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Philanthropy and the Social Contract: What Comes Next

Friday, February 5th, 2010

Georgia Levenson Keohane will be a CEP guest blogger from January 25 – February 5, 2010.

From the 2010 vantage point, we can see that the era of ‘new’ philanthropy – big, strategic, tactical giving – was also one of historic inequality.  In the U.S. the last quarter century proved a gilded age for some – the rich did get much richer – but was a period of stagnation for the middle class and lost ground for those with the lowest incomes. 

During this time, we mostly opted to reduce taxes (by historical standards) and deregulate any number of industries in deference to market forces.  For some, this approach produced spectacular wealth, and many embraced philanthropy with the same zeal they brought to enterprise. 

Yet the economic cataclysm of our time – which has taken its greatest toll on the most vulnerable – compels us to re-examine the fundamental tenets of the social contract: just what kind of society do we want to live in?  What is the role of government?  Of markets?  And can philanthropy fill in the gaps?

The notion of American exceptionalism – that we do things differently here – applies to charitable giving.  Throughout our history, private philanthropy has been a feature of civic life: long before the sweeping and institutional philanthropy of Rockefeller and Carnegie, Americans gave both time and alms to relieve the suffering of the poor. 

Today, these traditions continue.  According to the General Social Survey, 71 percent of Americans belong to at least one voluntary organization, a rough gauge of civic engagement.  The most recent cross-national data from the world values survey comparing membership in charitable organizations (an imperfect measure of volunteerism) shows that Americans are more than three times as likely as their European counterparts to participate in a charitable group. 

When it comes to giving, the difference is even more profound.  According to one cross-national estimate from 2000, charitable giving in the United States was approximately $190 billion, or $691 per capita, compared to $141 in the United Kingdom and $57 for Europe as a whole.  (See Alberto Alesina and Edward Glaeser, Fighting Poverty in the U.S. and Europe). 

In 2006, data from the Charities Aid Foundation show that philanthropy in the United States represented 1.7 percent of GDP followed by the U.K. at .73 percent.  Germany was .22 percent and France .14 percent.

This isn’t reason to crow about superior American generosity (though, by any measure, we are highly altruistic): rather, it reveals a fundamentally different approach to social welfare.  Generally speaking, European countries provide greater public social welfare than the United States, which relies more heavily on its private delivery. 

In Europe and the U.K., this typically means higher redistributive taxes for more government programs and services (e.g., universal healthcare), and as a result, fewer dollars available for philanthropy; in the U.S. it means lower taxes, smaller government, more privatization of social services (e.g. employer and private insurer based healthcare, nonprofit activity) and higher levels of charitable giving. 

It is worth noting that in recent years, as financial deregulation in the U.K. has led to greater prominence of hedge funds and financial services generally, British philanthropy – in amounts and style (see Absolute Return for Kids or Children’s Investment Fund Foundation) – more closely resembles that of its American cousin.  Now that the U.K. is attempting to rein in (read, tax) elements of the financial services sector its government deems ‘socially useless,’ we may see a concomitant drop in charitable giving.

The question of which system works better – which is more efficient in ensuring social welfare – is empirically complex, ideologically fraught, and beyond the scope of this post.  If the U.S. bested Europe on income inequality (it does not), or on the various measures of the UNDP Human Development indices (it ranks 13th), it would be an easier one to answer. 

Rather than attempting to here, we can instead pose some equally challenging questions:

  • In the aftermath of the financial crisis, what exactly is the proper size and scope of government? 
  • How do we harness – and regulate – markets? 
  • Should we expect private philanthropy to plug the social welfare holes when states and markets fail? 

It is fair to say that even at 1.7 percent of GDP, private philanthropy cannot – and should not – provide our entire social safety net.  With official unemployment over 10percent – and the budgets of state governments busted – it has been billions of dollars in federal stimulus, not private charity alone, keeping millions out of poverty in this recession. 

