REINVENTING PHILANTHROPY
Joey A. Bermudez
Chairman, Maybridge Finance
May 23, 2020
When tragedy visits, the world smartens up. What is not so obvious is the long and painful process of steeling as the world deals with the pain. During the global financial meltdown in 2008, I got a ringside view of this pain and healing when I was requested to do a series of briefings for several non-profits to help them demystify the horror that had befallen the world. “What just happened?” was the question that I had to answer in approximately ten PowerPoint slides. In my audience were social development workers, executive directors of foundations, educators, clergy, and leaders of non-profits. Most were cause-driven groups that were running programs for disadvantaged sectors. They were extremely worried that the steep decline in the value of their endowments and the significant impairment in their major donors’ wherewithal would severely constrict their social amelioration efforts.
Today, twelve years later, we face a pandemic that dwarfs the 2008 financial crisis.
Firstly, the 2008 meltdown was a man-made financial crisis. When excessive global liquidity started chasing assets, an undisciplined financial system responded with synthetic structures that sustained the asset churn. Bubbles in many asset classes took shape and, as soon as confidence tottered, the whole system imploded. On the other hand, Covid19 was a medical crisis that invisibly crept on us and exploded in our faces. As the entire world went into aggressive defense by shutting down social and economic activities, the medical crisis mutated into one of the biggest economic crises ever confronted by man.
Secondly, the global economy, though wounded, hobbled along in 2008. Some of the biggest financial institutions collapsed and many had to be rescued with taxpayers’ money. Property values shrank to a fraction of their pre-crisis levels. Yet the rest of the world hobbled along and went on with life. In contrast, most parts of the economy today have been shut down because of the pandemic. For perspective, an enterprise loses slightly over 8% of its annual revenues for every month that it stops operating. This does not even count the permanent damage arising from the departure of good and well-trained employees, the major disruption in its supply chain, the huge costs to re-start the business, and the possible injury to the company’s standing with its bankers and creditors.
Thirdly, the enormity of the 2008 problem was quantifiable within a few weeks after the problem erupted because it involved destruction of asset values. Surely, the economy could not have lost more than its balance sheet at the time of the crisis plus the social fallout from such financial loss. There was enough data to inform the world of the extent of the injury. In contrast, Covid19 is a beast whose ferocity is, for the time being, indeterminate.
We only know that we are being swept away but we have no way of knowing what the endgame is and what the worst will look like.
What makes 2008 and 2020 alike is the incalculable horror they have foisted on the poor that depend for their survival on various forms of social intervention. According to the World Health Organization, around 1.2 Billion people live in extreme poverty. That’s one in every seven people in the world. The poor, along with other disadvantaged sectors of society, receive philanthropic help. The Charities Aid Foundation estimates that global philanthropy amounted to $56 billion in 2010.
Traditional philanthropy is fed by deep pockets of sensible individuals and mission-driven organizations. When these pockets get smaller, the giving correspondingly shrinks. At the periphery of hard-core philanthropy is an amorphous movement described, genuinely or misleadingly, as corporate social responsibility (CSR). To be fair, there are a few corporations that have successfully woven CSR into their mainstream business. But the rest of the corporate world still looks at CSR as a “look good, feel good” program funded out of the publicity or employee relations budget.
How soon the economies of the world can reopen without getting rocked back by the beast into a repeat shutdown will determine the amount of incremental impoverishment that will descend on society’s bottom dwellers. In the United States alone, if you shutter half of the economy, you are potentially shaving off US$28 Billion every day from its US$20 Trillion gross domestic product (GDP). If the standstill lasts 15 days, the potential value destruction is US$420 Billion or 2% of the total economy. That is about half of the market value of the world’s most valuable company, Apple. It also happens to be nearly 1.5 times the annual GDP of the Philippines, a country with a population that is one third the size of the United States.
There is one thing that everybody seems to agree on. When the global economy reopens, people will behave in ways vastly different from before. I am not talking about social distancing which, as soon as the fear has been overcome, will eventually yield to the compelling tendency of human beings to socialize and interact with the rest of the world. More life-changing than the social distancing imperatives of today are the new practices that can morph into permanent habits.
For example, sheer necessity has forced the older generation into the digital space. Zoom, Skype, Viber, Messenger, WhatsApp, and other digital media have become the default channels of communication, not only for business but also for social interaction. I have been conducting my weekly senior management meetings through Skype as the entire team works from home. Friends who share the same faith collectively pray and worship using electronic media. My wife and I are order groceries online.
Some of these temporary fixes will likely become permanent practices as we reconstruct our lives around the new normal. Digital meetings are not only cost-effective, they are also time-efficient, and easier to organize. Imagine the economic value saved by holding a business association meeting on Zoom instead of requiring more than 100 members to struggle with heavy traffic on the way to the designated physical venue, likely the ballroom of a five-star hotel where each one probably pays $50 for his meal? In my company, we have decided that from hereon, 80% of all senior management meetings will be digital. We have also agreed to downsize our physical office and use the resultant savings to build robust work-from-home platforms and productivity tools.
