[May. 01, 2007]
Introduction to philanthropy
The development and growth of the non-profit sector is closely linked to availability of funds. It is important to realize that philanthropic foundations are major financiers of the "third sector". Their aim is to increase the well being of the society, through charitable activities. To understand today’s parallelism of the "third" sector we need to look at individual philanthropy that created it.

The initial nature of philanthropy, being an individual initiative, is starting to be complemented by its corporate sister. It is the hope of this paper to look into the origins of foundations to understand this "modern" phenomenon better. Among others it is the aim to align the trend passing our current society and what we might expect in the 21st century.

As a support of theoretical conjunctions the case of philanthropy in the United States where it is well developed and prospering is considered. In contrast to that Russia with its young democracy and pre-mature third sector is discussed as a counterbalance of the optimism we might notice on the other side of the Atlantic.

Origins of foundations
The concept of foundation stems to ancient times, it is not a modern phenomena. It is possible to distinguish between three waves of advance in the course of Western civilization. The first one originated during the Middle Ages. As trade and commerce prospered individual riches grew. Following the nature of his heart man was charitable to those - whose fortunes were ambivalent.

The notion of Biblical charity was promoted by the church, with the main operating in the areas of health and education, orphanages and hospitals and schools. Chiefly gentry and clergy dominated the board and donation functions of the early philanthropies. Yet as the bourgeois class emerged its importance in the sector grew. It is also worthwhile to mention secular origins of giving, which were based upon honour and dignity, or as others would say upon "enlightened self-interest". The second wave took place during the 19th century Industrial Revolution.

This epoch can be characterised in the firm belief of the social organisations being founded on scientific principles. The motives of their founders can be related to closer to secular origins and a willingness to help mankind as such. In a way early philanthropy provided the means to transform idyllic dreams into reality. We are living in the third wave today. (Anheier & Topepler, 1999:3)

What is common to all the waves is the correlation between the growths of personal fortunes as a result of economic development and increased role of civic notions in society. As always successful citizens of the time were the founders of foundations, donating private fortunes for the general good of society.

So what exactly is a foundation? "Foundation is a nongovernmental, non-profit organisation with its own funds(usually from a single source, either an individual, a family, or a corporation) and a program managed by its own trustees and directors, established to maintain or aid educational, social, charitable, religious, or other activities serving the common welfare, primarily by making grants to other non-profit organisations."(Renz et al., 1997:111) Building on these foundations of history we can explore today’s catallaxy.

Looking at the different categories of philanthropic foundations we can distinguish among: independent, company sponsored operating and community foundations. (Anheier and Toepler, 1999:12) It is my personal interest to consider the two most significant donors which are independent/private foundations and company-sponsored foundations. (Renz et al., 1997) It is interesting to note that out of more that 40,000 U.S. foundations in 1995, 89% were independent.

Among the world famous private ones are Ford, Rockefeller, and Carnegie, Kellogg and Soros; to mention but a few. The astonishing growth of corporations has brought them to taking social responsibilities. Companies like IBM, Microsoft, Shell and Nike are famous for corporate giving strategies alongside with community development schemes. It is important to realize that the proportion of corporate giving in relation to private giving is yet small. Great future potential exists if goodwill cooperation continues.

The theoretical links between foundations and the non-profit sector
According to Anheier(1999:15) foundations are in a “unique position to enable innovation, take social risks, serve philanthropic venture capital and generally `have a special mandate to enter fields of controversy, where the explosive nature of the issues would make suspect the findings of less independent organisations and where needed financing other resources might prove difficult.`” Among the chief characteristics that allow this to occur is the freedom from control and the non-accountability. The only limitation being the donors will. When considering a foundation we need to clearly distinguish among its functions. According to Anheier (1999:15), foundations are to be discriminated by grant making versus operating ones.

Foundations are to be divided into the category of small and large. Logically the large ones are greater beneficiaries. They are gift givers, with greater possibilities to experiment, and therefore are placed in the grant making category. Simultaneously the smaller ones having limited resources are more engaged in serving local needs. Their contributions vary from personnel engagement in community work to sector consultations. The smaller ones act as bridging facilities where interests underserved by either public or profit sectors are present and are thereby regarded as as operating ones. (Anheier, 1999:16)

The rise in philanthropies was always brought about by the sheer imperfections of human society. The contrasts among rich and poor, healthy and miserable, enlightened and disillusioned have touched people to use their means for eradicating some of these social leviathans. In the past decade of the 90’s process of liberalization and deregulation took place, thereby limiting the role of the government.

