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Next geNeratION philaNthropy

Peter WinnekeHead of philanthropic services

Myer Family Company

the jOurNal Of famIly OffIce INvestmeNt• FS Private Wealth

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Many of the families that we work with see themselves as social investors. Most are self-made problem-solving entrepreneurs who seek to use their business skills, not just cash, to tackle society’s ills.

Many would agree that one true test of a civil society is how we treat those less fortunate than others

and our not-for-profit (community) organisations. Do we assist in building up their organisational capacity so that they can thrive and achieve their mission of assisting those less fortunate and without a voice? Such support cannot be left for government alone due to a range of factors, including: budgetary constraints, funding risk with tax-payers’ money and not having the necessary skills. Of course private and corporate funding is also required.

If asked, “Do you think Australians are generous?” most would respond, “Yes”. Analysis from the Australian Tax Office (ATO) relating to 2008–09 tax returns (the latest available) indicates that:

• On average, Australians give 0.36% of their income to charities

• Of the 12.3 million individual tax returns lodged, 7.6 million (62%) did not claim a deduction for a gift to charity

• Of the 6,395 Australians who earned over $1 million, 37% did not claim a deduction for a gift to charity.

There are many that are doing a great deal for the community, including the significant number of Australians who volunteer (Volunteering Australia tell us that 34% of Australians volunteer on a regular basis, which is high in OECD terms). However, from the above analysis it is clear that generally it is a myth that Australians are financially generous.

The philanthropic sector is in a unique position to create positive change. Philanthropy is the resource with least restraint, so it is ideally positioned to be a change agent. This will only occur on a material scale in this country if we grow the philanthropic sector to a material level. The venture capital model is a good one to learn from: it’s a starting point for developing organisational capacity to sustain and grow strong community programs. Many of the families that we work with see themselves as social investors. Most are self-made problem-solving entrepreneurs who seek to use their business skills, not just cash, to tackle society’s ills.

A fourfold increase in giving (i.e. to over 1.5% of income) would have very limited impact on most lifestyles, yet would have a significant positive impact on the community sector.

And it is the affluent that need to step up. We lag our American colleagues: affluent Americans give 3.8% of income to charity, whereas wealthy Australians allocate less than 0.5%1. And Bill Gates & Warren Buffett’s “Giving Pledge” is targeting, with success, the world’s billionaires to commit to giving the majority of their wealth to philanthropy.

Despite our significant wealth there are few family foundations distributing over $1m per annum, and this is primarily derived from those long passed away. Probably the greatest philanthropist in this country is not even

Australian! It is Irish-American, Chuck Feeney. Feeney made billions as the founder of Duty Free Shoppers and now is giving most of it away through his foundation, Atlantic Philanthropies.

We need to change the culture of giving in this country. We need to implement a “Giving Campaign” similar to that introduced in the United Kingdom in 2001. Such a campaign could include:

• Setting a benchmark for giving. (I suggest 1.5% of income would be a good start)

• Encouraging more families to consider the adverse im-pact of leaving significant income streams to children

• Establishing our first $1 billion family foundation, which would considerably raise the profile of the sector

• Advising families that a family foundation is a brilliant educational tool for children in relation to responsibility of wealth, community engagement and investment management (refer later)

• Encouraging more existing high net wealth donors to talk openly about their work to inspire others

• Introducing ‘giving awards’, to celebrate our giving

• Publishing a list of the “Top 100” philanthropic grants in Australia’s history. This will highlight the amazing institutions and projects that have been seed funded by the philanthropic dollar and inspire others to take action

• Establishing a Charities Commission to better regulate and promote the community sector (the Australian Charities and Not-for-profit Commission is due to be established by 1 July 2012)

• Boosting the resources of peak body Philanthropy Australia to grow the profile of the philanthropic sector (this could occur if it was endorsed by the ATO as a deductible gift recipient)

• Community organisations’ better selling of their stories. They need to implement strong programs, measure the outcomes and then publicise the successful case studies.

We need a family to step up and establish the first $1 billion dollar foundation in Australia (to get philanthropy on the front page of every newspaper in the country) and we need many champions at the more modest level to step up and encourage others to do so. For example, families with net wealth of, say, $10 million to put 10% of their wealth ($1 million) into a family foundation would be a starting point.

In the 1990s there was a cry that this country did not have an appropriate giving entity for families that enabled them to make tax-deductible gifts, accumulate a corpus, and control the grant making to eligible charities. In 2001 such an entity was created: a Prescribed Private Fund, now known as a Private Ancillary Fund (PAF).

