Page 14

T

Also in this section

The Economist February 25th 2006 A survey of wealth and philanthropy 1

The business of giving

G

The whys and whereforesWhy are they doing it? Many people are

wary of rich folk bearing gifts, suspectingthem of having hidden business or politicalmotives, or feeling guilty about how theyhave made their pile, or simply enjoying anego trip fuelled by generous tax breaks. Butthere could also be plenty of innocent andadmirable reasons why the rich have becomeso much more open-handed. Never mind themotives: the important thing is to ensure thatthis largesse is put to good use.

Done well, philanthropy can have a huge-ly beneficial effect—witness the achievementsof past giants such as Andrew Carnegie, JohnD. Rockefeller, Joseph Rowntree and WilliamWilberforce. This survey will argue that if thenew generation of philanthropists get it right,they too can make a real difference to theworld. But for that to happen, philanthropywill have to shed the amateurism that stillpervades much of it and become a modern,efficient, global industry.

For much of the past half-century, Americaseemed exceptional in its enthusiasm for phi-lanthropy. Claire Gaudiani, in her book, “TheGreater Good: How Philanthropy Drives theAmerican Economy and Can SaveCapitalism”, makes a distinction betweencharity, which is about easing symptoms ofdistress, and philanthropy, which is aboutinvesting in solutions to the underlying prob-lems. The “investment approach distinguish-es the most significant kind of American gen-erosity from the ‘poorhouse and soup line’method and expresses our values of freedom,the individual, and entrepreneurialism,” shesays. In practice, though, the borderlinebetween the two is often blurred.

Over the years, many wealthy Americanshave broadly followed the blueprint laid outby Andrew Carnegie in his 1889 essay,“Wealth”. The steel tycoon believed that grow-ing inequality was the inescapable price ofthe wealth-creation that made social progresspossible. To prevent this inequality undoingthe “ties of brotherhood” that “bind together

the rich and poor in harmonious relation-ship”, he argued that the wealthy had a dutyto devote their fortunes to philanthropy. Notto do so was the worst sort of personal fail-ure: “The man who dies thus rich dies dis-graced.”

As a result, a far higher proportion of hos-pitals, libraries, universities and welfare serv-ices in America is funded by private dona-tions than in other rich countries, where gov-ernments are spending proportionately moreyet are still struggling to meet growing publicexpectations. Still, the differences can be exag-gerated. America's basic health research islargely funded by the government, whereas inBritain much of it is paid for by the WellcomeTrust, a charitable foundation based inLondon, albeit set up by an American.

Britain's government has recently been try-ing to foster the philanthropic spirit, andother European countries are starting to fol-low suit. Even in China, the governmentseems keen to build up a non-profit sectorthat caters to social needs, and appears to berelaxing some of its rules to allow philanthro-py to play a bigger role. The exception isRussia, where President Vladimir Putin,averse to concentrations of power outside hisgovernment, has cracked down on non-gov-ernmental organisations (NGOs) and theirbackers. Mikhail Khodorkovsky, the formerboss of Yukos, a big oil company, was report-edly Russia's leading philanthropist before hewas jailed after a show trial.

But just as the world's wealthy and power-ful are discovering the joys of giving, studentsof the American model of philanthropy arebecoming increasingly critical of its flaws.This is not just a private concern for thedonors: because of America's huge tax breaksfor charitable donations, it is a matter forpublic scrutiny too. The cover story of arecent issue of Stanford University's SocialInnovation Review is entitled “A Failure ofPhilanthropy”. It argues that those Americantax breaks are of most benefit to things likeelite schools, concert halls and religiousgroups. “We should stop kidding ourselvesthat charity and philanthropy do much tohelp the poor,” says the author, Rob Reich.

A series of scandals at charitable founda-tions—mostly over excessive pay, jobs forfamily members and other extravagances—has attracted the ire of Congress, which isthreatening tough new legislation. State attor-neys-general are taking a greater interest, too.

Mainstream charities that rely largely ondonations from the general public have alsocome under fire. The American Red Crosswas exposed for diverting money raised forthe families of victims of the September 11th2001 terrorist attacks to other purposes. Andafter the Asian tsunami and HurricaneKatrina, two fund-raising former presidents,

Bill Clinton and George Bush senior, foundthemselves having to reassure the public thatthey would monitor how the money wasused.

One of the many things exposed by thecollapse of Enron was that corporate philan-thropy is often pretty sleazy too. A firm's exec-utives can ingratiate themselves with busi-ness partners, and even with their own boardmembers, by supporting their pet causes withfunds from the company's charitable founda-tion, without breaking the law.

Wasting a fortuneBut the problem lies far deeper.

“Foundation scandals tend to be about payand perks, but the real scandal is how muchmoney is pissed away on activities that haveno impact. Billions are wasted on ineffectivephilanthropy,” says Michael Porter, a man-agement guru at the Harvard Business School.“Philanthropy is decades behind business inapplying rigorous thinking to the use ofmoney.” Mr Porter believes that the world ofgiving can be transformed by learning fromthe world of business. Many of the leaders ofthe new generation of philanthropists agreewith him, so “there is a big opportunity overthe next 20 years to figure out how to makephilanthropy effective.”

Many of the new philanthropists are wellaware that traditional philanthropy is notsufficiently businesslike. They want to bringabout a productivity revolution in the indus-try by applying the best elements of the for-profit business world they know. That hasprompted the industry to adopt (and adapt)some of the jargon familiar from the worldof business. Philanthropists now talk about“social investing”, “venture philanthropy”,“social entrepreneurship” and the “triple bot-tom line”. The new approach to philanthro-py is “strategic”, “market-conscious”, “knowl-edge-based” and often “high-engagement”,and always involves maximising the “lever-age” of the donor's money.

Leverage is particularly important to thenew philanthropists. They know that howev-er large their personal fortunes, they aredwarfed by the financial resources at the dis-posal of governments and in the for-profitmarketplace. So to make a real difference,they need to concentrate their resources onproblems that are not being dealt with bygovernments or for-profit organisations.Being constrained by neither voters norshareholders, they can take risks to find pio-neering new solutions that can then beadopted on a larger scale by governments orfor-profit firms.

But not everyone is convinced that philan-thropists must become more business-mind-ed. “We must reject the idea—well-inten-tioned, but dead wrong—that the primary

1

*Cash and other material gifts

It’s a giftPhilanthropic giving* as % of GDP, 1995-2002

Source: Johns Hopkins Comparative Nonprofit Sector Project

0 0.5 1.0 1.5 2.0

United States

Canada

Britain

Netherlands

Sweden

France

Japan

Germany

Italy

A survey of wealth and philanthropy The Economist February 25th 2006

path to greatness in the social sectors is tobecome ‘more like a business’,” wrote JimCollins, a bestselling management author, ina recent monograph, “Good to Great and theSocial Sectors”. His reason is disarminglysimple: “Most businesses are mediocre.”

Still, even Mr Collins agrees that the wayin which money passes from philanthropiststo the organisations that put it to work leavesmuch to be desired. Here there is some rea-son for hope. In recent years, a host of newfirms and institutions have been created that,with luck and good management, will pro-vide the infrastructure and intermediaries ofa philanthropic capital market, an efficientway for philanthropists to get their money tothose “social entrepreneurs” and others whoneed it. These newcomers include manage-ment consultants, research firms and a phil-anthropic investment bank of sorts.

Plenty can still go wrong. There is no mar-ket discipline to force philanthropists toadopt innovations, however desirable. And the new philanthropists, along with theinnovators who are trying to help them

become more efficient, may find the goingharder than expected. “The new rich haveoften made their money very fast, and getintoxicated with their own brilliance intothinking they can quickly achieve results inthe non-profit sector. They forget that theirsuccess may have been due to luck, and thatthe non-profit sector may be far more com-plex than where they have come from,” saysMario Morino of Venture PhilanthropyPartners, one of America's leading venturephilanthropists.

One obvious risk is of a political reactionagainst the philanthropic rich. The new phi-lanthropists are not just into spendingmoney. According to Greg Dees of DukeUniversity, today's philanthropy is bestdefined as “mobilising and deploying pri-vate resources, including money, time, socialcapital and expertise, to improve the worldin which we live.”

