Major Donor Giving Research Report

2-6 Tenter Ground Spitalfields London E1 7NH T 0207 426 8888 E [email protected] W www.nfpsynergy.net

Sarah Lincoln, Joe Saxton nfpSynergy

Commissioned by the Institute of Fundraising

Major Donor Giving Research Report A synthesis of the current research into major donors and philanthropic giving July 2012

Major donor giving report

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Contents

Introduction......................................................................................................... 3

Researching major donor giving ............................................................................ 4

Key findings from recent studies of major donor giving .......................................... 6

Comparing US and UK philanthropy..................................................................... 10

Different forms of giving ..................................................................................... 12

Motivations for major donor giving ...................................................................... 17

How do major donors decide which charities and which causes to support? ........... 22

Why do major donors continue to give? .............................................................. 23

Why do some wealthy individuals not give at all? ................................................. 24

The influence of wider economic troubles on major donor giving .......................... 25

Tax incentives and major donor giving ................................................................ 28

Recommendations for charities ........................................................................... 31

Bibliography ...................................................................................................... 34


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Introduction This report is a synthesis of the current research that has been carried out into major donors and philanthropic giving. The idea is that members of the Institute should have available to them the latest ideas and insights from the worlds of academia and research. In compiling this document we hope to be able to give the Institute’s members the best ideas that are available, without any one charity needing to do their own trawling of the research archives. From the Institute’s point of view we hope this synthesis will let us understand the current state of research and therefore commission any future research building on what is already known. So for the Institute the feedback of members is crucial to helping us develop this strand of our work. Is this type of synthesis useful? Does it save members time or money? Is the research that the report describes able to be turned into fundraising practice? We hope you enjoy the report and would like to hear your thoughts. Amanda Shepard Director of Organisational Membership


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Researching major donor giving The richest 1.2% of American wealth holders are estimated to contribute 28% of all charitable donations in the US,1 whilst separate analysis found that in 2000 7% of US households donated 50% of charitable dollars donated.2 It is generally accepted, both in and outside of the US, that a small proportion of donors disproportionately shape philanthropy. These ‘major donors’ are generally defined as individuals who make large personal donations to charitable organisations. Whether or not a gift is taken to be sufficiently large for an individual to qualify as a major donor depends on the organisation. ‘Large’ is generally defined by what is appropriate to the organisation in terms of budget size, total income from individuals or the size of the majority of donations received. For some organisations it may mean a gift of $10,000, for others a gift of $10 million. Research that focuses on major donors define their sample in various ways, including individuals’ wealth, income and giving history. Aside from issues over definitions, research into the extent and nature of philanthropic acts of major donors faces the challenge caused by the essentially voluntary nature of these acts. Researchers are limited to donations that appear in official records, such as tax returns and legacies, or to self-reported accounts that are susceptible to false recall and exaggeration.3 However defined, major donors are hard for researchers to reach, making a high response rate and achieving a representative sample difficult. Questions around personal income, wealth and the proportion they give to charity are also potentially sensitive, leading to the potential for bias in both responses given and those electing to participate in research. All of the studies, whether qualitative or quantitative, have various limitations. Whilst bearing in mind such limitations, the existing research offers charities the opportunity for fundraisers to better understand the motivations of major donors and ultimately to increase their income from major donor giving. This is an area with great potential for charities. For instance, the 2011 Coutts Million Pound Donors Report found that just 21% of the total value of the 80 donations worth £1 million or more made by individuals in the UK in 2009/10 went to charities rather than to foundations or higher education. The learnings offered by this research offer charities the chance to more consistently adopt best practice and so increase the value of major donor giving to their causes. Reflecting the higher level of philanthropy in the US than elsewhere, more research on major donor giving has been conducted in the US, followed next by the UK. When considering learnings from US research and their transferability to the UK it is important to bear in mind the differences between US and UK philanthropy (as discussed briefly below). Nevertheless, the scale of practice and body of evidence in the US is so significant it would be remiss not to include it in any current synthesis of major donor giving. It is also important to be essential to be aware of the different bodies that have commissioned and/or

1 Schervish P.G., Havens J.J. and Whitaker, K. (2005) Philanthropy's Indispensable Ally. Philanthropy.

Volume XIX, No. 3, pp. 8-9. 2 Schervish, P. G., Havens, J, J, O’Herlihy, M. A. (2006) "Charitable Giving: How Much, By Whom, To

What, and Why." In The Nonprofit Sector: A Research Handbook, Second Edition. Walter W. Powell

and Richard Steinberg (eds.) Yale University Press. 3 Breeze, B. (2011) ‘Philanthropy’ in D. Southerton (ed.) Encyclopaedia of Consumer Culture.

Routledge: London.


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conducted the research, and their various aims, priorities and resources in doing so. This includes:

academic research centres (e.g. the Centre for Charitable Giving and Philanthropy at

Kent University, Boston College Center on Wealth and Philanthropy, The Center on

Philanthropy at Indiana)

research think tanks and companies (e.g. ippr, Ipsos Mori)

government departments (e.g. HM Revenue and Customs)

the media (e.g. The Sunday Times, Forbes)

philanthropic advisors and consultants (e.g. Theresa Lloyd)

banks, financial advisors and wealth management consultancies (e.g. Coutts, Bank

of America, Scorpio Partnership, Merrill Lynch)

The many and varied differences in research method, sampling, geographic coverage and timing of studies (as shown by the table below) complicates direct comparisons of results. Nevertheless, some broader findings have emerged that are supported by various studies. For instance, the research suggests that the increase in self-made wealth rather than inherited wealth amongst the wealthiest (as shown for instance in the Sunday Times Rich List) is likely to be related to the overall increase in giving over the same period among the wealthiest shown by various sources. This correlation is supported by studies including the US 2010 Study of High Net Worth Philanthropy, which found that ‘entrepreneurs’, defined as those with 50% or more of net worth from a family-owned business or a start-up company, gave substantially more to charity on average than high net worth (HNW) households with other primary sources of net worth. In 2009 they gave three times as much on average as those whose net worth came from equity in real estate holdings.4 After considering research from some of the key areas of major donor giving, including different forms of giving by major donors, motivations to give, and the influence of factors such as tax incentives and the wider economic situation, this synthesis concludes with a number of recommendations from the research. This research has practical insights to help fundraisers better identify, understand and build relationships with their donors, as well as pointing to ways in which organisations such as the Institute of Fundraising can help to support major donor fundraisers, for instance through the skills training, information and guidance it offers.

4 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues Driving

charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. See

also Merrill Lynch/ Capgemini (2007) World Wealth Report 2007.


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Key findings from recent studies of major donor giving

Study Year Method Financial

background Giving How they gave Who they gave to

Sunday Times

(2012) Giving List 2012

Covers

giving in

previous 12

months; eleventh

in annual

series

Using info

from donors

and public sources (e.g.

annual accounts)

ranks top 100

philanthropists from Sunday

Times Rich List (UK’s 1000

wealthiest) according to

proportion of

residual wealth donated over

previous year.

◦ Giving List usually

dominated by

financiers and those in business;

unusually in 2011 topped by an artist

(David Hockney).

◦ 15 years ago, 75% of the Sunday Times

Rich List had inherited their

wealth, and 25% were self-made.

Those figures are

now reversed.

◦ For the first time, those

in top 100 in 2011 gave

1%+ of residual wealth ◦ Broader based culture

of philanthropy amongst wealthiest than previously

- 150 gave over £1m.

◦ Giving from the top 100 increased to £1.89b over

the year, a 13% rise after 33% fall in the previous

year which reflected the crash of 2008/09.

◦ Between 2004-09

amount donated increased tenfold.

◦ 81% of Giving List

donors emphasise the

importance of strategic philanthropy

Scorpio Partnership

(2011) The Future Wealth Report

Field work 2010,

repeating

2009 survey

Online survey of 1,700

individuals

around the world with an

average wealth of $2

million

◦ Surveyed ‘upwardly affluent’,

termed the ‘future-

wealthy’ because they share an

aspiration to attain a high level of financial

success.

