Philanthropists no longer had to deal with the anti-socialist paranoia of the s. At the end of the s, 18 percent of grants distributed by foundations were used to address poverty, race issues and urban issues Bremner , The economic recession of the s led to a reduction in individual giving and decreased the value of foundation assets. This sudden weakening of philanthropy led political leaders to realize the importance to American society.
In , the Commission on Private Philanthropy and Public Needs was founded to analyze the nonprofit sector and its importance to government, the public and private enterprise. The commission found the nonprofit sector is a major part of the American economy Bremner In the early s, federal expenditures were cut on social welfare programs.
While these cuts were taking place, a recession led to increasing homelessness and unemployment problems. Nonprofit organizations were expected to care for needy people in place of the government, but their budgets had also been cut. The government hoped that private giving would make up for these cuts. In order to meet the basic needs of the poor, philanthropy had to cut back on its efforts to create social change and innovation.
There were simply not enough resources. The government funding cuts of the s led to recognition of the importance of individual donors to philanthropy ibid. Philanthropy is important because it provides opportunities. Philanthropy supports projects and endeavors that may be too unpopular or controversial to gain the widespread support of the general public or the government.
For this reason, philanthropy is a very important part of a democratic society. Philanthropists do not answer to the government or to the public, so are able to freely choose the people and projects to receive their support.
Philanthropy has played a very important role in American society. We directly benefit from philanthropy by the use of libraries, schools, hospitals, performing arts centers and museums supported by the generosity of philanthropists. Philanthropy may also support scientific research, scholarships, civil rights endeavors, social services and other things beneficial to society.
Philanthropy is the heart of the philanthropic sector. The philanthropic sector is supported by philanthropic funding and the philanthropic sector exists to carry out philanthropic activities. The goals of philanthropy and the philanthropic sector are to promote the wellbeing of humankind by solving social problems.
Charity is different from philanthropy. The purpose of charity is to ease immediate suffering. It is usually a temporary solution to a social problem. Unlike philanthropy, charity does not focus on ending social problems.
Charity Reform encourages philanthropists to give wisely with thought to the results of their actions. Charity reform discourages giving that does not help the receiver learn to help herself or himself. Foundations are organizations that make grants to individuals and nonprofit organizations. If foundations meet certain restrictions, they are tax-exempt under the law.
Social Problems are issues in a society that lead to human suffering. Some examples of social problems are disease, racism, unemployment, poverty and crime. Important People Related to the Topic. Anthony Benezet : Benezet organized relief efforts for the needy in the colonies. He fought against intolerance and injustice and is one of the first American humanitarian reformers.
Rockefeller : Carnegie and Rockefeller believed that responsibility is inherent with wealth. They encouraged the wealthy to manage their wealth through trusts and foundations to benefit less fortunate members of society. Alexis de Tocqueville : Tocqueville wrote Democracy in America , a book that described attitudes towards philanthropy and giving in 19th century America. His observations of American philanthropy are widely read by philanthropists and scholars.
Dorothea Dix : Dix worked to improve the care and treatment of the mentally ill. Her efforts proved that patience, hard work and determination can have enormous effects on legislation and public opinion. The American Cancer Society is a national organization dedicated to preventing and eliminating cancer. Community chapters of the society use philanthropy as a way to carry out the organization's mission.
The American Red Cross provides care to people in need and depends upon contributions from the public. Goodwill Industries provides job training to disadvantaged and disabled people. It raises funds by contracting with private businesses and the government and by selling donated items in its retail stores.
The Center for Effective Philanthropy conducts research to develop initial performance metrics, modifies them for distinct segments of the foundation field, and studies their implementation.
It seeks to translate research into practical management tools for use in foundations. It also undertakes a number of educational initiatives, including the development of seminars about foundation performance assessment, case studies and issue papers of practical use to foundation executives and trustees and educational programs for foundation trustees.
The Johnson Center for Philanthropy at Grand Valley State University began in as a multidisciplinary, university-wide center which promotes effective philanthropy, community improvement and excellence in nonprofit leadership. The National Committee for Responsive Philanthropy works to strengthen the nonprofit sector and improve its ability to represent and serve individuals who are politically, economically or socially disadvantaged.