Peggy Rockefeller Dulany, who runs theGlobal Philanthropists Circle, makes a simi-lar point. “With wealth comes education,decision-making power, links to elites in

other countries and enormous conveningpower,” she says. “We are helping philan-thropists to make use of all these advantages.It is using money and connections—whetherpersonal, family or business—to create pub-lic benefit.”

A global elite, seeking to change the worldby combining lots of money with new ideas,cutting-edge business techniques, media andmarketing savvy, the mobilisation of citizensand helpful political connections: all this isbound to set alarm bells ringing in somequarters even as it spreads hope in others.Already George Soros, a famous hedge-fundphilanthropist, has become embroiled incontroversy over the role of some of theorganisations he funds in various formercommunist countries as well as in Americaitself. And last year Bob Geldof, Bono's phi-lanthropist partner in rock activism, pro-voked demonstrations in Uganda when hesuggested that the country's president shouldnot stand for re-election. Philanthropy seemssure to become an increasingly hot politicalpotato.

BILL GATES is much the most generousphilanthropist since records began. The

$31 billion he has donated so far is alreadymany times the $6 billion (in 2005 dollars)given away by a previous giant ofAmerican philanthropy, John D.Rockefeller. And Microsoft's founder is onlyjust getting started. By the end of his life, heintends to have handed over most of therest of his fortune—put at $46.5 billion inForbes magazine's latest “rich list”—to theBill and Melinda Gates Foundation.

Mr Gates is given much of the credit forthe rise in giving among today's super-rich.He seems to have discovered his generousstreak relatively recently: in 1998, TheEconomist was still criticising him for sit-ting on his fortune. But since then “BillGates has made philanthropy the norm”among the super-rich of the world, saysVartan Gregorian, who runs the charitablefoundation set up by Carnegie. “Giving isnow what you are expected to do.”

The power of Mr Gates's example is onereason why Mr Gregorian—who is a men-tor to many of the new philanthropistsaround the world—is no fan of the secre-tive approach to giving. “I like people to bepublic about their philanthropy; it makes itmore competitive if we can see who isdoing what.”

In order to give money away, you firsthave to have it. The past two decades haveseen vast global wealth-creation, but the“winner-takes-all” aspect of many oftoday's fastest-growing markets, and thesharp reductions in top marginal income-tax rates and profit and capital taxesalmost everywhere, have caused a rapidincrease in inequality between the veryrich and the rest. The number of billion-aires is growing fast, and not just inAmerica: of the 691 billionaires listed byForbes, 350 live outside America, withLakshmi Mittal, an Anglo-Indian steeltycoon, coming third overall. According tothe latest annual survey by Cap Geminiand Merrill Lynch, the number of familieswith over $30m in investable assets hasalso risen rapidly, to 77,500, as has that ofmillionaires (defined as people withinvestable assets of at least $1m, notincluding their main home), now 8.3mworldwide against 7m in 1997.

In the technology industry, there arenow several generations of newly wealthypeople who are actively giving—theHewlett and Packard families, Intel's MrMoore, Mr Gates, eBay's Messrs Omidyarand Skoll and the newest billionaires onthe block, Google's Messrs Page and Brin.Likewise, in the financial industry newly

super-rich hedge-fund stars are followingin the philanthropic footsteps of MrSoros. Performance-based donations tocharity are now sometimes built into ahedge fund's structure. For example, one-third of all the fees earned by theChildren's Investment Fund, one ofEurope's leading hedge funds, goes to afoundation that helps children in thedeveloping world.

In Europe, following in America's foot-steps, the gradual emergence of an equityculture has generated serious wealth forowners selling their business in an initialpublic offering. A fair amount of thismoney is going into charitable founda-tions. In Germany, for instance, their num-ber has increased from 4,000 in 1997 to over13,000 now. Germany's best-known charita-ble foundation, Bertelsmann, which is nowmentoring some of these newcomers, saysthat half the founders are actively involvedin their foundations, which for many havebecome a second career. In America, thenumber of private charitable foundationshas soared from about 22,000 in the early1980s to over 65,000 today, according to theCentre on Philanthropy at IndianaUniversity.

In India, where traditional charitablegiving within communities has dwindled


To have, not to holdThe rise of the new philanthropist

because of urbanisation, those newlyenriched by the country's technology boomare starting to fill the void. The wealthybosses of Infosys, Wipro and Dr Reddy arebecoming big philanthropists, joiningmore established Indian business philan-thropists such as the Tata, Birla and Bajasfamilies.

In Latin America and Asia, “whoever hasgot wealthy...has now got an agenda togive,” says Martin Liechti of UBS, a Swissbank. He points out that a generationalshift is under way from the old wealthy,who tended to practise traditional charity,to the new wealthy, who are open to moreentrepreneurial approaches.

Although in many countries the poorgive away a higher proportion of their totalincome than do the rich, it is the wealthywho dominate charitable giving. InAmerica, for instance, families with a networth of $1m or more accounted for 4.9% ofthe total number of all donations to chari-table organisations in 1997, but as much as42% of the value, according to a study byPaul Schervish of Boston College. The con-

centration in bequests is also striking:estates worth $20m or more made up 0.4%of their total number but 58% of their value.

In most countries, total giving has beenrising slowly, although the outpouring ofpublic sympathy after a series of naturaldisasters made 2005 a bumper year fordonations. Surveys show that in manycountries the public's trust in charitableorganisations is falling, and there are grow-ing worries that donations will not be putto good use.

According to an annual survey, GivingUSA, total charitable giving in America in2004 rose by 5% to a record $249 billion,over 2% of GDP. That was more than in anyother big country, both in absolute termsand as a proportion of GDP. And even ifyou ignore donations to religious congrega-tions and add in the value of volunteering,America is still a global leader in giving. Astudy led by Lester Salamon of JohnsHopkins University of charitable giving in36 countries, excluding donations to reli-gious congregations, showed that in theseven years to 2002 such giving in devel-oped countries ranged from around 1.85%of GDP in America to 0.11% in Italy.

Mr Salamon also notes that measuredagainst state spending on welfare, charita-ble spending is tiny everywhere. InAmerica, such welfare spending equals 18%of GDP; in Britain, 28%. This shows justhow hard it will be for the new philanthro-pists to ensure that their money makes areal impact, especially in rich countries.

According to an adviser to a leadingSwiss private bank, around one-quarter ofits super-rich clients are already committedto philanthropy. A further 40% are activelythinking about it, and another 15% are juststarting to put it on their agenda. Whatmotivates them?

Religion has always played a big part ingiving (Christians, Jews, Muslims and Sikhsall traditionally aim to give away a set pro-portion of their income). In America, reli-gious giving accounts for a staggering 62%of total donations, according to IndianaUniversity's Centre on Philanthropy PanelStudy, and donations to religious causesoutweigh those to non-religious ones inevery income group. In Europe, religiousgiving is generally lower. In Britain, arecent study by the Charities AidFoundation, a non-profit body, found thatfaith-based organisations accounted for 10%of the 500 largest charities' income. Amongthe super-rich of the Muslim world, theIslamic prohibition of things such as alco-hol, pork, gambling and conventionalfinancial services has opened up a role forphilanthropy: those whose portfoliosinclude such activities can “purify” them

by giving the resulting profits away.“The rich are trying to figure out a moral

biography of wealth, and philanthropy canprovide part of the purpose side of livingthe good life,” even if you are not religious,reckons Mr Schervish. Becoming very richcan rob you of your old ambitions and giveyou a need for new ones. Why did Sir TomHunter, a Scottish retail entrepreneur,become a philanthropist? “Aged 37, I got amassive cheque. I had achieved all mygoals at that time. So I started to think,what shall I do now?”

“There is a search for a narrative, aboutmaking a difference with your life, which isvaguely religious and gives you a buzz,”says Charles Handy, a management guruwho is putting the finishing touches to abook about philanthropy in Britain,“Beyond Success: The New Philanthropists”.Mr Handy points to Abraham Maslow'shierarchy of needs, and suggests that nowa-days more people are getting to the stageMaslow described as “the highest need, fora purpose beyond ourselves. They want tomake a difference—it used to happen intheir 60s and 70s, now it is in their 30s and40s.”

Faced with the world's many and urgentproblems, a lot of wealthy people are ask-ing themselves: if I can help, why not? MrGates read a World Bank WorldDevelopment Report and realised he coulddo something to improve public health inthe world's poorest countries. That made itseem absurd to leave his philanthropyuntil old age, as he had previously intend-ed.

