Wednesday, October 15, 2014
An Unconventional Billionaire Is Revolutionizing Philanthropy By Closing His Foundation
Should charity go on forever? For Chuck Feeney, the answer is an emphatic no--and fellow billionaires, from newly minted Silicon Valley entrepreneurs to Bill Gates and Warren Buffett, are learning from his example.
Some people are into extreme sports, others extreme eating. You could call self-made billionaire Chuck Feeney an extreme philanthropist.
Feeney, the 83-year-old co-founder of the pioneering retail business Duty Free Shoppers (the company that sells the tax-free alcohol and perfume in airports), is practically unknown as a public figure. Though Forbes once ranked him the 23rd-richest person alive, you wouldn’t realize it if you met him on the street: In his prime, he famously wore a $15 watch and flew economy. You certainly won’t find his name on any buildings. Yet his foundation, Atlantic Philanthropies, will soon become the largest ever foundation to purposefully give away all its money--seeded by almost Feeney’s entire fortune, which was worth about $4 billion when he donated it anonymously three decades ago--and then go about shutting its doors.
Big bucks philanthropy was once defined by benevolent barons like Rockefeller, Carnegie, and Ford, men who plastered their names on brick walls and established foundations with large endowments meant to carry on their legacy forever. In 1984, when Feeney gave away nearly all his wealth, he became an early, outsized example of a new breed of philanthropist, a forefather of a style of giving that is becoming more and more popular with today's rich and ultra-rich.
The current class of high-profile wealthy elite, people like Bill Gates, Michael Bloomberg, Richard Branson, and Mark Zuckerberg, are giving away money earlier in their life than their predecessors. Some are setting up their donations or foundations in a way that their funds won’t last for generations. In many cases, they’re also becoming what you might call philanthropic entrepreneurs, devoting energies in their prime to directing their charities either alongside--or instead of--their businesses.
Take Dustin Moskovitz, a Facebook co-founder and current startup CEO who was once the world’s youngest billionaire. Saying that he was merely a “steward” of capital that really “belongs to the world,” he set up Good Ventures, an endeavor run by he and his wife that aims redistribute his wealth in his lifetime: “I see no strong reasons to try to set up a system that perpetually invests this capital after I die, so I'd like to be rid of it before then,” he wrote in a forum on Quora. This engaged attitude is also trickling down: Universities, ranging from Yale and Harvard to Northwestern, are offering courses that give the world’s future elite real-world practice at the surprisingly difficult work of giving away hard cash.
“We’re seeing all this new wealth, especially West Coast wealth and technology wealth, which doesn’t necessarily have a place tied to it. They just have very different sensibilities,” says Ben Hecht, CEO of Living Cities, a New York City non-profit that works directly with many of the world’s largest foundations. “Many of them don’t have any interest in building a perpetual institution. I think it’s not in their culture. They want to give it away, and they want to be active in giving it away.”
Though Feeney, who couldn’t be interviewed for this article because he was recovering from surgery, was never in tech industry or a rockstar name in business, his “giving while living” motto is an influential early example of this mindset. As his foundation winds down its work and evaluates its own impact, its story illustrates the upsides and downsides of this ethos.
GIVING WHILE LIVING
Atlantic Philanthropies is what’s called a limited life foundation, which it formally became in 2002 when the board voted to spend all its money by 2020, as an extension of Feeney’s philosophy about wealth. Limited life foundations aren’t new--Julius Rosenwald, the head of Sears, Roebuck and Company set one up in 1917, for example--but the idea has become a buzzword in the philanthropy world only within the last decade. Atlantic Philanthropies will soon be the largest foundation to complete such a “sunsetting” process, but the Bill and Melinda Gates Foundation, formed in 2000, is another massive example of the model. It's spending down on a longer timeline, with the goal of giving away its now-$40 billion endowment within 20 years of the deaths of Bill and Melinda Gates. Warren Buffett also stipulated that his $31 billion donation to the foundation be spent quickly in year installments.
If the goal is to increase charitable giving, Feeney’s “giving while living” philosophy may be particularly well-suited for today’s generation of philanthropists, who live at a time when growing income inequality is a global flashpoint. “Giving while living” is a more radical version of Gates’ and Buffett’s Giving Pledge, which asks billionaires to donate at least half their wealth, but not necessarily to have it spent in their lifetimes or become deeply involved in how it’s used. (Buffett reportedly described Feeney as the “spiritual leader” of the Giving Pledge a few years ago.) It’s also a reflection of the more recent mindset of consumers who grapple with the broader social repercussions of all their spending--whether that means buying fair-trade coffee and greener energy or launching a social good venture.
