Michael Alberich-Sebriech is an executive partner at Active Philanthropy. Previous to this position he worked for the German Bertelsmann Foundation as programme director of the Carl Bertelsmann Prize. He is also a board member of several non-profit and charitable organisations.
Daniel Goldstein is the CEO and founder of Dumbarton Associates SA, a management consulting company specialising in investment and philanthropy advising to private families. He also serves as a founding board member for two Italian non-profit organisations.
Christopher Lavender set up the charitable foundation of the Kadoorie family based in Hong Kong. He travels widely through South East Asia, Nepal, Bangladesh and China identifying and evaluating philanthropic projects.
John Linnartz currently serves individuals and families in making their private philanthropy more meaningful and measurable through his private consulting practice, Linnartz & Associates. He is a passionate student of philanthropy and a fifth generation member of a family of wealth.
Catherine Roe is director of CMR Consults Ltd, which advises philanthropists and trustees. She has 15 years experience of creating, developing and leading foundations. She also serves as director of an English charity that aims to effect lasting change for children in the Middle East.
Robin Smalley is co-founder and international director of mothers2mothers, an empowerment and educations programme for pregnant women and new mothers with HIV/AIDS. She moved to South Africa with her family in 2004 to grow the fledgling organisation across Africa.
"The current economic downturn is the worst possible news for the philanthropic sector and the causes families support." Would you agree this is the situation we are in today?
Lavender: Yes, I would broadly agree with that.
Smalley: I think so too. We did a large strategic plan last summer that relied on three different growth plans: low, medium and high. We went into it thinking we are going to be in a high growth period as there are millions of babies being born with HIV and this is not the time to hold back – we want to expand as much as possible. But now we are in a position of just hoping that we can maintain our low growth pattern. It didn't really hit until January when I got a call from a large foundation that had committed funding for 2009 but pulled out of a $330,000 grant that they had committed.
I thought this is the beginning of the end! However, there are other funders that are really rising to the occasion, and during a moment of despair when I had just lost half our budget for Swaziland, I had lunch with an individual from a family foundation. I was pouring my heart out to her and she said she was going to make it up. She said that they had lost 60% of their foundation's assets – she personally had lost 50% of her wealth – so I asked her how she could afford to provide funding. She said she couldn't give the whole $330,000 but that she would give $200,000. She said that her and her husband had decided to give up the plane and that she could give up daily fresh flowers and her weekly massage. We have found the really good side in people – philanthropists are coming out at a time when they know NGOs are suffering.
Is there anyone who didn't agree with that opening statement?
Alberich-Sebriech: I have some mixed feelings. When you look at the US there has only been one year since the Great Depression – 1986 I think – where giving went down. The big question is if it is going to be a long or short dip.
The other important thing is that in comparison to the UK and US, Continetal Europe is taking longer to really feel the hit of the recession and it won't be until 2010 that they do.
Most foundations have done all their planning, which was carried out before the credit crunch, so it will be interesting to see what will happen at the end of this year.
Smalley: I agree. Even in the US I think it will be 2010 when things really start to hurt. I think that most people will do their best to honour the commitments made for 2009, but when it comes to renewing or making new commitments, 2010 is when it will really hit.
The difference with 1986 is that although there was a market dip, there certainly wasn't the level of unemployment that there is today.
Lavender: I think that we are already noticing differences – in China for instance, where we fund a number of projects. Because of the exchange rate difference between the pound and the yuan, a major UK-based international NGO has had to seriously curtail their programmes targeted at HIV/AIDS and withdraw completely from others.
But I think equally that there are opportunities for donors to come in and help in these situations; I have said to my Trustees that I think we should consider making up any shortfall when we find a good project with a reliable partner that is in danger of going under due to the termination of funding as result of the downturn.
Linnartz: Many US families look at commitments over many years and don't necessarily take short-term hits, such as tax, into consideration. If tax is 5% one year, it might be 8–10% the next, but the families still honour those commitments even though there portfolios are down within their foundations.
Some NGOs are now trying to collaborate where they are servicing the same end client –for example by doing collective fundraising. The silver lining of the current economic downturn is that there seems to be more collaboration than there was before.
Roe: Losses by donors of 60% are extreme, but 30% is pretty average. That is a lot of money to lose and it's bound to affect what families can spend on philanthropy. It's particularly distressing for foundations that have gone to great lengths to protect their capital. We learnt in the dotcom bubble, when we were "traditionally" invested (ie, equities, fixed interest), to diversify our risk much more widely but, although we now have a thoroughly diversified portfolio in all sorts of asset classes, this did not protect us against something that affected every asset class. We have cut our spend from 5% to 4% and have come up with other ways to find the money, but we are managing to fund all of our commitments.
The problem comes with making new commitments – I think you have to stick with your existing commitments as you have a responsibility to them. Is there a silver lining? I think there is. If it helps shift the way we think about funding as a whole then it could be useful.
If people say "we must have a new programme" or "we are only going to fund new projects," as philanthropists often do, and actually start supporting core organisations at what they are good at, then I think that might be a useful development in the long term.
Smalley: What I'm hoping is that foundations become more broad-minded and start saying "somebody has to pay the rent, somebody has to pay the phone bill" (the not-so-sexy stuff) and open up their funding guidelines.
Roe: It's true that foundations don't want to pay for these core costs. It's what I call "hit-and-run" philanthropy. You go in and get something going then leave. It would be great if those things could shape into a longer term, more engaged partnership with the whole organisation or a whole programme, particularly new initiatives.
Goldstein: Being a family foundation we don't face the 5% rule so we don't have any rigid guidelines as to what we have to spend and we also don't have an awful lot of accountability to the outside world.