A lot of giving is stimulated by personalexperience. Wealthy people often want toshow gratitude for something that helpedthem succeed, such as a school or a sup-portive community. Similarly, they maywant to support a life-saving hospital orplay a part in finding a cure for a diseasethat has afflicted someone close to them, orhelp a poor country they have visited.Indeed, newly wealthy Americans oftengive to causes abroad, says Mary Duke ofHSBC, a bank. Promoting education andfighting disease and poverty in Africa arenow high priorities. The Middle East too isrising up the agenda, in hopes of improv-ing America's battered image in much ofthe region. So-called “diaspora philanthro-py”—where people from, say, Mexico orIndia who have prospered abroad, sendgifts home—is also increasingly popular.

Many rich people feel that they havebeen fortunate and want to “give some-thing back”. But eBay's founder, MrOmidyar, dislikes the phrase. “The classicbusiness executive reaches his late 40s andsays I want to give back. But what does that

2Generosity writ large America’s top 20 philanthropists

Amount, Background $bn*

Gordon & Intel co-founder 7.05 Betty Moore

Bill & Melinda Microsoft 5.46 Gates co-founder

Warren Buffett Berkshire Hathaway 2.62†

CEO

George Soros Investor 2.37

Eli & Edythe SunAmerica, KB 1.48 Broad Home founder

James & Virginia American Century 1.21 Stowers founder

Walton family Family of Wal-Mart 1.10 founder

Alfred Mann Medical devices 0.99

Michael & Dell founder 0.93 Susan Dell

George Kaiser Oil & gas, banking, 0.62 real estate

John Templeton Investor 0.56

Ruth Lilly Eli Lilly heiress 0.56

Michael Bloomberg founder, 0.53 Bloomberg NYC mayor

Veronica Atkins Widow of 0.50 Robert Atkins

Jeff Skoll Founding president 0.49 of eBay

Ted Turner CNN founder 0.46

Kirk Kerkorian Investor 0.45

Donald Bren Real estate 0.45

Pierre & Pam EBay chairman, 0.43 Omidyar founder

Patrick & Lore IDG founder 0.37 Harp McGovern

Source: Business Week

*Given or pledged during 2001-05 †Includes a $2.5bn bequest by his deceased wife Susan Buffett


mean he has been doing? Taking away?What a sorry way to think about yourcareer,” he says. It is hard to tell whethersome of the new wealthy feel guilty, butcertainly many of them think, likeCarnegie, that philanthropy is part of asocial contract: both a duty and an insur-ance policy against populist redistribution.

Social norms and peer pressure clearlyplay a part. The fund-raising events inLondon laid on by Mr Busson for his char-itable foundation, Absolute Return forKids (ARK), seem to be prising open thewallets of many people in hedge fundswho would not have contributed other-wise. And not everybody's motives arelofty: Ms Fulton, the co-author of a newreport on philanthropy, argues that “a lotof philanthropy is motivated by pleasure—ego gratification and reputation enhance-ment.”

Good examples can help to stimulatelargesse. In Britain, the Beacon Prize,launched in 2003 to celebrate philanthro-pists, was an attempt to reverse a long stag-nation in giving. There are signs that, slow-ly, British culture may be changing. “Thereis a mood now in Britain that there areniches that the government doesn't fill,and that if you have talent, money andtime you should get into these gaps. Thirtyyears ago, a businessman would have said,‘I pay my taxes, the government should doit’,” says Mr Handy, the management guru.“It is getting like America—if you arewealthy, you want to be on the giving listas well as the rich list.”

In continental Europe, a tradition of giv-ing anonymously (not least to avoid thetaxman's attention) has meant there is lesspeer pressure to give, and few role modelsfor would-be new philanthropists. To helpchange that, Ise Bosch, a member of thefamily behind the eponymous electronicscompany, is now writing a “how-to” bookon philanthropy. She has also formed anetwork called Pecunia for wealthyGerman women interested in giving.

Transcendental meditationMany baby-boomers, with their chil-

dren through college, their houses paid forand plenty of money tucked away forretirement, are now beginning to thinkabout their legacy, which often involvesphilanthropy. “In an age where everythingis up for sale, transcendence can bebought through philanthropic giving,”argued a working paper, “Strategic LegacyCreation: Toward a Novel Private BankingProposition”, published by the Universityof St Gallen, Switzerland, in 2004. “Whilea bank cannot make people literallyimmortal, it can...create legacies for itsclients that satisfy their need for transcen-dence,” according to the author,Maximilian Martin, now a philanthropyadviser at UBS.

Certainly, people tend to become moregenerous as they grow richer, both in lifeand in death. Mr Schervish points out thatbetween 1992 and 1997 the value of finalestates in America rose by 65%, but charita-ble bequests went up by 110%. For thelargest estates, the shift was even greater.One possible explanation is the growingconcern of wealthy parents that if theyleave too much to their kids, they will givethem a nasty dose of “affluenza”, alsoknown as “trust-fund baby syndrome”. “Alot of people say they are not going to passon much of their wealth to their kids, forfear of spoiling them,” says Joe Toce ofHSBC. “But as they get older, and grand-children come along, they often end uppassing on a lot to their descendants.”

Nevertheless, when the baby-boom gen-eration dies, vast amounts of money willbe passed on, and a large chunk of thatseems destined for philanthropic purpos-es—not least because involving childrenand grandchildren in the running of afoundation is increasingly seen as a way togive them a sense of purpose and to passon family values.

Self-interestA secondary motive may be the desire to

take advantage of the many tax incentivesand other fixes that can make a wealthyperson look virtuous at an appealingly lowcost. America has the most generous treat-ment of charitable giving, allowing taxpay-ers to deduct their donations from theirtaxable income.

In Britain, too, the tax system hasbecome much more philanthropy-friendly.Other parts of Europe are following slowly.The European Foundation Centre is lobby-ing for better tax treatment throughout theEuropean Union. A particular concern isthe harsh tax regime that some countriesapply to giving abroad.

The recent tax reforms in Britain havenot changed the tendency to give out ofincome rather than assets, in sharp contrastto the Americans, says Les Hems of theInstitute for Philanthropy in London. Thereis currently no British version of America'spopular “charitable remainder trust”—adevice that allows a donor, say, to giveaway his house, claim an immediate taxbreak and then continue to live in it untilhis death, when the remaining value of theasset goes to the designated charity.

One of the strongest trends inAmerican philanthropy in recent yearshas been the rapid growth of donor-advised funds, offered by money manage-ment companies such as Fidelity, whosefund is now America's fifth-biggest chari-ty. These funds allow individuals to com-mit themselves to a donation and claimtheir tax deduction, but defer nominatinga beneficiary and actually paying out themoney until a later date. This has ledCongress to suspect foul play—though notby Fidelity, which has a decent averagepay-out rate of 25% of donated moneyeach year.

Would scrapping inheritance tax, asPresident George Bush wants to do, hitcharitable giving in America by removingone of the main penalties for not giving?Judging by how vigorously charities havebeen lobbying against the move, they clear-ly fear that they would lose out. But JohnWhitehead, a former boss of GoldmanSachs and now the eminence grise of NewYork philanthropy, believes that even if giv-ing carried fewer tax advantages, it wouldnot fall by as much as people fear, for“most of it is from the heart, not the pock-etbook.”

At any rate, many people reckon thatphilanthropists' motives are beside thepoint. As Mr Gregorian of the CarnegieCorporation says, “Why they give is notimportant; the act of giving, and how effec-tively they give, is what matters.”


4International benefactors The largest foundations in America and Europe

Assets, $bn* Bill & Melinda Gates Foundation (US) 28.80

The Wellcome Trust (Britain) 18.82

The Ford Foundation (US) 10.69

J. Paul Getty Trust (US) 9.64

The Robert Wood Johnson Foundation (US) 8.98

Lilly Endowment (US) 8.59

Fondazione Cariplo (Italy) 8.27

Fondazione Monte dei Paschi di Siena (Italy) 7.13

W.K. Kellogg Foundation (US) 6.80

The William & Flora Hewlett Foundation (US) 6.49

Sources: The Foundation Centre; foundation reports*Financial years ending 2004

A fashion for giving

Sources: Giving USA Foundation; The Foundation Centre*By individuals, bequests, foundations and corporations

Total giving* in the US, $bn 2004 prices

0

50

100

150

200

250

1964 70 75 80 85 90 95 2000 04

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“RELATIVE to the corporate environment,we are in the 1870s. But philanthropy

will increasingly come to resemble the capi-talist economy,” predicts Uday Khemka, ayoung Indian philanthropist and a directorof the SUN Group investment companyowned by his family. Like many of the newgeneration of philanthropists, he has big butwell-defined ambitions. “I want to helpdevelop the infrastructure of philanthropy,”he says.

