The spectrum of the value chain of the global economy is wide and long. The same is true for the social value chain of global philanthropy.
The spectrum seems to be spreading at an increasing rate – just as the universe itself is expanding. The customary organizational concepts of for-profit, non-profit and non-governmental are blurring. Most businesses and non-profits are in the middle of the value spectrum, with philanthropy as the single thin link between them. But the position in the overall spectrum is shifting for some successful entrepreneurs in both the business and social sectors.
Granted, this organizational ‘shapeshifting,’ as Brad Smith called it recently in PhilanTopic, may not be for everyone. A few enterprises will always remain at the margins of the spectrum due to their fundamental economic vulnerability – social movements, for example, will probably always need outside support to succeed and many struggling businesses never have sufficient profit to make tax-deductible donations through philanthropy. But the vast middle of the spectrum is full of hyper-blended social profit opportunity. So far only a few donors have had the bandwidth to move from one part of the spectrum to another at significant scale.
eBay founder Pierre Omidyar is one example. Writing in the September issue of Harvard Business Review, Omidyar describes his creative response to the frustrating US charitable regulations that interfered with the ability of his foundation to easily transfer the knowledge and experience of eBay to foster and finance social change. In less than five years, he writes, eBay ‘had about 100 million users, and it was teaching people that they could trust a complete stranger over the internet – at least, trust him or her enough to make a transaction’.
This realization is of critical importance to philanthropy − especially social change philanthropy. Omidyar went on to explain that eBay ‘was providing people with new careers and livelihoods. This was large-scale impact. I began to wonder: If I had created a non-profit organization and set a 10-year goal to build a trusted network of 100 million people, with a start-up grant of $10,000 and no additional grants, would it have succeeded? Probably not. But somehow a business had been able to reach this level of social impact in less time, using less outside capital.’
eBay’s success also made Omidyar rich – worth $6.7 billion, according to Forbes. Omidyar’s multi-cultural social conscience made him generous. His ambition made him innovative and brave. With $6.7 billion in assets, and an annual return on investment of 5%, Omidyar could conceivably lose $1 million per day and never run out of money in his lifetime.
Omidyar then hit on a unique solution that had never (or rarely) been tried before – mostly because lawmakers never anticipated the level of great wealth that today enables the most generous donors (Omidyar has pledged to give 99% of his wealth in the next 20 years) to give unimaginable amounts with less risk of ‘self-dealing,’ or other tax-evasion concerns. ‘Our attorneys had never seen a structure like this.’ He realized that since he was willing and able to spend $100 million per year to solve social problems, it didn’t matter how he did it as long as he complied with tax regulations. He surmised that to avoid the constraints of the non-profit tax code in the US, it would be more efficient and effective to operate as a business – albeit a business that is very likely to lose money. With net worth that once reached nearly $14billion, he could lose a lot. He calculated that ‘in the context of spending $100 million a year, $1 million to $2 million seemed like a small price for getting the flexibility to use every possible tool to improve the world.’
Consequently, Omidyar now works across the social and business sectors, operating both a Limited Liability Company (LLC) and a 501(c)(3) foundation – the Omidyar Network. His wife Pam puts much of her attention into addressing the intractable problems of modern slavery through Humanity United.
What do you think? Is the difference between philanthropy and hybrid social investment in for-profit enterprises merely a difference without distinction?
Chet Tchozewski is the founder and a board member of Global Greengrants Fund