Articles from March 2006
FOCUS ON … Sustaining community philanthropy: looking for new models
Questioning the conventional wisdom
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Shannon St John
Community philanthropy organizations[1] have in recent years begun to multiply around the world. Community foundations, which originated in North America, are a good example. Twenty years ago, there were fewer than 400, exclusively located in the US and Canada. Most recent estimates[2] place their worldwide numbers at 1,175, with almost 30 per cent located in 44 countries outside Canada and the US. Moreover, the numbers are growing at a far greater rate outside North America than within it. What accounts for this phenomenon?
Certainly, it springs from the attractiveness of the concept in a variety of cultural and economic settings. The philanthropic impulse – to provide for those less fortunate or to give back to a community from which one has derived benefit – transcends geographic, ethnic and religious boundaries. And the community philanthropy organization (CPO) structure, unlike that of private foundations, for example, requires no great concentration of wealth, but rather springs from the concept of many givers – modest and significant alike – pooling their resources for the common good.
One of the other major attractions of CPOs is that they provide a potential means of local or indigenous sustainability for social justice activities, local civil society organizations (hereinafter CSOs), and civic participation, economic development, advocacy and poverty alleviation programmes. By creating both a culture and a means for local philanthropy, CPOs can harness the philanthropic impulse and resources of a local region for its own betterment.
Moreover, so the theory goes, community philanthropy organizations are themselves designed to be sustainable. In fact, the sustainability argument has been so attractive that a number of bilateral and multilateral agencies and international grantmakers have seized upon the concept of creating community foundations as their exit strategy, from countries and from specific programmes within countries.
With nearly 1,200 community foundations (by the definition of WINGS-CF) in 44 countries and new ones springing up almost weekly, the question of whether community foundations can be created worldwide has clearly been answered with a resounding ‘Yes!’ But whether they and other community philanthropy organizations can be sustained – and, more broadly, whether they can meet the many and varied expectations of their advocates in the long run – is far less clear.
The traditional model of sustainability
In the US and Canada, the named funds of traditional community foundations are created by donors for the purpose of making grants in the community, not sustaining the community foundation itself. These foundations have been able to sustain their operating costs – the costs of operating the administration, management and services of the foundation itself – by charging nominal fees on these grantmaking funds, for example an annual fee of 1 per cent of funds held. This revenue strategy is akin to that of trust departments and investment firms, which also charge relatively small fees on relatively large accumulations of assets under management. Traditionally, a substantial portion of the grantmaking funds created in community foundations are in the form of permanent endowment, in which the principal remains inviolate and only the earnings are used for charitable purposes. Charging fees on this asset base thus provides a steady and increasing source of sustainable operating revenue for the operations of the foundations.
Perhaps for this reason, in the global arena of community philanthropy development and in virtually every cultural context, endowment – or at least the intention to build it in the future – is espoused as one of the defining characteristics of community foundations. Some even see endowment as the distinguishing difference between ‘true’ community foundations and other forms of community philanthropy. Endowed assets are touted as providing:
Credibility, a visible signal within the community and beyond that the community foundation is serious about looking ahead and becoming a permanent cornerstone in the community’s future.
Permanence and reliability, allowing the community foundation to become a stable, reliable force for community improvement, especially important in the many regions in which life conditions in general, and civil society organizations in particular, are unpredictable.
Independence, insulating the foundation from undue pressures from donors, government authorities, and other CSOs. By providing an independent base of operation, an endowment is seen as ensuring continued neutrality and objectivity.
A new revenue model?
Increasingly, however, this revenue model is being called into question, not only outside North America but within it. People are beginning to ask if an endowment is needed to ensure credibility, permanence and independence. Is it, rather, sustainability that is needed, and can’t this be achieved through other approaches? At least five factors are relevant to this discussion.
Misperception of the traditional community foundation model
The widespread perception that traditional community foundations sustain their operations by building endowments for that purpose is a misconception. In part, this stems from the fact that many materials and trainings for emerging CPOs fail to distinguish between revenues (and fundraising) for operations and resources for grantmaking. As noted above, mature community foundations in the US and Canada finance their operations primarily by charging fees on the grantmaking funds under their management, a form of fee for service activity. Operating endowments – that is, endowments whose income is dedicated to supporting the running costs of the foundations themselves rather than grants to other CSOs – are a small, supplementary source of revenue.
Long period of time needed to achieve sustainability
Even in developed nations, the period of time to sustainability is far greater than openly recognized – closer to ten years than the typical three years for which ‘start-up funds’ are often given. This places the emerging CPO in an interim period of struggle for survival, during which there can be a significant shortfall in operating revenues. If alternative means to sustainability are not identified for the period until endowments and fees are sufficient to cover expenses, many of these foundations may die before reaching maturity.
