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.

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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.

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.

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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.