While thousands of social service agencies have valiantly scrambled to meet rising human needs, federal intervention – emergency unemployment insurance, tax credits, an increase in food stamps, and cash payments for retirees, veterans, and people with disabilities – has been necessary to keep people afloat. 

Even in the best of times, less than one-third of American philanthropic dollars goes to help the poor.  This level of funding is not enough to help those harmed by the downturn, neither is it sufficient to meet ongoing social and economic needs once the economy has stabilized.  Private charitable giving cannot stand in for our collective responsibility for social welfare, nor for market solutions to social needs – which begin, we hope soon, with jobs.

We have made important gains in our understanding of what makes for effective philanthropy – both the role foundations can play alongside their nonprofit, public and private sector partners, and ways in which they can improve and measure impact in the social sector. 

We know, for example, that philanthropic dollars are particularly vital when it comes to risk – to incenting investment in things like vaccines when the markets fail to do so, or piloting anti-poverty programs that may be too politically controversial to attract public funds.  We also know that foundations must hold grantees accountable for performance, while evaluating their own successes and failures. 

Yet even the smartest philanthropy is no substitute for well functioning states and markets.  If we have learned anything from the economic crisis, it is that our system of social welfare may require some recalibration.

*****

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Foundation Philanthropy and the Power of PRIs

Wednesday, February 3rd, 2010

Georgia Levenson Keohane will be a CEP guest blogger from January 25 – February 5, 2010.

The challenge for foundations in this economic crisis has been to do more with less.  On average, the nation’s endowed philanthropies lost 28 percent of their value in 2008, just as the needs of nonprofits and the people they serve began to spiral. 

And yet, despite the conventional criticism– that foundations are conservative and slow to change – many have responded quickly and creatively to support the work of their grantees. 

An increase in the use of program related investments (PRIs), for example, marks an important step in how foundations finance the work of the social sector. 

Although it’s still only a relatively small number of foundations that use PRIs – investments made to support charitable work with the expectation of return – the increased prominence of this philanthropic approach is an unintended but important legacy of the downturn – and one which might lead to greater innovation in the social capital markets.

PRIs are not exactly new.  The Tax Reform Act of 1969 first defined them as investments made by foundations to support a charitable project or activity. Large philanthropies like Ford, MacArthur, Packard, and others pioneered the approach. 

Over the last decade, the number of foundations engaged in mission investing has doubled, and the dollars invested this way has tripled.  Most of the growth in PRIs has occurred at small- and middle-sized philanthropies, like the $227 million Heron Foundation in New York City. 

Founded in 1992, Heron has played an important role in advancing the PRI field.  Unlike more cautious PRI investors, Heron has preserved the value of its endowment by making “core support” grants within the 5 percent payout IRS requirement and deploying 50 percent of its endowment to finance projects that might not otherwise find affordable capital in the commercial markets. 

Heron’s PRIs include things like loans for a child care center in Trenton and affordable housing in Nashville, working capital for a Yonkers bakery that hires “hard to employ” workers, and a limited partnership stake in a Rural Business Investment Company promoting economic development in Appalachia. 

Heron contends that this integrated approach of grants and PRIs enhances its philanthropic impact, belying the notion that effective philanthropy requires a Chinese wall between endowment and charitable investing.

Heron’s PRI returns are hardly anomalous.  A 2007 report from FSG Social Impact Advisors shows that, over a forty-year period, 96 percent of loans made to nonprofits by foundations have been repaid.  These findings should reassure foundation officers concerned about the risks of PRIs; even in a strong market, low beta investments in the social sector can offer smaller but consistent yields.  Recently, as our definition of “market return” has altered, PRIs may present a particularly attractive ROI.

It is not only perceived risk, however, that has discouraged foundation executives from making PRIs.  Many, often rightly, believe they lack the financial expertise to evaluate program related investments.  In response, a number of organizations have emerged to help foundations overcome this obstacle. 

