Philanthropy, community

foundations and strategic

community investment

Written by Gemma Slack

__________

A very special thank you to Gaia Church for your editing work.

Table of Contents

Executive Summary 3

What is this all about? 3

Philanthropy 101 4

Community Foundations 6

Strategic Philanthropy and Community Investment 13

Conclusion 18

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Executive Summary

The purpose of this paper is to communicate this conceptualisation of philanthropy,

community foundations and strategic community investment. As philanthropy and

community foundations develop, so too do the approaches taken to ensure that

communities are best served to promote meaningful change.

The purpose of the paper is then twofold: to discuss the history, development and

present day of philanthropy and community foundations; and to discuss strategic

community investment and the tools that community foundations can use to empower

their communities in making transformational, sustainable change.

What is this all about?

Community foundations are one of the fastest growing forms of community

philanthropy in the world, yet despite this they lack one common definition. This lack

of one common definition means that community foundations are not restricted to one

model or way of working, ultimately meaning that their opportunities are boundless.

While, no two community foundations are the same, their common purposes are clear:

to understand a community’s collective goals, face the community’s toughest

challenges, and embrace the community’s most inspiring opportunities, to create

sustained improvement in the quality of life for all people in a defined region.

Community foundations were born from the concept of philanthropy, a form of strategic

giving to promote public good. In New Zealand, 14 community foundations have

spread across the country since the early 1990’s, and collectively oversee fund

management of $50 million. In Europe and North America, community foundations

have existed since the early 1900’s. Strategic community investment and its tools are

used by community foundations to empower communities to understand their needs

and aspirations, and direct them with how best to use their resources for change.

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Philanthropy 101

What is ‘philanthropy’?

Philanthropy comes from the Greek word ‘philanthropia’ meaning “love of mankind”.

It’s a concept that originated in 347 B.C. when Plato left a will to his family, requesting

that the proceeds from his farm be used to support the academy that he founded.

Although there can be many definitions of philanthropy, for the purposes of this paper

the definition is:

“Philanthropy seeks to address the root cause of a problem, allocating resources to

address the cause with a collaborative, macro and long-term vision of creating

sustainable and transformational social change and development.”

Charity versus Philanthropy

Critical to understanding the concept of philanthropy is understanding how it differs

from charity. The two concepts are often used interchangeably – and understandably

so. With great similarities in terms of purpose and action, their difference really exists

on a continuum rather than in stark contrast. Charitable and philanthropic organisations

are different and thus it can be difficult to state that one is purely philanthropic or purely

charitable. However, if one was to define the difference between it would be this:

philanthropy seeks to solve the root cause of a problem whilst charity serves to

alleviate the suffering that is caused by the root problem.

Philanthropy and charity, at their most distinct, show the difference in taking a ‘strategic

approach’ versus an ‘emotional approach’. By taking a strategic approach,

philanthropy considers investment that will have the greatest impact on society. This

is future-focused and aims to target issues at their root, focusing on the general

common good of society and how to solve issues with a wider perspective.

In contrast, by taking an emotional approach, charity can be seen as more reactive

and immediate. It is sympathetic towards individual causes and focuses on relief and

rescue, and thus makes a profound difference in the lives of people.

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CHARITY PHILANTHROPY

Present Future

Micro Macro

Targeting individuals Targeting common good

Temporary Sustainable

Alleviating suffering inflicted by the

problem

Addresses the root cause(s) of a

problem

Reactive Proactive

Emotional or sympathetic Strategic

What is philanthropy’s role in society?

Critical to understanding philanthropy’s role is understanding that it is often free of the

constraints that other vehicles for community benefit – the government and private

sector – face. Academics often suggest that combatting complex social issues in a

meaningful way is not something that the government or private sector can do alone,

rather in collaboration with many groups. Philanthropy’s role in society is to connect a

range of individuals and groups together within a community with relevant information

on the current state to act, and consequently promote the common good.

