Evolution of philanthropy, part 2: Seven guiding principles for a more effective future

Simon Lewis, Partner at GoodWolf Partners Fri, 1 Dec 2023 Estimated reading times: 3 minutes

From a 15-year career in licensed trustee companies, family offices, foundations and for-purpose organisations, Simon Lewis, Partner at GoodWolf, shares his seven guiding principles for what he believes will create a more effective philanthropy sector in the future. Simon recently addressed the Philanthropy Australia team and here, in the second part of the series, he shares his thoughts on how the sector can evolve more progressively in the coming years.

Read part 1 here: The evolution of a sector – a concise history of philanthropy in Australia

Given our collective experience with licensed trustee companies, family offices and different segments of philanthropy and the growing for purpose sector more generally, Simon believes these principles should be guiding philanthropy’s direction.

  1. Foundations are effectively public assets, under private control

Reminding trustees and directors of their duties to steward an asset that has immutable community public interest is a start. All donations (often tax deductible, but always irrevocable) to a foundation become captured by the foundation’s objects expressed in its governing document or Trust Deed, objects which are charitable at law. This law binds all resources to be used in pursuit of these charitable purposes, directly or indirectly. This implies the asset is a de facto community or public asset, as its only beneficiary. But as the trustees or directors are not generally elected by the community they serve, the control of foundations (ie who appoints the directors or trustees, and therefore who controls the entity) typically remains a private affair.

We note some structures such as public ancillary funds have a requirement for the majority of responsible persons independent to the founder in order to assuage concerns about this disconnect for an ancillary fund that can receive funds directly from the public. There is also considerable public investment in philanthropy and deductible giving through foregone tax revenue. Every tax dollar spent on a concession raises taxes for all others or increases the debt burden for future generations.

2. Trustees and directors of foundations have a higher fiduciary duty as stewards of a public asset

Following this first point, trustees and directors of foundations assume a higher fiduciary duty to their role on a foundation, as a public asset, than they do to their own private companies and interests.

Foundations are not there to do as they please, hidden from view, with no accountability and transparency as to how they operate. This is an important consideration for a growing network of Family Foundations that co-exist within a family office constructed to protect and grow their wealth. The temptation to use these public assets for private benefit is very real (eg hiring family members, investment mandates pointing to a family investment company, or grants to a piece of research that might be a forerunner to an investment opportunity). The related parties disclosures required by the ACNC aims to ensure the terms of such arrangements are more transparent and negotiated on arm’s length terms.

Trustees and directors will also be cognisant of the growing scrutiny of the provenance and legacy of colonial wealth, including philanthropy. For example, just over 400 years on from the first African slaves stepping off in chains onto Point Comfort in Virginia, US, a growing movement is only now exacting financial reparations from the universities, businesses and families that benefitted from their indentured labour. Governments across Europe are now issuing formal apologies with financial restitution, and families such as the Trevelyans in the UK are making direct amends for ill-gotten gains in Grenada. We haven’t yet seen this happen to institutions funded by philanthropy, or to philanthropies themselves, to the same extent here in Australia, but we will in time.

3. All the assets of a foundation should be applied in pursuit of its purpose

A previously binary world of investment committees maximising net income, and granting committees maximising net impact, is starting to blend. In fact, the investment market is starting to provide opportunities for trusts and foundations to identify sustainable and responsible investment products that at least minimises harm, but also promote a more sustainable and responsible approach to investment. Impact investing, a boutique area, is also opening up to allow trust and foundations to ‘invest’ in outcomes alongside adjusted returns.

To fully embrace this opportunity, and to wrestle the asymmetric knowledge and control that is held by advisers, we need to embolden the directors and trustees (and their Investment Committees) to reassert their role of Principal, and to ask bigger and bolder questions of their agents (ie the investment advisers and managers). Fiduciaries need greater support and information about how to demand and tender for more aligned services that support foundations to invest more responsibly and sustainably. Anecdotally, more than 75% of the current Investment Policy Statement (IPS) sitting across Trusts and Foundations are written by the Advisers themselves, meaning the investment sector is largely marking its own homework. This reduces any incentive to shift towards this next investment ‘impact’ frontier for their clients, the foundations. This needs to change.

4. Partnering and peer-based relationships are key to unlocking greater impact

Trusts and foundations are unable to achieve anything on their own. In fact, most trusts and foundations endowed as ancillary funds are prohibited from actually running programs.

