Philanthropic organizations are entities that take donated assets and income and provide social services to the community. Endowments, charitable trusts and community foundations are examples of philanthropic organizations. Donations to these organizations are typically tax deductible when the entity is organized and operated with a specific charitable goal in mind. The organization itself is also exempt from paying federal income tax.
The Difference Between Philanthropy and Other Initiatives
The goal of philanthropy is to encourage and aid the betterment of the public good. It specifically focuses on improving the quality of life for those in need. Business initiatives, on the other hand, focus on material gain for the private good.
Traditional philanthropy is often a short-term endeavor. The organization derives its resources through raising funds and obtaining one-time donations with the goal of helping specific causes. Organizations such as the Ford Foundation and the Rockefeller Foundation are examples of traditional philanthropy. They focus on lessening the impact of specific social issues, but don’t typically look for a root cause to the problem.
Conversely, an impact investment entity focuses on how an individual’s quality of life is affected by the broader society, and it looks to make improvements to sustain a better life through social and environmental changes. This type of investment looks to improve a number of sectors in society, including healthcare, education, infrastructure and the environment.
A Review of the History of Philanthropy
To gain a better understanding of how philanthropy works, let’s look at some examples of its American beginnings.
- In 1636, Harvard College was the first corporation created to train men for a life in the clergy. This was done, in essence, for the betterment of the public good.
- A leading Puritan theologian, Cotton Mather, published an essay in 1710 entitled, An Essay To Do Good. He was a pivotal advocate of philanthropy as a way of life.
- Benjamin Franklin was strongly influenced by Mather and became a prominent activist who supported philanthropic causes. Franklin encouraged his colleagues in Philadelphia to embrace ideas to improve the city. Some projects he advocated were a fire department and police department, along with the first subscription library and a highly-respected hospital. His training as a physicist allowed him to support organizations to improve scientific research. One such entity evolved into the University of Pennsylvania.
- Wealthy businessmen in the United States became involved in the advancement of colleges and hospitals in the early to mid 1800s.
- George Peabody, who lived from 1795–1869, became known as the father of modern philanthropy. He was a well-respected financier in both Boston and London, and in the 1860’s he endowed several museums and libraries in the United States. He also funded housing in London for the needy. His contributions paved the way for prominent philanthropists in the late 19th and early 20th centuries, including Andrew Carnegie, John D. Rockefeller and the Ford family.
Requirements on Becoming a Philanthropic Foundation
In order to become a philanthropic foundation, an entity must have a specifically stated purpose that is allowed under the requirements. Functions include non-profit religious and charitable groups, as well as scientific, educational and literary organizations. Churches, charities and alumni associations are all examples of qualifying entities.
In addition to requiring an allowed purpose, the organization is subject to tax provisions for private foundations. Specific rules and regulations must be followed, including limits on private investments and annual income that can be appropriated for charitable purposes. Expenditures must be monitored to make sure they further the exempt purposes.
Traits of a Successful Philanthropic Organization
The goals of the organization can’t be realized without the active engagement of all individuals in the foundation. Each person must be passionately involved in the community to be able to understand what needs to be done to implement the program.
Successful business professional Mark Stevens suggests that in order to adequately supervise the activities of a philanthropic company, it’s important to have innovative persons serve on the board of directors. These people are integral to the success of the endeavors because they provide the expertise and experience necessary to run the business. They can also offer unparalleled guidance and encouragement.
The inventive foundation seeks to establish a far-reaching commitment to the betterment of the community, and it also works to inspire both current and future generations to continue the legacy. Accountability is critical to achieving the stated goals as well. When everyone does their share, much more can be accomplished. Integrity is also essential for all those involved. Partners and donors must be able to trust everyone on the team in order for the enterprise to be successful.
Philanthropy has played an important role in the improvement of our society. Everyone has benefited in some way from these humanitarian acts. Libraries, hospitals, schools and the performing arts have all been supported by the generosity of philanthropic foundations.