◦ 42% gave more than $2,000 per year.

27% involve their family

in giving. ◦ 56% regarded giving to

good causes as a measure of their personal

success.

◦ Most gave to causes where they have a personal

connection: in particular

children’s causes and those connected with disease and

caring for the sick


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background

Giving How they gave Who they gave to

Breeze (2011)

The Coutts Million Pound Donors Report 2011

Covers

2009/10; fourth in

annual series

Collates data

on UK charitable

donations worth £1

million or more

◦ Identified 174 separate

donations (80 by individual donors) worth

£1m or more by UK donors or given to 154

UK-based charities in

2009/10. ◦ Total value of £1.3b,

60% donated by individuals.

◦ 76% of total value of

donations by individuals was ‘banked’ in foundations.

◦ International development was most favoured cause

amongst individuals.

◦ Higher education dropped to fourth most popular.

Merrill Lynch/

Capgemini (2012) World Wealth Report 2012

Annual

report (doesn’t

always

include giving)

Covers 71

countries, using a range

of statistics to

estimate size and growth of

wealth and the value of HNWI

financial

wealth at a macro level.

◦ 2007 report found

many new HNW philanthropists have

built their wealth

through income, business ownership

and other proactive activities as opposed

to inheriting wealth.

◦ 2010 report found HNWI

allocations to philanthropic activities

increased in all regions

except N America in 2009; but the increase followed

a sharp drop in 2008 due to financial crisis.

◦ 2007 report estimated

that in 2006 top 17% of ultra rich globally (assets

$30m+) annually gave 10%+ of their wealth.

◦ Since the financial crisis,

donors have had fewer funds available for giving, so they

are focusing on assessing the

mission and effectiveness of charitable organizations to

make sure their donations are really making a

difference.

Center on

Philanthropy (2010)

The 2010 Study of High Net Worth Philanthropy

Covers

giving in 2009;

repeats

surveys for 2007

and 2005

Survey of over

800 HNW respondents in

US, average

wealth of $10.7m

◦ 98% of respondents

gave to charity in 2009 – similar to 2007 and 2005,

although average

charitable giving dropped 35% since 2007, after

adjusting for inflation.

◦ Respondents gave

through their personal assets, also through

charitable vehicles e.g.

private foundations, donor-advised funds,

and charitable trusts.

◦ 22% of giving to

foundations & trusts; 19% to education, 13% to religious

bodies; 9% to youth or

family services; 5% food and shelter; 4% to environment

/animal care; 3% to int’l aid


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background


Shaw, Gordon,

Harvey and Henderson

(2010) Entrepreneur-ial philanthropy: theoretical antecedents and empirical analysis of economic, social, cultural and symbolic capital

Analysis

of data from

2007-2010

Analysis of

data from 7 sources on 100

UK-based HNW

entrepreneurs

with £10m+ who have

donated £1m+ over their

lifetime so far.

◦ Selection criteria

included being entrepreneurs; 88%

were male, average age 60.

◦ Largely self-made:

48% middle class background, 32%

working class.

◦ Selection criteria

included having donated at least £1m over their

lifetime by 2007.

◦ 59% have a formal

vehicle for their philanthropy in the

form of a foundation; 16% were established

prior to 2000 with the

longest running foundation being

established in 1972.

◦ 51% gave to education,

37% to young people; 36% to overseas aid and

development; 22% to community and the

environment; 21% to

science, health and medicine; 19% to social welfare;16%

to culture and sports; 10% to religious beneficiaries despite

28% having a recognised

religious affiliation.

Taylor, Webb,

Cameron, (2007)

Charitable Giving by Wealthy People

Fieldwork

conducted in 2006

Qualitative

interviews with 44 people in

the UK with an

annual income of £200,000+

◦ Included

landowners with inherited wealth,

self-made

businessmen, city workers, listed

company chairmen. ◦ Most aged 35+

and male.

◦ Identified five groups:

large committed donors, large ad hoc donors, small

committed donors,

infrequent donors and non-donors.

◦ More likely to use

cheques or direct debit / standing orders than

general population

(favour cash payments).

◦ Some used CAF or personal charitable

trusts.

◦ Type of cause favoured

covered the spectrum, from children’s and medical

charities, to overseas aid,

plus environmental, homeless, educational and

cultural causes

Lloyd (2004) Why Rich People Give

2004

Qualitative interviews with

76 people in

the UK with min net worth

of £1m, most

◦ 70% of interviewees were

self-made.

◦ Just over a quarter inherited or married

wealth.

◦ Generally gave between 5% and 10% of income;

though ranged from

under 2% to 25% of income, or as much as

50% of wealth.

◦ Many use more than one mechanism for

their giving, e.g. a

charitable trust (just over half had set up

one), Gift Aid,

◦ Arts, culture and social welfare received the most

funding, followed by health,

medical research, and education.

◦ Overseas development,


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background


with wealth £5-£100m and

income £100,000-£2m

◦ 75% said they felt reasonably financially

secure

community foundations, CAF

accounts.

environmental and religious organisations received the

least support.

Boston College

Social Welfare Research

Institute

(2000) Wealth with Responsibility Study 2000

2000,

repeating a 1996

study

Survey of 112

US households with net worth

min $5m;

including 30 with net worth

of $50m+

◦ Average

respondent derived 60% of wealth from

entrepreneurial and

professional activities; 21% from

investments; 18% inheritance/gifts.

◦ 97% respondents

indicated that they contributed to charities,

averaging $1.2 million per

family or 22% of family income.

◦ The majority of

donations are in the form of trusts, gift

funds and foundations.

◦ Gave to causes to which

they are physically or emotionally attached

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Comparing US and UK philanthropy The vast majority of the research above relates to giving in the US and UK, making it important to be aware of differences in philanthropic giving between the two. The US has the highest level of giving as a percentage of GDP; at around 2% per annum, followed by the UK where philanthropic giving is less than half this, at around 0.7% of GDP.5 Wealthy Americans routinely give 3.5% of their investable assets to charity against 0.5-0.8% for their British counterparts.6 Lloyd describes US philanthropy as ‘not just an option which wealth provides but ... a defining characteristic of the elite’.7 Philanthropy in the US is a social institution that takes on meaning in a culture of individualism and private initiative and in the absence of a comprehensive welfare state, especially in health provision. As Lloyd points out, it also operates in an environment which is resistant to the idea that the state has a very prominent role to play in the provision of welfare and higher education services, cultural facilities and community assets. In all these respects the US differs markedly from the UK. The tax regimes in the US and UK also differ fundamentally. In the US a donor may allocate capital to be given to a charity at some future date, continue to enjoy the income from the capital and get tax relief at the time of the commitment. Such "planned giving" accounts for a significant proportion of major gifts received, particularly for endowments for cultural and education institutions. There is a culture of privacy and reticence about giving in the UK. In contrast, giving in the US is generally a more public affair.8 Lloyd’s 2004 research found a widespread feeling of unhappiness about the status and respect given to philanthropy in the UK. For many, the status of philanthropy was linked to the complex attitudes of the British to money, class and wealth creation, the absence of role models, the a lack of expectation that people who can afford to give, do so, and the perceived reluctance to talk about money. Meanwhile, the media has been seen to generate or perpetuate negative attitudes to wealth and charitable giving, so discouraging an open culture of giving.9 There is evidence of some change, with TV series such as The Secret Millionaire and major donors such as Sir Tom Hunter who are happy to publicise his philanthropy. Moreover, some

5 Breeze, B. (2011) ‘Philanthropy’ in D. Southerton (ed.) Encyclopaedia of Consumer

Culture. Routledge: London. 6 Henley, John The new philanthropists, The Guardian, 7.3.2012

7 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations 8 This is not to imply that all philanthropy in the US is public. A 1994 study involving

interviews with 35 US millionaires who had given anonymously or seriously considered doing so gives interesting insights into some of the pros and cons of anonymous giving:

Schervish, P G. (1994) "The Sound of One Hand Clapping: The Case For and Against

Anonymous Giving." Voluntas: International Journal of Voluntary and Nonprofit Organizations 5, no. 1:1-26. 9 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations


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interviewees in Taylor et al’s 2007 research spoke of a social pressure for them to make, or be seen to make, generous gifts, for instance manifested in ‘competition’ at charity auctions and the writing of large one-off cheques to public causes they might not otherwise support.10

10 Taylor, J., Webb, C. and Cameron, D. (2007). Charitable Giving by Wealthy People.

London, Ipsos Mori/HM Revenue and Customs.