All in all this has left more “gaps” to be filled in the society. At the same time the roles of foundations have changed. Government through out the 20th century has crowded out many of the original activities pursued by the private philanthropies. The ideas of adequate housing, medical relief, and mass education were initially all private initiatives. "Traditionally foundations provided seed money for innovative projects…to prove their merit to society, and then relied on the state to take over and continue such projects." (Anheier and Toepler, 1999:255).

In the book "Private Funds, Public Purpose" the authors state that this trend has changed toward the governments funding pilot projects and encouraging private foundations to step in for continued support. It is further being suggested by Anheier and Toepler, the need to shift management style from reactive-administrative toward proactive involvement (i.e. cooperation and partnership). (Anheier and Toepler, 1999:256). The problems we, as a society, face today can only be solved by cooperation, rather than by a single institution.

To understand the greater framework of foundation development in different countries we shall need to apply a model. Namely there are three stages in the in the development of foundations. The first one is the philanthropic stage where a relationship of a donor and a recipient exist; most private philanthropies originate at this stage. With time this could develop into the transactional stage; where organisations carry out their resource exchanges through specific activities, such as cause related marketing, event sponsorship, licensing etc. During the second stage a two-way benefit flow is observed. At the final stage of development- the interactive stage, the partners’ missions, people and activities begin to experience more collective actions and organizational integration. (Austin, 2000:20-35)

One of the problems that could be contributed to a foundation is the lack of market forces driving for efficiency. "It might never hear from its 'customers' because few grantees would dare admit a grant had failed, lest they jeopardize receiving future grants"(Diaz, 2001:219) This is certainly true for private foundation, yet can be absolutely irrelevant to corporate philanthropy, which is result oriented.

Corporate philanthropy
The development of corporate philanthropy is most curious. The general purpose of a business is to serve its shareholders and achieve the greatest amount of profit possible that can be given back in the form of dividends. So why are we witnessing an ever increasing role of corporate sponsored foundations in philanthropic activities? Is business intervention necessary at all, or is business there to do business? Milton Friedman’s famous tenet goes that "the business of business is business", is it changing?

One way to see it is that charity offers advantageous tax deductions. Corporations establish foundations as part of their corporate giving and outreach strategy. Yet "human behaviour is complex; ultimately it is impossible to know how much giving is based on the tax avoidance and how much is based on philanthropic impulses". (Rooney and Tempel, 2000:193-211)

In the recent decades corporate giving has developed into more than just donations- it has become a strategy to win consumers. First of all business have realized the benefits of becoming more socially responsible. It increases their attractiveness. "Consequently, the company looks like a good place to work, invest in, buy from and support…Bolstered by an image of being a supporter of charity, the company also appears to be profitable and successful…There is, therefore, a high correlation between a company’s advertising and its philanthropy" (Donoghue, 2000:9)

In the past years it has become popular to talk about "social responsibility and the need to put something back into community." Most multinational or large companies include these kinds of customer friendly phrases into their charters, yet it is all a strategy. According to Wilson (1996:13) there is no clear diving line between social responsibility and enlightened self interest. Motivations are numerous. Yet the general tendency previously held from hands-off approach to managing donors is developing into a partnership approach.

All in all corporate giving is Big business; that is closely linked to advertising, planning and social responsibility. "Corporate giving supports a long-term marketing strategy" (Donoghue, 2000:10) Nevertheless it is important to realize that corporate donations are not yet a huge amount, in comparison to private donations. Thus the movement we are witnessing is one from a traditional private philanthropy, which still dominates the arena, towards one where strategic alliances are formed. In our theoretical framework the paradigm shift from a philanthropic stage towards a transactional one is starting. As outlined by Austin (2000:11) corporate giving is not just philanthropy it is a strategy.

The factors that influence the ability to give are the state of economy and public opinion. The latter can be viewed as focusing on non-controversial issues. “Corporations tend to play the role of sustainer rather than experimenter when they make funding decisions.”(King and Tchepournyhk, 2004:219) In theory, there are large lump sums being made available by corporations for projects. This creates opportunities for experimentation as the resources could be used to start up new ventures. It is important to realize the ways a corporation is bound, which in the end transfers to the limitations of corporate foundation funds.