Types of philanthropy

The concept of philanthropy continues to evolve over time. Due to this, there are a

variety of terms used to describe different types of philanthropy. These terms, however,

display some common trends that show where philanthropy’s focus is now. These

trends are: community development; and revitalization through strategic thinking with

a long-term focus on creating impact. Some buzzwords have emerged that

communicate the aforementioned common themes. They are summarized below:

Strategic Philanthropy: This is data-driven philanthropy that involves the

synergistic use of resources to achieve meaningful and measurable goals. Strategic

philanthropy considers philanthropic activities in light of their effectiveness to reach

high-level goals. This involves holistically understanding the needs and aspirations of

a community, through research, to undertake strategic grant-making activities that have

a large and well-defined goal with transformational effects on the root cause of issues.

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Effective Philanthropy: This is philanthropy that seeks to measure its impact and

therefore increase that impact. This is philanthropy that doesn’t just do – it measures

what it has done to see whether that has been effective.

Venture Philanthropy: This is the application of the techniques of venture capital to

philanthropy. There are four common principles to venture philanthropy:

o Ensuring that non-profits grow their capacity to make a greater impact through

building infrastructure and management capacity;

o Ensuring grant-makers are highly engaged;

o Ensuring that there are clear benchmarks of performance; and

o Ensuring that there is a long-term focus in activities.

Philanthrocapitalism: This is philanthropy that uses the tools of capitalism to solve

social issues. It encourages the investment in social entrepreneurs, investment banks

and management consultants, as in the for-profit world. However, this type of

philanthropy receives some criticism as some of the problems it seeks to solve are

caused by the for-profit organisations it models.

Community Foundations

What is a ‘community foundation’?

From a legal perspective, community foundations are simply grant-making charities.

This means that their operational purpose is to raise and dispense funding in their

defined region (a region that varies in scope depending on the community foundation).

Foundations have a board of trustees that consists of members who are representative

of the community. This board of trustees provides governance and strategic direction,

and aids in the developing of a foundation’s resources.

However, this definition is not nearly detailed enough to explain the complex and

thorough duty of community foundations. In more detail, community foundations build

permanent endowment funds through pooling donations from donors, and coordinate

the investment of these endowment funds to match both donor and community

interests, needs and aspirations, to ultimately achieve collective betterment and social

improvement of a region.

It could be said that community foundations evolve when informed leadership and

resources meet; they see the emerging needs of a community through research, and

leverage strategic partnerships to create a real impact in their local area.

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Further still, for some community foundations, their purpose is to also engage in

philanthropy consulting services. This is the process of using research to provide

specialised and straightforward information and advice to donors that will aid them in

achieving their philanthropic goals.

What does a community foundation model look like?

The answer to this question is both simple and complex: there is no one community

foundation model. The possibilities for their structure, strategy, leadership and

governance are boundless and are often decided based on societal and cultural

contexts and the intent or interests of their founders. The only certainty for what

community foundations are is that it involves the mobilisation and connecting of

resources in the community. Their mission can be undertaken in numerous ways. This

uncertainty, then, makes defining them complex – but also mirrors the necessary

organic nature of such organisations that allows them to best reflect a community and

respond to complex social issues.

There are 12 characteristics that are common to most community foundations:

Community Foundations Today

Community Foundations have existed since the early 1900s and have developed

substantially since those early beginnings. There are close to 2,000 in existence today

Grant-makingAccountability to

local peopleSeeking local

donations

Building inclusion and trust in the

community

Having local people as leaders in the

organization

Serving donor needs

Catalyzing community

development

Building an endowment

Raising money for grant-making

annually

Having a board reflective of

community diversityPursuing equity

Acting as a fiscal intermediary for the

community

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worldwide, the movement having doubled over the last 15 years. Over 74 percent have

been created in the last 25 years.

There are a number of factors influencing the establishment of community foundations,

such as community leadership, grassroots activism, inadequate government services,

changes in the political environment, and government initiative funding. The influence

of ‘grassroots activism’ has caused the recent momentum in community foundation

establishment, with communities taking back the responsibility of tackling social

problems. There are now community foundations in 69 countries and they can be found

on every continent except Antarctica.

