Mission related investing (MRI) is the term used to describe investments made by philanthropic entities in the pursuit of both financial and social returns. Unlike traditional socially responsible investing that relies on “negative screening”—the avoidance of public companies that do not pass certain social criteria—MRI implies proactively seeking investment opportunities that produce a blend of financial returns and social impact that are in line with the philanthropy’s mission. Still an emergent issue, MRI is characterized by limited deal flow, especially in deals that have minimums low enough to allow widespread participation. But MRI brings philanthropic advising directly into the domain of the wealth manager.

Today, it appears that the Calvert Giving Fund has taken a significant step towards increased deal flow and lower minimums that should make it much easier for wealth individuals and smaller foundations to participate in a strategy that has largely been the domain of institutional foundations.

The Calvert Giving Fund is a national donor advised fund. Like Schwab Charitable, Fidelity Charitable Gift Fund and the Vanguard Charitable Endowment, Calvert provides low cost donor advised fund administration without providing advice on where to give. While structured as a nonprofit, the group is affiliated with Calvert Investments, a leader in socially responsible investing.

For some time the Calvert Giving Fund has offered social responsible investment options to their donor advised funds, as well as “community investment notes” that pay a below market rate of return and finance community development projects. Now they’ve added a Global Impact Ventures Platform. The platform currently offers access to five mission related investment options:

• Acumen Fund: 10 year Senior Note (debt), 3% interest either paid or compounded into the principal
• LeapFrog Investments: Equity Investment into Limited Partnership with 10 year life
• MicroVest: 7 year equity limited partnership
• Public Radio Fund: Promissory Note, 3 years at 0% or 5 years at 4%
• Root Capital: Promissory Note, 3 years at 3% or 3 years at 0%, senior tranche

The investments all offer social impact in addition to a financial return. You can read summaries of the social impact potential here.

The really big news is that there is a minimum of only $25,000 to invest in each fund. Community foundations and national donor advised funds have a huge opportunity in the MRI space, because they can aggregate their donor/client’s investments into an investment in a fund like those above and count as a single investor. In other words, while a certain investment might have a $250,000 minimum, a community foundation or national donor advised fund can bring 10 of their donor advised funds in at $25,000 each and reach the minimum.

If an investment advisor or individual wants to invest in traditional profit driven investments, they can open an account at Schwab or Fidelity and have access to thousands of mutual funds, every publicly traded stock and bonds. If you buy stock, you don’t have to call the company, you buy it directly on the broker’s platform. Same thing if you buy a mutual fund. Now the Calvert Giving Fund has created a platform for mission related investing that integrates with existing financial markets.

Very cool. I hope that they are successful in marketing the program to advisors and individual philanthropists. I also hope that institutional foundations that care about mission related investing make some investment on the Calvert platform to help them grow.

The Next Wave: Part Three
By Sean Stannard-Stockton
Originally Appeared: Wealth Manager Magazine, November 2008

This is Part 3 of 3. Please read part 1 and part 2.

The world of traditional finance is mature and well mapped. Clients do not expect their lawyer to file their taxes nor their CPA to provide legal advice. The finance discipline has been sliced and diced into numerous areas of expertise and for the most part, clients understand the role of each advisor and can identify their own needs and match them to the appropriate advisor. To the extent that clients need help identifying domain experts, they are accustomed to their wealth advisor helping them navigate the map of financial service providers. Within philanthropy and the world of social investing, this map has yet to be drawn.

To whom will your clients turn for advice on which philanthropic vehicle to create? Who will help a client family define its philanthropic mission statement? Who will analyze the financial characteristics of a MRI opportunity? Will the same person consider the social implications of such an investment? Philanthropy is still an immature industry. Philanthropy-minded clients need a concierge who understands the philanthropic landscape and can point them to the appropriate people and resources.

Just as a traditional client might ask their wealth manager for assistance in evaluating a mortgage or learning more about alternative investments, philanthropic clients’ needs are not limited to the management of their investment portfolio. The wealth manager who strives to become a philanthropic concierge must build a broad network of contacts within philanthropy and know where to turn when their client asks for help.

Philanthropic investing has another characteristic that makes the role of philanthropic concierge even more important than its counterpart in traditional wealth management. In philanthropy, the social return that giving creates accrues to society at large and not just to the individual client. This means that true philanthropic concierges will benefit their clients by connecting them with similar clients and be able to identify co-funding or collaborative opportunities across their client base and ultimately throughout the philanthropic ecosystem.

The Second Great Wave of Philanthropy is going to transform both wealth management and traditional philanthropy. We must be aware that as much as financial professionals can add tremendous value to philanthropic clients, philanthropy requires much more than business knowledge. Wealth managers who recognize the value they can provide to philanthropic clients will discover a whole new frontier to explore. Like any frontier, the landscape is difficult, but the adventure is worth it.

