Eli Broad and Matthew took part in a lively discussion of philanthrocapitalism today at the LA public library. Billionaire real estate and finance tycoon Broad, who said he enjoyed the book which he read on a trip to Morocco, said that he feared philanthropy would be hit by the financial crisis, but that this only increased the importance of doing philanthropy well.

Broad, who we profile in the book, stressed the importance in these tough times of upgrading America’s school system, which is one of the focuses of his giving. He suggested that the Obama administration would do well to find a role for two people who have worked well with philanthrocapitalists, Wendy Kopp, the founder of Teach for America, and New York Schools Chancellor, Joel Klein, who he said would be a great Education Secretary.

Broad set out 3 key questions for philanthrocapitalists to ask as they decide what to support. What difference will this make in 30 years? Will it happen anyway? And is there leadership available that is capable of delivering? Great advice.

Our most public critic, Michael Edwards, who published Just Another Emperor? The myths and realities of philanthrocapitalism in the spring, has posted an update of his thoughts on the openDemocracy website.  Michael responds to his critics on three issues:
 
1) He admits that his attack was over-generalised but that: “The power of polemics derives in part from the fact that they do involve a certain degree of simplifying focus in order to concentrate on the essentials of an argument.” Our feeling was that this ’simplifying focus’ actually meant that what has was attacking was a caricature of philanthrocapitalism. Setting up a straw man may be good rhetoric but it doesn’t really help move the debate forward, so we’re glad that Michael now acknowedges philanthrocapitalism as a more diverse and varied phenomenon than the one he attacked in his book.
2) He wants a strong civil society “free to invent solutions that are not dependent on business or government, a space that is the lifeblood of any truly innovative and democratic society.”  Amen to that.  Where we still disagree is that we think the philanthrocapitalists can help to enrich civil society, as Bill Gates, George Soros and Ed Scott did by supporting the One/Make Poverty History campaign, as Jeff Skoll has done through his support to social entrepreurship and through films like An Inconvenient Truth, as Pete Peterson is doing by promoting a debate around the public debt in America, and so on.  But we continue to agree that transparency is important.
3) He agrees that “business thinking” is not the same thing as quantification of every problem.  Yes, some philanthrocapitalists are pushing for better metrics and many of the new philanthropic intermediaries are looking at new ways of measuring performance, but they are quick to acknowledge that this is not always possible and never easy.
 
Philanthrocapitalism poses many challenges - the role of the rich in politics, how to channel scarce philanthropic capital to do the most good, measuring impact (positive and negative), the appropriate division of labour with governments - hopefully the debate can now move on to these substantive issues rather than a blanket dismissal of a force that has the potential to change the world for the better.

Georgia Levenson Keohane reviewed Philanthrocapitalism for Slate magazine, hailing it as “exceptional” and saying that it “should be required reading in any MBA or public policy program”.

Georgia thinks we should have given more attention to the question: “Is the “new” philanthropy really even “new”?”  She thinks this is an important issue because, in her opinion, we underplay the past achievements of foundations. We have never argued that we are at some kind of ‘year zero’ in philanthropy.  Indeed, by looking at the history of modern philanthropy, going back to the Renaissance, we have been keen to empasise the innovations of the past, including the achievements of American foundations like Rockefeller and Ford in the 20th century.  But there is still a reluctance among today’s established foundations to acknowledge the effectiveness problem, which is eloquently spelled out in Joel Fleishman’s outstanding book The Foundation: a great American secret (we make no apologies for plugging this again).  By saying that traditional foundations need to raise their game and that a bit of competition can’t hurt, we seem to have upset the philanthocracy establishment.

Georgia makes the excellent point towards the end of her article that “there are things that foundations do that would be very interesting to businesses—taking a long-term approach, taking a more holistic approach, attacking problems from multiple angles, learning about qualitative measurement.”  This absolutely right and, as we discuss in the chapter on ‘The Good Company’, this is what smart companies are starting to do, moving away from PR-driven corporate philanthropy to really seeing CSR as a strategic part of business success. For us, that is a key part of philanthrocapitalism.

We had the UK launch of Philanthrocapitalism in the boardroom of the Economist last night - our thanks to deputy editor Emma Duncan for hosting the event and to Lisa Carden and Suzi Williamson from our publisher A&C Black.

Among the journalists and movers and shakers in the UK philanthropic world joining us were Stephen Dawson, who is pioneering venture philanthropy in Britain through the Impetus Trust, as we discuss in the book, and Nigel Kershaw, chairman of the Big Issue Foundation. It was a particular pleasure to see management guru Charles Handy and his wife Elizabeth, whose book The New Philanthropists profiles the emerging generation of philanthropists in the UK.

