Doing good the hardnosed way

W hen Gilbert Maurer was chief operating officer of the Hearst Corporation, he encountered many bright college graduates. But he noticed something odd about them. “They could write okay, but they couldn’t articulate,” he recalls. “If ever they had to give a presentation, it was ‘like’ this, and ‘you know’ that. I called it verbal landfill.”

Maurer, now retired but still on Hearst’s board of directors, decided to do something about it. “In my father’s day, you had to take something called ‘rhetoric’ in school, in my day it was ‘oral English’. It’s a teacher’s euphemism for ‘being able to express yourself’,” he says.

A few years ago, he broached his concern to the president of his alma mater, St Lawrence University, a small, private liberal arts college in upstate New York. “I asked him: ‘What do you think would happen if a St Lawrence graduate could have a leg up on other college graduates because he could speak and express his ideas more effectively?’”

St Lawrence immediately began working on the idea. With financial assistance from Maurer, who maintains a family foundation with assets of about $3m with Bank of America, the school created an endowed chair of speech and rhetoric, and an initiative to embed oratory competence throughout the curriculum. The university provides regular reports to Maurer on its progress.

“Even if a St Lawrence graduate – whether an economics major, a biologist or a philosopher – is able to express himself just 10 per cent better [than his peers] it will be a worthwhile endeavour,” he says.

Maurer is part of a new breed of wealthy charitable donors: strategic philanthropists, passionate about their causes, who want to ensure their philanthropic dollars have the greatest return – and impact – possible.

“This is not your father’s philanthropy; this is a whole new world of charitable giving,” says Eric Kessler, principal at Arabella Advisors, a philanthropic investment advisory firm in Washington, DC. These new philanthropists are practical, hands-on, and tend to have a hardnosed investment mentality. In many ways, the donors act as business consultants and the return on their investments is judged by measurable performance results rather than profits.

“It’s about developing an investment strategy and taking an analytic approach to your time horizon, risk tolerance, goals, and outcomes,” says Kessler.

Strategic philanthropy was once strictly the purview of the business world, combining a company’s marketing and charitable goals.

A business, for instance, might give a grant to a non-profit theatre and, in return, it would provide special performances, backstage tours, and access for the company’s employees or clients.

Today, however, strategic philanthropy has moved to the individual level and has taken on a slightly different meaning. “Strategic philanthropy is broadening from the corporate realm to the personal realm,” says Stuart Danforth, chairman of Danforth Associates, an investment advisory firm outside Boston. “It’s about individuals being more strategic in their giving – they’re not just giving money to a good cause, they’re trying to effect change for a reason.”

Kessler says there are two main reasons for this: “On the positive side, these are people who have earned their wealth through hard-edged business strategy. They’ve spent a lot of time amassing their wealth through business principles and they want to give it away using those same business principles.

“On the negative side, they read the newspapers and they see Enron-style scandals at non-profits. From an investor’s standpoint, that’s what is driving people to be more analytical in their approach.”

Charitable giving in the US reached a record $295bn last year, partly fuelled by “megagifts” from the rich and donations from foundations. Americans as individuals gave an estimated $223bn last year to charity, or 4.2 per cent more than they did in 2005, according to statistics from the Giving USA Foundation.

Hemant Singh, founder of New York City-based Private Wealth Management, which specialises in holistic financial advice, says the strategic philanthropy trend has been inspired by the generosity of Bill Gates and Warren Buffett. Last year, Buffett, chief executive of Berkshire Hathaway, pledged $31bn – the largest charitable donation in history – to the Bill and Melinda Gates Foundation to help it pursue its goal of curing the world’s 20 leading fatal diseases.

“Two of the wealthiest men in the world have decided that the best thing to do with their money is to give it away, and that’s a profound statement,” says Singh. “When people have achieved a certain level of monetary success, they come to understand that they have made the money, but the money doesn’t make them.”

Wealthy Americans are no longer content to merely write cheques to their favourite charities without accountability, says Singh. “That passive form of giving and investing has gone away. People want the highest yield possible. These are people who have the resources, the confidence, and – most importantly – the conviction.”