This is Part 3 of 3. Please read part 1 and part 2.

This is Part 1 of 3. Please read part 2 and part 3.

The Next Wave: Part One
By Sean Stannard-Stockton
Originally Appeared: Wealth Manager Magazine, November 2008

In 1975, the SEC deregulated brokerage commissions and set the stage for Charles Schwab & Co. to create the discount brokerage business model. By unbundling the sale of advice from execution, Schwab fundamentally changed the wealth management business. Today, the intertwined worlds of philanthropy and finance are undergoing a similar shift that is transforming the wealth management industry.

Using a model similar to the full service brokerage business, community foundations have long bundled philanthropic advice with execution. In 1992, the Fidelity Charitable Gift Fund—in a comparable move—unbundled philanthropic advice from execution. By eliminating advice on which nonprofits to support, it was able to offer a low-cost product that competed with community foundations.

This seismic shift is just one indicator of the way the lines between wealth management and philanthropy are blurring. Today we are in the early stages of making philanthropy a core wealth management service.

Over the past 30 years, the wealth management industry has been radically reconfigured to serve the needs of the Baby Boomer generation. For much of that time, Boomers themselves focused on the process of saving for retirement. The Center on Wealth and Philanthropy at Boston College predicts that the next 40 years will see a $41 trillion wealth transfer between generations—the largest transfer of wealth in history. Over $6 trillion of this fortune is expected to go to charities.

Even while this shift in priorities marches forward, some wealth managers remain stubbornly focused on helping clients retain their wealth. The business is structured to encourage advisors to discourage philanthropy, and many financial professionals lack the tools needed to assist their clients with charitable giving.

In many cases, advisors simply hand off the responsibility of dealing with the client’s philanthropic impulses. While collaborating with lawyers, community foundations, CPAs and nonprofit planned giving officers might seem like a good solution, the fact is that investment management of philanthropic assets has specialized needs.

Interest in philanthropy among high-net-worth individuals has been growing for some time. But it was events of 2006 that truly introduced the modern approach to philanthropy into the consciousness of the affluent. In that year, Bill Gates announced he would be stepping down from his full time role at Microsoft to work on the Bill and Melinda Gates Foundation. Warren Buffett quickly followed with the announcement that he would give the bulk of his wealth to the Gates Foundation. This event was the tipping point in what I call the “Second Great Wave of Philanthropy.”

This phrase describes the resurgent interest in philanthropy that follows in the footsteps of Andrew Carnegie and John D. Rockefeller, who created the First Wave. While Carnegie and Rockefeller did much of their giving posthumously and thought of it separately from their business life, the Second Great Wave is characterized by the trend of giving while living. Modern philanthropy follows the leads of people like Gates, who decided to quit business to focus on philanthropy, and Buffett, who decided not to wait until his death, but to give away the vast bulk of his fortune now.

But the importance of Gates/Buffett is not simply the amount of assets in play. Instead, the Gates/Buffett announcement will come to be seen as a clarion call that encouraged people in all walks of life to embrace “giving while living” and ended the traditional decision to give to charity only at the end of one’s life.

But apart from “doing good,” both Andrew Forrest, Australia’s richest person, and Buffett cited another trend: The desire not to harm their children by plying them with too much wealth. Buffett’s mantra is to give your children “enough so they can do anything they want, but not so much that they can do nothing.”

One of the major concerns of today’s high-net-worth families is the worry that too much wealth will spoil their children. Today many families are seeking to give their children the “right” amount of wealth. There is plenty of evidence such as that presented in the book Philanthropy, Heirs & Values, by Roy Williams and Vic Preisser, (2005, Robert D. Reed Publishers) demonstrating that the best way to pass assets on in a way that preserves the wealth but does not spoil the children, is for the entire family to engage in philanthropy together.

The result is to shift philanthropy away from being a concern primarily of estate planners, who, since most giving was in the form of bequests, traditionally played the role of philanthropic advisor. “Giving while living,” on the other hand, shifts the philanthropic advisory role squarely onto the shoulders of wealth managers. And so we see that philanthropy is a core element of wealth management in a post-Gates/Buffett world.

Why, then, have some wealth managers been so slow to respond to their clients’ growing interest in philanthropy? The primary issue is that large wealth management firms see philanthropy as a secondary customer service offering rather than a primary question of asset allocation. These still view philanthropy as akin to the touchy-feely family office/concierge service that some very high-end wealth managers offer. At the same time, major donors are not accustomed to paying for philanthropic advice. These two facts combine to create an environment where wealth managers view philanthropic consulting as a cost center with no associated revenue.