It promotes greater philanthropic openness, accountability and responsiveness to these individuals. Grade Level:. Philanthropy is a critical part of a democratic society.
It is different than charity, which focuses on eliminating the suffering caused by social problems, while philanthropy focuses on the elimination of social problems. It supports projects and endeavors from which we all benefit, such as libraries, museums and scientific research; and it also supports efforts that may be too unpopular or controversial to gain the widespread support of the general public or the government.
Catherine Zimmer Definition Philanthropy can be broadly defined as love for humankind. Historic Roots Philanthropy is thousands of years old. Importance Philanthropy is important because it provides opportunities. Ties to the Philanthropic Sector Philanthropy is the heart of the philanthropic sector. Key Related Ideas Charity is different from philanthropy. Important People Related to the Topic Anthony Benezet : Benezet organized relief efforts for the needy in the colonies.
There are even fewer limitations on bodies wishing to become tax-exempt charities in the US, beyond a requirement not to engage in party politics. Both countries offer additional incentives where donations are made to endow a charitable foundation.
This enables a philanthropist to escape liability for tax on the donation, yet also retain control over how the money is spent, within the constraints of charity law. The effect of this is often to give the wealthy control in matters that would otherwise be determined by the state.
Yet the priorities of plutocracy, rule by the rich, and democracy, rule by the people, often differ. The personal choices of the rich do not closely match the spending choices of democratically elected governments. Many of the richest 0.
They are less supportive of a minimum wage than the rest of the population. They favour decreased government regulation of big corporations, pharmaceutical companies, Wall Street and the City of London. The disproportionate influence of the mega-wealthy may explain, it concluded, why certain public policies appear to deviate from what the majority of citizens want the government to do. The choices made by philanthropists tend to reinforce social inequalities rather than reduce them.
There is therefore a strong argument that the money donated by philanthropists might be put to better use if it were collected as taxes and spent according to the priorities of a democratically elected government. In which case, should the state be giving tax relief to philanthropists at all?
T he case for tax reform — to abolish these subsidies entirely, or ensure the rich can claim no more than basic tax payers can — has been made from both the right and the left. Tax breaks distort market choices, argues a prominent libertarian, Daniel Mitchell, of the Cato Institute, a thinktank funded by the conservative philanthropist Charles Koch. Yet attempts by politicians to limit the amount of tax relief — let alone abolish it entirely — have met with public disapproval ever since William Gladstone tried to cut it in The same thing happened when the British government tried to address the issue in When chancellor George Osborne tried to limit the amount of tax relief the rich could claim on their giving, he provoked a mass outcry from philanthropists, the press and from charities.
An alternative solution might be to impose restrictions on the kind of causes for which tax exemptions can be claimed. At the last election, the Labour party under Jeremy Corbyn floated the idea of removing charitable status from fee-paying schools. Others go further. But who decides that hierarchy? The problem comes in finding a mechanism that would better align charitable giving with generally agreed conceptions of the common good. Of course, it could be left to the state.
The more the state takes on a role of moral scrutiny, the more I worry … and the history of the last years ought to tell us that a hyper-activist state with lots of moral convictions is pretty bad for everybody.
Others have seen the solution as simply increasing taxes on the mega-rich. Just stop talking about philanthropy. And start talking about taxes … Taxes, taxes, taxes. All the rest is bullshit, in my opinion. The idea of greater taxes on the rich is gaining purchase politically all over the world. During the Democratic party presidential primaries, several candidates set out proposals for raising taxes on the assets or income of the super-rich.
The growing economic populism across Europe and in the US will increase that pressure. So will the need to increase public revenue to meet the cost of the coronavirus crisis.
A number of prominent philanthropists, including Warren Buffett and Bill Gates, have publicly backed the idea. Another rich entrepreneur, Martin Rothenberg, founder of Syracuse Language Systems, spells out how public investment makes private fortunes possible.