“More people are giving more. I think that is heavily a function of the structure of our economy. There has been a great expansion and a great concentration of wealth,” says Jane Wales, vice president of philanthropy and society at the Aspen Institute. “Those that have benefited from that economy feel a very strong desire to ensure that the benefits are more evenly shared, and they see philanthropy as one of the ways of achieving that goal.”
Influenced by the writings of Andrew Carnegie, who believed "the man who dies wealthy, dies disgraced," Feeney’s decision to donate his wealth came from almost a selfish impulse. A classic rags-to-riches entrepreneur who grew up in a poor Irish-American family and remained deeply uncomfortable with the trappings of luxury, Feeney's transfer of the legal ownership of his business assets to a charitable cause relieved a burden. This was apparent in the way Feeney would talk about philanthropy to his wealthy peers, according to the current CEO of Atlantic Philanthropies, Chris Oeschli: “Chuck would say 'Try it, you’ll like it. You’ll get more satisfaction from that then having houses you’ll never live in, or yachts that you can’t spend your time on.'”
But the desire to die poor is where the similarities with Carnegie end. Today, a century after its founding with a $135 million endowment (equivalent to $2 billion today), Carnegie’s foundation, the Carnegie Corporation, lives on “in perpetuity,” in keeping with the steel magnate’s wishes for his wealth to “continue to benefit humanity for generations untold.” By law, nonprofit foundations must pay out at least 5% of their endowment’s value every year; the Carnegie Corporation carefully tracks its assets’ market value to meet its yearly spending target of 5.5%--the rest is reinvested back into the foundation to keep it running forever. Since 1913, the Carnegie Corporation has given away nearly $3 billion dollars (not adjusted for inflation), including about $108 million per year in the last decade. Whereas Atlantic’s work has taken place over a much shorter time frame: In 30 years, it’s made about $6.7 billion in grants, averaging about $360 million a year this past decade. It aims to allocate the remaining $1.1 billion of its endowment to grantees by 2016 and shut its doors soon after.
While stretched over forever, Carnegie’s dollar figure legacy may end up larger, there can be benefits to having a deadline. To Feeney, who believed substantial wealth can create problems for future generations, donors can do the most good addressing the urgent and large problems of their time, rather than slowly meting out the profits from invested endowments into the far-off future (or, worse, leaving extremely wealthy heirs). He felt a deadline gives the foundation’s work a sense of urgency and do-or-die startup mentality that many organizations lack. “There’s a bit more of an entrepreneurial instinct. A little more risk taking. Which can give you a great upside when you hit the mark, and a downside when you miss,” says Atlantic CEO Oeschli. “Absolutely, it does focus the mind.”
THE LIFE OF A LIMITED LIFE FOUNDATION
In its beginning, Atlantic Philanthropies was indeed a startup with a small staff. Like Carnegie’s foundation, its earliest funding decisions were driven partly by circumstance and partly by Feeney’s passions--say for building new scientific research institutions in Ireland (Feeney is a dual citizen), or helping his alma mater, Cornell University (He’s the school’s largest single donor to date). Over time, as Atlantic’s staff and endowment grew, it focused on leveraging its existing expertise and experience in particular countries, like building on its work on peace and reconciliation between Protestants and Catholics in Northern Ireland and making donations to help solve the challenges of post-apartheid South Africa.
To Tony Proscio, associate director of the Center for Strategic Philanthropy and Civil Society at Duke University, who has been paid as a consultant to help evaluate Atlantic’s work, the foundation has been effective because it limited the scope of its work to discrete, solvable issues, rather than open-ended ones, like climate change or school reform. From its work to stop the death penalty to its human rights focus in Northern Ireland and South Africa, he says: “The theme is these are all things that could be done in a discrete period of time and where the technology, to use the term broadly ... of what needed to be done was not all that obscure.”
By contrast, limited life foundations can run into trouble when they are unfocused or fixated on questions that aren't easily solved. “The strongest argument against time limits is the ability of an institution to learn and adapt as it works on complex problems,” he says. In this, one of Carnegie Corporation’s biggest mistakes is instructive: Infamously, it funded a 1932 study on white poverty in South Africa that later became a blueprint for apartheid. But because of its perpetual model, it has been able to change with the times and learn from its errors--decades later it funded studies and court cases that sought to take down the apartheid regime.
Proponents of the limited life foundation say that one of the biggest upsides is the donor’s typically high level of involvement in giving decisions, much like a startup founder would direct the vision and strategy of his company. The idea is that people who had the talent and discipline to earn or manage lots of wealth in their careers might also be effective at using those same skills to making a difference. “Chuck has always expected a high level of discipline and evidence of results,” says Oeschli. What much of Atlantic’s work in different locales had in common was a connection to Feeney’s entrepreneurial instincts, says Oeschli--a kind of “ripeness in the people, in the economy, and in the culture--a sense there was an opportunity there to build on momentum and leverage value.”
