WILL PHILANTHROCAPITALISM SAVE THE WORLD?

 
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WILL PHILANTHROCAPITALISM SAVE THE WORLD?

Andrea McManus, ViTreo Group Inc
June 4th 2019

 
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First of all, what is ‘philanthrocapitalism’? The term first appeared around 2006, and is used to describe the need for philanthropy to change itself to become more like the for-profit markets and include ‘investors’ and ‘social returns’ (Stanford Social Innovation Review, Point:Counterpoint: Philanthrocapitalism is Not Social Change, Kavita Ramdas, December 15 2011). The premise is that through the use of corporate intermediaries and donor-advised funds (i.e. the Fidelity Charitable Fund) which provide the opportunity for impact investing, philanthropic funds have the ability to significantly increase scope and impact by mirroring the efforts of the private equity investment world.

Historically, big scale philanthropy was mainly carried out by large institutional and private foundations. In Canada, these include among many others, The Rogers Foundation, RBC Foundation, J. W. McConnell Foundation and The Gerald Schwartz & Heather Reisman Foundation. Across the border, in the U.S., we have the Carnegie foundations, the Ford Foundation, and The Rockefeller Foundation, among others.

 
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More recently, here in Canada, the approach to how these foundations give is changing according to Philanthropic Foundations Canada….”Within the sector, a larger number of very big private foundations with assets over the billion dollar mark are appearing, a trend that is a new phenomenon for Canada. Among established foundations, the millennial generation of young people now in their 20’s are starting to make their voice heard more significantly on foundation boards and demonstrating a different approach, particularly an interest in impact investing and deployment of all assets for mission." (Philanthropic Foundations Canada, A Portrait of Canadian Foundation Philanthropy, September 2017)

And in the U.S “as a consequence of unprecedented worldwide wealth accumulation and the rise of new philanthropists over the last two decades, the largest US institutional foundations (by which we mean independent foundations where the original donor is no longer alive, or, if the donor is living, where there is a substantial staff and other infrastructure to manage the giving) no longer dominate the philanthropic marketplace….The top 10 American foundations in 1993, which together accounted for 15 percent of foundation giving, by 2014 accounted for only 4 percent. Moreover, of the top 10 US-based philanthropies in 1993, only two remained among the top 10 in 2014.” (Stanford Social Innovation Review, Reimagining Institutional Philanthropy, Alison Powell, Willa Seldon and Nidhi Sahni, Spring 2019)

So, with these changes afoot and the dominion of some of these foundations on the wane, will these philanthrocapitalists, or corporate intermediaries, have the ability traditional funders once had to do good and have significant impact? Authors of a 2012 article, The Rise of Social Capital Market Intermediaries, in the Stanford Social Innovation Review, Bill Meehan & Kim Jonker think they will do better, “The vast majority of donors and grantmakers were motivated more by their hearts than by their heads, making giving decisions without good information or meaningful evaluation about the organizations they funded.”

Many of the people behind philanthrocapitalism come from a background in the world of finance and global investment. They bring new investment cultures and tools to philanthropy.

“‘Venture philanthropists’, for example, are specifically importing the venture capital model of a more hands-on engagement with the success and growth of recipients than traditional philanthropy has seen, tailoring the type of financial and other business support to suit different stages of development. They seek out high-quality projects for their donors to invest in (give to), and aim to prove that high social and economic returns can be achieved when funds are allocated appropriately to carefully selected projects. Venture Philanthropy Partners, for example, brings a full-blooded venture capital approach. They say ‘they are applying the same entrepreneurial spirit that brought them success in the for-profit arena to their innovative philanthropic efforts’. They talk of their ‘investment portfolio’, of ‘philanthropic investments in high-potential nonprofit organizations’, of ‘investment for different stages of the investment cycle’.”