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Different forms of giving Following the tendency to define major donors in terms of their wealth or the size of donations they have made, it is easy to conceptualise major giving in financial terms. However, giving among this group of donors involves more than monetary donations. The 2010 Study of High Net Worth Philanthropy found that volunteering time is a significant part of the philanthropic efforts of wealthy individuals. Over three-quarters of those surveyed volunteered in 2009, and those who volunteered more also donated more.11 The 2000 Wealth with Responsibility Study found that 92% of respondents had volunteered their time to charitable or political causes over the previous three years, and 86% currently volunteered at least one hour per month (often in a leadership role), which was nearly double the national average.12 Since the turn of the 21st-century, many claims have been made about the emergence of a ‘new philanthropy’, characterised by wealthy individuals who take a hands-on approach to philanthropy, donating talent, experience, skills and access to networks as well as their money. Arrillaga-Andreessen, author of Giving 2.0: Transform Your Giving and Our World (2011), argues that there have been dramatic changes in philanthropy today compared to even a decade ago, including ‘a striking rise in social consciousness, particularly among the young generation of givers—philanthropists who participate in social change in completely different ways from their predecessors, with more active and intellectual engagement in the causes they care about’.13 Rather than necessarily giving to existing charities, they may set up their own foundations and projects, and demand evidence of impact through measurable outcomes. This trend involves strategic results-oriented “investment-like” giving aimed at maximizing societal return on investment, using tactics similar to those utilized in their business ventures and personal investing. These so-called ‘new philanthropists’ tend to be younger than other philanthropists, and are more likely to be self-made and living a cosmopolitan lifestyle, such as the young tech entrepreneurs in Silicon Valley, who are reported to be starting to be philanthropic very early in their careers14. Charles and Elizabeth Handy’s ‘The New Philanthropists’ (2006) includes interviews and photographs of twenty-three ‘high-profile entrepreneurial

11 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues

Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 12 Boston College Social Welfare Research Institute and University of Massachusetts at

Boston Center for Survey Research. (2000) "Wealth with Responsibility Study/2000". Deutsche Bank Private Banking; Schervish, P. and Havens, J. (2001) The Mind of the

Millionaire: Findings from a National Survey on Wealth with Responsibility. New Directions for Philanthropic Fundraising 32:75-107 13 Kanai, R (2012) Laura Arrillaga-Andreessen on 21st Century Philanthropy and Smarter

Giving, Forbes, 24.5.2012 14 Finn, H. (2012) Young, Rich and Charitable The Wall Street Journal May 5 2012

http://online.wsj.com/article/SB10001424052702304746604577380452583348994.html



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philanthropists’ about how they went about creating their initiatives, covering a range of sizes of projects working in different areas of need to show.15 There is not complete consensus about the concept of a ‘new’ philanthropy however. For instance Breeze argues that philanthropy has continually evolved and the role of the philanthropist ‘re-invented to reflect contemporary needs, dominant values, available wealth, technological developments and the broader socio-political context’.16 As Schervish, O’Herlihy and Havens argue, an impact-driven philanthropy and the application of business principles to philanthropy are common to many wealthy philanthropists, now and in the past.17 However, Schervish argues that what is new about the so-called “new philanthropy” is how widespread and favoured this entrepreneurial disposition towards philanthropy has become. He declares that, ‘never before have so many people, with so much wealth, with so much energy, and with so much entrepreneurial instinct concluded that productively employing their financial wherewithal for the care of others is the path to effectiveness and happiness for themselves and their children, and the world’.18 Interviews conducted with 28 high-tech wealth holders involved in philanthropy for the 2001 High-Tech Donors Study led Schervish et al to conclude that there the uniqueness of the situation rests with the number of individuals, ‘with so much wealth, at such an early age, with so much intelligence, with so much time, and with so much will are translating their agent-animated, knowledge-based business orientations into agent-animated, knowledge-based philanthropic engagements.’19 They describe high-tech donors as being often involved in ‘agent-animated philanthropy’ meaning that they strive to produce outcomes in the same way they have been, or continue to be, formative of outcomes in their business ventures in the knowledge economy. Whilst high-tech donors are not historically unique in embracing an impact-oriented or outcome-focused disposition towards philanthropy, they are distinctive in how they apply what they have learned in business about how to be effective, having different business experience to small business owners, the professionals, the inherited wealthy, and investors. In addition, their generally young age and velocity of assent to wealth influence them and their philanthropy. Unlike others involved in agent-animated philanthropy, these wealth holders are thinking about how best to allocate their wealth from near the beginning of their accumulation of wealth. Building on this notion of agency, Shaw et al have sought to address the gap in research on contemporary entrepreneurial philanthropy outside of the US, by exploring the historical and theoretical antecedents of such philanthropy and its

15 Handy, C. (2006). The New Philanthropists. London, William Heinemann. 16 Breeze, B. (2011) ‘Philanthropy’ in D. Southerton (ed.) Encyclopaedia of Consumer

Culture. Routledge: London. 17 Schervish P.G., O’Herlihy M.A. and Havens J.J. (2001) Agent Animated Wealth and

Philanthropy: The Dynamics of Accumulation and Allocation Among High-Tech Donors,

Chesnut Hill MA: Center on Wealth and Philanthropy, Boston College. 18 Schervish P.G (2005) Today’s Wealth Holder and Tomorrow’s Giving: The New

Dynamics of Wealth and Philanthropy, The Journal of Gift Planning, 9(3), 15-37. 19 Schervish P.G., O’Herlihy M.A. and Havens J.J. (2001) Agent Animated Wealth and Philanthropy: The Dynamics of Accumulation and Allocation Among High-Tech Donors,

Chesnut Hill MA: Center on Wealth and Philanthropy, Boston College.


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current practice in the UK.20 They have analysed data collected from 2007 to 2010 on 100 high net worth (with personal wealth of at least £10m) entrepreneurs, who had all given a minimum of £1 million. They considered in particular how they invest economic, human, cultural, social and symbolic capital when they engage in philanthropy, such as the role of social capital (e.g. networks, contacts and memberships) in enabling entrepreneurial philanthropy. The term ‘philanthrocapitalism’ has been used to describe a businesslike approach to giving by transferring skills and attitudes from the for-profit to the non-profit sector. This is exemplified by individuals such as Bill Gates and Warren Buffet. The desire to maximise the impact their money can achieve fits with this trend towards involvement and ‘giving while living’, rather than endowing foundations in perpetuity. ‘Venture philanthropy’ is used to describe an approach using the principles of venture capital, with the investee organisation receiving management support, specialist expertise and financial resources, to aim for a social, rather than financial, return. Schervish et al have documented venture philanthropy as early as the mid-80s and describe it as a long-standing approach of many philanthropists, including inheritors of old money and entrepreneurs from the old economy.21 This active approach to philanthropy involves giving skills as well as money, such as sustained management support and pro bono specialist expertise from investment managers and external experts. Various organisations focus on encouraging and supporting venture philanthropy, for instance:

The Impetus Trust is the pioneer of venture philanthropy in the UK. It

works to break the cycle of poverty by using the venture philanthropy

model to accelerate the growth of carefully selected, ambitious charities

and social enterprises so they can help many more people living in

poverty

The Silicon Valley Social Venture Fund (SV2), founded by Arrillaga-

Andreessen, engages with and educates entrepreneurial young

professionals in the Silicon Valley to give, or give more effectively and

strategically. Donors (who are called ‘partners’) pool their money to make

multi-year organizational capacity building grants to nonprofits. Partners

work with grantees to help them achieve their goals, through giving

money but also investing time and expertise, building their own

knowledge while they are helping nonprofits deliver services more

efficiently and expand their operations.