The state had given him a good education. There were free libraries and museums for him to use. The government had provided a graduate scholarship. And while teaching at university he was supported by numerous research grants. All of this provided the foundation on which he built the company that made him rich. All of this undermines the argument that the rich are entitled to keep their wealth because it is all a result of their hard work. Indeed, some overtly acknowledge the existence of this social contract.
T he growth in philanthropy in recent decades has failed to curb the growth in social and economic inequality. The answer lies in the template that was established by the men who transformed modern philanthropy through the sheer scale of their giving in the late 19th and early 20th centuries.
For all their munificence, the steel magnate Andrew Carnegie and the great industrial philanthropists of that era were notable — even in their own day — for avoiding the whole question of economic justice. Then, as now, a huge percentage of wealth was in the hands of a tiny few, almost completely untrammelled by tax and regulation. Carnegie, then the richest man in the world, was criticised in his day for distributing his unprecedented largesse because his fortune was built on ruthless tactics such as cutting the wages of his steel-workers.
Carnegie built a network of nearly 3, libraries and other institutions to help the poor elevate their aspirations, but social justice was entirely absent from his agenda. The institutional investors that support this project also gain better and fairer capital markets in which to invest. While outsourcing from distant suppliers is possible, it is not as efficient as using capable local suppliers of services, components, and machinery. Proximity enhances responsiveness, exchange of information, and innovation, in addition to lowering transportation and inventory costs.
Philanthropy can foster the development of clusters and strengthen supporting industries. American Express, for example, depends on travel-related spending for a large share of its credit card and travel agency revenues. Hence, it is part of the travel cluster in each of the countries in which it operates, and it depends on the success of these clusters in improving the quality of tourism and attracting travelers.
Since , American Express has funded Travel and Tourism Academies in secondary schools, training students not for the credit card business, its core business, nor for its own travel services, but for careers in other travel agencies as well as airlines, hotels, and restaurants.
The program, which includes teacher training, curriculum support, summer internships, and industry mentors, now operates in ten countries and more than 3, schools, with more than , students enrolled. It provides the major social benefits of improved educational and job opportunities for local citizens. The economic gains are also substantial, as local travel clusters become more competitive and better able to grow.
That translates into important benefits for American Express. When corporate philanthropy improves competitive context, other companies in the cluster or region, including direct competitors, often share the benefits. That raises an important question: Does the ability of other companies to be free riders negate the strategic value of context-focused philanthropy?
The answer is no. The competitive benefits reaped by the donor company remain substantial, for five reasons:.
A good example of how a company can gain an edge even when its contributions also benefit competitors is provided by Grand Circle Travel. Grand Circle, the leading direct marketer of international travel for older Americans, has a strategy based on offering rich cultural and educational experiences for its customers.
Through its philanthropy, however, Grand Circle has built close relationships with the organizations that maintain these sites and can provide its travelers with special opportunities to visit and learn about them.
Grand Circle thus gains a unique competitive advantage that distinguishes it from other travel providers. Understanding the link between philanthropy and competitive context helps companies identify where they should focus their corporate giving. Understanding the ways in which philanthropy creates value highlights how they can achieve the greatest social and economic impact through their contributions.
As we will see, the where and the how are mutually reinforcing. These efforts build on one another: Increasingly greater value is generated as a donor moves up the ladder from selecting the right grantees to advancing knowledge. Focusing on the four principles also ensures that corporate donations have greater impact than donations of the same magnitude by individuals. Most philanthropic activity involves giving money to other organizations that actually deliver the social benefits.
The impact achieved by a donor, then, is largely determined by the effectiveness of the recipient. Selecting a more effective grantee or partner organization will lead to more social impact per dollar expended. Selecting the most effective grantees in a given field is never easy. It may be obvious which nonprofit organizations raise the most money, have the greatest prestige, or manage the best development campaigns, but such factors may have little to do with how well the grantees use contributions.
