The International Journal
of Not-for-Profit Law
Volume 2, Issue 4, June 2000
The Enabling Environment for Community Philanthropy
In a recent publication by the Council on Foundations, Eleanor Sacks discusses two aspects of the enabling environment for community philanthropy that bear consideration by lawyers and others who are interested in the manner in which law can encourage the growth of this grass roots form of philanthropy. The new publication is entitled “The Growth of Community Foundations around the World,” and it was published by the Council as part of its Resources for International Grantmaking series.
The role of legal frameworks. In her discussion of the growth of community foundations in the United States, Sacks stresses the fact that the legal framework can often have an impact on this method of philanthropy. As she says, “The effects of the Tax Reform Act of 1969 point to the importance of enabling legislation in encouraging community foundation creation.” (p. 10). What that legislation did is provide special and more restrictive rules for what are called “private” foundations in the United States, rules to which community foundations are not subject. As a result, community foundations became a preferred giving vehicle for wealthy persons and corporations, which did not want to face the burdensome requirements that have been imposed on private foundations since 1969.
Whether this favored status will be maintained for many community foundations remains to be seen. Recent proposals for changes in the law regarding so-called “donor-advised funds” (DAFs) could put the popularity of some forms of giving through community foundations in jeopardy. A DAF describes a situation in which a donor makes a charitable contribution to a fund that he or she establishes at a charitable organization such as a community foundation. The donor takes an immediate tax deduction but retains the right to make non-binding investment and grant-making recommendations with respect to the amounts held in the DAF. Many US donors take advantage of the DAF structure, through community foundations and otherwise, but the Clinton administration’s proposals would make the use of DAFs subject to a variety of new rules, including a new pay-out requirement to prevent retention of funds for an indefinite period. Although these rules will not eliminate the usefulness of the community foundation concept, the advantage such foundations have today vis à vis private foundations will be reduced.
This proposed new legislation reinforces Sacks’ point about the enabling environment. It is clear that the types of incentives for philanthropy created in tax legislation can affect the desirability of giving through community foundations not only in the United States but elsewhere. Thus, as the legal frameworks for civil society are considered and re-considered in national contexts, it is important to bear in mind ways in which those frameworks may change the usefulness of the community foundation concept.
Governance. Another interesting aspect of community foundations from a legal standpoint is their governance. Sacks’ book makes clear that the legal environment in a given country may well have an impact on the propriety of certain governance structures. On page 3 of the book Sacks alludes to the fact that it is permissible in the United Kingdom, but not in the United States, for government officials from the community served by a community foundation to sit on the foundation’s board. In the United States this would violate perceived standards regarding conflicts of interest. Issues about this aspect of governance have also been raised in Germany. Again, the issue is one of ascertaining what the legal framework permits, and this obviously varies from country to country.
The community foundation concept is a useful one in large part because it allows donors to bring funds together under one management and investment structure and thus to achieve economies of scale that are otherwise only available to persons or businesses that set up separate foundations. As Sacks’ discussion of, for example, the Fondacion de France makes clear (p. 20), this role of the community foundation is quite significant. Other legal aspects of community foundations (for example, the role of debt swaps in their creation, as in the case of the Foundation for Community Development in Mozambique, p. 30) will be considered in future issues of the Journal.
Changemakers.net
Kalpana Kaul- Managing Editor, Changemakers; The Changemakers Review- has recently contacted IJNL staff to announce a new on-line discussion group sponsored by Changemakers:
“We invite you to join the discussion forum on www.changemakers.net, the first and only portal on global social entrepreneurship. Changemakers is an initiative of Ashoka: Innovators for the Public, a non-profit organisation that invests in social entrepreneurs worldwide.
The Journal section of the July issue of www.changemakers.net (https://www.changemakers.net/journal/00july/) invites you to participate in a fascinating online discussion on how the business and social sectors can work together. This is your chance to engage with thought leaders, and leading business and social entrepreneurs, in a discussion on the problems and opportunities of collaboration.
We would love to read your views online.
To stimulate discussion, Ravi Venkatesan, the dynamic chairman of all India and Asia operations for the world’s leading diesel engine manufacturer, Cummins Engine Company, contributes an exciting vision of how to effectively bridge the work of the business and social sectors. He provides concrete examples of the benefits offered by the social sector to the business sector. Social entrepreneur Jeroo Billimoria comments on projects that tap the expertise of the corporate sector for training and evaluation. While Anand Bordia, Project Director of the United Nations Drug Control Program, notes that the “Synergy between business and social enterprise is the most essential requirement of a good civil society.” “
www.changemakers.net; www.ashoka.org
German Publication
A new publication on corporate citizenship has been published in German and English by UPJ in Germany. It is called “Between Shareholder Value and Corporate Citzenship — Documentation of the Citizen Initiative ‘Business: Partner of Youth’ (UPJ).” Here is the publication announcement:
Zwischen Shareholder Value und Corporate Citizenship Dokumentation der Bundesinitiative “Unternehmen: Partner der Jugend” (UPJ)
Mit welchen Programmen des Corporate Community Investment arbeitet “Business in the Community”, ein Zusammenschluss von 450 Unternehmen in Großbritannien? Dieser Frage geht David Halley (in Englisch) nach. Bernhard von Mutius, Unternehmensberater und Autor, referiert “Was Unternehmen mit sozialer Verantwortung gewinnen können”. Neben viel best practice aus der Kooperation von Unternehmen und Jugendprojekten enthält der 80-seitige Band u.a. noch folgende Beiträge:
Reinhard Lang: Unternehmen als engagierte “Bürger” im Gemeinwesen, Diethelm Damm: Bilanz und Perspektiven der Bundesinitiative “Unternehmen: Partner der Jugend” und Peter Gnielczyk, Friedrich Haunert und Helmut Schorlemmer: Schulsponsoring heute.
Der Band, der den bundesweiten Kongress “Unternehmen: Zukunft der Jugend” am
6. Dezember 1999 in der Handelskammer Hamburg dokumentiert, kann zum Preis
von DM 23,00 inkl. Versandkosten bezogen werden beim:
UPJ-Servicebüro Hamburg
Altonaer Str. 34, D-20357 Hamburg
Fax: +49 40 434284
Mail: 040434274@t-online.de