Everyone was speculating about the impact of the financial crisis on giving, and wondering whether the UK will rediscover the philanthropic spirit - issues that we look at in the preface to the UK edition. British philanthropy is obviously behind America’s but we do see a group of philanthrocapitalists emerging.  Part of the challenge is creating a culture where philanthropy is welcomed across the political spectrum.  Liberals in Britain are still prone to see philanthropy as a right-wing agenda, preferring government to take the lead in social change.  We think there are plenty of reasons why those on the left of politics should welcome philanthrocapitalism, if they can get past the anti-rich reflex.  As some keen-eyed observers have noted, that’s why we have adjusted the subtitle of the book for the UK market to How the rich can save the world, and why we should let them.

Philanthrocapitalism in the UK?  Coming some time, maybe.  If we let them.

“Whether you’re feeling sceptical or charitable about their subject-matter, Bishop’s and Green’s book is the best overview so far of the new spirit of philanthropy” writes Linsey McGoey, a sociologist at the University of Oxford, in her review of the book in this week’s Spectator magazine.
 
Linsey does, however, take us to task over Bill Gates, putting him among “a new breed of robber barons”, citing criticisms that “capitalism has perpetuated the very problems Gates and others purport to be tackling” and that Gates and co are motivated by a “self-interested desire to find new markets for products no longer being snapped up in the saturated West”.
 
In the final chapter of the book we look at a range of critiques of the philanthrocapitalists.  It’s fair to say that we see capitalism, for all its faults, as having a lot to offer the world - it is capitalism that has lifted hundreds of millions of people out of poverty in India and China in the last 20 years.  Indeed, one of the attacks on Gates that we discuss comes from the economist Robert Barro, who thinks that he could do more good for the world by sticking to business rather than philanthropy.  Capitalism does create social and environmental problems that threaten its sustainability.  The philanthrocapitalists recognise the need to think long term and deal with these challenges.
 
Linsey may not like capitalism but she does think Philanthrocapitalism is “perceptive and well written”.

The New York Times has published its annual supplement on giving. This includes an article by Matthew called “about leverage”. This explains why philanthrocapitalists should continue to use “leverage” as their favourite buzzword, despite the fact that leverage on Wall Street helped cause the financial crisis, and we are now in a period of aggressive financial “deleveraging”.

The fact remains, philanthropic dollars are small relative to other budgets, such as those of governments and big business. To achieve the massive impact they desire, philanthrocapitalists need to find ways to use their money to influence how those far bigger sums are spent, which is what they mean by leverage. Indeed, the need for philanthropic leverage may be greater than ever in these tough economic times.

The rest of the giving supplement reinforced everything we have been saying about philanthrocapitalism, and the need to be effective and businesslike in philanthropy. A great example, which we wish we had written, was by the excellent New York Times columnist, Joe Nocera, about Michael J Fox. The star of Spin City has Parkinson’s disease and has created a foundation to find a cure.

Among other things, reports Nocera, Fox’s foundation has been supported by Andy Gove, a former boss of Intel, and by the hedge-funder dominated Robin Hood Foundation, whose annual gala convinced him that “if I came up with a plan, I could have access to people” with money to fund it. From the start, Fox “wanted the foundation to be run by someone from the business world.” It demands accountability and information sharing that is almost unheard of in the broader scientific community. It is “unafraid to finance risky ideas.” It has become the “most credible voice on Parkinson’s research in the world.”

Nocera concludes that there is “no doubt that far more progress has been made than if the Michael J Fox Foundation did not exist” - though it has not achieved as much as quickly as Fox had hoped. As for Fox, “I learned that for this to be an effective organisation, it really does have to be run like a business. You can’t be afraid of making mistakes, but you have to have a certain level of efficiency. You need machinery to be in place. And you have to have a bottom line of some sort.” Michael J Fox: true philanthrocapitalist.

Some people question whether companies can really bring anything unique to solving society’s most difficult problems. An interesting example of how they can make a difference recently came to our attention. This involved Nike, a company that used to be regarded as a pariah by critics of multinationals because of its labour practices in developing countries.

As we note in the book, in our chapter on “The Good Company”, Nike now has 75 full-time employees inspecting factories and working with its suppliers to ensure they meet agreed labour standards. The firm conducts unannounced factory audits in partnership with the Fair Labour Association, a non-profit, and a typical garment factory in Nike’s supply chain can expect around 25 visits a year from inspectors.

Whether Nike’s brand is completely free of its old taint, despite all these efforts, is debatable - which goes to show how companies ignore social issues at their peril, especially when they have a consumer brand. A reputation once lost can be fiendishly hard to restore. But today many consumers certainly regard Nike as a cool brand, including in many developing countries.

