Holyrood Conference
Thursday 28 October 2010
Exploring Philanthropy
Introduction
I must confess that speaking on the subject of philanthropy on a panel on Funding of Higher Education in Scotland at this juncture feels a little like talking about the fabric on the deckchairs of the Titanic, or perhaps, speaking to the merits of new generators in the ship’s boiler room, might be a better metaphor.
The fact is, that we have a major and immediate problem and philanthropy, which over the long term has the potential to become a part of a solution, is not going to help us appreciably in the near term.
That said, I have been asked to address the subject of philanthropy, and I will do so.
US / UK myths
First, I would like to challenge a few myths about educational philanthropy. First, that the British and especially the Scots don’t do it, and second, that most Americans do little else.
There is, in fact, a long history of educational philanthropy in Scotland. Many of our universities would not exist today but for the generosity of individuals like Robert Gordon, George Heriot, John Anderson in Strathclyde and Bishop Robert Reid in Edinburgh. Many buildings in our universities, like Pollock and McEwan Halls here in Edinburgh, or Younger Hall and the Purdie and Gatty labs at St Andrews are named for their benefactors. There were a number of periods during its long history when St Andrews University appeared to be on its uppers, with declining student numbers and rising debts, only to be rescued by the generosity of a donor, usually a grateful and successful alumnus.
A number of factors led to a decline in educational philanthropy in this country, chief among them was the generosity of state support for education in the years after the Second World War which had the unintended consequence of reducing the emphasis on philanthropy. Also contributing was the high rate of personal taxation combined with small numbers attending university which led to the not-unreasonable assumption that education was the responsibility of the state. With lower rates of personal taxation and higher numbers attending university this calculus might have changed, but it has been slow to do so.
In Britain there are over 170,000 general charities, although the sector is dominated by 18 large charities with an income over £100 million. These are the household names like Cancer Research UK, Oxfam, the British Heart Foundation, and so on. Like other sectors this is shaped like a pyramid with 2% of charities commanding 70% of sector revenue. In the year 2006 people in the UK gave over £1billion to international charities. (Source: Aikins) British generosity, therefore, is not in question.
A corollary myth is that Americans are congenitally generous to their educational institutions. It is true that 3 out of 4 Americans donate to charity and that $1 out of every $50 spent is a gift to a non-profit. Another indicator of American philanthropy is that in the month after 9/11 58% of Americans donated to 9/11 related causes. The outpouring was so great that two of the largest relief agencies, the American Red Cross and the September 11 Fund, memorably issued statements saying that they did not want any more money. Nevertheless, they still received another $500 million by June 2002. Incidentally, the largest one-time philanthropic outlay in the history of the world was the $6 billion donated by charities to Hurricane Katrina relief. (Source Aikins)
One of the explanations for the higher rates of American philanthropy is the higher rate of religious participation. The tax regime has also helped. As far back as 1921 legislation provided tax relief for personal giving and corporations have received tax relief since 1935. After World War Two the tax advantage offered to foundations had a major impact. As income and estate taxes were considered high, the idea of forming or contributing to foundations became very popular among the wealthy. By the mid-1950s there were as many as 7,500 foundations in the US. All of this, of course, came after the hey-day of the great late nineteen early twentieth century philanthropists.
Carnegie
One of the foremost of these was Andrew Carnegie, who emigrated from Dunfermline as a child and made a fortune in the US. He wrote extensively of his views on wealth and posed the question: “What is the proper mode of administering wealth after the laws upon which civilization is founded have thrown it into the hands of a few?”
- He dismissed leaving it to one’s heirs as injudicious;
- paying it in death taxes as the just punishment for selfishness;
- and the only sensible thing to do being to give it away while you are alive.
He then had an ordered list of who the recipients of this money should be. In reverse order his list was:
7. Churches
6. Public swimming pools
5. Community Halls
4. Public Parks
3. Hospitals and medical colleges
2. Public Libraries
1. You got it. He wrote: “Standing apart by itself there is the founding of a university” He went on to day that: “If any millionaire is at a loss to know how to accomplish great and indisputable good with his surplus, here is a field which can never be fully occupied, for the wants of our universities increase with the development of the country.” (p. 20 The Gospel of Wealth, Penguin edition) I’ve been wondering if we could get this quote carved over the doors of all our banks.
