When did it all start?

Luis Amorim and Monika Mazurczak

Is 1914 the date when it all started? It is often said that community philanthropy started in the US with the ‘invention’ of a new form of philanthropy, community foundations, by Frederick Goff, a banker in Cleveland, Ohio. This date is seen as the start of a modern form of philanthropy that has spread rapidly beyond North America[1] in the past 20 years.

But the adoption of the community foundation model in many other countries is not, with a few exceptions, the spread of an ‘invention’, but the reawakening and professionalizing of local forms of philanthropy, stimulated by a model that proves to have a number of interesting advantages for promoting sustainable development at community level.

There are now community foundations (CFs) in Europe, Latin America, Africa, Asia, Australia and New Zealand. What is particularly significant about this expansion is the speed with which the new model has entered the local ‘philanthropic scene’ in so many different places and how easily it has adapted to local circumstances.

The long history of community philanthropy

But this was certainly not the beginning of community philanthropy. All organized communities, to a greater or lesser degree, have developed ways to address issues that affect their well-being and some have also found institutionalized ways of doing so. Europe is a good example, with medieval Italy[2] showing instances of community philanthropy in the form of ‘community chests’, mainly linked to the charitable activities of the Catholic Church, and nineteenth-century Germany boasting successful ‘city foundations’, an instrument for charitable giving by the prosperous trading classes. In Poland traditions of local philanthropy go back to the twelfth century, when many wealthy Poles established bank deposits whose interest was to be spent on the destitute, single mothers and neglected children.

In other parts of the world, community giving based on religious belief is well established. In India, for example, Hindu temples play a role in distributing wealth among poor people. Muslim communities the world over practise the centuries-old tradition of philanthropic giving known as zakat, whereby people are expected to contribute part of their annual earnings to a common fund to be distributed for the benefit of the poor, usually by the local mosque. In Europe to this very day, particularly in Southern countries, local churches play an important role in community philanthropy. In South Africa and other African Bantu communities, traditional forms of local philanthropy in rural areas go back to pre-colonial times and were mainly used to respond to crisis situations or to help widows and orphans in need.

It is not surprising, then, that so many communities outside the US have found in the CF model something that they can relate to and adapt to their local conditions, sometimes going back to their ‘collective memory’ and philanthropic traditions in the process and so adapting and improving the model.[3] Moreover, the CF model has helped professionalize existing forms of local philanthropy, making them more structured and consequently more effective in responding to the needs of the whole community as well as more oriented to seeking long-term solutions.

Countries with recent or precarious democratic traditions have also seen in the US CF model a wonderful tool for creating independent local grantmakers in an environment where political favours and business corruption often set the pace for philanthropy. CFs were perceived as an opportunity to create ‘local citizen coalitions’ that would bring together all sectors of the community and endeavour to be neutral in assessing needs and distributing funds. This independence from external pressure is seen as one of the many important features of CFs.

So what is Goff’s contribution?

In line with some of his critics, we also sometimes suspect that Goff’s ‘invention’ had more to do with finding an intelligent solution to a problem faced by banks at the time than with any altruistic desire to reduce local problems. Banks increasingly found themselves holding trust funds for long-dead donors whose intentions they had no power to change but whose philanthropic goals had become outdated and irrelevant to the community. Goff’s innovation lay in his ability to see the potential for establishing an endowed fund whose revenue from investments could be used for the benefit of the local community. In 1914 he thus created an institution that allows private giving to be used for the benefit of local communities and – what is more important in our view – allows the good of the community to be potentially the most important motivation when it comes to giving. With time, the initial objective of making the management of trusts more flexible gave way to a truly community-oriented approach, where giving by local people for local people came to be seen as the mission of the CF.

Is the model the same all over?

Developments in different parts of the world outside North America have led to different organizational formats for CFs. When it arrived in Europe, the traditional CF model – an endowed organization that receives donations from and makes grants to the local community – went through some local processing. In much of Europe, CFs do not always exhibit what are considered the defining characteristics of their North American counterparts, particularly in relation to endowment. The exception is the UK, where for cultural and historical reasons the US model was introduced with only minor differences.