This can be seen in Atlantic’s work to improve the community health care system in Vietnam, both by funding physical and technology infrastructure but, more importantly, by supporting organizations that educated and trained medical staff to sustain long-term gains. Le Ngoc Bao, who heads the Vietnam program of one Atlantic grantee, Pathfinder International, says Atlantic’s investments had a “critical” impact on the nation’s health care capacities just as Vietnam was transitioning from a developing to a middle income economy--in part, because Atlantic was able to forge cooperation among many different groups. “It hasn’t been a one-off intervention,” he says.
Inequality is an increasingly destabilizing force in today’s global economy, and in to answer that, today high net-worth philanthropists are giving more than ever. But it's worth questioning the system that creates billionaires, even those with the best philanthropic intentions. Wouldn’t it be better to have a society that mitigates the accumulation or inheritance of massive wealth and creates more equality through government investments and policy, rather than relying on voluntary gestures and individual whims?
Feeney’s own story is the embodiment of the tensions between the desire to give away a fortune and the necessary fact that, to do this, fortunes must first be accumulated. He hated paying taxes and, according to a 2007 biography, The Billionaire Who Wasn’t: How Chuck Feeney Made and Gave Away a Fortune Without Anyone Knowing, he went to great lengths to avoid doing so. In one of the more extreme tax dodges in his business life, he and his co-founder transferred ownership of Duty Free Shoppers to each of their wives, who were born outside of the U.S.
Yet creating a more equal society isn’t the answer to every social problem; only large budgets and the hard work of experts is going to cure HIV, eliminate nuclear weapons, or end the death penalty.
WHAT IT’S LIKE TO SHUT DOWN
Today, Atlantic is focused on tapering off its work with grantees, evaluating the impact of its grants and its tactics, and drawing up lessons it can leave behind for others. Though it’s operated without seeking much media attention for decades (Feeney himself went to great lengths to remain anonymous for many years, and only disclosed his donations in 1997 due to a business-related lawsuit), lately it is seeking out more attention with the idea of inspiring other philanthropists. Meanwhile, its final grants will be with an eye towards getting the biggest bang for their last few bucks while helping existing groups, like the Social Justice Initiative in South Africa, find additional funding sources to continue their work. Atlantic has already closed its offices in several countries, including Vietnam, where groups like Pathfinder now need to make strategic choices about their future in the country.
How Atlantic spends the end of its money and then shuts its doors is also instructive for what it can tell us about how The Gates Foundation will end its works after the deaths of its founders and how the giving while living philosophy affects decisions. Spending vast sums of money wisely and quickly is a challenge. The Gates Foundation, with a staff of about 1,200 people, paid out $3.6 billion in 2013 alone. This is more than the annual budget of the entire United Nations, an organization with more than a ten times larger staff size. It helps that the Gates’s have a clear vision for the goals they want to achieve in reducing global poverty and ending infectious diseases like polio, malaria, and HIV. Because they are not exactly limited as far as dollar resources go, John Hoover, senior vice president of the Andrea and Charles Bronfman Philanthropies, points out that the Gates’ Foundation wisely uses “impact” to measure the rate at which it funds projects. The opportunity to quickly reduce polio cases using known cures, for example, merits all the funds needed to do this quickly. More far fetched projects may get less money until they can prove they are close to a solution.
Perhaps the biggest operational challenge for Atlantic isn't in funding decisions, but in HR. Oechsli is often consumed with the realities of managing a shrinking organization (It peaked three years ago at about 138 full-time employees. Today, there are about 70.) Being transparent and fair, while retaining talent and encouraging ambition and creativity is a challenge. “Each person has their own vision of their professional opportunities and future as well as their desire to do as much as they can while they’re here at Atlantic. And that’s a bit of a tension,” he says. One discussion involved whether to tell staff when exactly their job will end. Atlantic opted for providing clarity and removing anxiety, creating “a roadmap plan” for the end of every staff position based on the needs of the organization. Finance, communications, evaluation employees, and “a lawyer or two,” will eventually be the last few staff that remain.
Diane Feeney, who says her father set up his five children to lead a “comfortable” life and gave them funds to set up their own, smaller charity, hopes her father will serve as a role model to the millennial generation. “I think the fact that my father spoke up very early on about giving while living will inspire people in years to come,” she says. “This is much more something that comes from entrepreneurs. They tend to be much more of risk takers, and want to spend their money in their lifetime. I think my father represents a model for many young, up-and-coming entrepreneurs.”
However, despite everyone’s desire that Feeney serve as a role model, it may turn out to be that his legacy remains extraordinary and largely unknown. Says Proscio: “I would love to think that someone like Feeney would be a widespread model of what to do with wealth. But his story is pretty remarkable. And I think it’s going to stay remarkable. Nobody sits down and in a single day gives away his life fortune. Except for Chuck Feeney.”