While social interaction after the crisis will most likely gravitate towards the old ways, the new normal will still require us to permanently embrace new habits that accept the reality of new and old medical threats surfacing and resurfacing every now and then. Thus, we will all need to integrate in our lifestyles more disciplined personal hygiene, exercise, healthy diets, and smart ways of avoiding viral and bacterial infection from interaction with friends and loved ones.
In corporations, risk management professionals will have to figure out how best to integrate their learnings from this medical-cum-economic crisis into the risk framework of their organizations. In education, learning systems will be tremendously enhanced by new-found comfort with digital technology. Health care infrastructure and research will most certainly jump many notches in the scale of institutional priorities. In politics and governance, the civil service and the delivery of public information will come under severe pressure to digitize.
What about philanthropy, corporate giving, and CSR? With the world changing its ways and becoming more digital, individuals and institutions will have greater recourse to granular ways of measuring the impact of their spending. The dubious practice of superficial bean-counting to justify corporate budgets for CSR will eventually fall under the weight of Board scrutiny. Increasingly, too, these corporations will be asked if indeed the interest of society’s bottom dwellers are best served by disparate, sporadic, and on-and-off pockets of CSR-type intervention that expand and shrink depending on the fortunes of corporations instead of just pouring those “do good” budgets into community organizations that are trained and skilled in development work.
One irreversible trend will rewrite the philanthropic paradigm in a big way. It is that traditional givers are getting older and yielding the philanthropic space to the millennials, a generation of “here and now” seekers. There is nothing intrinsically disturbing about this millennial preference but it is important to understand how this will shape philanthropic behavior. If giving is to be experiential for the millennial, it must be both spontaneous and recurring. Today’s charitable fund-raising model of asking the donor to write a check or take out his wallet does not provide this “experience”. Aside from being intrusive, it lends itself to donor fatigue.
Instead of begging, the charity sector must find innovative ways of creating sustainable funding streams. The traditional notions of passive donor and active recipient are going out of fashion in a world that demands more accountability and transparency.
For example, we can embed philanthropy in a millennial’s daily life. If he can be encouraged to patronize a retail establishment that has previously agreed to push a portion of its revenues from every transaction with the former to a charity that is close to his heart, money will be flowing to such charity every time the millennial transacts with the retail establishment. If the millennial wants more money to flow to his favorite charity, he only needs to ramp up his dealings with the merchant.
Why would the merchant agree to share the profit from his transaction with the millennial to the latter’s designated charity? We know the answer from Marketing 101. Customers and transactions do not come free. An enterprise must pay to acquire business. Instead of spending marketing dollars to acquire business, he is satisfying the millennial’s desire to help his charity in a recurring and sustainable way, thus attracting into his store all the supporters of the charitable organization. He will attract patronage from mission-driven spenders, an attribute that can be properly ascribed to millennials who are known to be idealistic and transparency-seeking.
If the ecosystem for this type of giving can be developed, philanthropy will not only be sustainable but also fun and interesting. This ecosystem will be solidly grounded if it is local. Supporting a charity can be both experiential and fulfilling if one sees first-hand the impact of his good deed. If a millennial knows that frequenting the Tim Horton’s outlet in his neighborhood will result in money being pushed towards the children’s hospital across the street, he is likely to feel more engaged.
For this to happen, the entire community must pull together. The residents, the business establishments, the charities and non-profits, and the local government must all participate in creating this social safety net that sustains the flow of money into causes and goals that the community identifies with. In turn, this will motivate the international charities and non-profits that have global constituencies to localize their approach in each community so that their presence can be better felt.
We have been told time and again that a system is only as strong as its weakest link. When the various members of a community come together to reinforce the weakest link, to spread economic power in the most equitable manner, and to uplift those trying mightily to overcome extreme barriers to opportunity, the entire community becomes wealthier and stronger. We all know what can happen to a country that is made up of strong, self-driven and engaged communities.
The technology to power this ecosystem exists. In the city of Vaughan in Canada, a company called Trureal, Inc. operates a global platform that captures data on its members’ transactions with partner merchants that agree to push a fraction of their gross margins to charities designated by their customers. Trureal collects these fractional amounts from the merchants and directs them to the charities selected by the members. The Trureal platform is built to rapidly scale up to serve thousands of members, merchants, and charities all over the world. In Canada, Trureal has partnered with World Vision, the country's biggest charity. Hopefully, Trureal and similar financial technology companies can bring more innovations to the charity sector to wean it from the tired old paradigm of checkbook philanthropy.
Every now and then, the world runs into a bump that forces a major reconfiguration. The 2008 crisis caused massive changes in the financial sector. The huge economic and human destruction wrought by Covid19 is causing a re-set of the way societies and nations behave. Doubtless, the wounds inflicted on the philanthropic sector by this tragedy will be deep. But these wounds will not be fatal if the sector gathers the resolve to painfully adjust to a changing constituency and smartens up like the rest of the world.
