The Worst Foundation in Britain?

The 2011 edition of ‘Family Foundation Giving Trends’ is out, produced by the Cass Business School with support from the Pears Foundation. Now in its fourth year, the report is invaluable as a source of data on giving by the 100 largest family foundations in the UK, which together account for 7% of all charitable giving in the country, or £1.3 billion ($2 billion) in cash terms. Like a curate’s egg, it contains a mixture of good and bad.

The bad news was that giving by this group fell 8.7% in real terms, resulting from a drop in foundation asset values of 5.3% in 2008/09 (largely due to the financial market meltdown). The (maybe) good news is that endowment values bounced back by 7.8% in real terms in 2009/10, which the report says “will hopefully drive an increase in giving in 2010/11.”

Whether it has depends on the decisions of the foundations’ trustees alone. Unlike their counterparts in the United States, where foundations are required by the tax code to pay out a minimum 5% of their endowment value each year (based on a rolling average), UK foundations face no such constraint. We have argued that Britain needs a similar payout rule to America’s, a position that has earned us a few brickbats and snide comments from philanthrocrats happy with the status quo. We had hoped to see some action on this issue in the coalition government’s Giving White Paper published this year. Alas, we were to be disappointed.

This year’s ‘Family Foundation Giving Report’ offers ample demonstration of why the payout rule opportunity needs to be seized. Using the data in the report, we analysed the payout performance of the 30 largest foundations,  which account for £1.1 billion, more than 80% of the total sample. We found that:

1) The payout rate for this group as a whole fell from 4.9% in 2008/09 to 4.3% in 2009/10. Foundations have decreased their giving faster than the fall in their endowment values, at a time when their giving is needed more than ever.

2) The average was somewhat misleading, as it was raised by a few foundations run by living donors, which gave away a significantly higher proportion of their endowments’ value.

3) Twelve of the thirty foundations paid out less than the 5% American norm, including five out of the top ten: Leverhulme Trust (3.2%), Garfield Weston Foundation (0.8%), Esmee Fairbairn Foundation (3.4%), Wolfson Foundation (4.3%), and Children’s Investment Fund Foundation (1.6%).

4) If all of the top 30 foundations had each paid out a minimum of 5% (and those already paying out more continued their current strategies), from this group alone there would have been an extra £300 million in donations to the voluntary sector – not a small sum.

We admit that this analysis based on a snapshot is a bit crude. Grantmaking can go up and down over time at a particular foundation for perfectly good reasons, like ending an old strategy or starting a new one. (That said, 11 of the 12 foundations that paid out less than 5% in 2009/10 also did so in 2008/09 -though the Gannochy Foundation increased its payout to 5.4% this year, whilst Wolfson slipped to 4.3%.) Nor does volume of giving necessarily say much about the effectiveness of the giving. The Esmee Fairbairn Foundation, for example, has done good work in building up the nascent social investment market. We also have some sympathy with the Children’s Investment Fund Foundation’s argument that, as a relatively recent creation, its grantmaking, which is evidence led, will take time to responsibly scale up – though we don’t think it should use that excuse for much longer.

One foundation sticks out like a sore thumb as a candidate for Britain’s worst big philanthropy – the Garfield Weston Foundation. It is the second largest endowed foundation in Britain, after the giant Wellcome Trust, with assets of £4 billion (in excess of $6 billion – larger than the Packard or MacArthur Foundations in the U.S.) It has the lowest payout rate in our sample at 0.8% (down from 0.9% in 2008/09, and up to just 1.0% based on its recently filed 2010/11 annual report). For this one foundation, the gap between its current grantmaking and what it would be under a 5% payout rule is £170 million. Its grantmaking is also a case study in unstrategic ‘spray and pray’ philanthropy: in 2010 it gave away £34 million through more than separate 1,500 grants, averaging £22,000 apiece.

It is also a foundation that has courted controversy over its founding parent’s tax affairs, drawing the ire of the UK Uncut protest group that staged a sit-in at one of its flagship investments, the Fortnum & Mason grocery store on Piccadilly. (Whether it has done anything wrong is moot – here is one analysis.) The Foundation also had its wrists slapped by Charity Commission in 2010 for some political donations to the Conservative Party. (There is, we trust, no connection between this and the government’s unwillingness to talk about a payout rule.)

In Philanthrocapitalism we argue that giving has the potential to be a powerful force for positive social change. It is also an integral part of the social contract between the rich and the rest of society. The law allows donors to create tax-subsidised foundations as an encouragement for socially beneficial philanthropy. Does the British taxpayer get much value from its tax breaks to Garfield Weston Foundation, or indeed many other big British foundations?