The PRI Makers Network, for example, is an association of 90 PRI grantmakers that provide tools, professional development, and other resources to foundations engaged in program related investing. 

More for Mission is a campaign organized by the Annie E. Casey and Heron Foundations and the Meyer Memorial Trust to advance mission investing and to encourage foundations to spend an additional 2 percent of assets – or an industry total of $10 billion – on PRIs. 

Consultancies also offer expertise in mission investing.  And collaborations between foundations like Living Cities have created social investment vehicles such as the Catalyst Fund – $20 million in debt capital – for community based organizations around the country that work on urban development. 

For foundations new to mission investing, the Catalyst Fund promises a chance to “invest alongside PRI pioneers” and “build a diversified portfolio without hiring additional, specialized staff.”

In 2009, when most philanthropies were scaling back their charitable commitments, a handful of others targeted more than $185 million in PRIs to respond directly to the effects of the economic crisis.  According to data from the Foundation Center, most of the first emergency PRIs went to housing and shelter. 

The MacArthur Foundation, for example, which has long focused its PRI efforts on affordable housing, dedicated $60 million in PRIs to prevent large scale foreclosures in its hometown of Chicago, as well as PRIs to fund similar efforts in North Carolina and Minnesota. 

The Ford Foundation made more than $100 million in foreclosure-related PRIs to national housing organizations.  Significant PRI dollars also went to emergency assistance, such as the Kresge Foundation’s $2.5 million award to Feeding America, the nation’s largest hunger relief agency, to finance the purchase of 25 refrigerated trucks for food banks and mobile pantries. 

Kresge also established an interest-free PRI Community Relief Fund offering bridge loans to “high performing” human service organizations to better meet the increased demand for their assistance. 

In September, the PRI landscape morphed once again when the Gates Foundation announced it was allocating $400 million for loans, investments, and other “non-granting financial instruments” to advance its anti-poverty work.  Like many Gates initiatives, this foray into PRIs was not the first in the field, but its scale and profile sets an important precedent for other philanthropic investors. 

In some ways, the growth in PRIs can be seen as one part of the expanded social capital marketplace.  This would include the approximately $4 billion passed through community development financial institutions (CDFIs) each year, which is set to increase significantly with additional stimulus funding.  Some, like the Rockefeller Foundation, who champion “impact investing” more broadly claim that investments which address social and environmental problems while also turning a profit represent, potentially, a $500 billion industry.

In spite of this momentum, the number of foundations actually making program related investments remains small.  Of the thousands of grant making foundations in the United States, only a few hundred use PRIs.

The downturn has shown the importance – and relative facility – of deploying much needed capital to struggling nonprofit organizations.  PRIs offer an important way for foundations to expand their philanthropic reach.

 *****

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Smart Giving for the Rest of Us

Monday, February 1st, 2010

Georgia Levenson Keohane will be a CEP guest blogger from January 25 – February 5, 2010.

Last week I proposed a giving guide for Lloyd Blankfein. Today I focus on those of us unencumbered by seven- and eight-figure bonuses.  Although as a field we may aspire to long-term vision and strategy, ‘‘smart” philanthropy this year is simple: just give.  And just give to basic needs.

Whether or not the recovery is underway does not change the immediate facts: millions of Americans are out of work, struggling to hold onto their homes, and relying on food stamps and local pantries to feed their families.  The latest census data – which measures conditions in 2008 – reveal only the initial effects of the recession: a 3.5 percent drop in median income and a significant increase in poverty, particularly child poverty. 

While the stimulus is helping to stave off severe crises for many, the state governments responsible for providing much of the social safety net are broke, and the charities trying to plug the gaps have themselves experienced a massive drop in donations.  There is perhaps one silver lining to this awful recession: a clear path for giving.