The need for philanthropy to becomemore like the for-profit capital markets is acommon theme among the new philanthro-pists, especially those who have made theirfortune in finance. As they see it, three thingsare needed for such a philanthropic market-place to work.

First, there must be something for philan-thropists to “invest” in—something that, ide-ally, will be created by “social entrepreneurs”,just as in the for-profit world entrepreneurscreate companies that end up traded on thestockmarket.

Second, the market requires an infrastruc-ture, the philanthropic equivalent of stock-markets, investment banks, research houses,management consultants and so on. This iswhat Mr Khemka wants to concentrate on.

Third, philanthropists themselves need tobehave more like investors. That means allo-cating their money to make the greatest pos-sible difference to society's problems: in otherwords, to maximise their “social return”.Some might operate as relatively hands-off,diversified “social investors” and some ashands-on, engaged “venture philanthropists”,the counterparts of mainstream venture cap-italists.

All this may sound fine in theory.However, the history of philanthropy suggeststhat there are many potential pitfalls.

America's early charitable foundationswere built by entrepreneurs. Carnegie andRockefeller would have understood the newinvestment-oriented model. “Having seentheir own economic activity transform theworld, they thought that the foundations theyleft behind would be transformative organi-sations,” says Carl Schramm, head of theEwing Marion Kauffman Foundation. Thosefoundations did remarkable things. Set up asconduits for making grants as well as run-ning the programmes that would benefitfrom the money, they thought big, concen-trated on clear goals and were willing to

invest heavily for long periods to achievethem, says Mr Schramm. The RockefellerFoundation, for example, found a cure foryellow fever and drove the “green revolution”in agriculture. Carnegie, among other things,built thousands of public libraries.

Yet this long-term investment ethos hasproved to be the exception, not the rule. In alandmark article, “Philanthropy's NewAgenda: Creating Value”, published in theHarvard Business Review in 1999, MichaelPorter and Mark Kramer described wide-spread flaws in America's foundations thatmostly remain to this day. For instance, littleeffort is devoted to measuring results, andfoundations have unjustifiably high adminis-tration costs.

Michael Bailin, head of the EdnaMcConnell Clark Foundation, has describedthe typical foundation as “autocratic, ineffec-tive and wilful, elitist, cloistered, arrogantand pampered”. There are “chronic problemsin the way foundations operate”, says JoelFleischman, former head of the unusuallyimpressive Atlantic Philanthropies, who iswriting a book on the successes and failuresof foundations. He says that most of themprovide little information about what theydo, and are particularly secretive about theirfailures. As a result, says Mr Fleischman,“foundations keep reinventing the wheel.”

As for foundation governance, it is a night-mare, says Robert Monks, a veteran cam-paigner for better corporate governance:“Perpetual existence, no need to conform tocompetitive standards, it is all too much forhuman nature. Hence the palatial offices,fancy conferences and increasingly lavish payfor the professional philanthrocrats.”

Arguably the biggest problem is the waythat foundations make grants to organisa-tions they support. Whereas Carnegie waswilling to invest for the long term, morerecently foundations have tended to chopand change, says Mr Fleischman. MelissaBerman of Rockefeller Philanthropy Advisorsargues that there is too much emphasis onfunding individual programmes and too lit-tle on the sustainability of the non-profitorganisation running the programme.Overheads are seen as a bad thing, and grantstend to be short-term.

Should the new generation of philanthro-pists try something different from the tradi-tional foundation? Ebay's Mr Omidyar thinksso. He has folded his Omidyar Foundation

into Omidyar Network, which is free to makefor-profit investments as well as philanthrop-ic donations to pursue its mission of “indi-vidual self-empowerment”. “After a few yearstrying to be a traditional philanthropist, Iasked myself, if you are doing good, trying tomake the world a better place, why limityourself to non-profit?” he explains. Althoughthere is a separate chequebook for the foun-dation, his “investment team” is free to puthis money in either for-profit or non-profitprojects. The team's main criterion is whetherthe investment will further the social mis-sion.

Similarly, the Google Foundation is part ofGoogle.org, which can mix for-profit andnon-profit investments. However, unlikeOmidyar Network, Google.org is an arm ofGoogle, so this is corporate philanthropy—which raises a further series of difficult ques-tions (see article).

In principle, large foundations should bethe most effective vehicle for philanthropy,argue Messrs Porter and Kramer. Not only arethey free from both political and commercialpressures, they also employ professional staffthat smaller outfits would not be able toafford. But the staff often become the biggestproblem, especially in foundations whosefounder has long been dead.

The new philanthropists are mostly youngenough to be able to keep an eye on theirfoundations for many years to come.Nonetheless, says Mr Fleischman, they mightconsider setting a closing date for their foun-dation. For instance, the John M. OlinFoundation, a big source of finance for con-servative organisations, recently shut itselfdown. As John Miller recounts in his newbook, “A Gift of Freedom”, Olin had stipulat-ed that all of his legacy should be spent with-in a generation of his death, a sunset modelthat kept it nimble, unbureaucratic and trueto its founder's ideas.

The new philanthropists also need to beclear what they want to do, and stick with it.That is one lesson from the GatesFoundation, which has already notched upsome remarkable achievements—helped byits huge size, which allows it to do things thatare beyond everyone else. Its clear mission isto tackle global health inequalities in sixmain areas: infectious disease, HIV/AIDS,tuberculosis, reproductive health, globalhealth strategies and global health technolo-gies.

The birth of philanthrocapitalismThe leading new philanthropists see themselves as social investors

Leverage is allCrucially, it has found ways of using its

money to the greatest effect. Mr Gates's bigidea is to overcome the market failure afflict-ing poor consumers of health care by deploy-ing his money on behalf of the poor to gen-erate the supply of drugs and treatments theyneed. For instance, the money provides mar-ket incentives for drug companies to putsome of their resources to work for the needy.

The Gates Foundation also favours part-nerships, even though it is big enough to pur-sue many projects on its own. Again, it islooking for maximum effectiveness. Otherphilanthropists are following similar strate-gies. For instance, Britain's Dame StephanieShirley wanted to fund research into anautism gene, the total cost of which she reck-oned would be £1 billion ($1.7 billion). Shestumped up £50m herself and is raising sim-ilar sums from other donors around theworld. Another “hot” idea at the moment,championed by the X-Prize Foundation, is todonate large cash prizes that will generatelots of further spending from those compet-ing to win them.

Mr Omidyar recently donated $100m toTufts University to invest profitably inproviders of microfinance to the poor. Hehopes to attract private capital to turn whathas largely been a subsidised business into aprofitable one, operating on a far bigger scalethan today.

Other new philanthropists are pilotingnew models for welfare provision that, oncethey have proved themselves, can be taken upby governments and made available muchmore widely. Governments tend to be risk-averse, whereas philanthropists are free totake whatever risks they like with theirmoney, so they can play a useful role asproviders of start-up risk capital for govern-ment services.

Networks, too, are an increasingly popularway of leveraging money and experience.Peggy Rockefeller Dulany's GlobalPhilanthropists Circle brings together about50 super-rich families from 20 countries toexchange ideas and experiences, mainly witha view to finding solutions to internationalpoverty and inequality. Often this willinvolve the use of connections and influenceas well as money.

However, there is still a lack of global giv-ing consortiums that take on single issues,says Mr Khemka. He hopes to bring togetherphilanthropists from around the world whowant to tackle climate change.

Some foundations are now exploringnew ways of funding organisations. MrSalamon of Johns Hopkins Universitythinks that they should start to behavemore like philanthropic banks, offering arange of financial products such as loans

and loan guarantees as well as grants.Some philanthropists are also beginning to

think about how best to harness all theirassets to the causes they support, rather thanjust concentrating on the money they are cur-rently giving away. This point was broughthome recently to Jeff Skoll, one of whose phil-anthropic missions is to make films with asocial message. His latest film is based on thebook “Fast-Food Nation”—yet he had notchecked his investment portfolio to see if heowned shares in food companies such asMcDonald's that are attacked in the film.

