For-Profit Philanthropy, published in Families in Business magazine

Published in Families in Business magazine

Oxymoron, or vital tool for the future of humanity? The debate over 'for-profit' philanthropy is growing more heated as a succession of the world's richest individuals and largest companies throw their weight behind this new model of benevolence.

In short order, eBay founder Pierre Omidyar, Virgin's Richard Branson and most recently Google's Larry Page and Sergey Brin have made dramatic announcements of multi-billion dollar programmes designed to alleviate world poverty, cure diseases and tackle climate change, but in a crucial shift from previous generations' determination to use material wealth to benefit mankind, they see their operations as ways to make money, rather than simply spending it.

Among the motives underlying this new direction in philanthropy is that it brings greater flexibility, allowing the organisations to form companies, work alongside traditional venture capitalists, lobby governments and allow philanthropists to behave more like investors, harvesting social, rather than necessarily financial returns.

And the increasing professionalism in philanthropy isn't confined to the super-rich. Banks such as JP Morgan have set up philanthropic bureaux to advise individuals and families with, say, a net worth of $25 million. Fidelity Investment allows customers to open a 'donor-advised' fund with as little as $5,000. Overall, donors are becoming more alert to the business practices of the organisations they fund, however much they donate. "Money should go to the charities that are better performers and have the best business model," says Nigel Morris, co-founder of Capital One Financial Corp and now a trustee of London-based New Philanthropy Capital, which analyses charities' finances and advises individuals.

Other advisers, such as Melissa Berman of Rockefeller Philanthropy Advisers, will counsel individuals and families on how their donations can match their personal goals, whether it is to promote education, prevent disease or improve animal welfare. "You start with a very broad topic and end up with something actionable," she says.

For Larry Page and Sergey Brin, the formation of the for-profit was a means of extending their existing philanthropic reach. An early beneficiary of part of their $1 billion seed funding has been the development of ultra-fuel-efficient hybrid car engine that runs on ethanol, electricity and petrol, with the aim of achieving more than 100 miles per gallon, reducing our dependence on oil and curbing harmful emissions.

Any profits made from the venture will be ploughed back into, according to the recently appointed executive director Larry Brilliant, although some experts in corporate structure are not so sure. "It's possible that the shareholders of Google might someday object," says Marcus Owens, a US tax lawyer, "especially if we go into an economic depression and that money is needed to shore up the company."

This is pessimistic talk, whereas Google has defined itself as a forward-thinking company of action. "Dying people can't wait for some 20 year plan," says Larry Brilliant. "It's not what we're doing here." He has several decades' experience working on United Nations health programmes, helping to eradicate smallpox in India and prevent blindness in many Asian and Latin American countries. Among the projects funded by that he now oversees are polio vaccination programmes and clear energy research in China. Brilliant argues that the term 'for-profit' does not imply that the ventures have to make money. "If they didn't, we wouldn't care," he says. "The emphasis in on social returns, not economic returns."

EBay's Pierre Omidyar lists 'individual self-empowerment' as a driving force behind his Omidyar Network, the philanthropic arm of his empire, which makes both non-profit and for-profit investments. "After a few years trying to be a traditional philanthropist, I asked myself, if you are doing good, trying to make the world a better place, why limit yourself to non-profit?" His network funds dozens of small organisations, dealing with issues such as microfinance, social networking and biotechnology. Self-empowerment can stem from assisting a for-profit venture, just as effectively as a non-profit grant can do in other circumstances, Omidyar believes.

One recent donation from Omidyar was $100 million to Tufts University (his alma mater) to invest profitably in microfinance providers. Private capital is being encouraged to become involved, in order to turn a subsidised sector of finance into a profitable one.

Forming partnerships with corporations has grown in popularity among the most important philanthropists. Instead of simply funding the provision of drugs for poor communities in developing countries, Bill Gates' foundation has created market incentives for drug companies to extend their work into new locations, aiding commercial mechanisms rather than replacing them. The ambition is clearly for these programmes to become self-financing and so, eventually, no longer need finance from any philanthropic body.

Richard Branson has long enjoyed a high profile role as a billionaire entrepreneur, with a philanthropic edge to his operations. When bidding for the UK's lottery franchise, he promised that all profits would go to charity. He lost this battle, but more recently promised $3 billion to help fight climate change, under the Bill Clinton Global Initiative. While this massive pledge was warmly greeted by climate change campaigners, Branson is happy to admit that he sees a massive profit generation potential in the area. Energy-saving technologies and fossil-fuel alternatives will be in ever increasing demand as the world strives to avoid meltdown, and if Virgin can reap a harvest from the shift in priorities, it will do so.

Branson has already promised to invest at least $400 million in biofuel developments over the coming two years. "I believe [cellulosic ethanol] is the fuel of the future," he said at the Clinton Global Initiative. "Over the next 20 or 30 years, I think it will replace the conventional fuel that you now get out of the ground."

It took Branson some years to come round to the environmentalists' point of view. Given that he was busy running an airline, you can understand his reluctance. But now, with mounting evidence and the climate of popular opinion finally shifting, he has become a convert. Fellow billionaire Ted Turner, an earlier convert, can see the logic of Branson's thinking. "He'll probably make more money off this than he would off the airlines themselves," he commented to the New York Times. "I would love to have Virgin recognised as the most respected brand in the world. If it can be a leader in tackling global warming, and that enhances the brand, that's fine. It will enable us to tackle the problem all the sooner," says Branson.

A fundamental switch in public perceptions is certainly needed for any real difference to be made in climate change, but some believe that when an iconic businessman like Branson has such a dramatic change of heart, it can have profound effects. "A single investment like this can't solve global warming by itself, but it can help create trends that in turn move markets that produce solutions. From environmental, national security, and investment perspectives, Branson deserves big applause," says Ashok Gupta, at the Natural Resources Defense Council in the US. Bill Clinton added that, without 'productive investments' such as Branson's, "we will never get the world to deal with a problem that is over the horizon."

In the same way that Thatcherism redefined the economic landscape of Britain in the 1980s, popularising property ownership and attacking the culture of social dependency, the rise of for-profit philanthropy can be seen as a further stage in the triumph of capitalism over socialist economic models, where poor and disadvantaged people are given the tools to create a new future rather than given temporary financial assistance. There are certainly pitfalls in this new model - what happens when a for-profit philanthropic organisation makes a large loss, for example? Or if shareholders mutiny against the idea? - but harnessing the proven qualities of successful businesspeople and their companies to deal with the inequalities and growing threats from disease, resource shortages and climate change cannot be a bad thing.