20 Shaw, E., Gordon, J., Harvey, C. and Henderson, K. (2010) Entrepreneurial

philanthropy: theoretical antecedents and empirical analysis of economic, social, cultural

and symbolic capital. Paper presented at Babson College. 21 Schervish P.G., O’Herlihy M.A. and Havens J.J. (2001) Agent Animated Wealth and


Chesnut Hill MA: Center on Wealth and Philanthropy, Boston College.

http://www.impetus.org.uk/

http://www.sv2.org/


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These approaches share an emphasis on rigorous assessment of the impact of giving and thus the need for measurable outcomes. Arrillaga-Andreessen argues that good intentions should not be mistaken for impact: ‘to maximize the difference we can make, we need to do more than intend to do good’. She goes on to state that philanthropic decision-making based purely on emotion risks wasting those gifts on projects that may turn out to be ineffective or poorly conceived.22 An online survey of 4,000 individuals in the US, half of whom had a household income of over $300,000, found that 65% of individual gifts are made with no research behind them.23 However, the online publication of charities’ annual reports, financial statements and impact evaluations, showing how they translate resources into progress, is increasingly enabling individuals to access a range of information and insights to enable strategic giving. In addition to this, there is evidence of a greater role for professional advisors in individuals’ philanthropic decisions. According to the World Wealth Report, the growing desire among donors to ensure that their giving actually makes a difference has led to a demand for the same kind of professional advice in making these types of investments as when making financial investments. It has been suggested that the trend towards more so-called ‘giving while living,’ in which philanthropists are incorporating their giving strategies into their ongoing wealth accumulation and capital-preservation plans, is also likely to lead to an increased role for wealth managers and advisers in relation to charitable-giving, potentially leading to a lesser role for estate planners who typically manage bequests.24 The 2010 Study of High Net Worth Philanthropy witnessed an increase (consistent with a trend observed in 2006 and 2008 studies) in donors’ use of legal and financial professionals to help them make charitable giving decisions, in particular accountants (68%), attorneys (41%) and financial/wealth advisors (39%).25 To meet the needs of more engaged philanthropists, various advisory firms and institutions have emerged, offering advice on philanthropic investments that maximize social return on investment. While the US accounts for the majority of growth in donor-advised funds and donor consulting, globally, private banks are expanding beyond their traditional range of services to advise high new worth philanthropists.26 There are also institutions such as the Institute for Philanthropy in the US, which focuses on international donor education and network-building. In the UK, New Philanthropy Capital helps wealthy individuals decide how best to maximise the impact of their donations by analyzing charities and monitoring outcomes. The role of the internet, global connectivity and social media also needs to be considered in relation to influencing ways of giving among major donors as well as giving more generally. Arrillaga-Andressen argues that these developments have led to causes and issues helping to define who individuals are

22 Kanai, R (2012) Laura Arrillaga-Andreessen on 21st Century Philanthropy and Smarter Giving, Forbes, 24.5.2012 23 Hope Consulting (2010) ‘Money for Good: The US Market for Impact Investments and

Charitable Gifts from Individual Donors’ 24 Merrill Lynch/ Capgemini (2010) World Wealth Report 2010 25 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues

Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 26 Merrill Lynch/ Capgemini (2007) World Wealth Report 2007

http://www.instituteforphilanthropy.org/

http://www.instituteforphilanthropy.org/

http://www.philanthropycapital.org/


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and how they connect with friends, family and the world around them. The internet has also been used to help facilitate a better understanding of the impact that donations are having, for example:

The Big Give: a UK website promoting intelligent giving and helping

donors to find and support new charities by giving more than just money,

and to maximise the impact of their support

DonorsChoose.org: a peer-to-peer giving site where teachers in US

schools post details of projects that need funding, and donors pick the

projects they’d like to fund and can then see the impact of their gifts.

Jolkona Foundation: a US nonprofit that helps individuals donate to global

projects and track their impact online through photos and videos.

http://www.thebiggive.org.uk/

http://www.donorschoose.org/

http://www.jolkona.org/


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Motivations for major donor giving The wide variation in giving levels among the wealthy demonstrate that there is no simple relationship between the possession of economic resources and giving. When asked about their motivations for giving, people rarely account for their giving with reference to the size of their income or assets. The capacity to give must be matched by the desire to give, described by Edwards as ‘an emotional and moral response’.27 Various theories of philanthropy have been suggested, summarised briefly here:28

Consumption philanthropy: neo-classical economic model emphasising the ‘purchase’ of donor benefits, e.g. donate to a church one attends or supporting medical research into a disease one might contract. The definition of consumption may also be stretched to include intrinsic benefits, such as the satisfaction and pleasure gained by making a gift, in order to incorporate philanthropy involving neither tangible nor potential benefits, such as support for overseas development. Identity-forming: some sociological studies link philanthropy to the rise of individualism and the role that being philanthropic plays in creating and communicating a certain identity. Transformative: philanthropic acts can be seen as an effort to shape the world around the donor, whilst also transforming the donor’s self-image and how they hope to be perceived by others. Social act: rather than being a simple financial transaction, philanthropy entails a social act, involving relationships between donors, charities, recipients and other donors. Pursuit of self-actualisation: theories linking philanthropy to the pursuit of a moral and purposeful life, particularly in richer societies where basic needs are met and people have come to realise that money is a means, not an end, to finding happiness and fulfilment in life.

Most studies agree that all giving is motivated by an array of factors. Whilst some of these may be more likely to motivate those with substantial means, the motives that generate philanthropic giving among the wealthiest are for the most part what prompt people to give across the economic spectrum.29 These include: personal affiliation to a charity, faith or upbringing, perceived ‘worthiness’ of the cause, satisfying a ‘social conscience’ and providing a ‘sense of wellbeing’. Thus, Edwards argues that ‘at the crux of [major donors’] giving behaviour exist the same motivations that are true whatever your income’, involving some form of acknowledgement of a responsibility for others and the importance of looking

27 Edwards, L. (2002). A Bit Rich? What the wealthy think about giving. London, Institute

for Public Policy Research. 28 Breeze, B. (2011) ‘Philanthropy’ in D. Southerton (ed.) Encyclopaedia of Consumer

Culture. Routledge: London. 29 Schervish, P G. (2008). "Why The Wealthy Give: Factors Which Mobilize Philanthropy

Among High Net-Worth Individuals" in The Routledge Companion to Nonprofit Marketing.

Eds Sargeant, A and Wymer, W. Routledge: Abingdon; Taylor, J., Webb, C. and Cameron, D. (2007). Charitable Giving by Wealthy People. London, Ipsos Mori/HM

Revenue and Customs.


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beyond your own needs (for instance, I want to give something back; It’s important to do my bit; I want to support those less fortunate).30 The most extensive study of major donor motivation in the UK was conducted by Theresa Lloyd in 2004. She grouped the varied motivations that drive giving among the wealthy into five categories:

1. Belief in the cause: often influenced by a wish to change or enhance

society’s systems or structures in line with a particular interest or belief.

This was “the key impetus” behind donations; as well as influencing the

size of gift and likelihood of ongoing commitment.

2. Being a catalyst for change: desire to make a difference (to society,

institutions or individuals) and for their gift to result in “something that

otherwise wouldn’t have happened”.

3. Self-actualisation: defined as “the realisation of an individual’s

personality and development of some or all of its aspects”, or the

satisfaction of personal development. This was found to be a more

significant driver of recurring commitment than the original stimulus to

give.

4. Duty and responsibility: the satisfaction of conscience, the obligations

of the privileged to those less fortunate and the desire to “put something

back” into society.

