Business Scholarship Podcast

Dana Brakman Reiser and Steven Dean on For-Profit Philanthropy

Mon Jul 17 2023

PhilanthropyElite PhilanthropyTax Reform Act of 1969Private FoundationsDonor Advised FundsStrategic Corporate Giving

Description

The episode explores the history of philanthropy, new developments in elite philanthropy, the debate on elite philanthropy, rethinking philanthropy, and the importance of philanthropy. It discusses the establishment of general purpose foundations, the Tax Reform Act of 1969, and the benefits and challenges of starting a private foundation. It also examines philanthropic limited liability companies, donor advised funds, and strategic corporate giving as new trends. The debate on elite philanthropy focuses on the fairness of wealthy individuals keeping their wealth instead of engaging in philanthropy. The episode proposes re-envisioning elite power and control in philanthropy and highlights the importance of philanthropy in discussions about elite power in society. It emphasizes the need to examine philanthropy based on its first principles and purpose.

Insights

Philanthropy as a Systematized Practice

Philanthropy by elites began to be practiced in a more systematized and professionalized way around the turn of the 20th century. General purpose foundations were established as repositories for assets of the ultra-wealthy, allowing for staff and expertise in grant-making.

The Tax Reform Act of 1969

The Tax Reform Act of 1969 created the legal form of private foundations that exist today, applying a regulatory structure to their operations. Starting a private foundation offers benefits such as tax advantages and control over funds, but also requires compliance with regulations.

New Trends in Elite Philanthropy

New developments in elite philanthropy are causing concern. Philanthropic limited liability companies, like the Chan Zuckerberg Initiative, are growing in popularity. Donor advised funds affiliated with investment firms allow donors to make decisions about charitable distributions. Strategic corporate giving connects philanthropy with business goals of corporations.

Debate on Elite Philanthropy

There is a debate about whether it is fair for individuals like Mark Zuckerberg to keep their wealth instead of engaging in philanthropy. The question of whether it's all Mark Zuckerberg's money or if the public has a right to a portion of it through taxation is a fundamental difference of opinion.

Re-envisioning Elite Power in Philanthropy

The book proposes a more comprehensive approach to re-envisioning elite power and control in philanthropy. It suggests updating the way we think about philanthropy, considering that values from 1969 may not align with current ideals. Private ordering solutions, such as updating regulations and diversifying platforms for donor advised funds, can offer alternatives to command and control regulation.

Importance of Philanthropy

Philanthropy should encourage individuals to do important and valuable things without relying solely on government or regulations. Understanding that philanthropy is a way for elites to exercise influence is crucial.

Summary

Transcript

The History of Philanthropy

00:06 - 07:22

Philanthropy by elites began to be practiced in a more systematized and professionalized way around the turn of the 20th century.
General purpose foundations were established as repositories for assets of the ultra-wealthy, allowing for staff and expertise in grant-making.
These foundations became socially powerful organizations subject to critique and regulation.
The Tax Reform Act of 1969 created the legal form of private foundations that exist today, applying a regulatory structure to their operations.
Starting a private foundation offers benefits such as tax advantages and control over funds, but also requires compliance with regulations.
The public policy purpose behind the trade-off between wealthy donors and government is to establish ground rules and limits on philanthropic activities.
The compromise reached in the Tax Reform Act of 1969 allowed private foundations to be perpetual but imposed minimum distribution requirements.
Other rules included restrictions on political involvement and concerns about extending elite power.

New Developments in Elite Philanthropy

06:56 - 14:40

The 1969 act was a tax reform act that established ground rules and limits on philanthropy.
New developments in elite philanthropy are causing concern.
Philanthropic limited liability companies, like the Chan Zuckerberg Initiative, are growing in popularity.
Donor advised funds affiliated with investment firms allow donors to make decisions about charitable distributions.
Strategic corporate giving connects philanthropy with business goals of corporations.
These examples avoid regulation, public input, timing of distributions, and transparency.
They enable an avoidance of asset lock-in and prevent perpetual accumulation of wealth.

The Debate on Elite Philanthropy

14:11 - 21:35

Ultra wealthy individuals are opting out of the 1969 bargain between the public and donors, which includes tax benefits and public accountability for charitable giving.
There is a debate about whether it is fair for individuals like Mark Zuckerberg to keep their wealth instead of engaging in philanthropy.
The question of whether it's all Mark Zuckerberg's money or if the public has a right to a portion of it through taxation is a fundamental difference of opinion.
The grand bargain in 1969 allowed wealthy individuals to keep their foundation intact while also providing a way to avoid taxation.
It was difficult to collect taxes from very wealthy people in the past, leading to the creation of alternative minimum tax.
Reconceptualizing philanthropy regulation as a bargain between society and elites can help ensure that philanthropic activities are truly other regarding and not entangled with politics or donor-controlled businesses.
Trust is important for both philanthropists and society, as philanthropy plays a significant role in social provision in American society.
Private ordering solutions, such as updating regulations and diversifying platforms for donor advised funds, can offer alternatives to command and control regulation.

Rethinking Philanthropy

21:07 - 28:17

The book suggests updating the way we think about philanthropy, considering that values from 1969 may not align with current ideals.
Congress in 1969 had skepticism towards civil rights organizations, but today there is more openness to controversial issues.
Platforms like Fidelity and Vanguard could promote diversity and belonging initiatives by deploying assets to Black-led charities or other charities that meet diversity goals.
The book proposes a more comprehensive approach to re-envisioning elite power and control in philanthropy.
Reactions to the book include concerns about elevating foundations too much and acknowledging their imperfections.
Foundation disclosure is problematic, but efforts are being made for power sharing with grantees and trust-based granting.
The book acknowledges that foundations are not perfect, but they reveal important policy goals for regulating philanthropy.
The shift away from foundations offers benefits such as platform effects and avoiding limitations on impact, but maintaining transparency and targeting goals is crucial.
Philanthropy should be examined based on its first principles and purpose.

The Importance of Philanthropy

27:55 - 32:45

Philanthropy should encourage individuals to do important and valuable things without relying solely on government or regulations.
The Zuckerberg Initiative's goal of curing all diseases is ambitious, but skepticism remains due to its non-foundation status.
The book aims to highlight the importance of philanthropy in discussions about elite power in society.
Understanding that philanthropy is a way for elites to exercise influence is crucial.
Congress once refused to grant a federal charter for a Rockefeller foundation due to concerns about elite power.
Re-anchoring ourselves with an objective view of philanthropy is necessary.