Today’s Community Foundations: A Snapshot

The History of Community Foundations

United States

The first community foundation in the United States was also the first one in the world,

established in 1914 in Cleveland. It was started by Frederick H. Goff, a banker and

lawyer, who had the idea of pooling numerous charitable gifts from philanthropists into

one fund for the development of the city. It was said that those funds would be

distributed by community leaders to fund “such charitable purposes as will best make

for the mental, moral, and physical improvement of the inhabitants of Cleveland”.

The foundation initiated the endowment fund model in 1944 called the Combined Fund

– a model that is widely used today by community foundations globally. This fund

200,000

Average population served by community

foundations

7.8

Average staff size

16

Foundations with over 51 employees

US$3.73 billion

Largest endowment fund (held by Tulsa

Community Foundation)

1,031

Foundations in North America

650

Foundations in Europe

60

Foundations in Asia

56

Foundations in Oceania

30

Foundations in Africa

11

Foundations in South America

2,201,116

Average population served by community

foundations in Oceania

11

Foundations globally with endowment funds of over $1

billion

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allowed people of all income levels to contribute to their community. In 1957 the fund

granted US$1 million, and today has collectively distributed US$1.88 billion. Today,

they employ 77 full time staff and have an endowment fund of US$2 billion, distributing

US$89 million annually.

United Kingdom

The first community foundation in the United Kingdom was established in 1979. The

Northern Ireland Voluntary Trust (now known as Community Foundation for Northern

Ireland) was formed with funding from the government, with the purpose of assisting

the healing of the Protestant loyalist majority and the Catholic nationalist minority from

decades of conflict.

During the 1980s, Michael Brophy, from the Charities Aid Foundation, was responsible

for transferring the community foundation form in the United States to the United

Kingdom. In partnership, the government and Charities Aid Foundation established the

Community Trust Development Unit to act as an umbrella organisation for the

expansion and promotion of community foundations in the United Kingdom. The

government gave an initial funding grant of £790,000 that was to be matched by

independent fundraising. The foundation describes the most meaningful change

caused by its efforts, as the opportunity to work with the most marginalised

communities, increase their self-confidence and awareness, and facilitate their

collaboration with other groups that were former enemies who they can now treat as

friends.

Some endowment funds in the United Kingdom are as large as £40 million, and others

are as small as £1,000. Generally, the foundations are more conservative institutions

and place more emphasis on the government to address social issues; this is different

to the United States where the emphasis is on the community or individual. Today,

Community Foundation for Northern Ireland employs 45 full-time staff and has an

endowment fund of £20 million, distributing £4.7 million annually.

Canada

William Forbes Alloway established Canada’s first community foundation, the

Winnipeg Foundation, in 1921. Alloway was a banker and gave a CA$100,000 gift to

establish the foundation. In 1922 the foundation made their first grant of CA$6,000 to

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the areas of health and children, and in 1924 it anonymously received its second

donation of fifteen dollars’ worth of gold coins. Upon Alloway’s death in 1930, his estate

– worth CA$2 million – was left to the foundation, which allowed for an expansion of

grants during the depression. The foundation had the opportunity to innovate and

expand due to funding from the government and, in 1981 assets of the foundation

reached CA$20 million. By 2012, the foundation had CA$500 million in assets and

cumulative grants totaling over CA$300 million.

In 2012, Community News Commons was launched in Winnipeg, which was a media

project that focused on engaging the community people in community life and in 2014,

the foundation spoke with approximately 1,800 youth with a purpose of scoring

Winnipeg’s fifteen key areas in Youth Vital Signs. Vital Signs is a strategic community

investment tool that is used by foundations to assess the needs and aspirations of

regions. It will be discussed later in this paper.

Today, the Winnipeg Foundation employs 32 staff and holds an endowment of CA$560

million, distributing CA$20 million annually.

Europe

Slovakia saw the first community foundation established in Europe in 1994: The

Healthy City Community Foundation. It was established by the Rotary Club of Banská

Bystrica after the city participated in the World Health Organisation’s ‘Healthy Cities’

project, which acknowledged the importance of community development and citizens

being active in addressing local social concerns. Despite difficulties in fundraising,

US$30,000 was established by community leaders to initiate fundraising efforts.

Today, the foundation employs two full-time staff and serves a population of 200,000.