What to give to: basic needs

In November, the Center for High Impact Philanthropy published High Impact Philanthropy in the Downturn.  This is an excellent giving resource, which calls attention to spikes in need in housing, health, and hunger relief, and profiles organizations which themselves are deserving of charitable support and which offer cost-effective models of service delivery to be funded across the country.

In particular, the report highlights nonprofits working to prevent foreclosures, community health centers, emergency food providers, and organizations which help link eligible families with public benefits.

While giving along these lines to meet basic needs may seem like an obvious charitable step, the truth is that a remarkably small percentage of giving in the United States goes to anti-poverty work. 

An important but often overlooked study undertaken in 2007 by the Center on Philanthropy at Indiana University and Google found that less than one-third of the money individuals give to nonprofits was focused on the needs of the poor:

  • Of the $250 billion in donations, less than $78 billion explicitly targeted those in need
  • Eight percent of household-donated dollars went to things like food or shelter
  • An additional 23percent of total private philanthropy (from foundations, corporations, estates) went to programs specifically intended to help people of low income.

Although we don’t know whether these giving patterns held in 2009, we do know that “basic needs” have exploded in the recession.  And while much talk in philanthropic circles, particularly within institutional philanthropy, centers on the importance of long-term, strategic giving to address the root causes of social and economic problems, today’s crisis of joblessness – and its attendant stress and hardship – should be of paramount concern to all donors. This year band-aids are important, too.

Where to Give: Locally

An emphasis on giving to meet basic needs in the U.S. may seem to privilege local over global philanthropy.  Let’s be clear: poverty in the United States in no way resembles the abject and miserable conditions that millions of people endure – and die from – in the developing world. 

In a recent Slate post, Sandy Stonesifer , program coordinator at the Center for Global Development, discusses the dilemma in the choice between giving locally and globally.  While she says that donors must decide their own giving preferences, she also states “if you subscribe to the belief that all lives are created equally – and your giving is aimed at saving human lives or reducing suffering – your donations will almost always yield greater returns when given (to reputable organizations) internationally.” 

This is the fashionable – and logically sound – view of today’s philanthro-philosophy.  Princeton’s Peter Singer (The Life You Can Save) contends that spending money on non-essentials (i.e., a nice pair of shoes) instead of on donations to prevent unnecessary death in developing countries is morally indefensible.  “Is it possible,” he asks, “that by choosing to spend your money on such things rather than contributing to an aid agency, you are leaving a child to die, a child you could have saved?”

Prima facie, this argument is tough to dispute, mostly because the ‘cost’ of saving a life of extreme poverty is relatively cheap (according to NYU philosopher Peter Unger, it’s about $200).  Yet ‘bang for the buck’ is not a strong case against local giving; indeed it is a false choice that one must decide between local and global action.

Perhaps the more valuable contribution of the moral philosophers is not to rank human needs so much as to suggest that, if it is within our means, we have an ethical obligation to give: to make a difference in our communities, however we define them.

How Much to Give: A Meaningful Percent

Peter Singer takes this one step further with his giving calculator.  Like others, Singer advocates earmarking a percentage of our earnings for charity.  His recommended fractions are both hefty and progressive: the more you have, the more you give, ranging from 5 percent of income for “well-off” Americans to 33 percent for the “superrich.” 

According to Singer’s projections, 10 percent of American families can raise $471 billion for the world’s poorest, surpassing the $189 billion a year required to meet Millennium Development Goals to eliminate extreme poverty.  I’ve oversimplified Singer’s graduated scheme, and there has been much debate about his particular choice of numbers. 

Yet the general point holds: Singer makes a strong case for giving away as much as we can without materially altering our own standard of living.  Carving out a predetermined portion of income is a useful discipline when it comes to household philanthropy.

How Much to Give: In-Kind is Good, Too

Just how ambitious we are about this giving percentage depends on a number of factors; in the recession, many Americans have been forced to curtail their charitable donations.  However, Singer-style aspirational giving targets remain useful, particularly in the local context, where in-kind giving and volunteerism can substitute for dollar donations and play a critical role in strengthening communities. 