Reluctance of new donors to provide endowed funds
Even in countries in which charitable endowments are widely known and accepted, newer/younger donors are reluctant to ‘tie up’ their philanthropic resources in a vehicle which may yield only 5 per cent for current community needs. As donors move away from endowment, even within traditional community foundations, the base on which fees are charged becomes more volatile, and thus the revenue stream is less certain. Critics have echoed these concerns from the standpoint of public policy, as well: how can holding back massive amounts of philanthropic capital be justified when societal needs are so great?
Isolating effect of endowments
Although endowment may serve to insulate a CPO from improper outside influence, it may also isolate it from the communities it serves. As endowments grow, CPOs have less need to ‘listen’ to their communities, especially to non-donors, and thus may grow less responsive over time to the social justice concerns of the very constituencies they were designed to serve. Moreover, to the extent that building a culture of philanthropy is part of the mission of a CPO, involving a breadth of the community in donating rather than building endowment may be a means of achieving sustainability that is more compatible with mission.
Barriers to endowment building
Most important, in many countries, building charitable endowments or amassing sufficient funds under management to provide sustainable revenues from small fees may be difficult to impossible. Among the barriers are:
- The entire concept of charitable endowment may be unknown, poorly understood or misunderstood, or lack acceptance.
- In countries that lack a strong and secure investment system, and prohibit investment outside the country, generating steady – or any – returns on investment for philanthropic purposes may not be feasible.
- The laws governing NGO or foundation activities in some countries may prohibit generation of endowment, the charging of fees on philanthropic capital, or creating long-term reserve funds for philanthropy.
- In countries in which urgent human needs are greater and philanthropic resources scarcer than in the West, the idea of ‘locking up’ large sums of capital to generate future revenue may be so distasteful as to damage the entire concept of community philanthropy.
CPOs are known worldwide for their inventiveness and resilience. As the articles in this issue make clear, many have applied great creativity to the issue of their own sustainability as well as to their programmes and grantmaking. From the Pasardjik Foundation’s video wall (Bulgaria) to FECHAC’s dedicated tax (Mexico), community foundations are demonstrating remarkable resourcefulness in sustaining their operations.
Not just a matter of finance
Moreover, while including a financial dimension, sustainability is also a matter of image, leadership and philosophy. Pondong Batangan and Pondo ng Pinoy in the Philippines have relied upon shared participation across a broad number of small givers, inculcating a philanthropic ethic across a much wider range of community members than the typical model. The ultimate example of integrating mission with sustainability, however, may be South Korea’s Beautiful Foundation. Promoting civic participation, environmental responsibility and philanthropy simultaneously, the Beautiful Stores provide sustainability for the Foundation’s grantmaking while also incorporating a massive recycling, volunteer promotion and philanthropy education programme.
Finally, and perhaps most important, the most significant lesson learned in two decades of international community philanthropy development is that the only form of community philanthropy that is ultimately sustainable is one that builds upon the indigenous impulses and traditions of philanthropy that exist in every culture, religion and human heart. Susan Wilkinson-Maposa ably demonstrates and documents, for example, that multiple forms of ‘horizontal’ philanthropy exist even in the poorest of communities. Inviollata Moyo of Zimbabwe has created a CPO under the harshest of conditions by building on the local tradition of Qogelela, a tradition in which each gives a little for the common good.
Community philanthropy needs to harness and give voice to these indigenous traditions, not compete with or overwhelm them. It needs to engage donors not for the purpose of securing their financial resources or accomplishing their goals, but to build a constituency for social justice. Ultimately, it needs to demonstrate integrity between the means it uses to secure its own sustainability and its mission of building philanthropy, equity and justice.
1 In this article, the author uses the term ‘community philanthropy organization’ to refer to all types of community-based grantmaking foundation which raise funds primarily from within a community and distribute them within that community, and are governed by members of that community. The term ‘community foundation’ is used to refer to the traditional form of community foundation as originated in and modelled after those in the US and Canada, because this appears to be the current norm. It is her preference, however, that the term ‘community foundation’ will in the future be broadened to be more inclusive of a variety of models.
2 Eleanor Sacks (2005) Community Foundation Global Status Report WINGS.
Shannon St John is currently Senior Consultant to the Triangle Community Foundation, a position she assumed after serving as Founding CEO for 22 years. She has been active in the international field of community philanthropy for ten years, and has worked with community philanthropy organizations in 21 counties on six continents. She can be contacted at sstjohn@trianglecf.org
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Back to topFrom Alliance, Vol 11, No 1, March 2006
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