We are not cutting back on any of our commitments. We are trying to get rid of what isn't necessary – the little "luxuries" that are not core to the programmes we fund – so that we send the right message to the people we are working with.
Smalley: I've seen the opposite of what you're saying in the US. A lot of people are saying we have to circle the wagons … worry about ourselves first, we can't worry about Africa. "My cousin is out of work, my uncle is out of work, my friend's house foreclosed." It is a concern for me running an international NGO, who's funding mostly comes from the US, it's difficult to get people to think globally when they are consumed with fears domestically.
Lavender: I think that defaulting corporate donors might be a big problem here. There are many cases where we have agreed to fund quite large projects on the basis of matched funding and quite often our partner NGOs are looking to corporate donors to make up the balance, but now the corporates are not prepared to commit. I think that will be a major concern. However, on the optimistic side, it might inspire some NGOs to become better at what they do. There are some that are frightfully amateurish and lead from the heart and not the head. I would like to think that, in a world where less funds are available, there will more selectivity on the part of donors, and a more professional approach from NGOs.
We are in the second quarter of a recession here. No one knows what is going to happen. If it continues or gets worse for another 12-18 months, are you still going to be saying that you will honour your commitments? Or are you going to have to make some very hard choices?
Roe: In our case we always have flexibility in our budgets for new commitments so if we have managed to cut back this year, more commitments will fall away next year. This will be a typical pattern for foundations. Even if you have to keep cutting, we should still be able to keep up with our current commitments.
Lavender: there will undoubtedly be hard choices to make. There are many other problems out there such as capacity building. Some donor organisations, such as ourselves, apply a maximum funding period of three years – not because we want to leave NGOs wallowing but because we want to encourage them to diversify their fund raising in the future.
One NGO we've been helping in Bangladesh received some funding to develop a fundraising strategy and get a fundraiser on board; unfortunately, their timing was not good due to the economic downturn. NGOs themselves are going to be in a difficult situation in deciding on how they can cut costs.
Goldstein: I am worried that when people cut costs they don't always do so with long-term interests in mind, so I'm not completely optimistic.
Alberich-Sebriech: If I want to be optimistic, I would say there is a stronger interest in capacity building. In addition there is the social entrepreneurship movement, which is gaining in popularity. People are now thinking about making money - it's not only about fundraising. When I talk to social entrepreneurs I get the sense that there are endless opportunities.
Smalley: I think funders are looking for proof that their money is getting the best possible value and the only way to prove it is with solid proven outcomes, so I think the worse the economy gets the harder its going to be to sell a programme based on emotion and anecdotal evidence.
Given that the economy will make things tougher for donors and receivers, how do you give in a "smarter" way?
Smalley: I think you have to look for accountability. I am expecting funders to hold me accountable in a really strong way: 'Where did that money go, what did you show for it, what percentage are you spending on overheads and what percentage are you spending on fundraising?' I think funders need to ask really hard questions.
Alberich-Sebriech: It is interesting you use the word smart. We have tried to figure out is whether you can devise a SMART formula for philanthropy. This formula states questions you should ask about the project you want to support: Is the cause Specific? Is it Measurable? Is it Attractive to you as a donor? Is the NGO Responsive to you? Are the structure and the finance base of the charity Transparent? This is the first step to giving in a smarter way.
Roe: I think it's a very good time to be focusing on the partners you know deliver results.
Smalley: I understand this but the problem is that it's going to have a terrible impact on some wonderful organisations that won't ever have the opportunity to get a first look.
Roe: That's true, but I think this scramble for funding was a problem even before the recession. You need to be open to all the organisations and make sure they do get a look in, but if an organisation is effective it will attract funding.
Smalley: Partnership is a really important point here too. If you find a partner whom you trust and whom you can rely on then it can be really beneficial in times such as now when relationships become strained and projects are on the the chopping block.
Linnartz: A lot of donors would like to see an investment committee and understand how they are investing their funds. This is a new theme that's resonating with people now where it wasn't necessarily a year ago, mainly due to Madoff. They want to know your philosophy, know who's on the investment committee, know whether you have foreign protection built in and whether you disclose any conflicts of interest.
Goldstein: We're going to have to be a lot more responsive. I think people in general are taking a lot less for granted.
Alberich-Sebriech: It's important that we don't lose sight of the fact that we need to do high risk philanthropy such as pioneering health research. Families can take a risk that others cannot take and I think that's also something that needs to be considered besides rebuilding and proofing things. We wouldn't have rocket science or a cure for polio if people didn't have the courage to be daring.
Does the current economic climate threaten that?
Alberich-Sebriech: Well there is definitely a threat that people don't take that risk anymore because they are retrenching to what they think is safe and will guarantee results.
Smalley: Anyone that's pushing the envelope will find something new.
Roe: I agree and I actually don't think it's useful for philanthropists to fund huge NGOs as they often receive massive amounts of money from governments. I think it's useful for philanthropists to fund smaller, effective organisations.
In summary, what can philanthropists learn from the current situation?
Linnartz: In the long run, the current financial situation might appear as just a blip, yet changes are necessary and will happen. Perhaps many will focus more on long term philanthropic themes and refocus on longer term investments.
Alberich-Sebriech: That we need to be more ethical in terms of philanthropic mission.
Goldstein: Some people will fail but on the plus side it will drive professionalism within the sector as a whole.
Smalley: Some will fall by the wayside but those that are left will do a better job going forward. Waste will be reduced and the big players will learn a lot from their smaller more entrepreneurial colleagues.
Roe: It's survival of the fittest at the moment and a lack of cash should force you to refocus on what you want to do and how you do it in the most effective way.
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