The stakeholders, the shareholders, the employees, the public, the customers, the community and the government all in one way or the other influence the way a corporation earns it profits. A significant change in any of the factors could be deadly to a business; therefore careful charity is the most common approach. Companies do need to be selective in terms of whom they sponsor.

USA corporate and private giving
"Foundations are tax-exempt organisations under section 501(c) (3) of the Internal Revenue Code that are neither public charity not otherwise exempted organisations." (Anheier & Topepler, 1999:11) All the foundations in the USA are regulated by the federal and stated tax laws. Having originated in the 19th century during the Industrial Revolution, they were the individual response to the mountains of social problems. Today an estimated 65,000 foundations exist in the US, 90% are independent, grant making foundations; most are very small with 94% having less than $10 million assets.(Renz and Lawrence,2004) Their giving decreased by 2.5 percent in 2003, from $30.4 billion in 2002 to an estimated $29.7 billion. At the same time the corporate foundations giving decreased by 2 percent in 2003. Foundations are an important force to reckon with, their number has doubled from around 32,000(in 1992) towards 65,000(in 2004).



It has been estimated that "the level of corporate giving amounts to one per cent of pre-tax income."(Donoghue, 2000:8) Tax advantages stimulate companies to provide their social responsibility. In 2002 American corporations have donated nearly $12.19 billion to charitable causes (King and Tchepournyhk, 2004). The new practise used by U.S. corporations is global philanthropy. “Intel Corp. now has computer clubhouses providing Internet access and technology training to children in 32 countries, including South Africa, India, and, in the West Bank, the Ramallah Clubhouse.” “IBM has boosted its global contributions to 30.4%, from 12.4% in 2000. That share is expected to hit 40% by 2006.” (Hempel, J. et al., 2004:100) International programs now account for 16% of U.S. corporate giving. According to BusinessWeeks survey, (Hempel, J. et al., 2004), total donations made by Standard & Poor's 500-stock corporations total $3.26 billion, while top five individual givers alone, gave $6 billion. Naturally the largest corporate foundation giving was carried out by the giants of the industry, as is seen in table 1; supporting our theoretical underpinnings. By comparing the data in Table 2, an obvious difference of emerges: companies do not only use their corporate foundations for giving.



In the same article it is stated that 88% of young people believe that companies have a social responsibility, while 86% said they will switch brand to ones with social issues. It seems that companies have realized the power of philanthropy on their image. The Internet and social activism is a Molotov cocktail to those avoiding responsibility, and could result in boycotts in a matter of days. This makes the corporate leaders dedicate more time to think about the social impacts of their business. In a while we could be witnessing the most creative workers helping solve or avoid many social problems. (Conlin, M. et al., 2003) As people are the companies’ most important capital and they make the profits happen, therefore if they apply their talents to socials problems change will arrive. The corporations, too, are seeing philanthropy in a new light -- as a means to boost employee health, morale, and loyalty at a time of rising hostility overseas.
In the US the richest 1% own 41% of the countries wealth; they donate 2% of their income to charity each year. Some are showing the way. “At $65 billion and counting, the Top 50 donors in BusinessWeek's annual ranking of America's leading philanthropists have already given an enormous amount of their money to charity over the course of their lifetimes.” “Warren E. Buffett's late wife, Susie, left $2.5 billion to the Omaha-based foundation she shared with her husband, and Bill and Melinda Gates gave an estimated $3 billion to their foundation -- one of the largest gifts in history by living donors.” (BusinessWeek editorials, 2004) Yet the real sustainers of philanthropy are lower- and middle-income Americans. Families with incomes of $100,000 or less contribute 59% of all philanthropic dollars, according to a study by the Center on Philanthropy at Indiana University. (Gard, 2004)


Table 3 further reinforces the fact, that individuals in America are the largest donors, and not corporations.

Russian corporate and private giving
The history of Russian philanthropy can be divided into two parts: one before the Russian revolution and one after the break up of the Soviet Union. The 90’s were a turbulent time in Russia: reforms, democracy, independence, corruption, business opportunities, new wealth, "New Russians", social unrest and poverty; are all but limited characteristic of the transition process from a state governed economy to a market one, that is still taking place.

Before the state provided every need of the individual, now it was personal responsibility. The new wealth was willing to contribute part of its money to the unlimited social issues that had arisen. Yet the greatest obstacle was mentality of the people, since charity was viewed and still is with suspicion, a manipulative practice of the capitalists.