The first step in determining your own strategic philanthropy, experts say, is to find out where your interests lie. “We encourage families to take time to figure out where their passions lie, what it is they care about,” says Kessler.

Once you’ve identified some target organisations, Kessler advises digging deeper. “I recommend you visit the organisation: see what’s going on, attend their programmes, meet their directors”. It’s also helpful, he says, to have a clear sense of your philanthropic goals. “Ask yourself: What is the return you want on your philanthropic investment? Is it to solve the educational crisis in Chicago? Is it to put people in New Orleans back in their homes? Or to help figure out the global Aids crisis? You want to have something measurable.”

Singh says many firms can help clients implement their vision, but it’s helpful to have thought about whether you want to support an existing organisation or create something new. “Do you want to be involved in building a school in India from the ground up, or do you want to find an organisation that’s already doing it and support them?”

The second step is looking at your assets and determining the most efficient, tax advantageous mechanisms for achieving your vision. Experts say ultra-high net worth individuals with significant philanthropic intent tend to benefit from specialised advice.

Danforth says a specialist adviser will help you decide on the “best vehicle for the mechanics of your giving”. In other words, their job is to maximise your assets, then match up how best to deploy them. In some cases, this might be a charitable remainder trust, while in others a foundation or donor advised fund might be best.

Third, experts say, you should work with the non-profit organisation to set up a plan for your donation, complete with monitoring and evaluation elements.

Donors should think about how they want to be kept appraised of how their money is being spent: for instance, will annual reports suffice or are monthly face-to-face meetings preferable?

Eileen Wilhem, who heads Bank of America’s philanthropic management unit, advocates that as part of writing the cheque, donors should create a monitoring agreement with the organisation. “Clear, candid communication is key,” she says. Moreover, she adds, donors must maintain a spirit of collaboration. Often they join the organisation’s board or volunteer at its offices.

It is important to think about whether you’re a major stakeholder in the organisation and just how big a say you ought to have, says Kessler. “The rule of thumb is to consider your donation in terms of the size and budget of the organisation. A $50,000 donation to a community group that has a budget of $100,000 is one thing, but a $50,000 donation to the Red Cross, which raises billions of dollars year, is another.”

The final part of the process is assessment. A recent court case centring on a $35m donation made in 1961 by Charles and Marie Robertson, heirs to the A&P grocery fortune, to establish an eponymous foundation, the assets and income of which were dedicated to Princeton’s Woodrow Wilson School of Public and International Affairs, has heightened the need for givers and organisations to make sure they’re both interpreting donor intent the same way.

William Robertson, the couple’s son, filed a suit against the university in 2002, saying the money was given specifically to train students to work for the US government and that Princeton had failed to hold up its end of the deal. Robertson wants to spend the foundation’s money elsewhere.

Says Danforth: “Donors want to know how their money is being utilised. They want benchmarks for individual success.”

As for Maurer and his rhetoric initiative at St Lawrence, he is humble, but hopeful about its success. “The university deserves the credit. I was simply there to provide the wherewithal for making it go.”

Giving back to society

For wealthy Americans, giving back is more important than leaving a legacy, according to a recent study by Bank of America’s philanthropic management group and the Center on Philanthropy at Indiana University, writes Rebecca Knight.

The study, which looked at the philanthropic behaviour of nearly 1,000 high net-worth Americans, found that 86 per cent of wealthy donors are driven by a desire to “meet critical needs”. After that, they are motivated by “giving back to society”.

“Leaving a legacy” was cited by only 26 per cent of the respondents, with a desire to “limit the funds available to my heirs” cited by just 8 per cent of participants.

The study also found that entrepreneurs are especially generous donors. In comparing household donations by sources of net worth, entrepreneurs stand apart for giving, contributing an average of $232,206 annually. The next highest donors were those who inherited wealth, giving an average of $109,745, less than half the total of entrepreneurs.

“When I first started, a lot of the wealth was inherited wealth, but now we’re seeing more self-made wealth, more wealth from entrepreneurial activity,” says Eileen Wilhem, managing director of Bank of America’s philanthropic management group.

“They want to have an impact; they want to give back in an efficient way, an effective way. They have big hearts but tough minds.”