Facilitating funders towards a more effective philanthropy
We had a talk with Tonika Hirdman, Director General of Fondation de Luxembourg, to explore the evolution regarding the perspectives and needs of philanthropists, also in light of the prominent role in the country played by the private-banking institutions assisting HNWIs
26 February 2018
A member of the Transnational Giving Europe (TGE) network, Fondation de Luxembourg was created in 2008 by the Luxembourg State and the Oeuvre Nationale de Secours Grande-Duchesse Charlotte to meet the growing need for a centre of expertise in philanthropy in the Grand Duchy of Luxembourg and facilitate philanthropic commitments made by private individuals and/or businesses.
In accompanying founders on their philanthropic journey, the Foundation has developed a bulk of expertise on pivotal issues, as for example how to define an effective community engagement model, set the basis for a successful – and smooth – exit strategy, or assist donors in their cross-border donations.
We had a talk with Tonika Hirdman, Director General of Fondation de Luxembourg, to explore the evolution regarding the perspectives and needs of philanthropists, also in light of the prominent role in the country played by the private-banking institutions assisting HNWIs.
Could you give us a quantitative perspective on the current philanthropic scenario in Luxembourg?
We have to start by saying there was not so much activity regarding foundations until 20 years ago. 80% of the current foundations were created within the last 20 years. In 2008, the Luxemburg government had the idea of promoting philanthropy through the initiative led by former Prime Minister Jean Claude Junker. The initiative, launched and announced by the prime minister, was first of all meant to create a national “umbrella” foundation – i.e. Fondation de Luxembourg – with a dual goal: (1) to facilitate the creation of other foundations (up until then it was quite complicated in Luxemburg as a complex approval procedure is required) and (2) to guide and accompany the founders on their philanthropic journey.
Furthermore the initiative aimed to ease the overall legislation with regards to philanthropy and make some improvements in the tax system, to make philanthropic engagement more appealing from a fiscal point of view. Since then, under the umbrella of Fondation de Luxembourg we have created almost 70 new foundations. Interestingly, we have also seen an acceleration in the number of foundations created independently from Fondation de Luxembourg during the same period: until 2009, there were 100 foundations but today that figure has been doubled to more than 200 public utility foundations.
“Fondation de Luxembourg was born to facilitate the creation of other foundations and to accompany founders on their philanthropic journey”
Are you perceiving an evolution in the needs and perspectives of philanthropists, whether individuals and/or corporate subjects? Which shifts in the philanthropic landscape are you particularly excited about?
Certainly – the traditional type of philanthropist would have been an elderly person, typically with no children, who gives his/her money to a foundation for humanitarian projects almost as a legacy. This often meant giving your money away while not being active yourself. We have seen a shift away from that perspective, with the rise of younger donors who want to be active during their lifetime.
We see basically two main trends. On one hand, there is a growing interest in measuring the impact of your engagement and having a focus on the result of your donations, a driver that also pushes towards joining forces between foundations to partner for the accomplishment of similar objectives. On the other hand, we see an increased focus on social entrepreneurship, by which is meant a business approach to achieve social purposes together with a long lasting change in the local community.
I will give you an example. One year ago a person in his late 50s came to us. He represented his family business, which had recently been sold – a successful business in the IT area. The family had the idea of supporting social entrepreneurs, but even if they had a lot of entrepreneurial experience, they did not have any specific competence about philanthropy. So we put them in contact with some incubators for social entrepreneurs, and organized meetings with them. It was interesting to see that, once the right introductions and connections were made, they started engaging themselves, taking part in the selection of the social entrepreneurs and in mentoring these people. By doing that, they got into contact with lots of new different projects – now, it’s almost like they are coming to us with new ideas rather than the contrary because they have learned so much from their new network. I think that’s a very efficient way of supporting new philanthropists. If we can help them access the right knowledge, they can learn and engage themselves to then take it to the next level.
Another way of promoting this shift is to connect philanthropists with other philanthropists. At the Fondation de Luxembourg, we regularly organize round-table meetings for a limited numbers of founders (10-15 people) on a theme or specific issue we think they share. Our objective is to facilitate the exchange, and make them learn from each other’s experiences – by dong that, we have seen the birth of many new collaborations between foundations. I think that’s something very nice because we can help combine and optimize the use of founders’ resources towards a more effective philanthropy.
“We see two main trends: a growing interest in measuring the impact of your philanthropic engagement and an increased focus on social entrepreneurship”
How does Fondation de Luxembourg operate to support philanthropists?
We are an “umbrella” foundation, therefore our role is to act as an intermediary between donors, and different organizations and social sector projects. We are donor-driven, meaning that our starting point and the focus of our attention is to support donors, for example to find organizations and projects in line with their objectives. The procedure we built to select these organizations is very important. We propose them a short-list of different projects in their chosen social area, and then we oversee the implementation of these projects and follow-up on the milestones we put forward. For each project, we sign a contract with the NPO that will run it on the ground, and we follow the progress in relation to what has been stated in those contracts.
Another part of our work is more on an administrative level: we run and manage the foundation for these philanthropists, taking care of all the operational management, the administration of payments, accounting, external auditors, etc. We also act as secretariat for the board meetings of their foundations.