Over the past year or so, many of thesuper-rich have started to ask themselveswhat exactly their assets are doing, says D.K.Matai, an Indian-born software entrepreneurwho runs the Philanthropia Trinity, anotherinternational network of philanthropists.“What is the point of earning a high returnin China if my money is helping to buildDickensian working conditions? If I have $5billion, and am giving $4 billion away, do Ireally want a 17% return on activities that arewrecking the world?” To deal with that prob-lem, the investment industry will need toimprove on the strategies and products it cur-rently offers for “ethical” or “socially respon-sible” investment, which often amount to lit-tle more than avoiding shares in, say, tobac-co, arms manufacturing or oil.

The phrase most often used to describe thenew approach to giving is “venture philan-thropy”. This was first used in the 1960s byone of the Rockefellers, but is still practisedrelatively rarely. Perhaps the best example is afirm called Venture Philanthropy Partners.Run by Mario Morino, who made his fortunein software, it specialises in mid-sized non-profit organisations in the Washington, DC,area that work well enough, but lack the cap-ital and talent to expand. With a $30m fundraised through a community foundation, MrMorino behaves much like a venture capital-ist. He is working intensively with 12 non-profit organisations, helping them to developa business plan for growth and to recruitmanagers and board members.

Old dogs, new tricksNew foundations may be learning from

the mistakes of the old ones; but what can bedone to reform established foundations thatare underperforming? With America'sCongress showing increased interest in foun-dations, Senator Charles Grassley has pro-posed tough new laws. His reforms would“dramatically transform the relationshipbetween the federal government and founda-tions”, says Adam Meyerson of thePhilanthropy Roundtable, an industry body.Among other things, Senator Grassley is pro-posing a five-yearly review of foundations'charitable status and a formal government

ratification regime. But Mr Meyerson thinksit would be far better for the governmentproperly to enforce the laws that are alreadyin place.

Better regulation is on the agenda inBritain, too, where charity is still governedby an act passed in 1601. “The governanceof charities and non-profits is generallypoor,” says Geraldine Peacock of Britain'sCharity Commission, which under new leg-islation due to take effect this year willbecome much more independent of gov-ernment. Like Senator Grassley, Ms Peacockthinks that a charity should be licensed fora limited time—say five years—and thenhave to reapply.

Encouragingly, many of the older founda-tions themselves are becoming more con-cerned about effectiveness, and have starteddemanding more information on how themoney they provide is spent, says MrFleischman. The recent transformation of theEdna McConnell Clark Foundation showsthat an inefficient old organisation can turnitself into a cutting-edge operation. It used tohand out grants in the traditional mannerfor a wide range of good causes. But in thelate 1990s, a new head, Mr Bailin, decided toconcentrate its activities in a single field,youth development. Working closely with itschosen organisations, notably HarlemChildren's Zone, it has helped them becomemore effective and serve many more people.

The biggest question of all is how to meas-ure the performance of a philanthropicorganisation. A huge amount of work is goingon in this field, but it is still more art thanscience—particularly when it comes to thefuzzier goals of some philanthropists, such as“empowering people”, “increasing the effec-tiveness of civil society” or “fighting climatechange”.

Measures involving the so-called doublebottom line (financial plus social perform-ance) or triple bottom line (financial, socialand environmental) are readily susceptible tostatistical manipulation. So are popular con-cepts such as “changed life”—a combinationof the number of people affected by an ini-tiative and the extent to which it improvestheir lives.

One danger is to pay too much attentionto managing inputs, which are easier tomeasure than output. Another is to concen-trate donations on those activities that can beeasily measured, such as the number of vac-cinations given, even where that may not bethe most effective way of tackling a problem.

Donors also need to strike the right bal-ance, so that on one hand they ask forenough information to be able to monitorthe effectiveness of the organisations theyfund but on the other they do not bog themdown in form-filling bureaucracy. The Gates



Foundation has a good reputation for gettingthe mix right and tailoring it to individualcircumstances.

“The risk with any metric is that people

will come to see it as a description of reality,rather than a tool for a conversation aboutthat reality,” says Rowena Young of the SkollFoundation. “One metric or another can

function well only when managers knowwhy they are measuring and for whom...Inthe world of social value-creation, context isking.”

Is corporate philanthropyworthwhile? The good company

CORPORATE giving has long had a reputa-tion as the sleaziest corner of philanthro-

py. Although usually nominally independentof the companies whose names they take, cor-porate foundations in practice are often treat-ed as a sort of slush fund into which the chiefexecutive can dip to help a pet cause,enhance his status in the community or evencement a business relationship with a dona-tion to a cause close to a business partner'sheart. Corporate philanthropy has been com-ing under greater scrutiny since the collapseof Enron, because many people believed thatdonations to various Enron board members'good causes may have made them less will-ing to hold the firm's top executives toaccount. Companies are now having to workharder to justify their philanthropy on strate-gic grounds.

The best justification, and perhaps theonly intellectually rigorous one, is that phi-lanthropy is in the enlightened long-terminterest of shareholders. This is a key argu-ment in a new book, “CompassionateCapitalists: How the Leading CEOs are Doing

Well by Doing Good”, by Marc Benioff, theboss of salesforce.com. The book contains twodozen articles by captains of industry, includ-ing Alan Hassenfeld of Hasbro, Jeffrey Swartzof Timberland, Steve Case of AOL, MichaelDell of the eponymous computer-maker andJean-Pierre Garnier of GlaxoSmithKline. All ofthem argue—some more convincingly thanothers—that their philanthropy is good forshareholders, at least in the long run. MrBenioff argues that giving his staff time tovolunteer in the community improves hiscompany's ability to recruit top talent.

Corporate philanthropy is also becomingmore important in developing countries,where firms may feel the need to supportlocal communities by contributing throughtheir foundations to health care, educationand so on. In an article in a new book, “TheAccountable Corporation”, Messrs Porter andKramer note that Nestlé, for example, nowinvests a lot in what it calls “milk-productionsystems” in developing countries, realisingthat a decent infrastructure is needed toensure a reliable supply.

“The dominant trend in corporate philan-thropy is to do giving that reinforces a firm'score strategy,” argues Trevor Neilson of theGlobal Business Coalition on HIV/AIDS.Thanks to shareholder pressure, increasinglythe only acceptable philanthropy is the sortthat enhances profits. Mr Neilson is a keenadvocate of “cause-related government rela-tions”, which means that a firm will help agovernment to deal with a social problem inthe hope of getting favourable treatment inthe future. For example, 26 companies so farhave made commitments to help the Chinesegovernment with its AIDS strategy, which MrNeilson says will allow them to form a valu-able relationship with the government.Perhaps.

Some of the new philanthropists believethat they are doing good simply by runningtheir business. Thus, Mr Omidyar argues thateBay does its bit by empowering people andpromoting trust between strangers. Mostimportantly, it is creating wealth to be sharedaround. After all, without wealth-creationthere would be no chance of philanthropy.

The rise of the social entrepreneurWhatever he may be

UBS, a Swiss private bank that countsmany of the world's richest people

among its clients, is conducting an interest-ing experiment in Brazil, Mexico andArgentina. It has formed an alliance withAshoka, a global organisation that identifiesand invests in leading “social entrepreneurs”.The alliance is offering a new prize for socialentrepreneurship, which UBS's Martin Liechtiadmits is an excuse to bring together twogroups of people who might otherwise nevermeet. “As the biggest wealth manager in theregion, we are at the crossroads between cap-ital and ideas—so why not bring the peoplewith capital together with the people whohave ideas?”

The social entrepreneurs that are shortlist-ed must have been working successfully withAshoka for at least three years. Winning the

prize is not really the point. Simply beingselected to be in the room with a bunch ofwealthy people gives the social entrepreneursgreat credibility with potential donors, andeven runners-up have a good chance of com-ing away with a new financial backer orsome other form of help. Héctor CastilloBerthier, who runs an innovative project fortroubled Mexican teenagers, came third inlast year's Mexican prize, but still got a cru-cial donation and free use of office space.

Ashoka is not alone in bringing socialentrepreneurs together with the wealthy andpowerful. Social entrepreneurs now rubshoulders with the world's business andpolitical elite at the World Economic Forumin Davos, under the auspices of a sister organ-isation to WEF, the Schwab Foundation forSocial Entrepreneurship. This year, the people

selected included Rory Stear, founder ofFreeplay, a company dedicated to the spreadof cheap, sustainable energy for all; JimFruchterman of the Benetech Initiative, anon-profit organisation that makes technolo-gy available to disadvantaged communities;and Victoria Hale, founder of OneWorldHealth, which works with the GatesFoundation (among others) to make low-costdrugs available in poor countries.