Extensive and disciplined research is usually required to select those recipients that will achieve the greatest social impact. Individual donors rarely have the time or expertise to undertake such serious due diligence. Foundations are far more expert than individuals, but they have limited staff. Corporations, on the other hand, are well positioned to undertake such research if their philanthropy is connected to their business and they can tap into their internal capabilities, particularly the financial, managerial, and technical expertise of employees.
Whether through their own operations or those of their suppliers and customers, corporations also often have a presence in many communities across a country or around the world. This can provide significant local knowledge and the ability to examine and compare the operation of nonprofits firsthand.
In some cases, a company can introduce and support a particularly effective nonprofit organization or program in many of the locations in which it operates. Grand Circle Travel, for example, uses its 15 overseas offices to identify historical preservation projects to fund.
Fleet Boston Financial assembles teams of employees with diverse management and financial skills to examine the inner-city economic development organizations that its foundation supports. The teams visit each nonprofit, interview management, review policies and procedures, and report to the corporate foundation on whether support should be continued and, if so, where it should be directed.
This level of attention and expertise is substantially greater than most individual donors, foundations, or even government agencies can muster. A donor can publicize the most effective nonprofit organizations and promote them to other donors, attracting greater funding and thus creating a more effective allocation of overall philanthropic spending. Corporations bring uniquely valuable assets to this task. First, their reputations often command respect, becoming imprimaturs of credibility for grantees.
Second, they are often able to influence a vast network of entities in their cluster, including customers, suppliers, and other partners.
This gives them far greater reach than individual donors or even most nonprofits and foundations. Third, they often have access to communication channels and expertise that can be used to disseminate information widely, swiftly, and persuasively to other donors.
Signaling other funders is especially important in corporate philanthropy because it mitigates the free rider problem. Collective social investment by participants in a cluster can improve the context for all players, while reducing the cost borne by each one. By leveraging its relationships and brand identity to initiate social projects that are also funded by others, a corporation improves the cost-benefit ratio.
Different companies will bring different strengths to a given philanthropic initiative. By improving the effectiveness of nonprofits, corporations create value for society, increasing the social impact achieved per dollar expended. Unlike many other donors, corporations have the ability to work directly with nonprofits and other partners to help them become more effective. They bring unique assets and expertise that individuals and foundations lack, enabling them to provide a wide range of nonmonetary assistance that is less costly and more sophisticated than the services most grantees could purchase for themselves.
And because they typically make long-term commitments to the communities in which they operate, corporations can work closely with local nonprofits over the extended periods of time needed for meaningful organizational improvement. By operating in multiple geographical areas, moreover, companies are able to facilitate the transfer of knowledge and operational improvements among non-profits in different regions or countries.
By tying corporate philanthropy to its business and strategy, a company can create even greater social value in improving grantee performance than other donors. Its specialized assets and expertise, after all, will be most useful in addressing problems related to its particular field.
The Cisco Networking Academy utilized the special expertise of Cisco employees. FleetBoston Financial took similar advantage of its corporate expertise in launching its Community Renaissance Initiative. Recognizing that its major markets were in older East Coast cities, Fleet decided to focus on inner-city economic revitalization as perhaps the most important way to improve its context.
Fleet combined its philanthropic contributions with its expertise in financial services, such as small business services, inner-city lending, home mortgages, and venture capital. Bank personnel provided technical advice and small business financing packages to local companies as well as home mortgages and home-buyer education programs.
Another example is America Online, which has unique capabilities in managing Internet access and content. Working closely with educators, AOL developed AOL School , a free, easy-to-use, noncommercial site tailored by grade level to students, administrators, and teachers.
This service improves the classroom experience for hundreds of thousands of students nationally by giving them access to enrichment and reference tools while providing lesson plans and reference materials for teachers. Through this program, AOL has been able to leverage its specialized expertise, more than just its donations, to assist in improving secondary school performance more rapidly and cost-effectively than could most other organizations.
In the process, it has improved both the long-term demand for its services and the talent needed to provide them. Innovation drives productivity in the nonprofit sector as well as in the commercial sector. The greatest advances come not from incremental improvements in efficiency but from new and better approaches.