Which brings us to the example of how companies can make a difference. A few years ago, government campaigns to fight the spread of HIV/Aids by promoting safer sex were failing badly in South Africa because young men regarded it as uncool and unmanly to use a condom. So the government approached Nike and asked if it could try to leverage its brand to spread the message - Nike apparently being taken far more seriously by the target audience than the government.

The result was a marketing campaign that was a win-win-win for the government, the firm and society. No, the slogan was not, “Don’t Just Do It - Put On a Condom First!”, but “Our Greatest Opponent is One We Cannot See” - and as you can see here, the ads are extremely powerful. They have certainly helped to change behaviour: a good example of effective philanthrocapitalism that would not have been possible in a world without corporate brands.

The Wall Street Journal has reported a huge donation of $300 million to the University of Chicago Business School by former student David Booth.  While investing in human knowledge looks like the kind of thing that philanthropists should be doing, in the book we do wonder whether this type of mega-donation to an already successful institution is really the best way of getting maximum leverage (although it is fair to point out that the Chicago Business School’s endowment is only a sixth the size of Harvard’s).

The WSJ suggests that Booth’s donation is motivated by gratitude to his alma mater for the contribution of what he learned there to the success of his Dimensional Fund Advisors investment firm. Fair enough, but philanthrocapitalists are increasingly interested in how to incentivise future research rather than simply reward past performance. Hence the growing interest in prizes. Britain’s most popular tycoon, Sir Richard Branson, launched a prize last year to promote research into technologies to beat climate change. But the leader is probably the X-prize foundation, which has already scored a success with its space flight prize and is now looking at genomics and energy efficiency.  In a recent interview with Matthew for the Economist, the man behind the X-prize foundation, Peter Diamandis, predicted that we could see the world’s first billion dollar prize in the near future.

Topping up university endowments that have been hit by the financial crisis may be a safe bet for philanthropists.  But perhaps philanthrocapitalists should be looking to get more impact from their gifts by leveraging public money (as Atlantic Philanthropies did in Ireland), reforming research institutions (as Eli Broad has done in genomics), or using incentive prizes that Diamandis claims can unlock investments ten times the value of the original purse.

Mike spoke at a conference in Dubin yesterday, organised by the Irish Charities Tax Reform Group, on a panel with John Healy, the former head of Atlantic Philanthropies (whose strategic partnership with the government to support university research in Ireland we describe in the book).

Despite a strong Irish charitable tradition, major philanthropy has not kept pace with the booming ‘celtic tiger’ economy over the last 10 years.  There was some good news for the gathered representatives of leading nonprofits, when the Minister responsible for charity affairs, John Curran TD, gave a strong endorsement to promoting giving.  But will the economic crisis stifle further development in Irish philanthropy?

John was upbeat - predicting a doubling of giving over the next 5 years, if the philanthropic sector can lay the groundwork by improving the infrastructure so that donors are better supported, talking more about outcomes and impact (the things that really matter to philanthrocapitalists) and changing public attitudes to the rich, which tends to default to cynicism. (John, who spoke very kindly about the book, noted that we had acknowledged this problem by changing the subtitle for the European edition that comes out on 17 November to ‘How the rich can save the world and why we should let them‘.)

John argued that further tax breaks for giving are not the way to get more rich people to give - the case for philanthropy should be that the rich can make a difference.  We think he’s right - it’s the desire to solve problems rather than avoid taxes that really motivates today’s philanthrocapitalists.  And with the government budget squeezed in Ireland like everywhere else, there will be plenty of opportunities for the celtic billionaires to play their part in saving the world.  If we let them!

One of the biggest differences between the non-profit and for-profit worlds is the lack of any significant mergers and acquisitions between non-profits. Starting a non-profit is easy; getting rid of an unnecessary or underperforming one is far harder than it ought to be. As a result, there is massive duplication of effort, excessive competition (especially for donations), and a failure to achieve the sort of economies of scale that are a routine feature of the for-profit world.

People in non-profits tend to resist furiously the idea that there should be fewer, bigger, non-profits. When Matthew reported in his 2006 Economist article “The Business of Giving” John Studzinski’s belief that “there are about 40 homelessness projects in London; only eight are any good,” lots of outraged letters arrived within days.

Yet a growing number of philanthrocapitalists believe that their money could have far more impact if it went to larger, more efficient non-profits, and they are trying to broker mergers. In a new op-ed
(subscription required) in the Chronicle of Philanthropy, Matthew argues that the current economic downturn may make it far easier for philanthrocapitalists to convince non-profits to give M&A a chance. They are more desperate for money, which should make them more willing to think the unthinkable. Here’s hoping.