5. Relationships: “the fun, enjoyment and personal fulfilment” that comes

from relationships with a range of people such as charity staff,

beneficiaries and fellow donors.31

Various triggers that prompt giving at a particular time have also been identified in different studies (e.g. Lloyd 2004; Edwards 2002), and can loosely be split between two categories suggested by Lloyd:

Self analysis: time, the realisation of wealth, existing interests, cause

close to home.

External stimulus: a dynamic individual involved with a particular cause, a

life-changing experience, a family illness.32

The importance to individuals of perceiving their donations to be making a difference and bringing about change in an efficient manner is also highlighted

30 Edwards, L. (2002). A Bit Rich? What the wealthy think about giving. London, Institute

for Public Policy Research. 31 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations 32

Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations; Edwards, L. (2002). A Bit Rich? What the wealthy think about giving.

London, Institute for Public Policy Research.


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by the US 2010 Study of High Net Worth Philanthropy. This survey found that 72% of respondents reported the importance of believing that their gift will make a difference and 71% that the organization is efficient in its use of donations. Related to this, 54% were reassured by the organisation’s communication of the percentage of funding going to programming versus administration and 34% were reassured by the organization’s communications about its impact.33 Lloyd’s interviewees also cite family background and upbringing as influences, such as a history of family giving to their local community or a parental influence bringing a sense of responsibility to help those ‘less fortunate’. Religion was cited as formative in attitudes to giving by some, whilst others cited cultural influences related to their origins, and those from Asian and Jewish backgrounds, even if no longer observant, highlighted strong social networks which reinforce the values and sense of identity underpinning their philanthropy.34 The US 2010 Study of High Net Worth Philanthropy found that 39% of those surveyed cited “religious beliefs” among their top motivations for giving, and 45% of wealthy households reported that their children or younger relatives learned about giving through a religious institution.35 The 2007 World Wealth Report gives some further insights into regional differences in motivation. For instance, a sense of social responsibility was the number one reason for donating to philanthropic causes for 60% of philanthropists in Europe and Asia, and 47% of North Americans, whilst in the Middle East a combination of social responsibility and religious obligation was more common.36 Schervish argues that a fundamental characteristic of wealth is the latitude it provides for options — i.e., that being a wealth holder broadens the depth and breadth of life choices that one can make.37 Ottinger’s 2008 study of people with no further financial goals to meet concludes that, “With financial freedom, individuals no longer need to focus on wealth-building. Rather they move to a higher level of personal introspection, which relates to their life’s purpose and calling”.38 Reactions amongst Lloyd’s interviewees to giving as a social responsibility were linked to the opportunities that people felt were provided by wealth - the possibility of allocation or choice between family commitments, individual pleasures and obligations to a wider society. Many of her interviewees who felt that giving should be seen as an obligation also emphasised that it was

33

Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues

Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 34 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable Foundations 35 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues

Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 36 Merrill Lynch/ Capgemini (2007) World Wealth Report 2007 37 Boston College Social Welfare Research Institute and University of Massachusetts at

Boston Center for Survey Research. (2000) "Wealth with Responsibility Study/2000".

Deutsche Bank Private Banking. 38 Quoted in Breeze, B. and Morgan, G. (2009). Philanthropy in a recession: an analysis

of UK media representations and implications for charitable giving.


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a personal choice.39 Similarly Edwards found that fundraising tactics that make them feel guilty or convey an expectation of how much they should give can be a turn off. Percentage based campaigns (i.e. everyone can afford to give 1% of their income) may be used as a new rationalisation for not giving. Donors want to give with good heart and out of choice rather than compulsion.40 The importance of financial security in motivating major donor giving is partly linked to the wider range of choice it affords. Schervish argues that the greater the degree of self-recognized financial security, the greater the level of charitable giving.41 71% of respondents to the American 2010 Study of High Net Worth Philanthropy found that respondents reported that they give when they feel financially secure.42 The Study on Wealth with Responsibility (2001) found that for every category of wealth, there is a constant increase in the amount and percentage of wealth contributed to charity as the level of financial security increases.43 Therefore Schervish predicts that as more people become wealthier and reach higher levels of financial security, charitable giving can be expected to increase accordingly.44 Nevertheless, other motivations are needed in addition to financial security, whilst it is also important to note how subjective and variable this sense is. Whilst 75% of Lloyd’s interviewees in the UK in 2004 said they felt reasonably financially secure, just 36% of the 112 US respondents to the 2000 Wealth with Responsibility Study with net worth at or in excess of $5 million said that they felt completely financially secure, with the level needed to feel secure increasing as net worth increased. Lloyd found that having more money was most often cited as a factor that would lead an individual to increase his/her overall level of giving, followed by finding a new cause about which people cared passionately (over half) and better tax incentives (around a third).45 A major trend reported by financial planners and by wealth holders in the US is the desire to limit the amount of wealth that will be given to heirs, in order to provide a sufficient level of advantage for children and grandchildren,

39 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable Foundations 40 Edwards, L. (2002). A Bit Rich? What the wealthy think about giving. London, Institute

for Public Policy Research. 41 Schervish P.G (2005) Today’s Wealth Holder and Tomorrow’s Giving: The New

Dynamics of Wealth and Philanthropy, The Journal of Gift Planning, 9(3), 15-37; Schervish P.G., Havens J.J. and Whitaker, K. (2005) Philanthropy's Indispensable Ally.

Philanthropy. Volume XIX, No. 3, pp. 8-9. 42 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues

Driving charitable Activities Amongst Affluent Households, Center on Philanthropy,

Indianapolis, Indiana. 43 Boston College Social Welfare Research Institute and University of Massachusetts at

Boston Center for Survey Research. (2000) "Wealth with Responsibility Study/2000". Deutsche Bank Private Banking. 44 Schervish P.G (2005) Today’s Wealth Holder and Tomorrow’s Giving: The New

Dynamics of Wealth and Philanthropy, The Journal of Gift Planning, 9(3), 15-37. 45 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations


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but not so much as to spoil them or eliminate the ability to still give to charity.46 Moreover, data analysis suggests that wealth holders in the US, particularly at the upper end, are increasingly moving the allocation of their wealth away from heirs and towards philanthropy, particularly lifetime philanthropy (which fits with the so-called ‘new philanthropy’ discussed above).47 In the UK Lloyd found that the question of how much money to transfer to children was a matter of major concern for many of the interviewees, who perceived changing attitudes of society to the traditions of inheritance and the potential for inheriting major wealth to have adverse effects. Many were clearly trying to strike a balance between leaving an “appropriate” amount for their children and for other, particularly charitable, purposes. Those with family businesses had least qualms about passing the bulk of their assets to their children. The administration of inheritance tax was seen as inefficient among Lloyd’s interviewees, whilst inheritance tax itself was commonly viewed as an unjust form of double taxation and a bad way to redistribute wealth, whilst several referred to the benefits of the US approach to planned giving.48 Whilst the desire to make a difference is commonly cited by donors at all levels, major donors may exercise the capacity to bring into being, rather than just support, particular charitable projects, so ‘producing’ rather than just ‘supporting’ philanthropy. Schervish defines hyperagency as the combination of psychological and material capacity to relatively single-handedly produce new philanthropic organisations or new directions in existing ones. Similarly, Taylor et al suggested that a concern to retain greater control over the timing and destination of their donations was more common among wealthier donors than others, reflecting the larger amounts involved. Consequently wealthier donors may be more likely to be involved with charities than other donors, whether on committees or boards, and be concerned about assessing the organisation’s impact.49 Elsewhere, Schervish et al note that hyperagency offers a great potential for creating substantial benefit but also has the potential for heavy-handed intrusion. Nevertheless, in their interviews with 28 high-tech donors they found interviewees were overwhelmingly concerned to educate themselves about the needs they might address, and how best to work with others to meet those

46 Schervish, P G. (2008). "Why The Wealthy Give: Factors Which Mobilize Philanthropy

Among High Net-Worth Individuals." In The Routledge Companion to Nonprofit

Marketing. Eds Sargeant, A and Wymer, W. Routledge: Abingdon; Schervish P.G. and Havens J.J. (2007) "Recent Trends in the Timing and Allocation of Charitable Giving."