New Zealand

According to the Charities Aid Foundation, New Zealand is the third most charitable

nation in the world after the United States and Ireland. Per capita, New Zealand has

comparatively large philanthropic resources, however the establishment of the welfare

state in the 1990s meant that New Zealanders developed opinion view that

responsibility for health, education and welfare resided with the government. This left

little urgency for private philanthropy to emerge in response to social needs. However,

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because of the changing needs of the New Zealand landscape, a mixed-model of

philanthropy and the welfare state has emerged.

New Zealand is relatively new to community foundations, the first being the Nikau

Foundation, established in 1991. Nikau Foundation serves the region of Wellington,

which has a population of approximately 400,000. In 2015, the foundation made grants

totaling NZ$87,714 and held an endowment of over NZ$10 million. Today, New

Zealand has 14 community foundations, and collectively oversee fund management of

$50 million.

What is building a permanent endowment fund?

A challenge that faces many organisations is the uncertainty of where the next donation

is going to come from, and when. There is a great dependency on the generosity of

the general public and this creates a vulnerability. Community foundations challenge

this vulnerability through the building of a permanent financial pool, known as an

endowment fund.

Endowment funds consist of financial assets. These can be such things as shares,

property and cash. Endowment funds grow over time with the assistance of investment

managers and it is only the returns on the investment that are used for grant-making,

operations, and other expenses. This increases the ability of the community foundation

to survive and decreases the reliance on donations. Of course growing the endowment

fund is in the best interest of communities, and by not touching the capital of

endowment funds, a resource that aims to last forever is provided for communities.

Globally, community foundations distribute almost US$5.1 billion and hold over

US$63.2 billion in financial resources. In Oceania, the average endowment value of a

community foundation is $6,666,642. However, the size of an endowment fund is not

necessarily indicative of its success in terms of impact; it is how the community

foundation manages their activities that determines their community impact.

There are typically three types of donors to community foundations: individuals,

corporations and trusts. In terms of ways to give, donors essentially have three options:

contribute to the foundation’s endowment fund; use the foundation for immediate

gifting, or a mixture of both. Donors can also set up named funds through the

foundation. Regardless of the way they give, donor giving can be unrestricted, meaning

that the foundation determines how it should be distributed, generally based on

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community needs or aspirations; or restricted, meaning that the donor puts restrictions

on the distribution of the fund, for example it should go only to specific causes or

charities.

Where do community foundations focus their resources?

Worldwide, community foundations have a number of areas where their resources are

focused. In terms of where funding is most focused worldwide and how much goes into

each area, they can be summarized in the pie chart below. Other refers to information

technology, advocacy with authorities, conflict resolution, disaster relief, religion,

strengthening government, water, alternative energy and international relations.

What are the roles of community foundations?

Academic literature suggests that there are three main roles of community foundations.

How each individual foundation finds the appropriate balance of these roles, however,

is dependent on the community foundation and their purpose. These roles are as

follows:

15%

13%

12%

11%10%

9%

6%

3%2%

19%

Where do community foundations focus their funding?

Education

Human and social services

Arts and culture

Health

Environment

Children

Economic Development

Housing

Human Rights

Other

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Donor servicing: a donor-focused role that is dedicated to attracting funds from

potential donors, with the community foundation offering an avenue for donors for their

philanthropic giving. It is important that community foundations balance their duties to

donors with their duties to the community. When community foundations become too

donor-focused, they may not properly meet the needs and aspirations of the

community they serve. This is why it is critical that community foundations invest in

understanding how grants can be used to make the greatest impact and where the

needs of the community lie.

The act of Matchmaking is when community foundations act as intermediaries –

working with individuals, not-for-profits and donors to match funds with needs.

Community foundations allow donors to create value with their donations and to feel

connected to something larger than themselves that ultimately creates a sustaining

community. Community foundations create a platform from which social entrepreneurs

can gain funding with the purpose of regional philanthropic-focused development. This

opportunity for locally-grown, grassroots activism gives real power to community

foundations. It is also the job of community foundations to highlight the issues that are

being overlooked and create opportunities for those issues to be addressed.

