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Philanthropy: a revival of private initiative

Rupert Graf Strachwitz has worked as a consultant to philanthropists and foundations for over 15 years after a career in the not-for-profit sector. In 1989 he founded Maecenata Management, the first consultancy to specialise in this area in Germany. Since 1997, he has been the director of a research institution, the Maecenata Institute for Non-profit Studies. He currently sits on the German Federal Parliamentary Commission on Civic Engagement and serves on the board of a number of foundations at home and abroad.

Voluntary contributions to society – philanthropy – is one of the oldest ways an individual can communicate with others. Historically, the role of the state may have seen a gradual decline, but private initiative has now become more important than ever and family businesses should realise the significance of establishing their own philanthropic institutions

Philanthropy is one of the oldest ways a private individual may communicate with society. It has been argued that while the state is defined by the exercise of power and the market by exchanges, the remaining pillar of society – civil society in modern terms – is defined by gifts, be they in time, in kind, in ideas or in assets. To give is in this sense a voluntary contribution to society at large, a contribution that will facilitate communication and thus yield a reward, albeit non-material.

It has often been said that giving is prompted predominantly by a desire to receive something in return. In fact, this has often been held against the whole concept of philanthropy when arguing that the state was infinitely better suited to satisfy all the needs of its citizens. The state alone, as an abstract, non-personal entity, was supposedly free from the human sentiments of greed and cunning, sentiments that were also supposed to prevail in so-called philanthropy just as much as in market capitalism.

Although this notion of the state was all too dominant in totalitarian states in the 20th century, this particular view point was not invented by Lenin or Marx. Indeed, even Lenin and Hitler would have argued in favour of giving as long as they had the sole choice of to whom to give.

It was actually since the 17th century that the role of the state became steadily stronger both in theory and in practice, when market and socialist economies alike came to rely almost totally on force and exchange – in other words, on taxes and rates, and on fees and payments for goods and services. Philanthropy, although never extinct, tended to be regarded as marginal, which it was in all countries that adhered to the principles of an overpowering welfare state. Where was there room for private initiative and voluntary giving if every need was supposedly cared for?

Today, it has become clear that this goal was never achieved. Not only were the totalitarian regimes of Central and Eastern Europe to collapse around 1990, but in western Europe too, it was realised that neither could the welfare state accomplish what it had set out to do nor would it have been desirable for it to do so. Society, without continuing private and personal initiative, could not have any stability. Suffocating personal creativity and informal volunteer action spelled depriving a political order of the ingredients needed for a healthy development. And while all this is still in the process of becoming part of an overall culture, there can now be no doubt at all that the time is ripe for a revival of private initiative, not only in the business world but also when it comes to pursuing the common good.

So, as we enter the 21st century, it is time to revisit the concept of philanthropy. Three questions come to mind: Do old models, never extinct, merit being revitalised and strengthened to meet the requirements of a modern civil society? Is there acceptance of a new role for men and women who are, or might become, active philanthropists? And what can the business community in particular contribute?

Old philanthropy
When Plato, the philosopher, died in the 4th century BC he left his private fortune to the academy he founded in order for it to flourish without financial constraints and without undue influence from outside. In so doing, Plato became a philanthropist. Philosophy, as devised by him, beyond question was and is a valuable contribution to society. His is also the first documented example of creating a new autonomous foundation in perpetuity. The academy survived for nearly 900 years until the Emperor Justinian put an end to it.

Whether this constituted undue interference with a non-governmental organisation or an act of grace to a moribund institution is a topic of scholarly debate. Here, the case is mentioned for a different reason. It is an early example of what philanthropy can achieve and proof of the existence of the notion of philanthropy even in Greek times.

Jewish tradition upholds charity as a core value; in Islam, we find charity as one of the five core obligations of every Muslim. Moreover, it is certainly true to say that European and American philanthropy  is strongly guided by Christian doctrine. Loving one's neighbour and acting like the good Samaritan are fundamentals of Christian belief.

But it should be remembered that pagan Roman Emperors too, are known to have given of their own assets towards educating the young, feeding the hungry, or sponsoring art. Social justice was not a big issue so it was generally accepted that everyone should give according to his means. The wealthy, be they rulers, grandees or men of trade – or indeed their wives and widows – were expected to be generous. This is how important institutions were created, cathedrals and alms houses were built, and local care for the poor was organised.

Over time, philanthropic institutions became centres of power in their own right, the Church itself being perhaps the most obvious example. Private philanthropy had been largely directed at the church as a stable and organised institution. Piae Causae meant more than religion; anything to do with the public good was deemed pleasing to God. By the 15th century, however, powerful business families had emerged who became philanthropists to ensure their position in society. The Medici in Florence and the Fugger in Augsburg were upstarts who used philanthropy as a means to gain reputation and power. Some of their philanthropic institutions survive to this day, bearing witness to the emergence of secular, competitive philanthropy.