In a world where most families with investable net worth above $10 million give $50,000 or more per year to charity, clients are being deeply underserved. They are paying far more in taxes than they should, and they are missing out on the opportunity for their giving to have far more impact. In the coming decades, failure to offer philanthropic advising will be akin to a wealth manager professing ignorance of retirement planning.

However, simply understanding private foundations, donor advised funds and charitable trusts will not be enough. At least some wealth managers already have this expertise. But simply helping clients set up these vehicles is nothing more than tax planning. True philanthropic planning must embrace the growing convergence between financial products and giving opportunities and help their clients navigate the philanthropic landscape.

This is Part 1 of 3. Please read part 2 and part 3.

Prior to the session I ran into an acquaintence who works for the The Institute for the Future. She was explaining to me that trends take 30-50 years to play out. So the Internet was first developed in the 1960′s, but it took 30 years for the internet to go mainstream and yet we’re still likely 10+ years from the Internet being fully “mature” in its growth cycle. I think the same is true in social investing. The first socially responsible investment fund was launched in the 1970′s, so we’re now 30 years into the trend. I have the sense (and the panel today was a nice affirmation) that we’re hitting the “knee in the curve” of growth in social investing. But that means that if you compared our industries to the growth path of the Internet, we’re probably sitting at around 1995.

The fun thing about the panel was that we didn’t have to explain why social investing was important. The crowd got that. So we got to surface some core disagreements between the panelists. Is there a trade off between social returns and financial returns? Is there enough deal flow for everyone who wants to invest with social impact to be able to find opportunities?

This is going to be a good conference. You can follow along with the blog team via the official SoCap blog.

• Matthew Bishop | THE ECONOMIST
• Jed Emerson | BLENDED VALUE
• Doug Bauer | ROCKEFELLER PHILANTHROPY ADVISORS
• Carla Javits | REDF
• Jim Fruchterman | BENETECH

In addition, there will be representatives from:

• ROOT CAPITAL
• GOOD CAPITAL
• SKOLL FOUNDATION
• IDEO
• B-LAB
• CALVERT
• MILKEN INSTITUTE
• KIVA.ORG
• ACUMEN
• GRAMEEN FOUNDATION
• GOOGLE.ORG

Here’s the official overview:

Social capital. Doing well by doing good. Making money make change. Philanthrocapitalism. Whatever you call it, its the emerging approach of harnessing the power of capital to support a new breed of smart, innovative entrepreneurs committed to changing the world in big, meaningful ways.

The Social Capital Markets Conference 2008 (SoCap08) will bring together the entrepreneurs who want to change the world and the capital that wants to make it happen. SoCap08 is a new event designed to bring together all of the people and organizations with a similar deep passion to change the world through sustainable businesses. Investors and entrepreneurs will find themselves helping to build a new community, gaining encouragement as they realize that they are not alone, but are a part of something big, important – and rapidly growing. Participating organizations include Good Capital, The Economist, REDF, HIP Investors, Citibank, Stanford Social Innovation Review, Living Cities, The United Nations Development Programme and Google.org, among many others.

When: October 13-15, 2008
Where: Fort Mason, San Francisco, California
Who: Hundreds of leading social entrepreneurs and investors from around the world
What: Bringing together the people who are accelerating the flow of capital to good
For more information go to: www.socialcapitalmarkets.net or contact info@xigimedia.net.

I’ll be speaking as well as moderator of the New Wealth Management panel:

Social investing is a wave that’s growing. Wealth managers are finding their clients want to explore and get involved in all these new alternative investment opportunities that mix social mission and impact with financial return. How do you manage your fiduciary responsibility while responding to client demand? From the client perspective, how do you explain these new things you want to get involved in to your financial advisor? Learn from some wealth managers how they and their clients who are navigating this new territory in a session designed for both the investor and the financial professional.

It should be a really interesting conference. I’d love to see a contingent of Tactical Philanthropy readers in attendance!

Strategy without tactics is the slowest route to victory, wrote Sun Tzu in The Art of War. Twenty-six centuries later, acknowledging, accepting and exploiting the distinction as a business model is the new new thing in philanthropy.

Strategic philanthropy refers to the big-picture goals, which is to say the popular image of organized giving. Ending poverty, curing cancer, etc. fall under the heading of strategy. The financial plumbing that supports such causes and primes the money pump is tactical philanthropy. The two sides have always been a part of philanthropy, of course. What’s different is the growing specialization of services for each—particularly when it comes to the tactics.

“Philanthropy is broadly understood as the giving of money for social purposes,” says Sean Stannard-Stockton, a principal at Ensemble Capital Management, a Burlingame, Calif. shop that specializes in philanthropic-related money management and financial services for wealthy individuals. “And yet,” he adds, “ there’s been almost no attention to how you structure those financial transactions.”

