News from Cass Business School

Charitable foundations hold the key to making social investment a reality

Wednesday, 25 November, 2009

A new report which critically assesses how to encourage more effective philanthropic giving in the UK suggests that charitable foundations are an untapped resource, and the government should introduce a five per cent minimum percentage payout for foundations as a matter of good practice to make social investment a reality.

The report, prepared by Peter Grant and Lindsay Driscoll at the Centre for Charitable Giving and Philanthropy at Cass Business School, for the Honorary Treasurers Forum, is the first critical assessment of the role of UK foundations which also takes the impact of the credit crisis into full consideration.

The report suggests that foundations are unique organisations which bring distinct potential advantages for effective giving - the top 500 foundations spend at least £2.7 billion a year on charitable endeavour - but these advantages are currently under-utilised.

Bruce Gordon, Chairman of the Honorary Treasurers Forum, commented:

Within the sector, foundations should report on the added value of their grant giving and ensure that their governance and grant making procedures are appropriately managed, both in the context of public benefit and interest.  They must also urgently review their current commitments and policies to ensure their funding models are impact based and take into account the life cycle of the recipients of their funds.

The four major recommendations which the report makes to the Government are:

 More work needs to be carried out to make significant social investment a reality. The funds that charities receive from foundations are especially valuable as they do not come under the same restrictions as those from government or quasi-government sources, such as the National Lottery.

 In a recession the introduction of a minimum percentage payout for foundations as a matter of good practice should be carefully considered.  A distribution quota for private foundations exists in both the US and Canada and if a 5% pay-out rule' is adopted in the UK the charitable funding of endowed foundations could increase by 31.5% or around one billion pounds per annum.

 A wider variety of umbrella charities with donor advised funds should be set up with Government seed funding. Some of these could be linked to charity sub-sectors such as the Arts or international development and a possible incentive for the creation of donor advised funds would be the introduction of an enhanced tax incentive for donations.

 In the current economic climate with the incomes of vital charitable and voluntary organisations under extreme pressure it is even more important that every avenue for additional resources is explored. Foundations therefore have a critical role to play at a time of recession but those whose funds come from an endowment also find their resources under strain.  The logical outcome is that these foundations will reduce their contributions exactly at the time when they are needed most.

Peter Grant, co-author of the report and Lecturer in Voluntary Sector Management at Cass commented:

We are currently witnessing a renaissance in the idea that we are all part of society and all share a responsibility for the way our societies develop in the future, and during the past decade we have seen dramatic swings in the views of citizens about their individual and collective responsibility to support charity.

Charities have reached an unprecedented social and political prominence, aided in part by their confidence to campaign for social change and their willingness to embrace the need to be open, accountable and transparent. The impact of the seismic economic situation which dramatically changed the message and recommendations of this report, are now even more relevant and pressing.

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Peter Grant, co-author of the report and Lecturer in Voluntary Sector Management at Cass Business School

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