In this sense Carnegie was the forerunner of the recent “Giving Pledge” launched with great fanfare by Bill Gates and Warren Buffet, and now with 35 signatories including Mayor Michael Bloomberg of New York; the pledge to give away all their wealth in their lifetimes.
This commitment to educational philanthropy has remained firm in the American culture. Last year 40% of all charitable giving in the US went to educational institutions, religious organizations came second with 33%. (source: Giving USA)
Transformation of US fundraising
Before we conclude that the Americans are so different in this respect, and so far out ahead of us on this, that we can never catch up, it is worth looking a little closer at the fundraising of some of their big public and private institutions. Harvard today has an endowment of about $30billion, famously down from the$37 billion before the crash. But it 1957 Harvard launched a capital campaign of $82 million and Stanford followed with an ambitious $100 million campaign. These are more like the figures we are used to. One doesn’t even have to go back that far. In fact fundraising in American universities both private and public was transformed in the 30 years between 1975 and 2005. In that period Harvard’s cash received in a year went from £26 million to £302 million.
- Stanford: from £23-£309 million
- Yale: from £14-£146 million
- Princeton: from £9-£85 million
- Brown: from £5-£84 million
Perhaps more relevant for us, public institutions experienced a similar fundraising transformation in the same period. In 1975 many public American universities were fundraising at a level comparable to Scottish universities today.
- William and Mary went from earning £1 million in 1975 to £25 million in 2005
- Penn State from £2m to £65m
- UNC from £2.7m to £92m
- Florida from £4m to £67m
- U of New Hampshire from £400k to £6.8m (Source McCallum GCU)
We should aspire to effect the same transformation in our own fundraising but we will need to be realistic that this cannot be done overnight, and it won’t happen simply because we would like it to.
The other word of caution that is worth mentioning is that charitable contributions to US Colleges and Universities dropped 12%, the greatest decline ever recorded, in 2009. Giving to the top 20 institutions dropped 11.8% and the value of endowments dropped 22% . The lesson is obvious; fundraising is sensitive to the broader economy. (Source CAE)
The real myth, of course, is that all American graduates contribute to their universities. This is far from being the case. The average alumni participation rate in the US is 10% down from 11% the previous year. It is, of course, highly variable.
Princeton is out on its own at 60%, Dartmouth has 49%, Yale 38% and Harvard, Penn and Brown have 37%.
Of the top public institutions UVA and UNC have 22%, Michigan 16% , Berkeley and UCLA 13%
By contrast, the average figure in the UK is 1.14%. 22% of British universities reported no donations from alumni. Only 9 universities in the UK had more than 4% of alumni making a gift. Oxford’s participation rate in 08 and 09 was 12% and Cambridge’s 9%. They are the only British institutions with endowments over £1billion. Another way of looking at it is that over 163, 000 people and organizations made gifts to HE last year. Curiously this figure grew 12% in spite of the economic downturn. The increase is attributed to the match funding scheme in effect in England, about which more in a moment.
Fundraising figures in the UK are particularly skewed, in that Oxford and Cambridge alone account for 51% of all the money raised, and a further 24% by the other members of the Russell Group. The fact that Oxbridge have been successful in fundraising suggests that cultural and even tax explanations for the relatively low level of educational philanthropy in the UK are not compelling.
What donors want
Fundraising, of course, comes with its own challenges, for donors are unlikely to write blank checks and go away. Academics at the Centre for Charitable Giving at the University of Kent surveyed donors earlier this year and found a key criterion for giving is a: “desire to have a personal impact, such that their contribution makes a difference and is not drowned out by other donors and government funding”. (Source, CASE) The study concluded that donors “were particularly keen to avoid their donations becoming a substitute for government spending.” This is entirely consistent with our anecdotal evidence and consistent with something David Rockefeller said decades ago:
“Philanthropy is involved with basic innovations that transform society not simply maintaining the status quo or filling basic social needs that were formerly the province of the public sector.” (Source Aikins)
One striking example of educational philanthropy is that of Irish American, Chuck Feeney, who contributed over $750 million to third level education in Ireland with the only condition being his own anonymity. He funded the Program for Research in Third level Institutions through 3 cycles which saw the creation of 64 research institutions and the transformation of higher education in Ireland. Once he realized that the government was counting on his funding however, he withdrew for other causes. Feeney, who made his fortune in Duty Free shops, has given away $1.2 billion and long before Gates and Buffett came up with the idea, he pledged to give away all his money by the time he died.