The introduction of PAFs has had a greater positive impact on the philanthropic sector in our country than any other measure. Since their establishment, over 900 PAFs have been created and they have an aggregate corpus of around $2 billion. To be economic, the initial

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gift to a PAF should be at least $500,000. There are thousands of families in Australia who could create a PAF, but for various reasons are yet to do so. A family foundation, such as a PAF is a tax effective way to give, enabling families to build a corpus and implement a long-term strategic giving program.

There should not be 900 PAFs in Australia; there should be 9,000.

You can establish a sub-fund with a community foundation for as little as $20,000. Whilst there are nearly 300,000 Australians earning over $150,000 p.a., the Australian Communities Foundation only has about 170 sub-funds, the Sydney Community Foundation has very few and, despite the extraordinary resources boom in Western Australia, last year the Western Australian Community Foundation was placed in liquidation due to lack of business. We can, and need to, do much better.

The Myer Family Company has established nearly 70 family foundations in recent years and assisted many of these families in implementing strategic giving programs. Our clients are working with very dedicated community groups on projects that are having a profound positive impact in areas of great need. Aside from getting involved with exciting community projects, one of the key benefits of establishing a family foundation is the educational benefits to children. A family foundation is a microcosm of a business. It just happens to be in the business of grant making. The educational benefits of a family foundation are numerous and they include:

• Learning the responsibility of wealth. It was former United States President, J.F. Kennedy, who said, “To those whom much is given, much is expected.” A foundation provides numerous and regular opportunities to teach kids about the local and world affairs and the responsibility of those in a position to make a positive difference

• Instilling an ethos of giving and caring within future generations. Kids watch their parents. If, as young teenagers, they are sitting alongside their parents discussing concerns within the community, they are likely to take note

• Engagement with the community and understanding the needs of others. By partnering with community organisations, families can gain empathy for those less fortunate

• Setting a vision for an entity and then implementing the strategy to attempt to achieve the vision. We run philanthropic vision workshops with families, where we bring two or three generations together to determine the vision for the foundation and the areas that the foundation will target. They are very unique discussions

• Investment strategies. The foundation’s investment strategy must be documented, so the children are learning about risk, asset allocation, yield and fund manager and stock selection

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Is it beneficial or harmful to leave a significant income stream to a child? Warren Buffett’s view was clear when he said: “Leave enough to your children to do anything in life, but not enough to do nothing.”

• Budgeting. A foundation needs to set revenue and expenditure budgets which is a good experience for children

• Effective Board and governance skills. Whether Board meetings are held informally around the kitchen table or at the Board table there are powerful learnings for the kids

• Collective decision-making. No matter the size of the foundation it has finite resources. The children receive experience with determining priorities and negotiating amongst each other

• Unifying a family in a common goal. The foundation provides a unique opportunity for a family to collectively, and in a structured way, tackle issues in society

• Philanthropy can be “the glue that sticks the family together”. The Myer family is now in to its fifth generation since a young Sidney Myer arrived in Australia and founded the Myer Emporium. Whilst the family is now scattered around Australia, and indeed the world, it is philanthropy that brings them back into a room together and “sticks them together”

More consideration needs to be given by many families to how much of the family wealth is left to the children. Is it beneficial or harmful to leave a significant income stream to a child? Warren Buffett’s view was clear when he said: “Leave enough to your children to do anything in life, but not enough to do nothing.”

We seem to have built an obsession with growing the personal balance sheet and a focus on self. However, despite the significant wealth in our country, and the desperate under-capitalisation of the majority of our community organisations, the philanthropic sector remains embarrassingly small. It needs to grow for the benefit of the community.

However, I believe we are on the verge of a new dawn in the philanthropic sector. The sector has enormous capacity to grow, so it can eventually operate on a meaningful scale. We can educate families on the enormous benefits to the community and future family generations from a family foundation. We can learn from the mistakes and successes from offshore. We can maximise the opportunities from collaboration and leverage with other stakeholders, including government. Philanthropy can be a powerful change agent in society, targeting social ills. Foundations can, and should, lead social progress. As Franklin Thomas, ex President of the Ford Foundation, said, “Philanthropy can be the research and development arm of society.” fs

References

1. Petre Foundation, Good Times & Philanthropy: Giving by Australia’s

Affluent, 2008