Philanthropy by Numbers
Is an annual donation of $18m to charity a great act? Yes and No. More on this later.
Recently the AFR Magazine ran a major piece on the “amazing” levels of giving of some Australians — with Twiggy and Nicola (and their 24 yr old daughter) featuring on the cover. The magazine included a list of the top 50 givers in Australia and generally overly positive stories about all these “amazing” philanthropists.
The AFR also produces its Rich 200 list annually so with these two lists we can review and perhaps posit a thesis as to the giving patterns of our most fortunate.
Before embarking on a meta analysis of the lists maybe I should spend a little time on the argument — why should people donate/give? My rationale here is simple and was made to me nearly 30 years ago.
I recall meeting Bill Gates’ wonderful mother (Mary Gates) many years ago. Of the many incredibly insightful things she said to me over the few times we met the one that stuck with me most was the way she thought about philanthropy or giving back.
She made the point that “if you are fortunate in life to do well financially then it is your responsibility not your choice to give back”. Clearly Bill and Melinda Gates have taken this and their own very strong moral compasses and done simply gobsmackingly amazing things in the world of philanthropy.
So that is it..if you happen to be a rich banker, property developer, retail icon, mining magnate, legal eagle or tech whiz you have made your pile of wealth from this society (and maybe other societies around the world). Your success is not just about hard work. It is a combination of hard work, luck and (in Australia) a functioning society where there is a rule of law, people pay their bills etc..So anyone who is wealthy has not just made gold from air in an unground bunker but been a beneficiary of Australia’s resources, land, its people and its legal and business structures.
Sure you can choose to not give back and not acknowledge how the society helped you become wealthy. No one can force you to give back but we should acknowledge such people (those that fail to give back) as probably not great members of society.
Anyway….before we unpack the numbers in both AFR lists I want to lob in one ratio 50/20 and one specific number ..20%. Let’s call this the Petre Benchmark. My thesis is that anyone who has at least $50m in net worth can allocate 20% of their net worth to philanthropy. The most common way to do this would be to take the 20% of net worth and put it in a foundation — where you have to (under foundation guidelines set by the Govt) give away 5% of the corpus every year (as a minimum).So in essence you are giving away 1% of your net worth per year (5% of 20% = 1%)…Stay with me.
I arrived at this benchmark from spending years working with Bill Gates and subsequently watching his work with the giving pledge where the most wealthy commit to allocating more than 50% of their wealth to charity either while alive or when they pass…So I took this and then tried to find a % lower than 50 but where the donor could easily make the allocation to philanthropy while they are alive — and not having to make any changes at all to their lifestyle (regardless how extravagant it was). ie make the giving % a no brainer…
My argument is that if you are living happily with $50m of net worth you can live just as happily on 80% of this ($40m) without having to suddenly start buying clothes at Vinnies Op Shops — and you get to give away $500K annually (5% of the $10m that is now sitting in your foundation — $10m being 20% of $50m) to worthwhile charities that you care about..So you live a great life without any changes at all and others less fortunate are better off. Win — Win.
Clearly if someone with $50m of net worth can live happily on 80% of this then anyone with more than $50m also has to be able to live happily..Even our most wealthy (that would be Anthony Pratt with a net worth of $12.6b) could probably live as well as he does now with maybe 80% of this ($10.08b).
Using the Petre Benchmark someone with $1b could easily move 20% of their wealth ($200) into a foundation which would then have to donate at least 5% (which is the required donation rate for foundations) — $10m a year. You see how this works.
Returning to the lists.
This first list is the AFR Rich List which lists the 200 most wealthy people in Australia. The most wealthy is Anthony Pratt (as mentioned above) with a net worth of $12.6b and the poor guy who comes in 200th is Owen Kerr with a paltry $342. Using my benchmark the Pratts could be donating $$126m a year (5% of the 20%) and poor Owen could be donating $3.42m (5% of 20%).
Now it you apply the Petre Benchmark to just the Top 10 you find that each of the families note would be donating the following annually;
Pratt $126m, Triguboff $114m, Rinehart $104m, Lowy $83m, Glasenberg $69m, Forrest $65m, Gandel $61m, Wing Mau $60m, Packer $48m and Perron $39m..None of them are donating anywhere near these levels.
Keep these numbers in mind as we move on..
The second list is the AFR list of the 50 most philanthropic people. However there is a caveat..In this list the top 2 positions — Ramsey Foundation (donations last year of $83m) and the second top — Ian Potter Foundation (donations last year of $35m) are both dead guys…In fact there are others in the list of donors (top 50) that are also donations from the foundations of dead guys.
And when you are looking at comparing the living wealthy and philanthropy you probable should exclude the foundations of dead guys.
Nonetheless let’s do some maths and assume everyone in the giving list is living (even if they are not!). The top donor is (as mentioned) the Ramsey Foundation ($83M) and coming in #50 is The John Reid Charitable Trust with $3.3m. Total giving last year from the 50 was $459m. Good..Yes. Impressive..maybe not.
In the Rich List the wealth of the top 50 was $144.84b (#50 was $1.14b). Taking the Petre Benchmark and applying it to this group as a whole you get 20% of $144b = $28.8b. Assuming this was in 50 charitable trusts each throwing off 5% would result in $1.44b total in charitable gifts annually.