The Charities Aid Foundation has outlined the process of foundation development in Russia from the start of the 90’s. From 1992 to 1993 corporate giving rose tenfold from about $1 million U.S., to $10 million. At the same time private donations were limited to thousands of dollars. During 1993 and 1995, individual donations rose from thousands to approximately $1 million; while corporate giving rose tenfold, to approximately $100 million. By 1998, 75 % of Russian companies were involved in charity. The financial crises of 1998 proved to be a temporary setback, when giving increased tenfold by the year 2000. CAF estimates that corporate giving reached about $200 million dollars, while contributions by individuals rose to approximately $10 million nationwide. (Gambrell, 2004)

From 2000, since the coming of Vladimir Putin, philanthropy has taken a completely new turn of development. Between about 2000 and 2003, corporate giving is estimated to have jumped from $200 million to $1.5 billion. Until the year 2000, 98 percent of all charitable giving by Russians was corporate. The contributing figures hereto were Dmitry Zimin and the Dynasty Foundation; Interros and its chairman Vladimir Potanin; and Yukos and its chair, Mikhail Khodorkovsky. (Gambrell, 2004) Until this point you did not have a strategic philanthropy. Not withstanding the rise in corporate philanthropy, it is severely limited by the sphere of obligations left over from the socialist system.

In Soviet style command economy companies were responsible for the provision of the entire range of social services. This is also known as the "social responsibility of business". (Zelkova, L., 2003) It is a wide held belief that corporations need to engage in philanthropy to be on good terms with the authorities. Often pressure is put on firms by the local authorities to provide for urgent needs of regional budgets.

Private and family philanthropy are non-existent. That leaves philanthropy the responsibility of business, which focuses on results and impacts that it can achieve. Yet its areas are limited to corporate interests. Little support is provided for controversial issues, like human right, journalists defense, problems of poor regions. (Schmida, S. and Buchanan, E., 2003) In total there are six private and family foundations established by some of Russia’s wealthiest individuals. However, the numbers are growing, and "among the 100 wealthiest individuals in Russia, many were beginning to structure or institutionalize their private giving by 2003." (Gambrell, 2004)

It is important to realize that over 50% of donations are given by the 50 largest national companies such as YUKOS, Lukoil, SUAL, Severstal and others. Each of the 50 largest companies gives on average between 10 and 50 million euros a year for community. (Alexeeva, O., 2003) "As far as the state is concerned, Russian corporate giving should know its boundaries. It should finance orphanages but should not question the orphanage system itself that produces homelessness and crime rather than educated citizens."(Alexeeva, O., 2003)

A showcase to the rest is the Khodorkovsky case. His foundations Open Russia was organized to give money to” human rights organizations, many of which not only have activist monitoring functions, but conduct important research and educational programs as well.” (Gambrell, 2004) In 2003 tax evasion charges were put forward leading to an arrest. Until today he is in prison, his fate remains largely undecided.

The paradox and lesson to all others is that the government wants philanthropic activities and charities to be directed in certain area, while not others. “If business has extra money, then the government will tell it what to support,” says Arseny Roginsky, director of Memorial foundation. This policy is largely in line with the Putin’s objective of a strong state with vertical power that can ensure obedience of the society to the government.

Corporate giving is unique by looking at the time-frame it developed in. A matter of a decade made Russian companies create their own "foundations, give grants and talk about transparency." (Alexeeva, 2003) No Russian charities or philanthropies as yet have endowments because the interest on endowments, even when that income is devoted exclusively to charitable events and projects, is taxed at approximately 40 percent.

To a large extent foreign foundation, especially American ones have helped to create Russian philanthropy. George Soros’s Open Society in the nearly 15 years has funded approximately $300 million in projects. Foreign organizations of the like have provided a model of philanthropic activity. (Gambrell, 2004)

Conclusion
There exists a clear difference between the roles of individuals and the corporations in Russia and in America. In the United States private philanthropy dominates the stage, while corporate philanthropy thrives in Russia. The future prospects for American foundations lie in the collaboration amongst cooperations, their foundations and the non-profit sector. Public opinion and consumer choice is already pushing companies to be good corporate citizens. For now private donations direct world of foundations in the USA, with the year 2003/2004 witnessing super-large individual donations. On the other hand cooperative donations in Russia are booming, partly because of state pressure to sustain the Soviet style social responsibility. Private donations are only starting to emerge, and are non-existent. There is still a long way to go for Russian foundations.

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