The Church eventually became divided, prompting religious wars all over Europe. Relations between the individual and society were thrown open to change. The concept of a strong state emerged in France and spread across continental Europe, while in England and later in North America private contributions, in time or in assets, were still considered valuable and important.

Indeed, American society is constructed on the assumption that citizens will hand over matters to the state only when they cannot cope by private initiative, while in Europe it was rulers who made the state. No wonder that the theory of philanthropy in its modern form was developed in the United States.

New philanthropy
In the early 20th century, Americans such as Andrew Carnegie, John Rockefeller and Henry Ford introduced philanthropy to society in a new way. With other successful businessmen, they were driven by an urge to give something back to society – and to do it in a well organised way that would equal their business achievements. Carnegie Corporation of New York, the Rockefeller Brothers Fund and the Ford Foundation, to name just a few, were created to channel philanthropy into a well-managed, autonomous, sustainable institution.

There were certainly instances of this in Europe, too: Quaker families in England, such as Rowntree and Cadbury, thought along the same lines. Even in Germany, Ernst Abbe, virtually unknown, created and put nearly all his considerable wealth into the Carl Zeiss Stiftung that was to operate Zeiss Corporation and distribute the profits for the benefit of the local university and its employees. Unlike the Americans, Abbe had to endure considerable interference and mistrust from the government, but like them, by his initiative, he not only induced others to follow suit but also prompted a heated public discussion on the desirability of such large philanthropic institutions.

Through the 20th century, important philanthropists emerged all over the world. They were welcomed because they relieved the government coffers of some of their burdens; however, they were also eyed with considerable suspicion. Wars and other political events made potential philanthropists, in Europe in particular, shy away from strategic philanthropic action. Many gave to government or distributed their money in other ways in order to remain unidentified.

Philanthropy was not a subject of serious academic research nor of public debate. And, naturally, wealthy families were much more rare in Europe than they were in North America. So despite a number of outstanding philanthropic achievements, the last century was not one where serious philanthropy was prevalent.

The end of the century, however, saw a change of profound influence. In the light of collapsing socialist structures, of urgent needs, of new challenges and of the incapability of government to cope with every aspect of society, private action was called for. Givers of time and assets were welcomed in a way that they had not been for a long while, and it was felt that organised action taken by citizens was a potential driving force, an agent of change, rather than a marginal, self-indulgent activity.

Suddenly, philanthropy was no longer "the rich man's playground" – it had become very important. George Soros, Reinhard Mohn and others were looked upon with admiration. Critical views were now rarely heard. With the emergence of a strong civil society, governments were prone to improve on the regulative framework.

Why be a philanthropist?
However, not many families have followed the example in a big way. Why should they? They were heavily taxed, and tax advantages for philanthropists were not all that inviting. There was a business that needed a steady influx of capital, and there were all kinds of other tempting activities that took money and time.

On the other hand, many had an urge to do something for society. Was it prevailing Christian values? Was it a feeling of giving back something to a society that had treated them well? Had there been a specific occasion that had opened eyes to needs? Or was it perhaps the search for something worthwhile to occupy one's time? To provide a successor to one's fortune in the absence of natural heirs, or to cut these heirs out for whatever reason?

Over the past 15 or so years, I have spoken to hundreds, perhaps thousands of people, who wanted to do something philanthropic – giving time and particularly giving money. Except in a very few cases, they had an idea what to do. However, my experiences have taught me that while nearly everybody thinks about philanthropy at some stage in his or her life, there is never a simple reason for doing so. Not everybody can actually do what they would like to. There are financial constraints as well as others. Some give generously of their time and cannot give money. Many give both, and some make big donations but do not want to give time.

Many would find it hard to say why they give, and many would not readily admit that they do or that they would want to. Some have given me a reason that I gradually came to realise was quite untrue. And some have all the arguments why one should not give – just so they are protected from their own inclinations.

As we move into an age where philanthropy is important, we will need to open the debate. We will need to do some research on philanthropy and look more closely at motives. More importantly, we will need to instill self-confidence in those who shy away from organising their philanthropy in a fashion that will really make a difference – and as they would organise their businesses. And we will need to make some philanthropists see that their own preconceived notions and prejudices may not match the real situation, and in any case need to be discussed on a level playing field with those who are giving their time and those on the receiving end.