Until recently, that is. Attention is very much on the rise when it comes to the financial aspects of philanthropy, which Stannard-Stockon and others tag as tactical philanthropy. There is increased focus on the financial processes that make strategic philanthropy possible, he reports. In fact, the trend is so compelling that it convinced Ensemble Capital to re-brand itself four years ago as a specialist wealth manager in the burgeoning niche of tactical philanthropy…

…Arguably, the leading edge of the philanthropy boom is represented by the independent firms that are embracing a philanthropic-centric business model. Consider Ensemble, which was founded in 1997 as a traditional wealth manager, but four years ago began specializing in providing philanthropic services for individuals. Related efforts have since spilled out into the wider world: Stannard-Stockton started his blog, TacticalPhilanthropy.com, in late 2006, raising his profile and leading to his monthly Financial Times column “On Philanthropy.”…

… If the business model of philanthropic planning is compelling, it’s only a matter of time before debate begins in earnest on best practices. One of the emerging topics under discussion includes the question of how to provide philanthropic planning in a way that minimizes—if not eliminates—conflicts of interest. Framing the subject that way recalls the debate over fees versus commissions that first began bubbling in the wider financial services community in the early 1990s. A similar dialogue appears to be forming in tactical philanthropy as it relates to individual clients.

Stannard-Stockton has already staked out his position. “Just as we advise on investments in a non-sales format, we advise on giving in the same way,” he says. “We get paid for managing assets, so we have no conflict in helping people decide between the various vehicles.”

You can read the full article here.

The Foundations of Tax-Efficient Giving
By Sean Stannard-Stockton
May 10, 2008: Link to original story on FT.com

Many people think of charitable giving as an item in their annual budget, and measure it as a percentage of income. But if you own financial assets such as real estate or a portfolio of stocks and bonds, you should consider an endowment approach to your philanthropy.

Ultra-wealthy philanthropists have long created family foundations, which they fund with a single, large gift. From then on, their charitable giving is done out of the foundation – typically at a rate equal to about 5 per cent of the assets in it. Today, the falling costs of administering a foundation, or the alternative vehicle known as a donor-advised fund, mean that anyone who gives at least $500 a year to charity should consider taking a similar approach.

The tax benefits of endowing your charitable giving are significant. Donors receive an income tax deduction when they make a gift to a private foundation or donor-advised fund. This means that by “front-loading” your charitable giving by shifting assets equal to multiple years of expected donations into a charitable vehicle, you obtain multiple years’ worth of income tax deductions today.

The concept of present value says money received today is worth more than equal amounts delivered in the future (for instance, you would rather I gave you $100 today than promise to pay it in 10 years). By endowing your charitable giving, you will pull the income tax deduction that you would normally receive in the future into the current tax year.

Once in a charitable vehicle, your assets are shielded from taxation (assets in donor-advised funds owe no taxes on capital gains, dividends or interest and assets in foundations pay only a 1-2 per cent “excise tax”). Just as IRAs and 401ks allow individuals to save for retirement in a tax-advantaged account, endowed charitable vehicles give a similar benefit to philanthropists. But if, instead, you keep your assets in a taxable account and make annual gifts to charity, you will have to pay taxes on the capital gains, dividends and interest generated each year.

Endowing your philanthropy makes it much easier to follow the golden rule of tax-smart charitable giving: always donate with your most highly appreciated asset. When you give cash to a charity, you receive an income tax deduction. But when you give an appreciated asset (shares of stock that have gone up in value, for example, or a piece of real estate bought years ago), you receive the same income tax deduction and avoid capital gains tax on the appreciation.

You can also achieve this advantage simply by replacing your annual cash gifts to charity with transfers of appreciated assets. But if you make numerous charitable gifts each year, or your most highly appreciated asset is not something you can easily give fractional interests in (such as real estate), then using a private foundation or donor-advised fund will make following the golden rule much easier.

Using a charitable vehicle also means that you can separate the tax aspects of your giving from the personal and emotional reasons that drive philanthropy. When endowing your giving, you can work with your accountant and financial adviser to select the assets that make the most sense to fund your donations with and to time the gift for the highest financial benefit.

Once your charitable vehicle is funded, the gifts you make to non-profits will not have tax consequences. You will be free to make your donations in the amounts and on the timeline that does the most good in the world.

For maximum financial advantage, you should fund your charitable vehicle with 20 times the amount of your annual giving. However, if your asset base does not allow for a gift of this size, donating any amount greater than one year of giving will enhance your financial situation.

The suggestion of funding with 20 times annual giving comes from the fact that if the assets in your philanthropic vehicle are invested to achieve 8 per cent annual returns, you will be able to make annual grants of 5 per cent (one 20th) of the assets and increase your giving by 3 per cent each year to keep up with inflation. Barring unexpectedly bad investment performance, your charitable vehicle will be able to sustain this level of giving forever, without any additional funding from you.