Community leadership is the expectation that community foundations should guide

and engage their community in solving local issues using local solutions. Through this

leadership, community foundations aid communities in finding self-empowerment. The

community foundation model allows it to participate in some activities that are not

grant-making, such as facilitation of local engagement, convening community

members and advocating on behalf of the community.

Strategic Philanthropy and Community Investment

What is ‘strategic philanthropy’ and why is it useful to community foundations?

As discussed earlier, strategic philanthropy is a concept that emerged in recent years

as a way to combat the inefficiencies of traditional philanthropy, such as organisational

inefficiencies and the lack of innovation or entrepreneurial prowess. It takes elements

of the for-profit model of strategy for corporations and applies it to the not-for-profit

sector. For community foundations, the use of strategic philanthropy increases the

effectiveness of their activities. By using smart strategy, community foundations can

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make greater impactful change, and it is one of the ‘buzzwords’ that shows real

promise in enhancing the effectiveness of community foundations. Without the use of

strategy, community foundations hinder their ability to be a catalyst for real change;

scattered funding and impersonal relationships create a lack of awareness and

ultimate divide between the foundation and its ultimate goals.

What is needed in order for community foundations to embody strategic philanthropy

is a true cohesion between their daily activities and ultimate goals. One key to strategic

philanthropy is aiming for superior performance. Strategy is about making the most out

of what you have to best achieve your goals. Getting the most value out of every dollar

spent is critical, which necessitates foundations implementing performance measures

to understand the level of success grants have in combatting issues, as well as

undertaking research to benchmark the current status of social issues in their

community.

Strategic philanthropy requires foundations to choose unique positioning in terms of

where and how they will create an impact and align the overall strategy of the

foundation with their day-to-day operations and governance. Using the strategic

philanthropy framework, community foundations can create value for communities in

four real ways:

Implementing a rigorous assessment process for grantees. Through

implementing a stringent assessment process for grantees, community foundations

can make decisions based on how their dollars can create the highest level of social

return, therefore maximizing the value of the resources available.

Expand expertise and resources through gathering funders. Through

partnerships, community foundations are able to pool a larger base of philanthropic

resources and more expertise to engage in strategic philanthropy.

Build relationships to help improve the performance of grantees. By becoming a

fully engaged partner in the drive for social change in the community, community

foundations can become incubators for grantees. They will be able to help them in

improving their strategy, thus increasing their effectiveness in the achievement of their

vision and allowing them to make even more effective and valuable change.

Funding research and calling for innovative projects. Community foundations have

the ability to study fields in depth and use that knowledge to inform community

stakeholders. Foundations have the ability to invest in research that will spark change

and contribute to the deepening knowledge of social issues.

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It is clear, then, that in order for community foundations to be truly effective, strategic

thinking is critical. Part of strategic thinking is the necessity to understand the complex

social issues that communities face, as only once communities are knowledgeable on

the issues that face them can they identify how to address these issues.

The community foundation model has the capacity to act as a leader in communities –

a change-maker, convener and connector for grassroots activism and local

empowerment. However, really understanding these complex social issues is where

the challenge lies. Strategic community investment tools are part of the solution to that

problem. These are research tools that help in providing insights into the heart of

communities, establishing a benchmark of where communities are and where they

need to be, and identifying where to invest resources to make the most benefit for

society.

Strategic Community Investment

Strategic community investment is essentially the investment of funds that are targeted

thoughtfully, based on evidence and research, at the causes and initiatives that will

create the biggest impact. Critical to this, is not only using assets well in the present-

day, but preserving and enhancing them, so that they can be utilised well in the future

to continue to benefit the community. Strategic community investment allows for a

assessment of the investment opportunities in the community to ensure that there is

thoughtful delivery of outcomes and impact.

Strategic Community Investment Tools

A strategic community investment tool is a planning tool. Essentially, it is a tool that

allows investigation to be taken into the short, medium and long term consequences

of activities to figure out what has the most value. The following is not an exhaustive

list of the strategic community investment tools available, however will highlight three

of the tools and how they are used to manage community investment:

Vital Signs

Vital Signs is used by over 65 communities worldwide and is the most widely

recognised strategic community investment tool in the community foundation sector.