Moreover, Luxemburg is an important financial center, with a strong private-banking sector. The idea, when the foundation was created, was to leverage this sector for philanthropic engagement by encouraging wealthy clients of these private banks to mobilize their resources for social good. With regards to that, during the past ten years we have been very active by holding trainings, seminars and presentations in all private banks, with the purpose of stimulating bankers to discuss philanthropy with their clients, and create an interest in these people to using their money for something meaningful. I think that’s where we had the most success so far: 80% of the founders of the foundations we have created, came to us through an introduction by a private bank.
Which are the main challenges in deploying an effective philanthropic strategy according to your experience?
The first challenge is to build an important network of trusted associations to work with. We have put in place a procedure for making a proper due diligence where we look at different aspects of these organizations: their level of experience in running projects of similar size, their governance, their level of transparency, the organization, the people and the competences they have. The procedure to find this information starts from exploring public information and financial reports – sometimes, we also engage embassies or consulates to provide us direct feedback. We also connect with other foundations that have supported those organizations to listen to their experience. Making a proper due diligence to find the best trusted partners to collaborate with is the number one challenge.
Secondly, we often work with niche projects in limited areas, focusing on specific communities. Depending on the experience and the result of that project, we will then strive to scale-up by using the same methodology and procedure, extending it to further communities.
Finally, it is very important to think about what should be the exit strategy. We want to avoid the charity becoming dependent on external donations. That’s why already when you start a project you should plan the exit strategy, thinking about how to make the projects self-financed through revenue-generating activities.
An example is a foundation we started collaborating with many years ago. It is focused on creating schools in partnership with a local community in Namibia. The goal was to create ten schools for vulnerable children, most of them with parents AIDS-affected. The schools have been built and they work well, the teacher’s salaries have subsequently been taken care of by the local authorities; in short, we have achieved quite good results after seven years. But, in the last few years, we have been working on encouraging the local community to build a mill in order to create some income-generating revenues. That part of the project has been very slow in developing because the local community tends to think the funder’s money is going to be there forever – and that’s not the case. We had to challenge them to understand that they now have to take full responsibility. That has been the biggest challenge of the whole project.
“Making a proper due diligence and starting to plan from the beginning an exit strategy are two key features to define an effective philanthropic strategy”
Among its activities, Fondation de Luxembourg provides donors an opportunity to ease cross-border donations as a member of the TGE network. Which trends is transnational giving experiencing in Luxembourg and which are the main drivers?
We have been a member in Transnational Giving Europe since we were created in 2009. We think it’s a very useful network to make donations more attractive to donors from a fiscal point of view, even if administrative procedures can vary from one country to another.
One reason this is particularly relevant to us is the fact that most of our donors are actually residents in other European countries. We like to see ourselves as more of a European foundation, acting with a very broad geographical reach. The TGE network is incredibly important and Luxemburg as a country has been very proactive in terms of promoting cross-border donations: it was one of the first countries in the European union to recognize cross-border donations as if they were national donations. This means that a fully taxed adaptability is given to Luxemburg residents who want to give and donate to a project abroad.
With regards to the Transnational Giving Europe, the goal is of course the ceasing of its existence one day, because we all hope that after some time all the countries will follow Luxemburg and implement this cross-border aspect in their national legislations – which is not the case today. In this perspective, it is worth mentioning that Dafne and the EFC recently published a study, where they started a debate on what more had to be done at a European level to promote a level-playing field for philanthropy. That is clearly an important aspect. We see more and more cross-border donations, and statistics demonstrate that cross-border donations are overall increasing. We have also experienced an increasing number of NGOs and associations seeking a recognitions within Transnational Giving Europe, probably because donors are becoming much more international in their engagements today than 20 years ago.
“Luxemburg was one of the first countries in the European union to recognize cross-border donations as if they were national donations from a fiscal point of view”
What is the Foundation’s approach to social impact assessment?
There are two aspects we should consider. Firstly, social impact assessment per se. In its real terms, it is about measuring the overall societal impact of the donations and I think very few organizations are at the stage of doing that. For example, if you are supporting schools, you would try and measure the impact on the broader society in terms of higher income levels or better living conditions because of the investments that you have done, and compare that to what would hae happened without those investments. That is feasible but very complex.
Secondly, the other aspect is to monitor and measure the result of your donations against your criteria. That is where we are active today. For each new project we support, we establish a legal contract where we have clear milestones in terms of what should be achieved. We require regular reporting from the organization that we will analyse in relation to those milestones. For example, concerning schools we are supporting through the foundations we manage, we will measure the number of pupils that have succeeded, looking into their school results etc. It takes a lot of time, but today there is much more interest in having that kind of monitoring: it is an added value we give to our clients by demonstrating to what end their money is being used. While the main reason people are currently coming to us is to set up a foundation and handle all operational aspects, donors are also asking themselves how to be sure that their money is well-spent. I think we will see more donors who perceive this as an added value in the future, because the attention on this topic is increasing steadily.
For further information http://www.fdlux.lu/