Most people find that endowing their giving has many non-tax related benefits as well. With a private foundation, for instance, you can name relatives to join the board and make it part of your family tradition to come together and talk about what charitable causes are important to you and why. By organizing your giving, you may also find that you focus it on a smaller set of causes that are deeply important to you. Focused giving is a trait that most philanthropic advisers encourage their clients to adopt to maximize impact.

While at its core philanthropy comes from the heart, by being financially savvy you can reduce the cost of your giving and do more good in the world.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

Now we need some new people to join us. If you or anyone you know would be interested in either of the jobs listed below, email me a resume and cover letter. As a reader of Tactical Philanthropy, your interest in the conversation here has both directly and indirectly contributed to the success of Ensemble Capital. As always, thanks for reading and for everything you contribute to the conversation.

Investment Advisor

Ensemble Capital Management is looking for a research analyst/junior
portfolio manager to join our team. This is an ideal job for someone
who has experience in security analysis who would like to work with two
experienced investment advisors and grow into a senior advisor position
over time.

Ensemble Capital is a small (5 employees, $200 million under
management) but growing (30% growth last year with faster growth
expected in 2008) investment management firm in Burlingame, CA, which
focuses on serving philanthropic families. Our founding partner has 40+
years of experience in the investment management industry, including
the presidency of a regional brokerage firm. Our other managing partner
is a columnist for the Financial Times and authors one of the most
influential and widely read philanthropy blogs.

We are seeking an investment professional who can work with our two
portfolio managers to analyze financial markets, manage client
portfolios, provide outstanding customer service, and become a member
of our investment committee over time. Our firm provides both
traditional investment management and philanthropic planning services.
While knowledge of philanthropic tools is not required, we are looking
for someone who is willing to learn the process of integrated
philanthropic planning and wealth management.

You can find the details of this job listing here.

And just as important to our future success:

Investment Management Operations

Ensemble Capital Management is looking for an intelligent, driven
person with experience in investment management operations. We are in
the early stages of significant growth and would like to find someone
who can lead the build out of our operational infrastructure.

For this job, who you are is more important than what you know. We are
a small firm where every member of our team is willing take on whatever
tasks are needed to get the job done. This is not just a job, it is an
opportunity to help build a growing investment management firm with a
unique focus on philanthropic clients. We are looking for a
self-directed, ambitious individual who can handle the day-to-day
operations of the firm. While the day-to-day responsibilities are critical in the near term, the individual we hire must be able to direct and manage the expansion of our operational infrastructure. Over time, the job would include the management of administrative or operation associate-level employees.

You can find the details of this job listing here.

I don’t write the headline of my columns, so I laughed out loud when I saw the headline writer had titled my column “Children need not be taxing”. As a father of two young kids, I can tell you that statement is objectively false!

Children need not be taxing
By Sean Stannard-Stockton
October 26, 2007

An old philanthropic planning technique is ready to explode in popularity. Parents have long used charitable lead trusts to make tax-free gifts to their children while using philanthropy as a way to prepare them for wealth. But as life expectancies rise and people become wealthier sooner, this obscure trust is enjoying a renaissance among young millionaires.

Affluent families used to either inherit wealth or earn it over a long career. Today, most wealthy individuals are self-made and an important subset, especially in the technology sector, is making millions before starting a family. Those who inherited wealth in the past often did so while building their own financial security. Now, some do not receive their inheritance until…

they are comfortable or even retired.

Most people know that the Internal Revenue Service provides an income tax deduction for charitable donations. However, astute philanthropic planning can help minimise or avoid gift and estate taxes, and allow parents to pass assets on to their children during life in a tax-efficient way.

A lead trust allows a donor to put assets into trust and promises to make gifts from the trust to charity for a number of years. At the end of the trust term, the donor’s children receive the remaining principal. The longer the trust and the higher the percentage given to charity, the lower the gift tax due on the transfer to the children.

Families can use these trusts to make large gifts to their children while they are still young. A trust set up on a child’s fifth birthday could be designed to transfer $1m or more on the child’s 25th birthday – free of tax. Many people find this far more useful than transferring money at death.

Many lead trusts name a single charity to receive the annual gifts. These grants may replace gifts the donor was already making or add to the amount of their annual giving.
One technique is to make the annual gifts to a donor-advised fund, a “charitable checking account” from which the donor can direct gifts to non-profit organisations of their choice. This set-up works well if the parents want to involve their children in the philanthropic process. Research shows that children involved with their parents’ philanthropy from a young age handle money more responsibly. The time spent discussing which non-profit organisations are important to the parents and which causes the children care about are an opportunity to share family values.