Philanthropy Magazine; Schervish P.G (2005) Today’s Wealth Holder and Tomorrow’s Giving: The New Dynamics of Wealth and Philanthropy, The Journal of Gift Planning,

9(3), 15-37. 47 Schervish P.G. and Havens J.J. (2007) "Recent Trends in the Timing and Allocation of

Charitable Giving." Philanthropy Magazine. 48 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable Foundations




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needs.50 The potential for philanthropy to hinder charities and their beneficiaries, as well as to help, is discussed further in a 2006 chapter by Schervish.51 However, contrary to the image of engaged, strategic philanthropy, Edwards found a ‘striking... lack of thought put into how much the rich and affluent give’. Most are happy to decide how much they will give based on how generous or ‘flush’ they are feeling. Like those on lower incomes the rich and affluent take as their guide the way in which they are asked and use their own judgement to assess what is an appropriate, socially acceptable amount to give.52

How do major donors decide which charities and

which causes to support?

When evaluating which charities which they wish to donate to, The Future Wealth Report found that amongst its respondents the greatest need was the highest ranked criteria, followed by vision and strategy, then the measurement of results. Similarly the 2010 Study of High Net Worth Philanthropy in the US found that that wealthy donors have high expectations of charitable organizations, ranking the following factors among those most important when determining which to support:

Sound business and operational practices (87%)

Acknowledgement of contributions, including receipts (85%)

Spend appropriate amount on overhead (80%)

Protection of personal information (80%)

Full financial disclosure (62%)53

Interestingly, when it came to choosing which causes to support, although respondents to the Future Wealth Report study showed greater concern for big social issues (such as the gap between rich and poor, education and climate change) compared to other issues, this did not match their giving preferences. They typically gave to causes where they have strong empathy or personal connection, in particular children’s causes and those connected with disease and caring for the sick. Similarly, a 2010 study ‘How donors choose charities’, based on interviews with 60 committed donors across all levels of giving, representing a spread of gender,

50 Schervish P.G., O’Herlihy M.A. and Havens J.J. (2001) Agent Animated Wealth and


Chesnut Hill MA: Center on Wealth and Philanthropy, Boston College. 51 Schervish, P G. (2006) "Philanthropy's Janus-Faced Potential: The Dialectic of Care and Negligence Donors Face." In Taking Philanthropy Seriously: Beyond Noble Intentions to Responsible Giving. Eds Damon, W. and Verducci, S. Indiana University Press 52 Edwards, L. (2002). A Bit Rich? What the wealthy think about giving. London, Institute

for Public Policy Research. 53 Center on Philanthropy (2010) The 2010 Study of High Net Worth Philanthropy: Issues


Indianapolis, Indiana.


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age and income levels, found that people do not give to the most urgent needs, but rather they support causes that mean something to them. In contrast, the study argued, fundraisers often focus on the dimensions and urgency of the problem for which funding is sought, overestimating the extent to which people act as rational agents and give in relation to evidence of neediness.54 A sizeable minority of around 20% of the Future Wealth Report’s sample did however channel their giving towards improving education standards, wealth inequality and climate change. The desire to effect social change seems to be more closely linked to wealth aspiration than to actual wealth. Those who are currently least wealthy place the greatest emphasis on “making the world a better place” as a quality of success and the same attitude dominates their giving motivation, whilst “helping other people”, was not a particularly high priority for the wealthiest of the sample when judging their own success. Those with the highest wealth goals, and so arguably greatest personal ambition, were the most likely to want to tackle the world’s biggest problems. Those with wealth goals above $5 million expressed a strong desire to make a significant difference in the world, either by tackling global problems or tackling problems where they have personal experience more effectively. By contrast, those with more modest goals would deploy more of their philanthropic capital to causes with which they empathise.

Why do major donors continue to give?

Lloyd’s interviewees highlighted a number of ways in which charities could better manage the relationship with their donors in order to ensure a sustained commitment to the charity. These included:

ensuring that donors know that they are making a difference

properly thanking donors

enable donors to meet like-minded people

effective and personal communications from the charity, with regular,

appropriate information

some kind of appreciation or recognition for their support (including their

time and expertise as appropriate, as well as for financial gifts) from the

charity; wishes ranged from a private expression of appreciation to public

and publicised recognition

Whilst these may apply to donors at all levels, a personal approach is particularly important, recognising the donor’s particular interests and areas of expertise, as well as seeking to involve and engage them further in the charity’s work.

54 Breeze, B. (2010) How donors choose charities: Findings of a study of donor

perceptions of the nature and distribution of charitable benefit. Centre for Charitable

Giving and Philanthropy, Occasional paper 1


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The 2010 Study of High Net Worth Philanthropy highlighted various reasons why major donors reported they stopped giving to a particular charity in 2009:

being too frequently solicited or asked an inappropriate amount (59%)

they decided to support other causes (34%)

their household circumstances changed (29%)

they were no longer involved with organization (12%)

the program/purpose was completed (10%)

the organization kept inaccurate records of information (10%)55

Why do some wealthy individuals not give at all?

Qualitative in-depth interviews with 44 people in the UK with an annual income of at least £200,000 identified a group of non-donors amongst their interviewees who preferred not to give monetary donations to charity. For some this was due to a principled objection (e.g. they felt they already contribute enough financially to society through their tax payments), whilst others said that they had simply lapsed into non-giving.56 The barriers to giving identified by the study largely mirrored findings of research with the general public, relating for instance to the perceived level of impact, administrative costs and bureaucracy, and issues surrounding well-publicised financial scandals. Personal financial considerations can be a barrier to donating larger amounts, especially for participants with financial dependants and other commitments. One barrier that appeared to play more of a role in wealthy participants’ giving behaviour than for the wider population, was the notion of charitable giving as an unwarranted additional financial burden, when such a large amount of their income was already diverted into public causes through taxation. The research found a considerable lack of awareness of the role of tax incentives as a means of distributing revenue to donors’ preferred causes (discussed further below).



Indianapolis, Indiana. 56 Taylor, J., Webb, C. and Cameron, D. (2007). Charitable Giving by Wealthy People.



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The influence of wider economic troubles on

major donor giving

It is widely assumed that in times of recession and financial crisis there will be reduced giving due to donors generally having more limited financial resources and therefore deciding to give less. There is research suggesting that charitable giving tends to grow in general as the economy rises, and to decline during recessions, after adjusting for inflation.57 Evidence suggests that the recent economic turbulence has had some affect on giving at higher levels. Analysis of IRS charitable tax deduction records for those who itemized their charitable giving shows that the average amount deducted for charity by high income households in the USA decreased 9.9% from 2007 to 2008, after adjusting for inflation.58 The World Wealth Report 2009 reported little change in the allocation by high net worth individuals (HNWIs) of their wealth to philanthropy in 2008 in the first half of the year—but charitable giving was severely impacted in the fourth quarter, as HNWIs gave less, and focused on fewer causes.59 The 2010 World Wealth Report found that in 2009 HNWI allocations to philanthropic activities increased slightly from 2008 levels in all regions, except North America.60 In the UK, the recently published (April 2012) Sunday Times Giving List estimated that donations by the top 100 philanthropists in its Rich List had increased by 13% over the year, recouping some of the 33% fall last year, when the losses incurred by the super rich in the crash of 2008-09 were reflected in reduced giving.61 This should however be set in the context of a tenfold increase in donations amongst the very wealthiest recorded using the same methodology by the Giving List between 2004 and 2009.62 Despite this evidence, a number of researchers have counselled against over-simplifications of the impact of economic problems on giving. Research on donor motivations clearly indicates that the level of financial resources an individual has is not the sole determining factor behind their philanthropic decisions (for example Edwards 2002; Lloyd 2004; Handy 2006; Taylor et al. 2007). Breeze and Morgan argue that different levels of giving amongst people possessing similar economic resources demonstrates that having the capacity to give is quite different from having the desire to give. It is difficult to make straightforward correlations even for donors whose giving behaviour is more closely correlated with their level of resources, since a recession affects income and assets very


Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 58 Discussed in Center on Philanthropy (2010) The 2010 Study of High Net Worth

Philanthropy: Issues Driving charitable Activities Amongst Affluent Households, Center on Philanthropy, Indianapolis, Indiana. 59 Merrill Lynch/ Capgemini (2009) World Wealth Report 2009 60 Merrill Lynch/ Capgemini (2010) World Wealth Report 2010 61 The Sunday Times (2012). The Sunday Times Giving List 2012. 62 Henley, John The new philanthropists, The Guardian, 7.3.2012


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differently and the importance of income or assets varies for different donors. The very wealthy are less affected by shorter-term economic changes such as weak housing prices and falling stocks. Historic evidence also suggests that there is a considerable time-lag from the start of a recession until an effect is felt in terms of charitable giving.63 The momentum of larger gifts also needs to be considered, since if they are already in the pipeline, this may delay a stronger negative impact.64 Breeze argues that it should not be assumed that it is inevitable that the philanthropic activities of the wealthiest sections of society will be adversely affected by economic problems. Distinguishing between ‘sacrificial’ and ‘surplus’ wealth, she argues that ‘ordinary’ donors make donations out of the former, their everyday income, whilst the wealthy donate out of ‘surplus’ wealth. However badly investments have been hit recently, the robustness of major donors’ personal and family financial security was likely secured long before they began giving away any surplus.65 Simple assumptions about the impact of the financial situation on major donor giving are unwarranted. For instance, whilst 60% of North American HNWIs said in 2008 that they would be giving less in 2009 due to the economic downturn, 54% of HNWIs in Japan (also in recession at the time) planned to give more.66 As Breeze argues, charities need to explain why their donations are needed now more than ever, helping their most loyal wealthy supporters to appreciate the importance of their contributions as charities seek to cope with the likely twin effects of increased demand and decreasing support from sources such as investment income and corporate donations.67 Similarly, the World Wealth report argued that the economic situation increased donors’ concerns about assessing the impact of their donations and assessing the mission and effectiveness of charitable organizations.68 Breeze argues that charities should focus on making the case that charitable giving is a priority, not an optional extra, and that cutting donations will not only harm their favoured causes, but leave the donor feeling all the poorer, recognising that philanthropy involves a satisfying way of using wealth in order to find meaning and purpose in the donors’ life. Schervish and Havens argue that the inclination of individuals across the economic spectrum to care for others who are in need during hard times means that when difficult periods pass a certain degree of intensity and duration, the relationship between economic conditions and giving may actually reverse in some areas of giving. ‘Charities can vex our bleak projections by deepening the heartfelt identification of donors with beneficiaries’..69

63 Breeze, B. and Morgan, G. (2009). Philanthropy in a recession: an analysis of UK

media representations and implications for charitable giving. 64 Schervish P.G. and Havens J.J. (2009) Giving in Today's Economy Trusts and Estates

Journal of Wealth Management Jan 2009 pp.42-45 65 Breeze, B. (2008), The bright side? Charity Funding Report, Issue 83 66 Merrill Lynch/ Capgemini (2009) World Wealth Report 2009 67 Breeze, B. (2008), The bright side? Charity Funding Report, Issue 83 68 Merrill Lynch/ Capgemini (2010) World Wealth Report 2010 69 Schervish P.G. and Havens J.J. (2009) Giving in Today's Economy Trusts and Estates

Journal of Wealth Management Jan 2009 pp.42-45


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Looking at the wider picture, Schervish argues that it is reasonable to assume that the dramatic growth in wealth that has occurred over the second half of the twentieth century (a period covering nine recessions), will continue at unprecedented levels over the next fifty years.70 Working from this assumption, he argues that there is a ‘new physics of philanthropy’, or set of influences affecting the finances and attitudes of wealth holders that are changing the supply-side or donor-side of philanthropy. These wealth holders are drawn to charitable giving in their lifetime and often take an entrepreneurial, proactive approach; for them acquiring more wealth is no longer of high importance, and they are looking for ways to use their wealth as a tool to achieve deeper purposes, in appreciation of their gratitude, and sense of blessing, gift or good fortune.

70 Schervish P.G (2005) Today’s Wealth Holder and Tomorrow’s Giving: The New

Dynamics of Wealth and Philanthropy, The Journal of Gift Planning, 9(3), 15-37


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Tax incentives and major donor giving

Lloyd’s interviewees in 2004 often compared the tax regime in the UK unfavourably with that in the US. The UK Government’s intentions to actively encourage philanthropy have recently come under question. The Giving White Paper published in May 2011 declared the coalition's intention of making giving both ‘easier’ and ‘more compelling’.71 One example of this has been a reduction in inheritance tax for people leaving at least 10% of their estate to charity from 40% to 36%. The leaders of the three main political parties also all support Legacy10, an initiative to increase the number of people leaving money to charitable causes in their will from the current 7%. However, in the March 2012 Budget the Chancellor announced controversial plans to cap tax reliefs on charitable donations from April 2013 at £50,000, or 25% of a person's income, if that was higher. These plans were dropped in May 2012, following pressure from various directions, including the ‘Give it back George’ campaign backed by a number of charities and philanthropists, as well as organisations such as NCVO and CAF. As the Giving White Paper states, while donors do not generally give to benefit from tax breaks, the right fiscal measures can incentivise greater and more sustained giving. The World Wealth Report notes how philanthropic decisions by HNWI may be made in line with other wealth and finance strategies being employed to optimize the tax efficiency of their portfolios.72 Similarly the vast majority of Lloyd’s interviewees thought that tax incentives encouraged giving in principle and took advantage of the benefits, although feeling that incentives could be greater in the UK, and for instance encourage more ‘planned giving’, as in the US.73 The 2010 Study of High Net Worth Philanthropy highlights the importance of tax incentives in the US to wealthy donors. The 2010 survey found that 67% of wealthy households (compared to 47% in 2008) would somewhat or dramatically decrease their charitable contributions if they received zero income tax deductions for their donations, whilst 43% of wealthy households (compared to 36% in 2008) would somewhat or dramatically increase the amount they leave to charity in an estate plan if the estate tax were repealed. Taylor et al’s qualitative interviews with 44 wealthy people in the UK found that participants generally viewed tax reliefs very positively.74 A major reason for this appeared to be because, in this way, the government was taking its steer from taxpayers in terms of the size, direction and timing of charitable donations. This contrasts to the tax system more generally, where it was perceived that little control could be exercised over where wealthy people’s, often very large, payments were channelled. Not surprisingly, awareness of tax incentives was highest amongst those who had used them and also amongst those working in

71 Cabinet Office (2011) Giving White Paper 72 Merrill Lynch/ Capgemini (2010) World Wealth Report 2010 73 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations 74 Taylor, J., Webb, C. and Cameron, D. (2007). Charitable Giving by Wealthy People.


http://www.cabinetoffice.gov.uk/sites/default/files/resources/giving-white-paper2.pdf


http://legacy10.com/


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the financial sector, whether they have used them or not. Simplicity and convenience appeared to be the key factors in encouraging take-up of tax reliefs and, potentially, increasing the level of charitable giving. Low awareness of particular tax incentives is likely to be exacerbated for those who are quite far removed from the tax system, as a result of accountants or tax advisors being employed to deal with their tax affairs. Taylor et al found varying levels of awareness and attitudes towards different tax reliefs:

Gift Aid was by far the most well-known and most commonly used, and

was perceived to be the easiest to understand and most convenient to

use. The idea of simply ticking the appropriate Gift Aid box to generate an

additional contribution from government was highly appealing and had

led to universal recognition of the basic concept of Gift Aid. However very

few interviewees were aware of the higher rate tax relief element and

others were not sure how it worked. Participants who had a CAF account,

which produces a statement of donations for easy inclusion in their

annual tax return, tended to be better informed about this aspect. There

was also little evidence that Gift Aid had affected the amount of charitable

giving among interviewees. The basic rate tax relief element was mostly

regarded as an ‘added bonus’, and very few were aware of the possibility

to claim back higher rate relief. When prompted, some stated that if Gift

Aid were abolished they might increase their donations to make up the

shortfall.