Waiting for a productivity miracleAshoka was founded in 1980 by Bill

Drayton, a former McKinsey consultant, whoexpects the rise of social entrepreneurship togenerate huge benefits. He says it is now help-ing to bring about a productivity miracle inwhat he calls the “citizen half of the world”(education, welfare and so on), a sector that

The good companyIs corporate philanthropy worthwhile?


for three centuries has lagged behind the“business half of the world”, where produc-tivity has soared and vast amounts of wealthhave been created thanks to its competitive,entrepreneurial culture. The emergence ofmore social entrepreneurs, and theirimproved access to growth capital as they getbetter connected to philanthropists, is creat-ing enormous productivity opportunities forthe citizen sector, argues Mr Drayton.

The citizen sector is defined somewhatloosely, but is largely made up of governmentplus the non-profit sector. Both governmentand non-profits have traditionally been runinefficiently. The productivity miracle detect-ed by Mr Drayton is due both to a shift fromgovernment provision to more efficient pri-vate provision (by both for-profit and non-profit organisations) and by an increase inthe efficiency of the non-profit sector.

The improvement in non-profit organisa-tions' efficiency may still have some way togo. In 2004, Bill Bradley, a former presidentialhopeful for the Democrats, and twoMcKinsey consultants claimed in an articlein the Harvard Business Review that, inAmerica alone, there was a “$100 billionopportunity” for the non-profit sector toimprove its efficiency through better manage-ment. But is social entrepreneurship the bestway to achieve that?

There is no easy answer, not least becausenobody is sure what exactly the term means.In a book charting the rise of social entrepre-neurship, “How to Change the World: SocialEntrepreneurs and the Power of New Ideas”,David Bornstein notes that most discussionof social entrepreneurship tends to revolvearound “how business and managementskills can be applied to achieve social ends”.He himself sees social entrepreneurs as“transformative forces: people with newideas to address major problems who arerelentless in the pursuit of their visions”. Thelate management guru Peter Drucker, typical-ly quick to spot the trend, defined socialentrepreneurs as people who raise the “per-

formance capacity of society”.Mr Schramm of the Kauffman

Foundation, which promotes a better under-standing of entrepreneurship, says that beingan entrepreneur means being a risk-taker, buta high risk of failure may be the last thingthat many non-profits need. And, surely,“every entrepreneur is a social entrepreneur,”says Mr Schramm. “A successful entrepre-neur...creates wealth—and without wealththere is no surplus capital to turn over tocharitable activity.”

Mr Omidyar, too, is uncomfortable withthe label, which he feels implies a disap-proval of profits that he does not share. “Ithink of myself as an entrepreneur, and Ihave a social view, but I don't call myself asocial entrepreneur,” he says. But his fellowphilanthropist from eBay, Mr Skoll, thinkssocial entrepreneurship has something goingfor it. The mission of his eponymous founda-tion is “to advance systemic change to bene-fit communities around the world by invest-ing in, connecting and celebrating socialentrepreneurs”.

Among other things, Mr Skoll hasendowed the Skoll Centre for SocialEntrepreneurship at Oxford University's SaïdBusiness School. This is part of a growingtrend for academic institutions, includingnowadays most business schools, to take thephenomenon seriously. Harvard BusinessSchool started teaching a course on socialenterprise 12 years ago.

Mr Schramm worries that some of thesecourses are more likely to turn studentsagainst capitalism. But Mr Whitehead, a for-mer Goldman Sachs boss who is the drivingforce behind the HBS course, sees it as part ofa trend among the elite in many countrieswho increasingly want to make not justmoney but “a difference”. The money maynot be as good as in business, but “a brightyoung person can have more of an impact onany non-profit in his first five years than onGoldman Sachs, which is full of bright youngpeople. In their first year they could make ten

suggestions that would improve the non-prof-it operation because they have been trainedin practical business ways of thinking.”

People like you and meCertainly the number of business-school

graduates going into the non-profit sector hasincreased. That appeals to the new philan-thropists, who want to see people like them-selves in charge of the non-profit organisa-tions they support. But these new profession-als may achieve as much by using the latestmanagement techniques to improve the per-formance of existing non-profit organisationsthan by creating new ones through socialentrepreneurship.

Mr Collins, the management guru, says get-ting the right people is arguably even moreimportant in the non-profit world than it isin business, because it is often harder fornon-profits to get rid of employees once theyare “on the bus”. Business leaders can firepeople more easily and can spend money onbuying talent. But some social entrepreneurshave found their own ways of securing toptalent. Wendy Kopp, who in 1989 foundedTeach for America—a non-profit organisationthat gets graduates from top universities tospend the first two years of their careersteaching children from low-income fami-lies—made it clear from the start that only thebest would do. By last year, over 97,000 peo-ple had applied to work for her organisation,but only 14,000 had been accepted. Ms Kopp'sability to pick and choose boosted her credi-bility with her philanthropic backers andenabled her to raise more money.

A growing number of non-profits nowhave state-of-the-art marketing departments.Indeed, it can sometimes seem that the mar-keting has become more important than themission. One technique is to use “charitymuggers” on commission to collar people inthe street and get them to sign a standingorder. For a while this was used in Britain byOxfam, but the development charity nowthinks that raising money this way does notpay. Far better to tap into the public's con-cern about where its charitable donations aregoing, as Oxfam has done with its hugely suc-cessful Christmas gift catalogue, offering giftssuch as sponsoring a goat in an African vil-lage for £24 or providing safe water for 1,000people for £720. “The public want to be trans-actional, to have a more direct relationshipwith where their money is going,” saysBarbara Stocking, Oxfam's boss.

Many non-profit organisations have beenwary of working with big donors becausetheir money can come with too many stringsattached. But that is starting to change. Oxfamnow wants to raise more money from thesort of wealthy philanthropists it has not tar-geted in the past—if only because in Britain

Shining examples Leading social entrepreneurs

Organisation Nationality Background

Jeroo Billimoria ChildLine India Foundation India Children’s rights

Somsook Boonyabancha Community Development Institution Thailand Land rights

Peter Eigen Transparency International Germany Anti-corruption

Oded Grajew Instituto Ethos Brazil Citizen sector

David Green Project Impact United States Public health

Alice Tepper Marlin Social Accountability International United States Labour

Pearl Nwashili StopAIDS Organisation Nigeria Public health

Fabio Rosa IDEAAS Brazil Renewable energy

Orri Vigfusson North Atlantic Salmon Fund Iceland Environment

Muhammad Yunus Grameen Bank Bangladesh Microfinance

Source: Ashoka

5


there haven't been many of them, says MsStocking. “I'm not sure we have been askingfor enough money,” she muses.

But the main problem for many non-prof-it organisations is how to get bigger. “One ofthe problems is that well-run non-profitsdon't necessarily grow,” says Nigel Morris, theco-founder of Capital One, a credit-card com-pany. True, growth isn't everything. Indeed,Mr Collins worries that non-profits will putscale before genuine effectiveness: “One ofthe markers of mediocre companies is thatthey become obsessed with scale andgrowth,” he says. But donors need to decideif they simply want to buy services from anon-profit, or whether they want to invest inhelping the organisation grow. If growth isimportant to them, they need to become a lotless squeamish about overheads

.The virtue of overheads

“In the business sector, people are verycomfortable with the idea of investing in anorganisation, and the need to build up itsinfrastructure. In the social sector, the tenden-cy is to invest only in a programme; there isvery little investment in building organisa-tions,” says Mr Collins. Yet often, in yieldingto public pressure to keep down overheads,“non-profits sacrifice efficiency for virtue,”says Carnegie's Mr Gregorian.

There is no merger-and-acquisition market

in the non-profit world. And for all sorts ofreasons, there are far too many non-profits.Philanthropists could help by encouragingconsolidation, says John Studzinski, co-headof HSBC's investment bank and an activephilanthropist. “In homelessness work, I'm agreat advocate of consolidation. There areabout 40 homelessness projects in London;only eight are any good,” he says.