At the beginning of the 1990s, countries in Central and Eastern Europe, just out of the Soviet grasp, started to experiment with the idea of private local philanthropy[4] but communities rarely had the means to build an endowment. In many of these countries, what people were interested in was finding an organization that could serve as a neutral convenor among different sectors in the community (eg local government, business and civil society institutions) rather than the idea of a ‘growing pot of money’ to support other people’s activities.

Many factors were present that did not favour private giving: a lack of tax incentives, a fragile banking system, a non-existent or weak national stock-exchange market, a very limited culture of giving – the latter not only because of a political tradition that did not encourage private initiative but also because of the lack of considerable personal wealth. This situation has led to many ‘CFs’ without endowments, or with only very small ones, whose principal goal is not necessarily to make grants but to educate people and their local institutions about the concept of civil society and the power of private giving. This can also be observed in countries such as Mexico and South Africa.

In Western Europe, too, community philanthropy was exploring very different paths from the traditional CF model when it first arrived at their shores. In Germany, for instance, with a long tradition of ‘operating foundations,[5] CFs too became more focused on running their own projects rather than making grants. In Italy, CF endowments were initially provided exclusively by a big national foundation – although matching fund conditions were set right from the start in order to foster autonomy and self-reliance in local giving. Even in the UK, CFs have left the ‘mould’ by establishing close relations with national and local government agencies and undertaking management of substantial budgets for local grantmaking on their behalf.

The United Way model

So far, readers may be under the impression that we equate community philanthropy with community foundations. It is true that this is the model of community philanthropy most people are familiar with. In many places around the globe, however, community philanthropy has taken another familiar face from the US, once again adapted to local needs and circumstances, in the form of United Ways, where employee giving is the major source of revenue for grantmaking and endowment-building is not really part of the mission.[6]

United Ways exist in some 41 countries around the globe, and their mission of ‘helping build community capacity for a better quality of life worldwide through voluntary giving and action’[7] (http://www.uwint.org/about.html) resonates well with the rest of the community philanthropy movement. United Way goes back a long way, to the creation in 1887 of the ‘Charity Organizations Society’ in Denver, US. It is interesting to note that in 1913, also in Cleveland, Ohio, the first modern ‘Community Chest’ was born (as many United Ways were called until the 1950s). Cleveland thus plays an important role in the world of modern community philanthropy. Some might even suggest – though this is certainly contentious – that Goff himself drew some of his ideas from this new development in town.

‘Community philanthropy organizations’

Because of the variety of organizations and ways of doing things, some of us prefer using the expression ‘community philanthropy organizations’ (CPOs), because it truly reflects the diversity of models that are being developed in different countries. CPOs collect, manage and redistribute donations from a wide range of local donors to meet critical needs and improve the quality of life in a specific geographic area, typically a town, a county, a province, a district, or any other type of locally defined entity. They can play a valuable role in helping communities address social, economic and environmental needs, especially as funding from other sources decreases. They do this by mobilizing new resources, involving citizens in local problem-solving, and building partnerships between local businesses, local authorities and non-profit organizations.

The Community Philanthropy Initiative (CPI) of the European Foundation Centre (EFC) includes under the acronym CPO the following specific organizational forms:

  • community foundations (endowed organizations);
  • community giving campaigns (eg the United Way model);
  • philanthropic civic groups (eg Rotary Clubs[8]);
  • geographic funds (eg a foundation may decide to cover a national territory by setting up autonomous affiliate funds that cover smaller parts of that territory).

Of course, in reality it is not possible to establish clear-cut distinctions between the different forms, as many organizations integrate elements of one or more of them into their daily practice. In this article, we concentrate our attention on community foundations because it is the model of community philanthropy that has registered the fastest increase in the past two decades and has thus become the dominant model around the world.

What about endowment-building?

Purists tend to think that there is no CF worthy of that name without an endowment. However, things are not that simple. Purists tend to come from the US where ‘endowment-building’ was not really a challenge when CFs started to appear. Throughout the first decades of their existence, many US CFs – pardon the exaggeration and the bluntness – just sat and waited for people to die and leave money to the foundation in their wills. This money was usually unrestricted and so gave CFs the freedom to do what they know best – to invest money and make grants with it. It is not like that any more. Even in the US, fewer and fewer people are waiting to die to leave their money to a foundation. Many more donors are ‘alive and kicking’, with very clear ideas of where and how their money should be spent.