Consider, for example, clothing donations.  In international philanthropy, many charities report that the logistical and transportation costs of donated clothing far exceed their value on the ground.  In the U.S., in contrast, winter coat drives have proven an effective way to provide inexpensive and much-needed clothing for those in need. 

This year local food banks in the U.S. have also been actively soliciting food donations: although cash is typically more valuable to these organizations, nonperishable foodstuffs can provide immediate relief and an important vehicle for giving when cash is tight.

The same holds for volunteerism.  The literature on the value of community service is vast; giving time to local efforts and organizations has shown numerous individual, familial, and social benefits from good health and improved happiness to increased test scores and home values. 

One does not need to parse correlation from causation to conclude that civic engagement is a good thing.  And although the monetary value of volunteerism is elusive, it is a real and increasingly meaningful figure for many nonprofits whose budgets have been hit hard by plummeting public and private revenues.

The most recent data from Independent Sector show that more than one quarter of all American adults give a total of eight billion hours of volunteer service each year, worth approximately $158 billion per annum. This year, both stimulus funding and new federal legislation to increase national service opportunities recognize the importance of volunteerism to economic recovery.

Giving to basic needs – whether it’s time or money – does not mean donors are off the hook for finding worthy and effective organizations.  This can be done online through sites like Guidestar,  Charity Navigator or the Better Business Bureau, or by calling one of the 1,300 local United Ways.  Nor does giving locally preclude aid to global crises; whether it’s helping the earthquake victims in Haiti or supporting the fight against global warming. 

This year, effective philanthropy simply means recognizing that we all have an important role to play in strengthening our communities by helping to meet basic needs.

*****

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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What Blankfein Should Do: Rise to the Charitable Occasion

Thursday, January 28th, 2010

 Georgia Levenson Keohane will be a CEP guest blogger from January 25 – February 5, 2010.

So what is Lloyd Blankfein to do, when his primary responsibility is to Goldman’s profitability?  Indeed, this is the job Goldman’s shareholders hired him to do and the reason we entrusted him with taxpayer dollars to begin with. 

First, even if it smacks of papal indulgence, Blankfein must rise to the charitable occasion.  This means more conspicuous and top-down philanthropy, setting a standard within his firm and the industry which acknowledges that taxpayer-enabled market dominance confers an obligation to make up Wall Street’s charitable slack. 

Is the 10,000 Small Businesses initiative enough?  No, when one considers that these dollars will not be directed to the kind of nonprofit organizations once supported by eviscerated Wall Street philanthropies or by public dollars slashed from state budgets.  The states – and overall charitable giving – will be much slower to recover than Goldman’s P&L.

Blankfein must redouble Goldman’s philanthropic commitments in both dollar and cultural terms.  Reports suggest that the firm is mulling an expansion of its requirement for executives to give a certain percentage of their earnings away. When Goldman founded its donor advised fund for partners in 2007, Goldman Sachs Gives, it obligated its 400 partners to give some amount to charity annually. 

Goldman has not disclosed the original requirement, nor by how much it is contemplating an increase.  Before its collapse, Bear Stearns famously required its top 1,000 managing directors to give four percent of their earnings each year to charity.  Alan Greenberg, the firm’s head, reportedly inspected his employees’ tax returns to make sure they complied. 

Blankfein should insist on – and make public – the same kind of generous earnings tithe.  It would be more than symbolic. Four percent on Goldman’s highest earners – including the top thirty executives, whose bonuses will be paid in stock – would mean millions of much needed philanthropic dollars.  And if Blankfein were to heed philosopher Peter Singer’s steeper percentage-of-earnings recommendations (see next post), Goldman’s charity might even approach “God’s work.”