After Gift Aid, Payroll Giving was the next most well-known and

commonly used, although there was some confusion over the process, for

example in terms of the level of control that individual employees had

over the donation amount and the nominated charity. However, it was

generally felt to be a good way of encouraging regular donations by those

who might otherwise not give, or not give very much/very often,

administered as it is via automatic salary deductions.

There was little knowledge, or use, of tax incentives available for giving

shares, securities, land or buildings to charity. These were only

deemed relevant for the very wealthy who might hold enough of these

types of assets to ‘give away’. These reliefs were very valuable to those

participants who had used them, whilst others with these types of assets

who had not donated in this way indicated that the existence of these

reliefs might encourage them to do so in the future as their other

financial commitments are reduced. There were however concerns around

the eligibility and complexities involved, for instance there were felt to be

restrictive rules surrounding eligibility (e.g. they are not applicable to

unlisted shares).

Only 2 of the 44 participants (both partners in different financial firms)

knew about the Self-Assessment giving system, and none of the

interviewees had used it. Once a summary of this method of giving had


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been provided, there was a feeling that this system did not give donors

enough control over how much, when or where donations were paid –

particularly important given the size of the tax repayments that some

might expect. As such, there was little enthusiasm for using this in the

future, except where relatively small tax repayments were involved.75

Whilst it is not surprising that respondents tend to report the importance of the perceived worthiness of a cause, or their faith or personal affiliations as being the most critical factors when making decisions about giving to charity, some participants did acknowledge being influenced by tax relief.76 In particular, when large tax bills are due, some wealthy participants said that they did or would consider making larger donations than they might otherwise have done, in order to reduce their tax bill. The promise of tax reliefs had encouraged some CAF account holders to open these accounts. For participating business owners, company tax reliefs played an important role in shaping giving behaviour. This is because company donations were rarely distinguished from personal donations, and company tax reliefs tended to be more widely used and understood than personal tax reliefs. Consequently Taylor et al argue that a shift in focus might be appropriate to encourage charitable giving by this group of wealthy people through the corporate – rather than personal – tax system. Maintaining that philanthropic choices are often inextricably linked to broader financial-planning initiatives, including tax strategies, the 2010 World Wealth report reports that a consequence of this is that the demand for philanthropic-related services offered by wealth management firms is on the rise. A survey of financial advisors in 2010 found that ‘advice on financial planning and tax’ aspects of philanthropy were the most demanded, compared to setting up a “giving” vehicle, monitoring and impact assessment and project and organization selection.77 Madden argues that despite the expanding array of options for giving to nonprofit organisations, and despite the growing complexity of technical requirements and taxation implications, there are indications the potential for financial advisers to assist HNWI to make ‘smart’ giving decisions is not being fully realised.78 Research in Canada suggests that one-third of financial advisers provide little, if any, counselling about philanthropic giving to their high-net-worth clients and one in five advisers feel insufficiently prepared to do so. In Australia, donor access to intermediaries who could help with philanthropy has been limited. In the UK and the US there is a gap in the philanthropy assistance available from financial and legal advisers, despite the UK situation improving in recent years and the US being a relatively mature market for philanthropic giving advice.


London, Ipsos Mori/HM Revenue and Customs. 76 Taylor, J., Webb, C. and Cameron, D. (2007). Charitable Giving by Wealthy People.

London, Ipsos Mori/HM Revenue and Customs. 77 Merrill Lynch/ Capgemini (2010) World Wealth Report 2010 78 Madden, K. (2009) Is philanthropy relevant? A study of professional advisers in

Australia. Working Paper No. CPNS 43. Brisbane: Australian Centre for Philanthropy and

Nonprofit Studies, Queensland University of Technology.


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Recommendations for charities Many of the research findings outlined above have frequently been translated into recommendations for various different groups. For instance Lloyd’s UK-based study contains numerous recommendations for charities, as well as Community Foundations, umbrella and membership organisations, government departments, the Charity Commission, major employers in the city and industry, the wealthy and the media. The recommendations below focus specifically on steps that charities seeking to improve their income from major donors can take. A number of actions can be taken to help develop the culture needed in charities seeking to develop long term support from major donors, including:79

• fundraising and the development of relationships with major donors

should be seen as integral to the mission of the organisation

• securing long term financial security is positioned as complementing the

programme activities

• job descriptions, work plans and person specifications at senior level

throughout the organisation take account of the need to give effective

time to nurturing relationships with major donors

• the fostering of partnerships with donors is seen as part of trustees’ role

(as with senior and specialist staff), with corresponding recruitment and

training

• long term investment in developing relationships and for detailed prospect

research is budgeted for, including the identification of the person best

placed to introduce the prospect to the work of the charity

• the fundraising department has one “account manager” for each major

donor

It is essential to take a personal approach to initiating, building and managing relationships with major donors, and involving and engaging them in the charity’s work:

address the interests the donor

demonstrate respect for any areas of expertise or skills which are the

source of the donor’s wealth

address legitimate concerns about governance and accountability

79 Lloyd, Theresa (2004), Why Rich People Give. London, Association of Charitable

Foundations


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It is important to encourage a diverse range of skills and networks on boards, including those conducive to the identification and involvement of potential high level supporters. Consideration should be given to the place of major donors on a board, and the idea that, as in the US, board members should be expected to give according to their means. Lloyd found that for donors who are also board members, the essence of their involvement was related to governance. Certain concerns – about the size of a charity, the quality of leadership, control at head office or levels of expenditure on fundraising or administration - had influenced a decision to give in some cases, with careful checks being made before committing to an organisation. Addressing concerns about the organisation and its work will no doubt involve ensuring high levels of transparency, efficiency and evaluation. However it may also be necessary to address unrealistic expectations about administration costs. Create greater peer support for giving, such as supportive networks and groups providing opportunities for discussion as well as potential group funding.80 As mentioned above, thought should be given to who is best placed to introduce a prospective donor to the charity’s work – as well as considering staff members (including the most senior) and trustees, consider whether existing supporters from government, business, the professions and the community may be well-placed and able to personally invite prospects to join visionary philanthropic projects. Involving peers in this way will also help to increase visibility of philanthropy amongst the affluent. In the current period of economic turbulence, charities need to clearly communicate to current and potential major donors why their donations are needed now more than ever, as charities seek to cope with both increased demand and decreasing support from sources such as investment income and corporate donations. As Breeze argues, donors need to be clear that charitable giving is a priority, not an optional extra, and that cutting donations will not only harm their favoured causes, but leave the donor feeling all the poorer, recognising that philanthropy involves a satisfying way of using wealth in order to find meaning and purpose in the donors’ life.81 Whilst recommendations relating to the need to raise awareness of and promote tax-effective giving are primarily addressed at organisations other than charities, charities can still contribute to (and benefit from) addressing this need. For instance, Taylor et recommend that UK tax reliefs on charitable giving are ‘branded’ as a single recognisable package, which is then communicated via targeted media – both direct and via intermediaries and trusted sources (such as employers, accountants or tax advisors and also CAF). However it is also important that charity representatives who are soliciting support from potential major donors understand and promote tax-effective giving. They can contribute to the general need to raise awareness and persuade people of the benefits of

80 Madden, K and Scaife, W. (2008) Good times and philanthropy: giving by Australia's

affluent. Brisbane: Australian Centre for Philanthropy and Nonprofit Studies, Queensland University of Technology. 81 Breeze, B. (2008), The bright side? Charity Funding Report, Issue 83


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these tax reliefs, as well as to overcome perceptions of their complexity, particularly higher rate Gift Aid relief, giving of shares/securities, land and buildings and Payroll Giving.


34 |

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