(Stanford Social Innovation Review, Reimagining Institutional Philanthropy, Alison Powell, Willa Seldon and Nidhi Sahni, Spring 2019)

With impact investing through corporate intermediaries, donors have the ability to make investments that help achieve certain social and environmental benefits while generating financial returns. They can also make their money go further, be more strategic with their giving, and support corporate practices they believe in, as well as use the returns generated to create further social impact.

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We’re now seeing traditional foundations like the McConnell Foundation and Inspirit Foundation  change how they fund not for profits by pushing “for policies and programs meant to encourage social impact investing, including the use of specialized bonds to support non-profits. About $9.2 billion has been invested in impact assets in Canada, according to MaRS, which launched a health care social impact bond program in 2016. Among its earliest deals was a performance-based contract between the Heart and Stroke Foundation of Canada and the Public Health Agency of Canada on a hypertension prevention initiative; the foundation is only paid when a third-party shows the program has produced results. Other areas that have generated a high level of interest among potential impact investors include clean energy, environment and water-related projects, small-scale agriculture, affordable housing, and Indigenous business ventures.” (The Philanthropist, Canada’s Charitable Sector: What to Expect in 2019, John Lorinc, January 07 2019)

WHAT ROLE DO THE NEW INTERMEDIARIES PLAY?

They offer information, advice and philanthropy management services; some of them also create, manage and distribute funds. “They aim to help a new generation of donors/social investors to identify their philanthropic investment strategy, options and potential returns. But the new intermediaries are not simply service-providers: it is important to understand their role, to borrow another financial term, in leading the market. They are raising expectations of what social investment can achieve, and generating a demand for more specialized and detailed information about the nature, activities and prospects of the NGO sector. They are the real philanthrocapital market-makers (Stanford Social Innovation Review, Reimagining Institutional Philanthropy, Alison Powell, Willa Seldon and Nidhi Sahni, Spring 2019).

Will this new type of giving solve society’s issues where institutional and individual giving has not been able to?  Some say not.

“We have worked with a number of institutional foundations, including some discussed in this report, and we believe that because they retain distinctive assets for tackling many of society’s toughest problems, they can (and will) wield significant, even outsize, influence in the years ahead. Because they are often structured in perpetuity, many institutional foundations possess a long time horizon, an approach many newer donors eschew…’Many funders set up initiatives that they leave in place for five or 10 years,’ says Carol Larson, president and CEO of The David and Lucile Packard Foundation. ‘But you need time horizons of 15 years or more to really make changes that can stick.’ Darren Walker, president of the Ford Foundation, echoes the importance of time: ‘I can think of two initiatives for which we’re just fully understanding their impact 15 years later. One achieved a lot and the other didn’t come close to expectations. But we’re only really learning that now.’”

(Stanford Social Innovation Review, Reimagining Institutional Philanthropy, Alison Powell, Willa Seldon and Nidhi Sahni, Spring 2019)

In the 2017 book Putting Wealth to Work, author Joel Fleishman states that “institutional philanthropy has been ‘collecting, testing, and refining the knowledge relevant to their respective missions, preserving and enhancing the utility of that knowledge, and passing it along to future generations”.

Will the many changes in the philanthropic sector - the rise of the new uber wealthy philanthropist, the emergence of new giving methods and the influence of the new generations - be enough to rid the planet and its inhabitants of most of its many woes? Will these disruptions change on a large scale how institutional philanthropy is done? Or will philanthrocapitalism be the new king?

Stayed tuned for next week’s The Provocateur where we will talk more about this.


Check out ViTreo's Braintrust as we bring you additional insights into what is and what will be important in philanthropy through our Weekly News Recap and our Podcast.


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ABOUT THE AUTHOR

Andrea McManus, Chair, Board of Directors, Partner
ViTreo Group Inc

Andrea McManus is a Partner with ViTreo with over 30 years’ experience in fund development, marketing, sponsorship and nonprofit management. A highly strategic thinker and change maker, Andrea has worked with organizations that span the nonprofit sector with particular focus on building long-term and sustainable capacity. 

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