There is also a role to be played by philan-thropists in encouraging non-profits to devel-op other sources of finance, to reduce theirdependence on the goodwill of donors.Providing fee-generating services is one strat-egy. Doing work for the government is anoth-er. Many non-profits have long generated rev-enues in this way.

Philanthropists can even encourage non-profits to move towards becoming for-profits,able to stand entirely on their own feet. Thisis what Mr Omidyar hopes to achieve withhis $100m donation to Tufts University toinvest profitably in microfinance. But theidea may face a lot of cultural resistance.“How do you get the citizen sector to changeits attitudes so that it allows institutions tohave incomes that are at least equal to outgo-ings?” asks Ashoka's Mr Drayton.

He is now trying to promote for-profit part-nerships between big companies and com-munity groups in some of the most impover-ished parts of the world. “Working with both

sides, we map a new value-added chain, rang-ing from product design to production to dis-tribution to servicing; that delivers a far betterservice to the ultimate customer faster, betterand more economically. Ending centuries ofnon-communication brings so much valuethat both business and citizen groups emergeas huge winners as well,” he says.

For example, community groups inMexico's slums now work with Cemex, ahuge cement firm, to create a market for itscement among the slum dwellers, greatlyreducing the cost of adding extra rooms totheir dwellings, providing funds for the non-profit groups and turning a (still small) prof-it for Cemex. The social entrepreneurs run-ning the community group have the trust ofthe locals without which the big companywould never be able to enter the market, saysMr Drayton. Other similar “hybrid value-added chains” that combine business andsocial purposes are being developed betweengroups of forest-dwellers and forestry firms,and small farmers and irrigation companies.

Meanwhile, Ashoka hopes that its relation-ship with UBS will flourish, and that prizeswill soon be awarded across Latin Americaand Asia. But as well as highlighting thegrowing role of social entrepreneurs, thisexperiment also points to another new trend:a more active role for intermediaries in theemerging philanthropic capital market.

Virtue’s intermediariesA host of new businesses is trying to make the philanthropic market work better

LEGEND has it that New PhilanthropyCapital (NPC) was founded in the

Goldman Sachs canteen in London in 2001.After Goldman went public, Gavyn Davies,then its chief economist, and another topbanker, Peter Wheeler, had pocketed enoughmoney to enable them to do some seriousgiving. But when they tried to pin down thebest place for their money to create maxi-mum impact, “We found there wasn'tenough information produced in a hard-headed, independent, high-quality way,made available to all,” recalls Mr Davies. Sothey decided to create NPC as the equivalentof an equity-research firm for the philan-thropic marketplace.

It had the added attraction of providingleverage, the holy grail of the new givers. “Wewanted our own charitable donations to bethe foundation of a much bigger edifice. Thiswas an investment designed to have a leveredeffect on other people's giving,” says MrDavies. “We wanted to increase giving byenabling donors to be more confident that

they were having an impact on people's lives.”For now, the research effort, headed by

Martin Brookes, a former senior economist atGoldman Sachs, is confined to the charitysector in Britain. NPC is not providing ratingsat present, but the equivalent of “buy” recom-mendations through sector reports such as“Grey Matters, Growing Older in DeprivedAreas”. In preparing these reports, NPC asksthe charities seeking funds four simple ques-tions: What is it you do? Why? What is suc-cess? And what is evidence of success? Thefirm also does some secondary research, suchas summarising and translating academicwork and making it more widely available.

“When you come into this world fromGoldman, you realise how screwed up it isas a market,” says Mr Brookes. “We are try-ing to fix the plumbing.” They are not alone.Efforts are under way to develop philan-thropic versions of most of the main sectorsof the capitalist marketplace: social-invest-ment banking, social-investment manage-ment, private banking, consulting, data serv-

ices and research. Though currently theorganisations providing these services arerelatively small, there appears to be enoughdemand to enable a successful operation togrow fast.

“The biggest constraint on our growth hasbeen the ability to recruit top talent,” says MrDavies. “Only a few people are willing tocome out of a career in banking to do this.”An analyst at NPC can expect to earn £22,000-48,000 ($38,000-84,000), a small fraction ofwhat they would make at Goldman.

In any marketplace, knowledge is power.NPC is attracting interest in America, whichcurrently has no direct equivalent. The bigfoundations, in particular, do lots of research,but they tend to keep it to themselves. Thenearest counterpart to NPC in America isGeneva Global (GG), but it covers only givingopportunities outside America. GG's 140employees work with a network of over 500voluntary associates in over 100 countries. Itmostly concentrates on small projects, whichit thinks have a greater impact.


Famous brands“In philanthropy, the stuff that will deliv-

er most often gets least,” says GG's boss, EricThurman. Brands count for a lot in the worldof giving, and many people like to give tofamiliar organisations. For instance, the RedCross, despite heavy criticism of its handlingof donations after September 11th 2001, col-lected almost 70% of the money given forrelief work after Hurricane Katrina wreckedNew Orleans.

GG challenges the big charities by findinga small, local group that is doing somethingwell and is ready to scale up its operations. Itsends potential donors a monthly cataloguewith a choice of evaluated projects, and laterprovides feedback on what their money hasachieved. “We want to be known for makinga direct connection between the money youraise and lives changed,” says Mr Thurman.

For more comprehensive informationabout who is doing what in the philanthrop-ic world, there is GuideStar. Nicknamed the“Bloomberg screen of philanthropy”, it wasfounded in America in 1994 by Buzz Schmidtand makes available online, free of charge,the tax-return data filed by 1.5m charitableorganisations, together with additional infor-mation. It has more than 400,000 registeredusers, and for a fee it offers detailed analysisof the data—such as which organisations dowhat in a particular area, how much a char-ity pays its chief executive relative to the aver-age, and so on.

Mr Schmidt is now busy setting up similarservices abroad. Last year GuideStar waslaunched in Britain, putting data online thathad been sitting on paper in CharitiesCommission and tax-office cabinets, largelyunlooked at, says Les Hems of the Institutefor Philanthropy, the parent organisation ofthe British end of GuideStar. The institute wasfounded in 2000 to help foster charitable giv-ing in Britain, not least by starting, and thenspinning off, new organisations that solveparticular problems. Britain's Treasury gave it£2.9m, topping up £1m raised from donors.Now GuideStar is trying to secure continuingpublic funding, as well as fees from licensingdata to organisations such as NPC. Other ver-sions of GuideStar are planned in India,South Africa and Australia.

Not everyone is impressed. Mr Porter, theHarvard strategy guru, thinks that GuideStar'sfigures are too superficial to be much use injudging, say, the performance of foundations.He helped establish the Centre for EffectivePhilanthropy, which among other things pro-duces donor perception reports based onconfidential surveys of organisations thatreceive money from foundations. Initiallyfoundations were reluctant to publish thereports, especially the critical ones, but that isstarting to change. “Smart non-profits are

realising that they can do well by being moretransparent, and talking about their successesand failures,” says Tony Knerr, a philanthro-py consultant.

“The social sectors do not have rationalcapital markets to channel resources to thosewho deliver the best results,” says Mr Collins.According to a recent article in Stanford'sSocial Innovation Review, in America raising$100 can eat up anything from $22 to $43. InBritain, the average cost of finance to chari-ties is around 25%, which is very high relativeto other industries, notes NPC's Mr Brookes.

The traditional grant-making process is alarge part of the problem. Donors would gen-erally rather fund a project than invest inbuilding an organisation. If a charity hasmoney in the bank, they will ask why theyshould provide any more, and what exactlytheir donation will be used for.

Not everybody is so short-sighted. Forexample, the Ford Foundation is encouragingthe greater use of debt and debt-like instru-ments because “there is a growing number ofincome-generating activities, and donorswant to help borrowers to get a credit ratingso they can go to the commercial market,”says Susan Berresford, the foundation's boss.

In Britain, Venturesome has been arrang-ing unsecured loans for charities, typicallybridging finance for those waiting to be paida promised grant. And in America CollegeSummit, which aims to raise the proportionof young people going to college in low-income areas, recently secured $15m ingrowth capital to fund its ambitious expan-sion plans for the following three years.Previously, it had to raise finance for expan-sion one project at a time, a costly, time-con-suming process.

According to George Overholser of Non-Profit Finance Fund Capital Partners, whohelped to raise the money, this is only thefirst of many private placements of donorcapital for non-profits. NFF Capital helpsnon-profits to raise capital for the organisa-tion as a whole, rather than for an individualproject. Mr Overholser claims to have apipeline of ten charities he considers suitablefor similar financing.