A second and quieter model of top-down Wall Street philanthropy for Blankfein is hedge fund manager Julian Robertson.  Robertson’s eponymous family foundation has assets of more than $1 billion dollars.  Perhaps more important, when he was the head of Tiger Management, Robertson created the Tiger Foundation focused on anti-poverty work in New York City. 

The motivation for the Tiger philanthropy was twofold: to give large sums of charitable dollars to New York organizations helping the poor, and to instill in his young fund managers a sense of commitment about giving back and training in how do to so. 

The Bridgespan Group has written a great case study about the Tiger approach, describing how Robertson applied the investment tools, skills and passion for for-profiting investing to his foundation, and trained his employees to be active trustees. 

In 2006, Tiger’s 47 trustees provided over $8 million and 2,400 hours to over 70 New York City education, job training, and social service agencies.  Yet Robertson’s philanthropic legacy at Tiger is greater than the $100 million it has given away since its 1989; 80 percent of Tiger’s trustees report that their involvement with the foundation has increased their overall personal philanthropy in dollar and engagement levels. 

Like the ‘Tiger Cub’ hedge funds Robertson’s protégés went on to found, there are now also a number of ‘cub’ philanthropies, including the Lone Pine and Blue Ridge Foundations.

The conditions underlying Robertson’s achievements at Tiger – the hedge fund and philanthropy – cannot be perfectly replicated in a large, publically traded firm like Goldman Sachs.  In 2010, however – the year of Goldman’s prosperity amid global hardship – Lloyd Blankfein would be wise to ensure that his firm and its many wealthy employees become this decade’s most active philanthropists. 

As Blankfein well knows, good citizenship starts at the top.

*****

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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A Guide for Wall Street Philanthropy: The Gifts of Goldman

Tuesday, January 26th, 2010

Introduction

The dust had just settled on year-end giving when the new decade opened with humanitarian catastrophe.  Although the logistical challenges of aiding those in Haiti may be severe, philanthropy allows an important – albeit imperfect – way to respond to immense suffering, and a chance to feel as though we have some agency in trying to make the world better.  Once we have given to the earthquake relief efforts, it is time to think more broadly about effective philanthropy in 2010 and beyond. 

My posts address individual and institutional responses to giving in the downturn and include some philanthropic advice for Lloyd Blankfein, Chairman and CEO of Goldman Sachs, a giving guide for the rest of us, and thoughts on foundation investment strategy.  The last post raises questions about the very purpose of charity– and the place of private philanthropy in the larger social contract.

Why Lloyd Blankfein Needs to Step Up 

Much ink has been spilled over the bailout to bonus bonanza – how and whether Wall Street executives should be paid when the rest of the country still reels from the recession the bankers unleashed in the first place.  The greatest ire has been directed at Goldman Sachs, a firm that benefitted handsomely from the socialized risk for private gain asymmetry. 

According to the latest tally, it’s the U.S. 10 percent unemployment, Goldman Sachs, $16 billion in compensation.  What follows is a prosperity prospectus: a giving guide for Goldman Chairman and CEO, Lloyd Blankfein, for top-down, standard-setting philanthropy.  

First, let’s be clear: charitable giving is no substitute for sector reform.  Here, popular fury is better directed at the Administration itself (and the Treasury and Fed) to ensure that the causes of the economic collapse and the flaws of the bailout are investigated and understood, and that appropriate measures are taken to mitigate future crises. 

For now, however, the 2009 bonuses are here to stay.  They will not be taxed U.K. style at 50 percent, and even places like AIG that have promised to return their non-performance awards have been slow on repayment.  For 2010, a glass-is-half-full approach to the Wall Street windfalls could mean a significant cash infusion for hurting charities, and a huge opportunity for meaningful and effective philanthropy.  

To be fair, the banks have an impressive philanthropic track record.  History tells us that arts and culture have thrived in vibrant financial centers.  In New York today, it is not only artistic institutions that benefit from Wall Street largess, but also the city’s state-of-the-art medical centers, public and private schools and libraries, environmental groups, and a large range of basic-needs service providers (whether this is the optimal model for social welfare will be discussed in a later post).  Last year’s collapse, however, reveals the fragility of this charitable arrangement.

