Book Review | For-Profit Philanthropy

By Elisa Shoenberger

In Fidelity Charitable’s 2023 Giving Report, donor-advised funds (DAFs) gave $11.2 billion to 189,000 charitable organizations in 2022. That’s almost a billion dollars more than the prior year.

While some people find donor-advised funds to be an exciting new way to give, scholars and nonprofit advocates criticize the entire enterprise, questioning how much money is being held in people’s DAF accounts that is not being used for the public benefit. Debates have raged in the philanthropic community and all the way to Congress about DAF payouts, the timing of gifts, and the anonymity.

In Dana Brakman Reiser and Steven A. Dean’s For-Profit Philanthropy: Elite Power and the Threat of Limited Liability Companies, Donor-Advised Funds, and Strategic Corporate Giving (2023) they argue that DAFs, philanthropic limited liability companies (LLCs), and strategic corporate philanthropy programs are causing a crisis in the philanthropic world.

The authors call these three giving vehicles “for-profit philanthropy” because they are “muddying the distinction between commerce and charity and eluding the regulatory framework designed to keep them separate.”

In 1969, the US passed the Tax Reform Act—which the authors call the Grand Bargain— that “enabled elite philanthropy to reassure the public that their purported altruism would indeed benefit ordinary Americans.” In other words, elites receive tax benefits and more from their donations through foundations in exchange for their giving being transparent, timely, and limited in purpose.

In other words, the giving from foundations means that people can see where the grants are going, as a check on abuses of power. Foundation grants must be made in a timely manner or the foundation is penalized. And finally, there are limitations on who can receive a grant, excluding recipients such as political campaigns and business interests, to prevent self-dealing.

But DAFs, philanthropic LLCs, and corporate giving find different loopholes to get around these requirements. The authors argue that “for-profit philanthropy could mark its end.” The authors ascribe the rising indifference and distrust that the American public is showing to philanthropy because the public sees this giving as “virtue signaling, hollow measures to burnish reputations rather than sincerely charitable acts.”

Who Should Read This Book?

Prospect researchers, gift officers, and other people interested in philanthropy will find this book illuminating on many levels.

For fundraisers who are unfamiliar with DAFs, philanthropic LLCs, and strategic corporate philanthropy, the book provides a deep dive into how these giving vehicles work, drawing on popular examples.

For instance, most people may be familiar with the Chan Zuckerberg Initiative LLC established by Mark Zuckerberg and Priscilla Chan in 2015. While philanthropic LLCs had been around for a while, it did not really enter public consciousness until the Chan Zuckerberg Initiative LLC.

Unlike a foundation, philanthropic LLCs are not restrained from giving to political campaigns, business endeavors that could benefit the owners of the LLC, or other self-dealing gifts. However, the founders of the philanthropic LLC lose out on the tax benefits. But for folks like the Chan Zuckerbergs, the authors write that “funders accept a moderately higher tax burden in exchange for the freedom to pursue their vision of good unfettered by foundation law’s limitations.”

Grants do not have to be publicly disclosed unless the LLC wants to, which allows them to control the image of the LLC and its founders. And more importantly, founders of an LLC can take back their money if they want to, since they don’t receive a tax benefit for putting it into an LLC in the first place (in contrast to people who establish a foundations).

The book does a great job exploring why people might opt for these three giving vehicles while weighing the risks and benefits to elites and the public with each one. This insight will be helpful for prospect researchers and fundraisers when considering prospects who have DAFs, a philanthropic LLC, and/or engage in strategic corporate philanthropy.

Fundraisers might also appreciate the discussion of the Grand Bargain and its establishment. The authors explain how the rules in the US philanthropic landscape were laid and why.

Where Does It Take you?

The book is divided into three sections. The first section does a deep dive into “elite philanthropy in the 21st century” in three chapters. The first chapter explores philanthropic LLCs; the second chapter dives into donor advised funds, and the third one looks at strategic corporate philanthropy.

In the third chapter, the authors explore how corporate giving has been controversial from the very beginning, but how its current form threatens the compromise fostered with the Grand Bargain. Companies have established company foundations that allowed them to get tax breaks for giving back. As noted previously, there are reporting requirements and limitations to foundations that keep donations timely, transparent, and targeted.

But now companies have seen dollar signs in “giving back” — as a way to generate even more profit for the company. The authors write, “When corporate contributions mean greater profitability or market share, or to reduce risk, they share little with the conventional legal definition of a charitable gift.” Notably, many companies are closing their foundations and now giving directly to nonprofits. Like LLCs, this means that there is no requirement to give in a certain time period, gifts do not have to be made public, and gifts can go anywhere – all of which means that the company can substantially benefit from the transaction.

The authors aptly say that “Transforming corporate charitable contributions into an aspect of shareholder primacy might produce a kinder capitalism, but at what price?”

The second part explores why it is important to “protect… the partnership between elites and the public” in two chapters. The first outlines the uneasy development of philanthropy and federal laws that ultimately led to the creation of the Grand Bargain.

The second chapter explores why we all lose if the trust between elites and the public is diminished. The authors write that “Without adequate accountability, public trust may yield to public skepticism, testing the public’s resolve to refrain from asserting more direct control over elite wealth.”

The chapter explores related philanthropic endeavors of social enterprise and Environmental, Social, and Corporate Governance (ESG) investing that blend profit and social good together. Social enterprises are for-profit businesses that try to have high social and profit returns. ESG investing means that the company invests in funds that focus on these three areas with a benefit to both pocketbooks and social goods. The authors show that while there was initial excitement with these areas, they fizzled out, whether they were successful in doing what they set out to do (ESG) or failed to thrive (social enterprise). (It’s worth considering the pushback against ESG in recent news as ‘woke capitalism.’)

The third section provides three solutions on how to restore trust. The first chapter provides how some specific regulations by actors in the three areas could reestablish trust with elites and the public by adding back transparency, timing, and targeting. The second chapter looks at a more comprehensive approach of reform through legislation. The third chapter is a more radical look at more drastic changes enacted through taxes and increased oversight.

Is It Worth the Purchase Price?

The price of $49.99 is a bit steep, but the book provides an important critique to 21st century philanthropy and the growing threats to the philanthropic world. The authors do a thorough job at shining a light on these for-profit philanthropic vehicles and their erosion of public trust.

However, the book is a bit dense — partly because of the deep dive into legal and financial reporting to make its points – so much so that some of the points might get lost. For-Profit Philanthropy may not be a book for everyone, which is a shame since the insights are absolutely valuable, but a little lost in the minutia.

Researchers and fundraisers will find the book useful in understanding our current philanthropic landscape as well as motivations for prospects in using these for-profit vehicles. People concerned about the state of philanthropy and the concentration of power in elites will be armed with critical information about why these vehicles can be problematic and what can be done to reform them.

Readers may have to take breaks between chapters, but it is well worth the effort. Also, the book would pair well with Chuck Collins book, The Wealth Hoarders, which is a focused critique of donor advised funds.

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