Colleagues from the US tell us often how much these ‘free agents’, to use some of their jargon, have changed the work they do. They are demanding, and have a personal vision of community development and the issues they are interested in. They no longer trust the CF’s vision, though in time they may come to realize that it has a point. The result of all this is that many US CFs are now receiving more and more flow-through funds and less and less money for endowment. Some US practitioners have even started to argue that endowment-building is not the sacred thing it used to be.

For CFs outside North America, starting afresh in any case means that it is important to show their communities what they can do for them, and that usually implies immediate grantmaking. In very disadvantaged communities, building an endowment can pose considerable ethical problems. When the need is very great, waiting for an endowment to be big enough to start making grants seems closer to egoistic than altruistic.

A real ethical problem arises when CFs achieve a certain level of endowment and decide not to invest more significantly in the community. This is chiefly a problem in North America where ‘fat years’ in equity markets resulted in major gains for many CFs. However, this did not necessarily result in an increase in grantmaking. Now that equity markets are going through some ‘lean years’, many CFs have decided to reduce their grantmaking. But shouldn’t they be increasing their ‘community focus’ at this point. ‘Lean years’ in equity markets usually mean poor economic growth and more social problems, and thus more need for CF grants. However, few are willing to touch their sacrosanct endowments.

Nevertheless, there is no denying that an unrestricted endowment does allow CFs to do their job in a way that for many is quintessentially the way they should be doing it. It allows the foundation to invest in those areas they see as most important for the overall development of the community – no ‘donor-dictator’ here. An endowment, unrestricted or not, allows CFs to put into practice one of their great values, permanent grantmaking – or long-term solutions to evolving problems. In fact, many CFs that have paid exclusive service to the all-powerful ‘free agent’ are now trying to find ways to convince donors of the value of endowed funds. Too much emphasis on donor services can undermine one of the fundamental values of CFs’ grantmaking: responding mainly to community needs and not to individual wishes alone.

Around the globe, many young CFs include endowment-building high in their strategic plans, knowing that it will take time and that they will need to balance this with a new generation of donors who wants to see immediate results of their giving – donors who grew up in a corporate culture that rates success in terms of scores rather than qualitative social change.

Competing with the charitable gift funds

It is an ongoing debate whether CFs should focus their attention mainly on the needs of the donor or on the needs of the community they serve. It is mainly a US debate, because it is in the US that the more aggressive forms of competition with CFs for the money of wealthy donors exist (eg ‘Fidelity’[9]). In response, many foundations have adopted some of the strategies of their competitors to attract donors, and this has led to reducing their community focus. With Fidelity, for instance, US donors can establish an individual charitable giving account, get immediate tax reductions, and decide what grants to make without even leaving their computers. Although this and other commercial gift funds try to raise their ‘community profile’ by establishing some sort of emotional link between their clients and the projects they wish to sponsor, the operation remains for the most part a financial one and rather depersonalized.

CFs are not financial institutions per se; on the contrary, it is their knowledge of the community and their commitment to it that make them unique. It is our opinion that CFs should not worry so much about commercial gift funds and their capacity to ‘steal away’ potential donors. CFs can provide people with a real sense of humanity and closeness to their communities which in the end is central to the purpose of community philanthropy. Sometimes the best way to compete with your opponents is to stop trying to imitate them and instead to develop your uniqueness further.

Do donors or the community come first?

When we talk about ‘community focus’ we are referring to a CF giving priority to learning about its community and having an active role in shaping its development (eg a political vision of sustainable development). This role, which some call ‘leadership’, others ‘catalyst’ or ‘convenor’, can be played not only through grantmaking but also through taking the lead on controversial issues in the community, promoting certain kinds of debates and gatherings, helping to build relationships between different key local institutions, etc. In an extreme case, the foundation will see itself mainly as a partner with other non-profits in the community rather than as a vehicle for charitable giving.