The premise of Vital Signs is simple: it is a periodical (usually annual) health check on

the region that seeks to measure and identify social, environmental, cultural and

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economic indicators. In the same way that individuals see the doctor every year to

check their health, Vital Signs checks the health of the region.

Vital Signs can have many uses, however community foundations predominantly use

it to spark conversations – engaging local people to create local solutions to local

problems and direct resources to the areas that are most at need.

In order to create a Vital Signs report, public opinion is combined with statistical data.

Quantitative and qualitative elements are published in an easy-to-consume report that

is often very visual, focusing on diagrams and infographics. This makes the information

interesting, engaging and understandable, enhancing its ability to inspire movement in

the local community.

There are twelve core indicators that can be measured in Vital Signs reports. These

show both what communities do well and also areas for improvement. However, these

are not static and can be adjusted to reflect each unique region. The indicators are:

Arts and culture

Belonging and engaging

Environmental sustainability

Economic vitality

Education and learning

Food security

Getting around

Getting started

Health

Housing and homelessness

Leisure, sports and recreation

Poverty and the gap between rich and poor

Safety and security

Vital Signs reports are not only of use to community foundations, but also to local

authorities, community members, charities and government.

Needs Assessment

Needs Assessment is a tool that measures community-wide needs. It is not restricted

to community foundations and is used by not-for-profits at large, alongside for-profits.

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The concept of the Needs Assessment is to measure the needs of a community – what

is and what should be.

The Needs Assessment tool is an academic-focused report highlighting a number of

action steps that are to be taken to satisfy the needs of the community. The data can

be collected through quantitative and qualitative methods: archives, communicative

and analytical. Because of the academic report-style display, Needs Assessment can

be more difficult to digest compared to other tools.

For Needs Assessment, there are three stages in conducting the tool.

1. The pre-assessment stage, in which it is established what information is already known

or available and what the focus should be. In this stage, known data is collected.

2. The assessment phase, in which new information and data is collected to fill the gaps

left in phase one.

3. The post-assessment, which involves creating and putting in place solutions for the

high-priority needs that have been identified before evaluating the results of the

solutions.

The benefit of the Needs Assessment is that, when well-done, it has the ability to

clearly illustrate the specific unmet needs of the region and point the community in the

right direction of where their resources need to go.

Asset-Based Community Development (ABCD)

ABCD was founded by academics and exists under a core umbrella organization, the

Asset-Based Community Development Institute. The institute provides a number of

resources and toolkits to assist with community building and implementing the ABCD

approach to help people strengthen their communities.

ABCD reviews many issues such as unemployment, failing economic politics, young

people, drugs, gambling and abuse, to facilitate the empowerment of locals to identify

their strengths and co-create social innovations. Contrary to the Needs Assessment,

ABCD focuses on the assets that a community has, not what it doesn’t have. It uses

participatory research (or action research), which involves engaging people in the

community. Action research assumes that people hold knowledge and can contribute

to their community and equips the community to actively engage members and use

this knowledge to its potential. The ABCD approach doesn’t just involve academics

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and experts – it involves a variety of people from different walks of life to work together

to create effective change.

Conversation is the key tool in ABCD. It enables listening and learning and through

this the community is able to create an Asset Map. Asset mapping illustrates the

resources that are available in the community and, once they have been identified,

empowers the community to mobilise them.

The ABCD resource kits provide frameworks for those that are looking for practical

ways to respond to the challenges that communities face. It involves the inclusion of

representatives of the entire community, particularly disadvantaged and marginalised

groups. However, the downside to ABCD is that the findings are not easily digestible

by many groups in a community.

Conclusion

Critical to understanding philanthropy is understanding how it differs from the concept

of charity. Once this difference is understood, one can see how the concept of strategic

philanthropy can be used by community foundations to understand their communities’

challenges and empower the people to make transformational and sustainable change.

This paper has provided an overview of the difference between charity and

philanthropy, what philanthropy is, what community foundations are, how strategic

philanthropy can be employed by community foundations, and a handful of the

numerous community investment tools that can be employed. Our hope is that this

paper has provided you, the reader, with an understanding of these concepts and the

ability to move forward with this knowledge in understanding philanthropy, community

foundations, and strategic community investment.