So they need delivery partners and community service organisations to translate their money into outcomes. Doing so in a partnership that is peer-based can only be achieved if philanthropy sees its role as being ‘in service’ to these delivery partners and community services organisations. The mere fact that demand for funds is so many multiples greater than the supply is no excuse for philanthropy to assume, and leverage, a hierarchical position in this relationship.

5. Democratising philanthropy keeps it grounded

It is a well-documented fact that the least well off in our community are more generous in their giving, as a percentage of their wealth. Philanthropy, for many, looks like elitist business, even if they know what the word means. Also, the larger the foundation is in corpus value, the longer it typically takes for each donated dollar to return to the community. So, we need to create lower thresholds and more frequent incentives for families and individuals to structure their giving, and keep philanthropy grounded.

Community Foundations play this important role and are a critical part of ensuring we redistribute wealth as early and as often as we can into the community. This is the kind of philanthropy that seems more sympatico with the Australian values of mateship, equality of opportunity, and a ‘fair go’. After all, we can’t overlook that 70% of giving to the non-profit sector continues to come from the ‘Great Plains’ of mums and dads and generous individuals and households making their donations and gifts directly to delivery organisations. The ‘Wuthering Heights’ of large trusts and foundations, or structured philanthropy, represents the balance.

6. Marking a slow return to the social economy

Before the birth of the public corporation in 1604 (Dutch East India Company) and around the time of the Elizabethan Statute (1601), our economy comprised three parts: Monarchy, Church, and a Social Economy (collectivist trading and bartering at the local level within and between villages, and along established trade routes). Social enterprise, and social purpose business like co-operatives and mutuals, where stakeholders’ interests are better aligned, therefore, lies in all our DNA. First Nations people will tell you that; they have been at it for 65,000 years. And in the early days of the Federation, a majority of Australians were members of building societies, credit unions and other mutual structures.

We observe now corporates seeking greater legitimacy and purpose by complementing the doctrine of shareholder primacy that ushered in both unparalleled growth and unparalleled harm in terms of the externalities on our world (both social and environmental). Additionally, the non-profit sector that has traditionally been funded by grants starting to seek ways to foster more enterprise within their business models.

Our social economy will trade higher on both of these movements, and hopefully, have its time in the sun again.

7. Think regional and global 

Finally, let’s not remain an island in how we think and work. The issues of our time are more regional and global in nature, and so are their remedies. The region and the world needs more from Australia, and we could learn some important lessons in the process. As a country, we are consistently acknowledged as one of the wealthiest countries on earth, and with our own very ‘First World’ problem of working out how we will effectively transfer $3.5trillion of wealth over the next generation without further deepening the inequity that is starting to divide us.

‘Perhaps we live in a golden age of philanthropy because we live in a simultaneously golden age of inequality’, says Jason Franklin, CEO of Ktisis Capital and a global philanthropy expert.

Some of the greatest innovations and advances around converting inputs and resources into social and environmental outcomes are happening in the field of international development. Theory of Change and logic models, for example, have been around for decades overseas and are only just being adopted domestically with great effect. We need to rebuild bridges and relationships into the regions to better serve the charitable needs of our population, and to repatriate ideas, innovations and solutions that can have an outsized effect domestically. Doing so will also be an opportune reminder that what we have in Australia is probably as good as it gets, globally speaking, and a bit more acknowledgement and gratitude for this fact could go a long way to improve our domestic malaise and affluenza. 

All the while, the social and human capital of our ‘Lucky Country’ continues to benefit from migrants that come to Australia and prop up our economic performance. More than 50% of us are now born overseas or have a parent born overseas. While charity begins at home, it doesn’t need to end at our borders and indeed, many of us feel at ‘home’ in more places than one.

So, as Philanthropy Australia spearheads our national campaign to Double Giving by 2030, let’s push into this new agenda so that, if successful, we can be more confident that we will also at least double the impact in the process. Some philanthropies are already making this subtle shift in direction, progressively working to distribute this assumed power, change the system and effect a stronger, fairer and more sustainable social economy that benefits the many, and not the few. Others are likely to resist or adopt a business-as-usual approach.

If you are a foundation trustee, director or philanthropist, which one will you be?

GoodWolf provides strategic advice and impact alignment services for the sector.