In Europe, Latin America, Africa, Asia and Australia, CFs do not have behind them the well-established US tradition of private giving, and the role of the donor has thus been less strong. Additionally, CFs outside the US have often started because reduced government funding in the social sector has led to difficulties for local non-profits and the people they serve. CFs have thus sprung up in response to a lack of funding in the community, and this determines the focus they have.

Often, in order to muster the knowledge and understanding that will set them apart from other institutions, CFs have had to become ‘community experts’ while simultaneously developing an aggressive endowment strategy. CFs can become ‘community experts’ by establishing long-term relations with other key institutions in the community, by engaging frankly in dialogue with other partners and by constantly trying to respond to the challenge of ‘knowledge management’, ie keeping reliable and updated information on major developments in the community. In the UK, for instance, it was because of their knowledge of local non-profits and community life that CFs landed two major contracts to do local grantmaking for the government. But growing bigger endowments nevertheless remains a major objective both for each and every British CF and for the national movement as a whole.

In many regions of the world, where democracy is only recently won, CFs act as agents in the democratization of society. These are countries where citizens took little or no part in decision-making, where people did not expect to be engaged in any significant social processes. In this setting a CF cannot close its eyes to its civic role and concentrate just on fund development.

However, CFs in these regions are also increasingly faced with the need to attract donors and are thus putting more emphasis on the services that they provide them with and becoming more ready to listen to their donors’ ‘philanthropic wishes’, sometimes whims. Some see this as diverting CFs from concentrating on their primary client, the community as a whole. For others it is simply a question of serving the community in what they refer to as ‘a more targeted way’, which can result, for instance, in grants being made to helping stray cats and dogs instead of for HIV prevention. Is there a hierarchy of needs in terms of community development or do we consider it all equal in value? Is this really what we want CFs for?

  1. In Canada, the first CF was established in 1921, the Winnipeg Foundation in the state of Manitoba.
  2. ‘Foundations’ as an institution actually originated in Italy in the Middle Ages, at a time when all-powerful Italian city-states dominated the landscape. Significant changes in the political and economic balance in Europe in the sixteenth century led to the impoverishment of many of these city-states and consequently to their philanthropic traditions becoming dormant.
  3. The Belgian anthropologist Claude Lévi-Strauss writes: ‘Transferred custom (habit) is not assimilated; it rather plays the role of the catalyst, which means that its existence stimulates the emergence of the analogous custom that had already existed in a potential (possibility) stadium in the new environment.’ C Lévi-Strauss, ‘Le Père Noël Supplicie’ in Les Temps Modernes, March 1952, p1577 (translation into English by authors).
  4. It is well to remember that the state used to play an important role in this respect during the previous regimes.
  5. By ‘operating foundations’ we mean foundations whose primary focus is running their own projects rather than grantmaking.
  6. Nevertheless, some United Ways in the US have endowed funds, sometimes managed by CFs.
  7. See http://www.uwint.org/about.html.
  8. ‘Rotary is an organization of business and professional leaders united worldwide who provide humanitarian services, encourage high ethical standards in all vocations, and help build goodwill and peace in the world.’ (www.rotary.org/aboutrotary/index.html) With its origins in the US in 1905, it is currently based in some 160 countries worldwide, with more than 30,000 local clubs. Similar to CFs, Rotary also manages ‘donor-advised funds’ and even has a ‘community projects database’ for its donors to choose projects from.
  9. Fidelity Investments is a US-based international commercial ‘provider of financial services and investment resources’ (www.300.fidelity.com). Once known primarily as a mutual fund company, in 1992 it created the ‘Charitable Gift Fund’, a donor-advised fund that has made the company, according to the Chronicle of Philanthropy, the first grantmaker in the US.

Guest editors for the special feature on community philanthropy

Luis Amorim was CPI Coordinator at the EFC from January 2001 to July 2002. The new CPI Coordinator, Jana Kunická, can be contacted at cpi@efc.be

Monika Mazurczak is Director of the Academy for the Development of Philanthropy in Poland. She can be contacted at monikam@filantropia.org.pl

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