Finally, we will want to caution philanthropists as to how their actions may be received. They will have to learn something about transparency and will have to face living with opposition, as philanthropy in an open society is not a grace and favour affair but rather one of many contributions to be defended and opposed. So if we accept all this, how do we organise it?

Business and philanthropy
Business companies have over the past 10 or 20 years been through more than one stage of modernisation. Guided by consultants, corporations have been reshaped over and over again. They have become increasingly international; indeed, globalisation of the business community has advanced more rapidly, more decisively and more successfully than either the state or civil society.

This has lead some people to be increasingly afraid of a world ruled overpoweringly by corporate interests. With the state – any state – getting weaker and weaker, it is felt that a strong civil society is necessary to keep society in balance. Indeed, the notion of social capital as developed by the American political scientist Robert Putnam implies that informal networks and organisations with no business aims are the necessary preconditions to a healthy society, as both the state and the business community are dependent on the social capital that will develop only in civil society. So long-term self interest has become a driving force for business corporations to become good corporate citizens, responsible investors in the public good.

Generating social capital and teaching not-for-profit organisations sound and well proven principles of how a business should be conducted are the two most important contributions the business community  can make to civil society. This community, however, consists of individuals who are citizens of a state – or increasingly of the global village – and stakeholders in civil society as well. So we find these individuals and their immediate circles, their families, tied into multiple worlds and possibly even torn between conflicting loyalties.

How should the heirs of a pharmaceutical company organise their philanthropy if their inclination – or that of one of them – is towards natural medicine or against market capitalism as such? And how should a big corporation change its philanthropic policy from supporting its managers' leisure activities to community involvement if the shareholders or most of the executives do not agree?

Neither of these cases are served by a quick answer. Philanthropy is not about writing cheques. It is about teaching and learning, about experience, consideration for others, insight and transparency – none of which are achieved at the spur of a moment or by giving out orders.

If philanthropy is to be as important as it may be today and if it is to make a difference, research and development has to go into it as much as into any other business activity. And it will need time to educate stakeholders as to what modern philanthropy is all about. At some point, it will need some strategic decision-making: modern philanthropy is not about pet projects and not about buying into echelons of society, although real philanthropy might actually have that effect.

Philanthropy and family business
Families in business often know this better than business managers do. More often than not, they have been philanthropists for generations; quite frequently, it has been the women in the family who, under a tacit agreement of division of labour, have concentrated on this side of family life. They have been on boards of charities or fundraised for the local school. But, needless to say, this pattern has changed. The tacit agreement is no longer in force.

For this reason too, philanthropy needs to be rearranged. And again, long-term decisions are called for. If philanthropy is to have an impact, it has to be strong. If it is to be visible – which is, of course, not always the case – it has to be special. If people are to like doing it, it has to have something to do with them. And if, looking back, it will want to have seemed worth while, it will have to look forward today.

From America, we learn that families increasingly are creating their own philanthropic institutions. Once the mind is made up to do something for the public good rather than by just paying taxes, why not take that argument to the end and organise philanthropy in an institution that the family controls? This institution will probably be a foundation or charitable trust.

The world is full of misconceptions of what a foundation is. In reality, it can be a very flexible organism. If it is set up as a grantmaking body, it can limit itself to reviewing applications but it need not. It can be a very active player, too. If it is operational, it may run its own institution but it need not. It can just as well manage projects with a built-in end. There is no limit to the ingenuity of a foundation board in devising its own strategy and action plan. A trust may operate locally or globally and, in many cases, far fewer funds are needed to pursue a specific goal than is usually supposed.

Philanthropy today is reasonably well developed in theory, goals, impact, governance and management. It is fair to say that there is a specific body of theory, that governance is different, that impact needs to be measured by different scales and that management has to be tailored to suit a civil society organisation. There is a state of the art in philanthropy, a level of professionalism has been reached and there are experts around who are aware of this. So why not ask them for help before decisions are taken? If this is not done, the amount of reinventing the wheel that occurs in philanthropy is horrific. Consultants really do not want to spoil anybody's fun – and it may be and should be fun – but philanthropy has become too important to rely solely on beginners.

What really makes for a good philanthropic initiative is when professionals in the particular field of action, professionals in philanthropy, spirited philanthropists with fresh ideas and perhaps sceptics in the family, get together and debate the issues involved. Once this has been achieved, a family philanthropy office will handle the details and, if the family so wishes, will present and develop projects and programmes that fit into the agreed framework.

Finally, philanthropy should be about visions. My vision is that all potential philanthropists achieve what they have in mind, undeterred by restrictions and regulations, and adverse opinions. Society depends on individual contributions. The enthusiasm with which they are
pursued is a wonderful reward.

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