10 Lessons from a Journey of Philanthropic Giving

Do-you-want-to-make-the-world-a-better-place.jpg

Dr Thomas Girgensohn and his wife, Ingeborg, who have been clients of Stewart Partners since 1990, are dedicated philanthropists who use their Foundation (known as a Private Ancillary Fund or PAF) to provide support in the areas of health, education and the arts.

For many years we have been impressed by their structured and considered approach to selecting organisations and projects to support.

Thomas recently reflected on their experiences and learnings and provided us with 10 key lessons which we can share with you.  Even if you do not have a Foundation but support social causes through your time, knowledge and skill base, you are likely to find the following lessons of value.

1.      Commit by Establishing a PAF

  • If you have the financial resources, setting up your own family Foundation is a meaningful endeavour.

  • When you donate money to a PAF, you receive a tax deduction that you can spread over up to 5 years if appropriate.

  • The Founders and directors (you need one independent person on the Board) of the Foundation can manage the corpus and decide which eligible organisations and projects to support.  All income and realised capital gains in the investment portfolio are tax exempt.

  • PAFs give you, as the trustee, control and flexibility to determine your philanthropic objectives, evolve these objectives as your needs or priorities change and control the timing of the financial gifts (adhering to ATO guidelines).

  • A PAF can survive for up to 80 years, meaning it can serve as a vehicle for teaching your family about good governance and the principles of investing.

2.      Support World Class Organisations

  • An important step when donating is to carefully consider the organisations that you support. Organisations that are the best in their field will generally have standardised reporting, frequent communication and be able to provide you with clarity and confidence how your financial donation is being used and successfully implemented. 

3.      Pro-active approach to due diligence

  • When you engage with organisations, it is valuable to approach them with your own due diligence criteria. Organisations will operate differently, especially if you are approaching a wide range of support areas such as health, the arts and education and to ensure that you have your questions answered and your philanthropic objectives met, you need to be prepared to conduct your own structured due diligence. 

4.      Long term commitments – sometimes on multiple fronts

  • To make a long-lasting impact in the areas that you are passionate about, it often requires a long-term partnership.  Be prepared to commit to projects for several years, subject to regular updates on progress.  A three-year timeframe is a good starting point. Project objectives need to be defined upfront.

5.      No interference in management

  • After you have conducted your own due diligence and decided to donate to an organisation or project, your position is to release the donation and allow the organisation to operate as they determine to be suitable.

  • You’ve trusted them as subject matter experts, so let them get on with their job.

6.      Review outcomes

  • In a similar way that you conduct a robust due diligence process, it is important to also have a built-in review process. This gives you the opportunity to assess how the donation has been received and implemented and if the outcomes and deliverables were in line with your expectations. This is not always a straight forward process. Quantification, for example in medical research, can be difficult, and results may often be delayed by years.

  • Accountability is essential in ensuring organisations are successful.

7.      Expect and accept failure

  • Failure, or your expectations not aligning with reality, is often an uncomfortable place to be but is not unexpected when undertaking a philanthropic journey. Philanthropic giving sometimes requires you to engage with multiple stakeholders and although you can conduct a thorough due diligence process and follow up with regular reviews, this is no guarantee for success. Learn from your errors of judgment and logically assess the unmet expectations and move on. 

8.      Increase funding over time

  • As you become more familiar with projects, philanthropic causes and organisations, increasing the funding provides a valuable resource and a legacy for your own PAF. This is made easier if you have a strategy of continuous contributions to your fund over time.

  • Whilst you are required to gift a minimum of 5% of your Foundation’s assets each year, don’t be afraid to give more than this if you can identify worthy causes.

9.      Fixed interest investment is not enough

  • Working with your financial adviser to determine an appropriate asset allocation is an important step of the management of your PAF.

  • It is important that the PAF is well diversified and includes growth investments.  Don’t be too conservative with your investment approach, as in the long-term this reduces the amount of money you have to give away!

  • Step 1 is to develop an investment policy and strategy that ensures there will be enough cash flow to meet cashflow needs over 1 to 3 years.

  • Step 2 involves aligning your goals and objectives for the PAF with the asset allocation and cash flow. Fixed Interest types of investments may contain lower risk, but they will not provide enough capital growth to provide longevity.  Remember once you donate money to the Foundation, it’s not yours anymore.

10.      Unexpected outcome – we get more than we give

  • Sir Winston Churchill famously said, ‘We live to make a living. We give to make a life. And this is true of all types of philanthropic giving.

  • Staying close to your projects allows you to learn about new aspects of society and appreciate efforts and results in other areas than your professional life.

With thanks to Dr Thomas & Ingeborg Girgensohn

Rick Walker