Take the case of Harlem Children’s Zone (HCZ).  Founded in 1997 by Geoffrey Canada to nurture children’s development with programs from birth to college, HCZ grew into a 97-block, $70 million initiative serving 7,500 kids and 4,000 adults.  It became one of the country’s highest profile and most widely studied poverty-fighting organizations, and the model for President Obama’s “Promise Neighborhoods.” 

Canada’s success has come in part because of the relationships he forged with Wall Street; 20 to 30 percent of his organization’s support comes from financial service philanthropy. 

Yet these ties have also rendered HCZ vulnerable.  The economic collapse – and plummeting value of many of the firms (and their related foundations) that supported HCZ, including Lehman Brothers, Merrill Lynch, Citigroup, Morgan Stanley and AIG – has jeopardized a significant portion of HCZ’s revenue and threatened to stall its growth or worse still, shutter programs. 

HCZ, of course, is not alone.  Donations to nonprofits nationwide were down 6 percent in 2008, the steepest decline Giving USA has reported since it started tracking in 1956. 

Social service groups were the hardest hit, suffering a decline of nearly 16 percent.  Although Giving’s data for 2009 are not yet in, the estimates are grim.  The Council of Nonprofits reports that, for most human service organizations, revenues from private and government sources are down severely, while demand for services has surged.

So what does this have to do with Lloyd Blankfein, a man whose personal and corporate philanthropy are among the best in breed?  Indeed, no Wall Street institution prides itself more on its ‘citizenship’ than Goldman Sachs. 

The firm has a much chronicled record of government service and boasts a strong commitment to local and global philanthropy: The Goldman Sachs Foundation, Goldman Sachs Gives, 10,000 Women, and generous employee volunteer and matching programs. 

In 1999, the firm’s IPO created enormous wealth for its partners and spawned dozens of new family philanthropies.  A 2007 count of the Goldman family foundations by Portfolio magazine put the list at 155: $1.3 billion in assets, $122 million in giving.

The recent uproar over taxpayer-supported bonuses has led to much hand wringing about the role and responsibilities of Goldman Sachs’ leadership – in the crisis and subsequent bailout, in setting a standard and culture within the firm and the industry for longer term profit horizons, and in stimulating economic recovery beyond the financial service sector. 

While Blankfein concedes that his company “participated in things that were clearly wrong” he also contends that Goldman did not need public bailout monies to weather the collapse.  Yet the record shows otherwise.  Goldman has profited immensely from public subsidies far larger than TARP: guarantees on $30 billion of debt, the ability to borrow cheaply from the Fed, $12.9 billion in payments-in-full from AIG. 

Goldman not only survived the crisis, it emerged as an even more dominant force in an industry where many former competitors have either vanished or are struggling to regain a foothold.

Calls for charitable recompense for Goldman’s publicly assisted abundance have taken numerous forms, from a proposed Goldman Sachs Virtue Fund – a kind of for-profit, social capital fund – to a charitable donation of $13 billion, roughly equivalent to its payments from AIG. 

In November Blankfein announced Goldman’s 10,000 Small Businesses initiative, a pledge of $500 million dollars – $100 million a year – to provide access for small businesses to financial capital, mentors, networks and business education. 

And yet this Small Business Initiative remains a charitable endeavor; nearly 70 percent of Goldman’s revenues and profits come from proprietary trading.  This disconnect – not unlike the simultaneous acts of charity and vigorous lobbying to soften the blow of financial service reform – help explain the tepid and cynical responses to the 10,000 Small Business gesture.

So what is Blankfein to do? I’ll answer that question in my next post.

Georgia Levenson Keohane will be a CEP guest blogger from January 25 – February 5, 2010.

 *****

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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