A confusion of capitalThe inadequate accounts of non-profits

have proved a big complication. In Americaat least, all inflows of money are treated asrevenue, even if it is really investment capi-tal. Yet to raise growth capital, as CollegeSummit has done, it is crucial to distinguishbetween money a non-profit receives for serv-ices rendered and money it is given to buildits organisation. Mr Overholser has devised acommon reporting method to track how themoney is being spent, to be used both bydonors and for internal management pur-

poses. This will introduce concepts from thefor-profit world, such as “burn rate” (the rateat which capital is being used), giving all con-cerned a better idea of how well the expan-sion is going. Now non-profits can workbackwards from their expected long-term sus-tainable sources of finance to work out theircurrent need for capital, and how to structureit, says Mr Overholser.

In the capital markets, there has been aproliferation of investment opportunities,from mutual funds to complex derivatives.Something similar may be under way in thephilanthropic world, ranging from invest-ments that pay a decent return on money putto worthy uses to structures that allow donorsto give their money away more effectively. InAmerica, Google.org has just invested $5m inthe Acumen Fund, which channels donors'money to a portfolio of entrepreneurialpoverty-fighting organisations.

In Britain, NPC and the Charities AidFoundation recently launched a couple offunds that will allocate money to a portfolioof charities, monitor its impact and keep thedonors informed about progress. The firsttwo funds concentrate on charities in partic-ular sectors, as their names suggest: theEngaging Young Lives Fund and the FulfillingOlder Lives Fund.

A host of new tax-favoured opportunitieshave been coming on stream at the sametime, guided by Sir Ronald Cohen, a private-equity grandee, philanthropist and chairmanof the British government's Social InvestmentTaskforce. For example, Bridges CommunityVentures, which invests in businesses indeprived areas of Britain, has done well withits first fund and is raising another. CharityBank—“the compassion of a charity andstrength of a bank”—has been set up to pro-vide banking services exclusively to charities.Last year, the government launched theCommunity Interest Company, whichengages in commercial activities for commu-nity purposes that are not primarily drivenby profit. They can pay dividends and bor-row, but can be sold for full value only if themoney remains in the charitable sector.

Driven by growing demand from wealthyclients, private banks such as Goldman Sachs,HSBC, Coutts and UBS are now scaling upphilanthropy advisory services way beyondtraditional tax and inheritance advice andasset management. A growing amount ofconsulting advice, too, is available to philan-thropists and those they fund. RockefellerPhilanthropy Advisors is probably the lead-ing consultancy concentrating solely on thegiving side.

Advise and consultSome of the big management consultants

are also expanding their non-profit business-


es. In 1999, McKinsey created a separate non-profit practice specialising in three mainareas: global public health, foundations, andinternational aid and development. In gener-al, it charges half its regular fee for such work,though for a particularly deserving cause itmay drop it even further or forgo it altogeth-er. Its clients include the Gates Foundationand Bono's campaigning organisation, DATA(Debt, AIDS, Trade, Africa).

Bain adopted an even more ambitiousstrategy. In 2000, it launched Bridgespan, astand-alone consultancy and executive-search business for non-profits. Run by theformer head of Bain, Tom Tierney,Bridgespan aims lower than McKinsey, at

mid-sized non-profits. It now employs 75people who typically earn 30-40% less overa five-year period than they would at Bain.Even so, last year it had 1,700 applicationsfor 18 jobs. Bain would like Bridgespan tospread to other countries, but there is plen-ty left to do at home, says Mr Tierney: “Weare serving only 10% of our demand rightnow, and turning down the vast majorityof approaches from serious clients.”

Perhaps the boldest, or craziest, idea is tolaunch a social stockmarket. Mr Skollthinks it may happen one day, though noone has any idea what sort of securitymight trade on the exchange. “Perhapsthere could be some sort of system involv-

ing social merit points,” he muses; some-thing akin to the recent development ofcarbon-emissions trading.

“The proliferation of market services isgoing to be very good for philanthropy,” saysMr Myerson of the Philanthropy Roundtable.“There will be more services, more choice,more information, more opportunities tocapture people's philanthropic imagination.”But in the end, those who are trying to pro-duce a philanthropic version of the capitalmarkets must answer a billion-dollar ques-tion: how do you measure success? The orig-inal sort has an incontrovertible answer:profits. But a philanthropic equivalent willbe nothing like as straightforward.

THE growing enthusiasm of the rich forphilanthropy, together with their determi-

nation to see their money used to bettereffect, has prompted talk of a new “goldenage of philanthropy”. But much remains tobe done before today's beneficent billion-aires can claim to follow in the footsteps ofsuch giants of giving as Carnegie, Rockefellerand Rowntree.

The willingness of so many of the newwealthy to apply part of their fortune to“making the world a better place” is cer-tainly welcome. True, there are questions tobe asked about what exactly is motivatingthem, and whether they are doing the rightthings to tackle society's problems. Yet phi-lanthropy, free of the short-term pressuresfrom voters and shareholders that con-strain governments and for-profit compa-nies, may be one of the best hopes for solv-ing problems such as the spread of AIDS,poverty and climate change.

The new philanthropists rightly insiston making their money go further, becausein the past a lot of donors' cash has beenwasted. One way of introducing moreleverage is to adapt elements of the capitalmarkets for use in this sector. Many inno-vative businesses have sprung up to pro-vide some of the infrastructure of this newphilanthrocapitalism. But in the absence ofmarket forces, much giving remains lesseffective than it should be.

To-do listTo improve matters, the first thing that is

needed is better measurement of the impactof philanthropy. When Carnegie builtlibraries, or the Rowntrees and Cadburys built

social housing, it was easy to see the benefitswith your own eyes. But how do you knowwhether Omidyar Network is achieving itsgoal of helping “more and more people dis-cover their own power to make good thingshappen”? Mr Davies, the co-founder of NewPhilanthropy Capital, concedes that measure-ment is difficult, but insists it is not impossi-ble: “Some of these things from an economicpoint of view are unmeasurable, but no moreso than measuring GDP in the service sector,which we do, though it is very hard.”

The second requirement is greater trans-parency. There are still far too many philan-thropists trying to do the same thing, oftenunaware that they are duplicating eachother's good works. More transparencywould help to avoid wasting scarce resourcesand promote consolidation in parts of thesector. Failures also need to be more franklyacknowledged, so that philanthropists canlearn from each other's mistakes.

Compared with the resources of govern-ments and businesses, philanthropic capitalis still tiny, so it needs to be used with theutmost care to ensure that it will make a realdifference. Yet many of the activities fundedby philanthropy do not add much value andcould be funded by more risk-averseinvestors, such as the state.

That said, some of the new philanthro-pists are doing their best to use theirmoney in innovative ways which, if suc-cessful, could then quickly be scaled up bygovernment or business. Indeed, a growingnumber of them recognise that the bestway to attract the capital needed to achievescale quickly is to find potentially prof-itable ways of solving problems.

The third thing that is needed to makephilanthropy better is greater accountabili-ty. Democracy and plutocracy do not sitcomfortably together, and even whendonors' money is being spent in non-democracies, the democratic world is likelyto take a growing interest in what is beingdone. The new philanthropists will have toget used to public scrutiny, cynicism andeven active hostility—together with a gooddose of Schadenfreude if and when theirschemes fail.

This should not surprise them. They are,after all, making increasing use of mass-mar-keting and public campaigns to supporttheir causes, as Bono did with his initiatives“Make Poverty History” and “One” aroundlast year's G8 summit, seed-financed by MrGates and Mr Soros. The flip side of that isthe risk of an equally high-profile publicbacklash if they do not deliver. But theyshould persevere, not least because they arefar likelier to make an impact if they can getthe public on their side. And even if some oftheir projects do not come off, many will.

One way in which these new philanthro-pists are already making a difference is byimproving the running of a big chunk ofsociety—charities, non-profits, non-govern-mental organisations and the social sec-tor—where amateurishness and inefficiencyused to be the norm. They are introducingthe best techniques from business andensuring that market forces are being givena much bigger role. This amounts to anindustrial revolution in what Rockefellercalled the “business of beneficence”. It hasonly just started, but rich and poor alikeshould hope that it succeeds.

Faith, hope and philanthropyWhat the new breed of donors can do�and what it can’t

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