Another twist on this technique is to let the gifts accumulate in the DAF and then put the child in charge of the fund at the same time they receive the disbursement when the trust terminates.

Parents are able to use the combination of the charitable lead trust and the DAF to channel both personal capital and social capital to their children, while educating them about how to handle wealth and give back to society.

In Heirs & Values: How Successful Families Are Using Philanthropy to Prepare Their Heirs For Post-transition Responsibilities, authors Roy Williams and Vic Preisser write that their study of affluent families shows that philanthropy holds the key to families remaining unified and financially successful across generations.

Charitable lead trusts are most attractive in times of low interest rates. The lower they are, the larger the value the IRS places on the annual charitable gifts made and the gift tax due on the remaining principal is lower. While the subprime fallout has had many negative consequences, one positive outcome has been a large drop in the interest rate the IRS uses to assess the taxability of charitable lead trusts. The rate is at its lowest since February 2006 and is significantly lower than in past decades.

Today’s climate is ripe for an explosion of new charitable lead trusts. Too often people think of their charitable giving as somehow separate from the rest of their wealth. In fact, if philanthropic giving is an ongoing part of your life, your giving plans should be an integrated part of your wealth management.

By leveraging powerful tools you can give more to the causes you care about while enhancing your own financial wellbeing.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com

People use the same terms to describe different things.  When I ask those who call themselves philanthropic planners to describe their process they all say,

• I meet with clients to set goals.
• Then we discuss tools and techniques to achieve those goals.
• Then we implement.
• Then we monitor.

But what financial advisors mean by goals and what fundraisers mean by goals and what grant-consultants mean by goals are quite different. Likewise the tools and techniques may be different. Typically,

1. Fundraisers go from goals to gift without going through an analysis of the clients overall estate and financial plan. The gift, from an advisor’s perspective, is out of context, not integrated, an appendage.
2. Planners generally take goals to be centered on self and family with a glance to a tax reduction strategy called "philanthropy." They may also set and achieve goals around investment strategies, to increase return, reduce risk, and fund specific dollar outflows.
3. Grant making consultants or gift consultants (like Tracy Gary or The Philanthropic Initiative) start with goals for society or a specific cause, and match that passion with appropriate giving grant making strategies, whether the grant comes from a checkbook, a donor advised fund or a foundation. But they don’t back that gift up into the financial and estate plan of the donor. They deploy the existing giving budget, and maybe nudge the client to increase it, but they do not work at restructuring the client’s finances to increase that giving budget, while also taking into account the donor’s many other non-philanthropic goals.

In other words, fundraisers represent the nonprofit they work for and gift consultants represent the public good and/or the client’s philanthropic urge. Financial advisors represent the client as a consumer. They represent the side of the client that is concerned with financial stability and spending power. But who represents the client as a whole? Why can’t clients be advised as whole people who have personal spending needs, children they would like to pass part of their estate to, and philanthropic interests that they would like to support? Last November I wrote about the need for a comprehensive understanding of the philanthropic family that does not compartmentalize the personal and social uses of their financial assets:

All of the assets that you accumulate during your life can be thought of as falling into two buckets. The assets that you use to finance your own lifestyle or those that you pass on to your heirs are your personal capital. The assets that you give back to society – either by default through the tax system, or proactively through direct transfers to nonprofits – are your social capital.

Most people understand the need to manage your personal capital proactively. There are numerous websites, books, advisors and other resources that encourage the tactical management of personal capital. What is often missing is any kind of strategy for personal capital. Why are you accumulating all of this money in the first place? What are your goals in life? How are you going to use your personal capital to truly benefit yourself and your heirs? There are certainly plenty of philosophical, self-help and spiritual resources to help guide your way. However, people rarely address the strategic goals and the tactical decisions around personal capital collaboratively.

Social capital suffers from the opposite condition. Lots of people and resources encourage us to utilize one strategy over another. The very act of deciding which nonprofit to fund is a strategic act, so every donation solicitation can be understood as an appeal for you to decide on a specific strategic direction. However, few people think of their social capital tactically. When tactics are discussed, they are generally viewed as a way to reduce the distribution of your social capital in favor of your personal capital. Most people think of the tax break from giving as a way to retain personal capital, rather than understanding its ability to redirect social capital away from the tax system and to your favored nonprofits.

My expertise is in tactically managing personal and social capital collaboratively. At the tactical level, personal and social capital are identical – they are fungible financial resources. At the strategic level, personal and social capital may be used quite differently. However, at their root they come from the same pool of financial resources. How you dip into this pool and allocate your capital to personal or social projects is a strategic decision. Tactically, your personal and social capital is one and the same. You must manage all of it as a comprehensive whole.

