Opinionista Shelagh Gastrow 6 August 2019

Time for banks to come to the philanthropy party

Banks are in a special position to inspire and encourage the growth of philanthropy and they can do this by engaging with their high-net-worth customers, either individually or through events that focus on the benefits of philanthropy.

2019 has seen greater curiosity and attempts to measure the size and scope of philanthropy, globally, but also in South Africa. Once again, those philanthropic foundations that are publicly known have been requested to complete questionnaires, participate in interviews and generally reveal information relating to their sources of funding, size of endowments, annual spend and their focus areas of interest.

The one constant for any researcher is the difficulty in obtaining information. As a result, extrapolations from a small sample are made and the outcomes and suggested figures can only be a flying guess. Nobody in South Africa really knows the scope of philanthropic giving, including our own government.

There is an increasing awareness among philanthropic foundations of the need for greater transparency. While individuals who donate money are entitled to anonymity if requested, the issue relating to established private philanthropic foundations that have received tax exemption is not so clear. There are many South African private foundations that have emerged from obscurity and provide public information about how they operate and what drives their strategic decision-making. However, in the big scheme of things, they are probably the tip of the iceberg.

When I worked in a university fundraising office, regular funding was received from a range of charitable trusts managed by banks, financial services companies, accountants and lawyers. These rolled on year after year, with little change other than the possible amount of the grant. Clearly, the grants were made by rote, depending on the size of the endowment of the trust and no doubt, the beneficiaries remained the same year after year.

Significant numbers of private philanthropic trusts are held in the bowels of banks and the public, including government, has very little information as to how they operate, the size of funds under management, the structure of their boards, how and if those boards make grant-making decisions and to whom the funds are allocated. Many nonprofit organisations have attempted to research this large resource, but even identifying trustees or routes to apply for funds often prove impossible.

If we are to understand potential funding that is being allocated to charity, philanthropy and development, it is important for the banks to respond with figures relating to the philanthropic trusts in their care. These trusts are tax-exempt and, in essence, the public, therefore, has some claim to know what is going on. The level of distrust of the banking system will continue to rise from within the civil society sector as there is an awareness that huge amounts of funds have been invested and bequeathed to charitable trusts, but no information is available as to their size and scope.

The banks, in turn, state that they need to maintain confidentiality with regard to their clients, many of whom are now dead. Nobody is asking the banks for names, addresses and telephone numbers, but in order to understand philanthropic and development funding, we should be asking the following questions:

  • How much philanthropic/charitable money is being managed by the banks?
  • How much is annually paid out in grants to beneficiaries?
  • How many charitable trusts do not pay out anything at all?
  • Who makes the decisions around grants?
  • Which sectors benefit from these grants? and
  • How can civil society organisations access decision-makers?

As long as this massive resource remains under the radar, there will always be questions relating to how it is managed. Many banks have opened philanthropy offices that assist individuals and families that wish to establish a philanthropic entity with its registration, asset management and administration.

However, grant-making and distribution of charitable funds is not the core business of a bank. While the distribution of funds takes place, in my view, banks are not necessarily the most capable when it comes to decisions around strategic philanthropy. If an individual or family really want to leave a specific legacy, a private independent foundation with hand-picked trustees who are committed to its purpose, including family members, are more likely to make the appropriate strategic decisions related to its grant-making, compared with bank officials who serve as trustees.

In addition, if the founder is keen on one specific area of support, such as universities, a hospital or the environment, he/she might be better off making a large donation or a bequest to a university or hospital endowment with specific provisions as to what the funds should be used for. The sad tale of charitable trusts that lie around in many banks in perpetuity, losing their meaning with each decade as they are merely one of the hundreds that the bank manages, is not, in my view, a fair way to treat the memory of the founder.

At the same time, banks are in a special position to inspire and encourage the growth of philanthropy and they can do this by engaging with their high-net-worth customers, either individually or through events that focus on the benefits of philanthropy.

In addition, banks can offer impact investment opportunities to their clients so that their investments are aligned with their values as well as undertake research such as the Giving Report regularly produced by Nedbank Private Wealth.

By its nature, business is not altruistic. Why would banks provide philanthropy offices? Essentially, this is a niche product, adding value to their client services. However, most importantly, philanthropy services bring funds and trustees fees under management. In some cases, banks employ consultants to advise on their grant-making and this does, to some extent, mitigate the malaise that sometimes sets in.

Of concern is that decisions could be made based on financial returns, rather than the desired philanthropic purpose of the founder. However, as mentioned before, grant-making is not the core business of the bank and it is not in the bank’s interest to spend money on extra personnel and research with regards to specialist grant-making practice, changing strategies for each foundation as the world changes, thinking through a range of innovative grant-making such as multiyear grants, exit strategies, monitoring and evaluation of projects.

The civil society and philanthropy sectors are extremely complex and any adviser should have good connections on the ground and specialised knowledge of the funded sectors such as environment, constitutional and human rights (including race, gender, disability, freedom of speech and association, property and housing), health, welfare, education at various levels, innovation and new technologies, entrepreneurship and so on.

Philanthropy is extremely varied and it is unlikely that banking officials acting as trustees have the expertise to manage this complexity. In addition, banks are unlikely to take a risk and therefore are unlikely to support civil society organisations that are involved with social justice issues that might impact on policy and advocacy in a range of areas that could upset government or the business sector.

When working with effective independent philanthropic foundations, these issues have real meaning and trustees and staff ensure that the legacy of the founder continues to engage with our fast-changing context and environment. DM

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