This is my most recent column for the Chronicle of Philanthropy. You can access the full archive of my past columns here.
Gates-Buffett Example Worth Its Weight in Gold
By Sean Stannard-Stockton | Chronicle of Philanthropy
The collaboration of Warren Buffett and Bill and Melinda Gates transfixed the nonprofit world four years ago when they announced the biggest philanthropic merger in history, producing a foundation that will probably be worth at least $60-billion one day. But last month’s announcement that the Gateses have joined forces with Mr. Buffett on a campaign to persuade the nation’s billionaires to give 50 percent of their wealth could be an even more important milestone—especially if it persuades Americans at all income levels to increase their giving.
While much has been made of the amount of money the Bill & Melinda Gates Foundation gives away now that it has an infusion from Mr. Buffett, what is far more important is the way the personal decisions made by two of the world’s wealthiest men affect other donors.
The Gates foundation is responsible for only 1 percent of annual charitable giving. But the cultural importance of Mr. Gates deciding at age 48 that running his foundation was more important than running Microsoft and of Mr. Buffett deciding he would give away most of his wealth while he is alive was remarkable.
Those decisions are a striking departure from the historical philanthropy of America’s wealthiest individuals. Many people have undertaken their major giving late in life or simply taken care of through bequests left in a donor’s will.
For as long as we have had records, Americans have given roughly 2 percent of their income to charity each year. Today, American foundations, corporations, and individuals give about $300-billion a year.
If every billionaire decided to give 50 percent of his or her net worth, it would result in $600-billion for charitable causes.
But of course, much of the $600-billion would flow into foundations or go to charity over many years. So a better way to look at the impact of the pledge is that it could trigger a permanent $30-billion per year increase in charitable giving, or 5 percent of the $600-billion pledge. If the money flowed to nonprofit groups any faster, it would run out at some point and therefore not make a permanent impact on the level of charitable giving.
Now $30-billion is real money. After all, today all the foundations in the United States combined give a total of about $40-billion. But such giving would result in only a 10-percent increase in the amount charities receive every year.
It is very likely that even without the pledge, Americans will increase their giving by $30-billion within two to four years simply because that is what happens whenever the economy starts growing again after a downturn.
However, just as the announcement of the Gates-Buffett collaboration in 2006 inspired many other people to get more involved in philanthropy, it seems likely that their new campaign could do much to increase giving far beyond the exclusive circle of American billionaires. It will certainly motivate some billionaires outside the United States. Chinese government officials have already called on their country’s billionaires to increase their giving in reaction to the Gates-Buffett campaign.
But most important would be for the Gates-Buffett “giving pledge” to act as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick-start a gradual increase of average giving from 2 percent of income to 4 percent of income.
The result would be an increase in charitable giving of $300-billion every year. That’s 10 times what the giving pledge might raise even if every billionaire in the United States committed to the idea.
A 10-percent increase in charitable giving would elevate the resources of the nonprofit world to a level we’d normally not see for several years to come. But a 100-percent increase would mean access to resources today that otherwise would not appear for a generation.
That’s what potentially makes the Gates-Buffett giving pledge a really big deal.
Big announcements make the news, but it is the giving of everyday individuals that really drives philanthropy.
Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.
5 Comments
Sean,
I’m with you on the possible importance of these pledges – raising giving to places we’ve not yet seen. But in all that I’ve read, I haven’t seen how they are to be administered? We both know that throwing $$ around won’t do it. Gates certainly knows how hard it is to get that money out the door in a way that creates impact.
Or is there a side memo that I missed – saying how philanthropic institutions will be created or expanded to absorb the funding? A boon for the employment in the sector?
Cheers,
Michele
Excellent article.
The next, and perhaps most important, question is what strategies and steps do we take to encourage our donors to follow this example. A related issue is how would the various types of donations–planned, major, capital campaign, and endowment giving,–be encouraged?
Some initial thoughts would be to focus on older donors and/or donors with a certain wealth threshold. Duh!
Have others used strategies to these ends? Are the strategies broadly publicized so that some donors will self-identify or has the focus been mostly on individual contacts that are staff-identified?
John
Michele,
The Pledge is not a gift to any administering agent. It is just a pledge that the donor will give away 50% of their wealth.
But to your point about the importance of the giving being “effective giving” rather than just more giving is well taken.
John, I haven’t written about how nonprofits might “trigger” this sort of giving from donors, but you might want to review the stories of more every day donors who have made similar pledges. You’ll find them at Bolder Giving.
Ego financed by taxpayers: US billionaires pledge 50% of their wealth to charity
Thirty-eight US billionaires have pledged at least 50% of their wealth to charity through a campaign started by investor Warren Buffett and Microsoft founder Bill Gates.
The same effort is underway in Europe to get wealthy individuals to give away half their fortunes before they die to charity. I am against this idea, but for a different reason than most of the European billionaires are using. Names, government should be doing this job. My objection is mainly based on impact.
Traditional philanthropy takes the principal and invests the money to achieve only financial returns, and gives away 5% to maintain non-profit status. Few of these large endowments, family offices, individuals, etc. try to achieve financial returns as well as achieving a positive social and environmental impact (impact investing). This traditional philanthropic route, namely give away 5%, which represents a portion of the interest, to charity, is a very poor use of capital. If the asset owner created a portfolio that achieved social, environmental, as well as financial returns, 100% of the money would be leveraged for society and the environment. In addition, if 5% of the returns were given away, the total leverage would be 105%. I don’t know about you, but I learned that 105% is larger than 5%.
A majority of philanthropy is ego. People love to cut ribbons, see their names on buildings, wings, plaques, etc. If people are driven by ego, that is fine, but I don’t think the taxpayer should finance this. By shifting from interest to principal, we impact more, and don’t require a tax break to mobilize the money. In the United States, Federal tax law requires philanthropies to give away 5% of their total assets each year to maintain their nonprofit status. In these days of tight budgets, it might not be such a bad idea if more money was invested in impact investing.
If Warren, Bill, and the other billionaires are listening, “how about really leveraging money for the commons, by doing impact investing and leveraging much more, without having to go around trying to convince people to give half their money away. As astute businessmen, I am surprised that after all these years, they are still doing the same low impact approach. As Jerry Maguire said” Show me the money”.