But what about the Social Return on Investment? If a donor makes a gift to a nonprofit, what is the “return” on that gift? How much “good” was achieved? The dollar amount given is easy, but “calculating” the “good” done is tough. First because knowing what “good” means is hard, secondly because relating “good” to dollars is like translating a symphony into organic chemistry, and third because identifying cause and effect is tough (did your grant create more jobs, or did the economy just happen to get better?).

I don’t think we’ll ever be able to honestly make statements like “My $10,000 donation achieved a 9.2% SROI”. That would be like calculating that The Great Gatsby was a better investment of your time than Freakonomics. However, humans constantly make decisions about what works and what doesn’t. We confidently make decisions about whether we should spend our Sunday afternoon rock climbing, volunteering, playing with the kids or going to the office without any sort of numerical framework to help us. That’s because we use a narrative context.

Kevin Jones, blogging at Xigi.net is working on a project he calls StoryIndex:

Social value is best understood in narrative form. Financial value is best understood in numerical form. Both are valid ways of encapsulating fungible value. Our StoryIndex project is trying to create a way to quantify narrative to accelerate the flow of capital to good.

In another post, he writes:

Here is what we are doing: mapping the new nascent exchanges, composing a glossary and translation table of how they define value in other than monetary terms

He’s got a great slide show about StoryIndex that you can find here and a map of the Blended Value Market Place here.

If you’re interested in a financial career, you might be curious about how your interests can lead to reconciliation between your job and your belief system. Social finance might open the door to several solutions for your dilemma. While social financing might seem new, it’s been around since the first individual took a stand against profit at any cost…

… No matter your direction once you get your feet wet in this field, you may learn that financial opportunities don’t always lead to gluttony, lust, and depravity. Nor will they all lead to living without the needs vital to survival. Whether you lean toward nonprofit or for-profit careers in social financing, you can find an area that needs your support and interest. You may find that your new career will help you "do good" and do well.

Read the whole article here.

I saw their co-founder Peter Kinder (who also co-founded Domini Social Investments) speak at this year’s Investors’ Circle conference. Last week KLD launched a new blog, which is co-authored by a number of employees, including Peter Kinder. As someone who focuses on the asset management side of philanthropy, I’m pleased to see KLD throw their hat into the blog ring.

I’ve morphed the Giving Carnival into my podcasts, but if any other philanthropy bloggers want to revive the Giving Carnival in its original format, let me know and I’d be happy to hand it over.

The Giving Carnival: Edition One

Welcome to the first edition of The Giving Carnival. The topic of this edition is the debate surrounding the LA Times coverage of The Gates Foundation investment policy (you can read the two part article here and here).

• First up we have Phil Cubeta channeling Marxist Leon Trotsky in his post “Leon Trotsky on Socially Responsible Investing”.
• Allison Fine calls The Gates Foundation “cowardly” in her post “Outrageous Behavior by The Gates Foundation”.
• Lucy Bernholz reviews the various points of view on the topic of socially responsible investing and brings us a reader poll in her post “Foundations and Investing”.
• Paul Botts brings us his thoughts with “A Thoughtful Response from Gates” and “More on Foundation Investment Practices”.
• Carol Kirshner points out that “being a leader can suck at times” in her post “GatesGate: Conscious Spending and Investing”.
• Holden Karnofsky says “I’m basically fine with investing in evil” and then adds “More Thoughts on Responsible Investing” and finally “One More Thing”.
• I weigh in with “Private Foundation Investment Strategy” and a post I wrote before the discussion hit firestorm status “The Gates Foundation”.
• And finally Jed Emerson (who doesn’t update his blog with the manic frequency of the other Carnival participants) points us to his Op-Ed on the subject in The Chronicle of Philanthropy, “Maximizing Our Missions”.

Thanks to everyone for sending in your submissions. The response was so positive that I’d like to make The Giving Carnival a bi-weekly event. This is going to be a traveling carnival meaning that future editions will be hosted by other Giving Blogs in addition to being hosted here.

Daniel (this is an excerpt of his comment, read the whole thing here):

Mike is my good friend and our Board member at CompuMentor/TechSoup, but I think this remark is unfortunate and I likewise disagree with your gloss on it, Sean.

I think it’s essentially a matter of distinguishing between content and context. The content here is self-evidently true, in the sense that more or less ipso facto a subsection of every group is the least qualified in that overall group…

The context is another matter. If you’re standing in front of the NRA and want to say "Gunowners suck," than I say, "more power to you and excuse me while I get out of range." Truthiness to power; good for you. But if you stand up, from a position of authority, and tell a group of people who have in many cases worked for nothing or very little to try to accomplish something beneficial that some of them "suck", I am not very impressed. It feels like piling on. Is it possibly true that anyone in the nonprofit world doesn’t already know that some nonprofits do a poor job in some (or many) areas? I don’t think so.