We are more likely to be successful in fundraising, therefore, if we look to philanthropy , not to fund our day-to-day operations, but to support novel ideas, the unpopular and unproven and to build an endowment. An endowment is a pot of money that is permanently invested and only the interest is spent. Over the long term a 6% annual rate of interest can reasonably be expected. If anyone in this room were to invest the price of a drink, say £4, in St Andrews endowment today, by 100 years from now that would be worth £1,357 and 100 years later $460,504. If one of the founders of St Andrews had invested £4 in 1411 at an annualised compounded interest rate of 6% that money would today be worth £6,103,502,828,771,390 (6quadrillion, 103 trillion, 502 billion, 828 million, 771 thousand and 390 pounds.) Such is the power of an endowment.
Endowments
The first known endowment was a gift Plato made in the fifth century BC to the world’s first university. His gift generated income for the thousand year life of the Athenian Academy. An endowment permits university leaders to choose to support unfashionable ideas, to invest in the area where the payoff cannot be demonstrated, to recruit a star researcher, buy time for a promising young scholar or recruit a brilliant but impecunious student. But endowments cannot be raided at the first sign of difficulty. They must be managed carefully and in accordance with the wishes of the donors. We must remember, as even Harvard forgot, that they can go down in value as well as up. I remember joking as I was leaving Harvard at the end of 2008 that one of the advantages of moving to a country in which universities lacked endowments, was that you didn’t; have to worry when their value plummeted.
In preparing for this talk I discovered an article in the New York Times of May 21 1901 reporting on a £2 million gift by Andrew Carnegie to make university education free for Scots, male and female, rich and poor, who pass the entrance exams in the then 4 Scottish universities. The article is striking because of the visionary nature and generous scale of the gift but also because of the lack of enthusiasm for the gift expressed in several quarters. In any event, had it worked out as he intended we probably wouldn’t be here today.
England / Scotland
I have made the point that we in Scotland are decades behind the US in our educational fundraising but we are also some years behind England.
First, in 2004 a £7 million matched funding scheme sponsored by UUK was launched to support the building of fundraising capacity in English universities. 27 universities opted to participate and soon raised an average of £1 million each.
Second, in 2008 HEFCE announced a £200 million matched funding scheme for gifts to education over three years. The idea was to provide incentives and initiate a step change in fundraising. Universities such as Bristol and Loughborough have described the impact as transformative. Bristol attributes a 27% increase in donations to the matched fund. The evidence of the success of matched funding schemes from around the world from 24 US States, Canada, Hong Kong and Singapore have been equally compelling. (Source: Sutton Trust)
Third, in 2010 the Browne Review recognized philanthropic gifts as an important part of the future of university fundraising and recognized the important of the relationship between the student and the university. Through Student Finance Giving, Lord Browne’s review proposes that institutions will be able to use the system by which students make payments to Government to attract more charitable giving. Students will designate the institution they want to receive their payments and, either make optional additional payments alongside their payments to Government, or keep making payments after they have cleared their obligation to pay for learning and living. The payment will occur by way of a simple payroll deduction and take advantage of tax incentives for such giving.
What is to be done?
If we in Scotland are going to catch up with England and emulate the US we are going to have to act decisively and quickly.
- We are going to have to get over residual cultural hang-ups about the shamefulness of “charity.”
- We are going to have to create a culture of educational philanthropy.
- We are going to have to train fundraisers and invest in professional fundraising staffs and infrastructure
- We are going to have to recognise in all our funding mechanisms the centrality of the individual link between the student and the university they attend.
- We should simplify the tax code so that the benefits of philanthropy are immediate and obvious, as with a straight deduction from gross income
- We should be creative about designing vehicles for planned giving that, for example, allow individuals to donate assets while providing them with a regular income and tax relief during their lifetime.
- We should introduce an aggressive matched funding scheme to signify our commitment and accelerate the pace of change.
- And we are going to have to hope that the economy improves.