So the aggregation of the 50 biggest donors (including a bunch of dead guys) was $459m (excluding just the top 2 dead guys and this drops to $341m) and the Petre Benchmark of possible giving (that does not change the life of the givers) would suggest $1.44b in gifts…around 30% of the potential….hmmmm.
Of our 10 most wealthy only 3 appear in the 50 top givers. the Lowys with a wealth of $8.2b gave $18m,the Forrest Family with a wealth of $6.8b gave $18.3m, , the Gandel family with a wealth of $6b gave $10m, the Packers with a wealth of $4.7b gave $10.3m. The Pratts (with $12.6b) seem to have donated only $7.6m.
In the top 50 for giving but well outside the top 50 for wealth are the fine families of the Tuckwells (wealth of $62m) who gave $30m, The Kinghorn family (wealth of$353m) who gave $15m and the Gerghofer family (wealth of $374m) who gave $10m.
Here is a table that tries to make sense of all these numbers.
It takes the top 10 most wealthy families, how much they could have donated under the Petre Benchmark, what this would be as a % of their net worth, what they are reported as giving (last year) and what their giving last year was as a % of their net worth. Makes for interesting reading.. Spend some time on this table.
Of course in some cases maybe the size of the family’s (in the table above) donations made them fall out of the AFR top 50 donors (which means they gave less than $3.3m) and/or their donations were done very secretively and not using any tax structured foundations. Possible.
The table shows that none of our top 10 are close to giving away anything substantial. With annual giving in the range of 0.06% to 0.29% of their net worth I am not sure any of these donations count as philanthropy in the true sense of the word. I am also sure this date suggests our most wealthy do not appreciate how fortunate they are and the responsibility of those most fortunate to give back to the society from which their wealth came.
Let’s go back to the Forrests. In reviewing their data I want to make sure one thing is acknowledged. It is truly wonderful that they have signed up for the Giving Pledge (to give most of their wealth to charity before they die). This is a big deal if they follow through as they seem to be planning to.
Their net worth is $6.84b. 20% of this is $1.36b. Last year in a massive announcement including the Prime Minister the Forrests put $400m into their foundation (so 5.8% of their wealth). Last year they gave $18m from this foundation. Is this a huge gift. Yes…in absolute terms it is. Especially if it represents a massive part of your net worth which in this case it is not.
In relative terms this donation is not so newsworthy. In the Forrests case $18m in donations last year represents less than around 1/4 of 1% (specifically 0.29%) of their net worth.
So to be clear the Forrests are doing good things. Moving 5.8% of their wealth into a foundation is a good start. Giving away the equivalent of 1/4 of 1% of their net worth in one year is a good start (at this rate it would take around 400 years for them to give their money away)….To be fair to them they are the standout family of our 10 most wealthy families (in terms of giving) but 0.29% of net worth being donated in one year is not something to make a big deal about nor is moving 5.8% of your wealth into a foundation…So good but not great.
Great is someone allocating >50% of their net worth to a foundation on their death.Paul Ramsey did this (he donated nearly all his wealth on his death to his foundation). Also Ian Potter (creator of the Ian Potter Foundation) and many others have done similar things.
Outstanding is someone allocating >50% of their worth to a foundation while they are alive. Bill Gates has done this as have a number in the Giving Pledge list. https://givingpledge.org/.
Honorable mentions would have to go to the Tuckwell family (gave away 6.5% of their net worth in one year and have allocated more than $100m — 18% of their net worth to scholarships), the Kinghorn family (who gave away 4.25% of their net worth in one year) and the Berghofer family (2.7%). If each of these families keep up this level of giving then they clearly move into the great — outstanding category and worthy of praise.
In our case (Petre Family) we have ALOT less than anyone on the AFR Rich List and yet my wife and I have allocated around 35% of our net worth to our foundation — with more coming in the next few years.
Is this great…Nope..however better than average and better than most on the Rich List who have far more discretionary wealth than we do. Still our efforts are not great and the efforts of most of our wealthy are somewhere between sad and disgusting.
Great is an average Australian who has less to give )as they have a very tight budget) and yet they give money to charities. I suspect thousands of regular Australians give away more than 0.06% or even 0.29% of their net worth each year to charities and they do not get any fawning articles written about them not catch ups with the Prime Minister.
We need to acknowledge the donations provided to worthwhile charities by our most wealthy but can we please keep the fawning press coverage until someone actually moves > 50% of their wealth into a foundation which then allocates donations at the required levels (5% of the corpus which means you are donating around 2.5% of your net worth to charities each year — 5% of 50%= 2.5%) while they are alive..
Can we please always look at the % of net worth being donated and not focus on the absolute numbers because the test of true philanthropy is how much it hurts or impacts your life (as a donor). At anything less than 1% of your net worth being donated each year is simply not worthy of accolades nor attention.
In closing I would go back to Bill and Mary Gates.
What Mary Gates said so many years ago made so much sense and was the reason we have tried to live by this creed for the last 25+ years. It would be nice to think that our most wealthy could also see the fairness in this way of thinking and behave accordingly.