I think Mike’s real point is that some nonprofits really have no claim to be taken seriously as business models. And I think that’s actually a pretty interesting point and more nuanced than it might appear… The trend toward a more business oriented approach to social maintenance and improvement is a relatively recent development. I won’t take the space here to describe it, but will just note that one of the unintended consequences of this trend is that nonprofits that can’t spell bizness modl now feel obliged to claim that they have one. That doesn’t mean they suck! It means they are confused about where they fit into the present funding climate and are climbing on the latest buzzword…

Knowing Mike and what a warm, fuzzy and empathic individual he is (most of the time), I believe he misread the room. Obviously he struck a chord with you, Sean, and I’m sure some others, but for many of the people there (based on the feedback I’ve heard; I wasn’t present myself) it felt like a person in a position of power, a VC, an "Expert Reviewer", a board member of the host organization, taking the opportunity to state the obvious in an unnecessarily belittling way.

Mike Brown responds (again, this is an excerpt, you can read his whole comment here):

…One of the major challenges in the non-profit sector is that the efficient markets principle we hold dear in the private sector doesn’t hold as well in the NPO world. In the for-profit world we value the fact that resources tend to accrue to the organizations that generate superior returns…

…Unlike in other realms where competition channels resources to the most efficient or effective consumer of resources, in the non-profit sector resource allocation and efficiency/effectiveness are not always or easily correlated. Efficient /effective NPO’s don’t always thrive and inefficient or mismanaged NPO’s sometimes consume resources better allocated elsewhere…

Yesterday, I made the point that any organization (foundation, NPO, or for-profit) must set some criteria or filter for its resource allocation to ensure that the resources are deployed as effectively as possible. I provided the example that if my goal is to provide housing for people and my resource is hammers, I should offer the hammers to the builders that can build more housing than the builders who are slower or lazier (all else equal)… Most people understood that I was making this point clearly yesterday when I said, "Some non-profits suck; just like some for-profit businesses suck" as I then spent the next five minutes explaining exactly what I meant. The people who understood this point told me so directly after the NetSquared panel I moderated. Apparently, some took offense to my "inflammatory" remark. Those who took offense felt that I was undermining the hard work of good people in all NPO’s who have dedicated their careers to helping others. To them I say, learn the meaning of the term "hyperbole" and stop being so sensitive. Obviously I care deeply about the sector and appreciate the great work effective NPO’s are doing. Why else would I spend the time that I do supporting NPO’s with my time and resources?

My take on Mike’s comment at the conference was:

In a world with limited resources, we need to get comfortable with the idea that nonprofits that are trying hard and have lots of passion — but aren’t cutting it — don’t need a pat on the back. They need to be ignored and we need to let them go out of business.

Personally, I do not buy into the hype that nonprofits should behave more like for-profit businesses. At least not in the sense that they must create business models based on earned income strategies or that being dependent on philanthropic funding is somehow a deficiency. But I do feel strongly that there is only a limited sense in our culture that nonprofits can and should be expected to be highly effective organizations. Certainly many people in philanthropy establishment get this, but it is not a widely held concept.

In the investment management industry that I work in and the venture capital industry that Mike works in, success is defined by the results of how we allocate capital. No one cares about how slick of a concept a company has, or how big they are. The metric is “what was your return?”. Measuring the “return” on money invested in a nonprofit is a very difficult concept. But at the least, we need to have a framework where pointing out that some nonprofits aren’t any good at what they do and resources allocated to them is a waste, doesn’t inspired a debate or hurt people’s feelings.

Here’s the thing about Mike’s comment, it wasn’t directed at nonprofits. Nonprofits know that some of them are effective and some aren’t. His comment, or at least my take on it, was directed towards allocators. We measure what we care about and in philanthropy we tend to measure how much capital is given, not how effectively it is allocated. This is why “Some nonprofits just suck” was such a powerful line. Mike wasn’t speaking from a position of power down to the nonprofits in the room. He was talking about how the sector, all of the players (and the room was a diverse cross section), allocate capital.

In the for-profit sector, market forces drive poor companies out of business. Therefore, we don’t need anyone running around reminding people that some for-profit companies suck. But this hasn’t always been the case. In the late 1990’s, the technology bubble, an event of mass psychological hysteria, broke the efficient market system for awhile. During that time, capital allocation was terrible. Companies that destroyed value were given massive amounts of capital. Anyone who questioned these allocation decisions were told that they didn’t understand the New Economy. During that time a website called F**ked Company came about. The site pointed out companies that Mike Brown might say “sucked”. At that time, the for-profit sector desperately needed this pointed out to them. With the lack of market forces and the lack of reliable outcome metrics in the nonprofit sector, we still need to be reminded that just because a company has 501c3 status doesn’t mean that giving them money does any good at all.