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November 24, 2005 4:28 pm

A helping hand in a shrinking world

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In the aftermath of the Asian tsunami, an unprecedented raft of public donations was seen across Europe. While this mass outpouring of generosity may not be repeated, European philanthropy is moving into a new era in which creative models of giving are emerging and a new generation of high net worth individuals seeks to donate money in ways that maximise impact.

There is, however, a long way to go before individual and corporate philanthropy in Europe will begin to compare with levels of charitable giving in the US. According to figures from the Charities Aid Foundation, charitable giving by individual Americans accounts for about 1 per cent of GDP, substantially more than European countries. In France, the figure is 0.28 per cent of GDP, in Germany 0.13 per cent and for Italians a mere 0.09 per cent.

Many fundraisers lament the fact that, compared with the US system, claiming tax breaks for giving is complex and the maze of different fiscal regimes across Europe make tax efficient cross-border giving difficult.

In the UK, for instance, although tax incentives for giving have improved dramatically, the system remains overly bureaucratic. "It requires people filling in forms and then checking those forms, which creates a cost," says Les Hems, director of research and development at the Institute for Philanthropy, a UK think-tank. "So there's huge inefficiency and transaction costs that are unacceptable."

Tax breaks, however, are not the only reason people donate and European fundraisers often look to the culture of giving on the other side of the Atlantic with envy. To foster greater giving, European charities are starting to introduce some of the professionalism exhibited by the US voluntary sector, establishing closer relationships with donors and improving their accountability and transparency.

But simply transferring the US model of philanthropy to Europe is not an option, since the social, economic and political conditions in Europe are markedly different to those in the US, where social spending by the state is far lower and religion accounts for a huge share of donations.

At the same time, a single approach cannot be applied across Europe, says Luc Tayart de Borms, managing director of the King Baudouin Foundation. He adds that strong cultural divisions exist between, for example, countries with Catholic traditions and those with cultures rooted in Protestantism.

"In Catholic countries, the approach to individual responsibility is different and this has consequences on philanthropic methodologies: in a Catholic, Latin world, it's much more about projects, much less about individuals; in the Anglo-Saxon model, individualism is positive, so you have donations and volunteering."

Despite such cultural differences, Europe's new philanthropists have many things in common. Unlike their predecessors, they do not simply want to pass on all their money to their children. Many also want to take a far more hands-on approach to giving by establishing long-term relationships with their beneficiaries or taking a place on the board of the charity.

Often, however, those looking to engage in philanthropic activities do not know the best way of doing it. In response, a new industry is emerging to professionalise the process of giving, with European private banks beefing up their philanthropy advisory services and organisations such as the Charities Aid Foundation, New Philanthropy Capital, the Community Foundations Network and In Kind Direct offering a range of services that make both corporate and individual giving easier, more effective and more tax-efficient.

Group giving is also on the rise, and community foundations make up an increasingly large chunk of the charity sector. "We're seeing new forms of collaborative giving emerge," says Salvatore LaSpada, director of the Philanthropy Workshop at the Rockefeller Foundation, and soon to take over as chief executive of the Institute for Philanthropy. "Even at a more humble level, there are giving circles where people come together once a month to pool funds to make contributions."

At the same time, new organisations are helping to fill the information gap when it comes to the voluntary sector. New Philanthropy Capital, for example, conducts rigorous, analytical research into the performance of charities to ensure that donors' money has the greatest impact.

Behind this new, more professional approach to giving is the fact that the new philanthropists tend to be successful businesspeople who want to see the skills and strategies of the financial world brought to bear on the voluntary sector. Many are now engaging in "venture philanthropy" – a concept that emerged in the US roughly a decade ago but that is now attracting attention in Europe among private equity and venture capital professionals.

"There is a connection with the private equity mentality, whereby you invest in companies to increase their commercial value by purchasing equity in the company and working with the management team to build the value of that company," says Rob John, adviser to the European Venture Philanthropy Association. "Venture philanthropists are granting money to a non-profit [organisation], but they are engaged in the same way – they want to increase its social value by bringing in skills and networks and working with the management to create a more effective organisation."

Pioneering this approach in the UK is Impetus Trust, founded in 2002 by Stephen Dawson, a venture capitalist who felt his own charitable donations were not being used in the most effective way and wanted to enhance their impact.

Impetus Trust makes funds available to a voluntary organisation only after conducting an intensive analysis of its operations, including assessments of its strategy and the quality of its management team. "According to the charities, this has been of huge value," says Mr Dawson. "It is a great independent assessment of where they are and how they compare with competitors operating in their world – and a couple of them have changed direction quite radically as a result of the feedback."

The businesslike approach being applied by venture philanthropists such as Mr Dawson is likely to gain momentum as MBA students graduate from business schools, many of which now offer courses or electives on social entrepreneurship and non-profit management.

In Spain, IESE Business School's MBA programme includes a course on social entrepreneurship and the school is working with the Schwab Foundation on a case-study series looking at the challenges facing social entrepreneurs. Next year, Insead, based near Paris, will run an executive programme on social entrepreneurship, while at Oxford University's Sa•d Business School, social entrepreneurship accounts for part of the MBA course content and scholarships are awarded to individuals working in the area of social enterprise.

"Most people are doing an MBA because of commercial ambitions," says Mr John, who is a visiting fellow at Sa•d's Skoll Centre for Social Entrepreneurship. "But of our 200-plus MBA student intake for this year, probably 25 or 30 will at least do some of the electives in social entrepreneurship, which is encouraging."

In the corporate world itself, patterns of giving are also shifting, with gifts in-kind and employee volunteering making up a growing proportion of company donations. And charities are not the only beneficiaries. Companies have found that such giving enhances their own operations, with, for example, improved staff morale.

When Centrica, the parent company of British Gas, reviewed the benefits of a volunteering programme for employees in its Cardiff call centre, it found that 66 per cent of participants said the programme made them feel more positive about British Gas as an employer.

Volunteering, too, is increasingly being used as a strategic tool to help employees acquire new skills, since community projects – often involving work in difficult conditions with few resources – present the sorts of challenges they would not encounter at the office.

For charities, this kind of giving can be more valuable than cash. "These are highly skilled people with, for example, legal experience that a tiny charity would never be able to afford," says Julia Cleverdon, chief executive of Business in the Community, a UK organisation that works to improve business impact on society. "So the difference the business can make if it uses its resources effectively is much greater than simply throwing cash at something."

However, while corporate giving remains important, many believe greater potential lies in individual giving. "A lot of our new work will focus on individual philanthropy," says Colin Tweedy, chief executive of Arts & Business, a UK body that helps the corporate world engage with arts organisations.

"We have some fundamental decisions to make in the next few months on how much we redesign Arts & Business to focus on individuals."

For an organisation that has traditionally concentrated on the corporate sector, the comment is significant. Mr Tweedy believes that, in the new era of philanthropy, the individual will dominate.

"There's a lot of money being made in the City and individuals get tax breaks that you never had before," he says. "This is the age of the individual."

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