The most powerful way to create social value, therefore, is by developing new means to address social problems and putting them into widespread practice.
The expertise, research capacity, and reach that companies bring to philanthropy can help nonprofits create new solutions that they could never afford to develop on their own. Working in partnership with urban school districts, state education departments, and colleges of education, IBM researched and developed a Web-based platform to support new instructional practices and strategies.
Neither the colleges of education nor the school districts had the expertise or financial resources to develop such a program on their own.
An independent evaluation in found that teachers in the Reinventing Education program were registering substantial gains in student performance. Pfizer developed a cost-effective treatment for the prevention of trachoma, the leading cause of preventable blindness in developing countries.
In addition to donating the drugs, Pfizer worked with the Edna McConnell Clark Foundation and world health organizations to create the infrastructure needed to prescribe and distribute them to populations that previously had little access to health care, much less modern pharmaceuticals. In addition to providing an important social benefit, Pfizer has enhanced its own long-term business prospects by helping build the infrastructure required to expand its markets.
Just as important as the creation of new knowledge is its adoption in practice. The know-how of corporate leaders, their clout and connections, and their presence in communities around the world create powerful networks for the dissemination of new ideas for addressing social problems. Corporations can facilitate global knowledge transfer and coordinated multisite implementation of new social initiatives with a proficiency that is unequaled by most other donors.
When corporations support the right causes in the right ways—when they get the where and the how right—they set in motion a virtuous cycle. By focusing on the contextual conditions most important to their industries and strategies, companies ensure that their corporate capabilities will be particularly well suited to helping grantees create greater value. And by enhancing the value produced by philanthropic efforts in their fields, the companies gain a greater improvement in competitive context.
Both the corporations and the causes they support reap important benefits. Adopting a context-focused approach, however, goes against the grain of current philanthropic practice. Many companies actively distance their philanthropy from the business, believing this will lead to greater goodwill in local communities.
And even fewer systematically apply their distinctive strengths to maximize the social and economic value created by their philanthropy. Instead, companies are often distracted by the desire to publicize how much money and effort they are contributing in order to foster an image of social responsibility and caring. As a result, Avon may have greatly augmented its own cash contribution through effective fund-raising—and generated favorable publicity—but it failed to realize the full potential of its philanthropy to create social and economic value.
Avon has done much good, but it could do even better. As long as companies remain focused on the public relations benefit of their contributions instead of the impact achieved, they will sacrifice opportunities to create social value.
As long as companies remain focused on the public relations benefit of their contributions, they will sacrifice opportunities to create social value.
This does not mean that corporations cannot also gain goodwill and enhance their reputations through philanthropy. But goodwill alone is not a sufficient motivation. Given public skepticism about the ethics of business—skepticism that has intensified in the wake of the string of corporate scandals this year—corporations that can demonstrate a significant impact on a social problem will gain more credibility than those that are merely big givers.
The acid test of good corporate philanthropy is whether the desired social change is so beneficial to the company that the organization would pursue the change even if no one ever knew about it. Cisco, for example, has achieved wide recognition for its good works, but it would have had sufficient reason to develop the Networking Academy even if no goodwill had been created.
Moving to context-focused philanthropy will require a far more rigorous approach than is prevalent today. It will mean tightly integrating the management of philanthropy with other company activities. Rather than delegating philanthropy entirely to a public relations department or the staff of a corporate foundation, the CEO must lead the entire management team through a disciplined process to identify and implement a corporate giving strategy focused on improving context.
Business units, in particular, must play central roles in identifying areas for contextual investments. What are the key constraints that limit productivity, innovation, growth, and competitiveness?
A company should pay special attention to the particular constraints that have a disproportionate effect on its strategy relative to competitors; improvements in these areas of context will potentially reinforce competitive advantage.
The more specifically a contextual initiative is defined, the more likely the company is to create value and achieve its objectives. And a tightly targeted objective does not necessarily diminish the scale of impact. Review the existing philanthropic portfolio to see how it fits this new paradigm. Current programs will likely fall into three categories:.
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