December 06, 2007

Entrepreneurs Are Among Most-Generous Wealthy, Report Finds

Entrepreneurs are among the most-generous donors, giving 25 percent more on average to charitable causes than other wealthy people, a new report has found.

Like other rich donors, people who derived at least half of their wealth from entrepreneurial ventures said they would give more money away if they knew that charities spent less on administrative costs and more on helping their clients. But they are more likely than other wealthy donors to report that they would give additional sums if they were better able to determine the impact of their gifts.

The entrepreneur is one of 12 archetypes of wealthy donors described in a report commissioned by Bank of America to determine how rich people approach philanthropy. Conducted by researchers at the Center on Philanthropy at Indiana University, the report was based on surveys of 1,400 households that had annual incomes of more than $200,000 or net assets of more than $1-million. It follows an initial study of the data that was released in the fall of 2006.

While the study found significant similarities among all wealthy donors, it also found differences in what types of charities they supported, how they approached their giving, and why they gave.

“We know from previous research that the rich are different from other donors,” said Cary Grace, a Bank of America executive who helps the company’s clients manage their philanthropy. “This shows that they are different from each other as well.”

$50-Million Plus

Very rich people — those with net assets of more than $50-million — gave 10 times as much on average as those with a net worth of between $5-million and $50-million. They gave the most to foundations and other grant-making funds (34.4 percent), health charities (20.5 percent), and education groups (14.8 percent). Education groups, religious organizations, foundations, donor-advised funds, and trusts were the most popular causes supported by all wealthy donors.

Entrepreneurs, meanwhile, gave more on average to environmental and international groups than their peers, while people who were described as “transactional donors” — meaning they gave to a variety of causes, did not have a strategic approach to their giving, and have not created a private foundation or donor-advised fund — were the only donors who gave significantly more than other rich individuals to disaster relief.

Arts and culture groups benefited more from people whose primary residence was located in a city of more than 500,000 people. Those households gave more than $44,000 on average to arts organizations, compared with $16,000 from other households.

Very few types of wealthy donors gave significant proportions of their money to social-service organizations. Ms. Grace said that was because many donors believe that reducing poverty cannot be done by supporting one or two organizations, but by fighting factors that contribute to it, such as a poor education system.

“Increasingly, there’s a desire to have longer-term solutions around meeting basic needs, and that often tends to involve education,” she said.

Many wealthy donors shared a desire to give time, not just money. More than 80 percent of those surveyed volunteered in some capacity.

People with net assets of more than $50-million gave more hours on average than their less-wealthy peers. Nearly 37 percent spent more than 200 hours a year doing volunteer work, while 26 percent of people with between $1-million and $5-million in assets devoted that much time to volunteering.

Individuals who were categorized as “high-frequency volunteers,” meaning they volunteered more than 200 hours per year, gave 17-percent more on average than other wealthy donors.

That finding shows the need for charities to create more opportunities for donors to volunteer, the report said.

Said John W. Jensen, senior vice president at the Sharpe Group, “If you can get people involved on a volunteer basis, then they become much more committed.”

Most donors said that changes in federal tax laws would not affect their giving. The very rich, however, were slightly more influenced by tax laws than their less-wealthy peers. More than 15 percent of very wealthy people said they would “dramatically decrease” their charitable giving if they didn’t receive any income-tax deductions for their donations, compared with about 7 percent of people with between $5-million and $50-million in assets.

Next Generation

Donors across all archetypes, and in particular the very wealthy, were involving their children in philanthropy. Nearly 80 percent of people with assets of more than $50-million said they discussed their philanthropy with their children. Nearly 37 percent gave their children money to donate, compared with about 17 percent of other wealthy donors.

The findings show that charities can cultivate donors by providing meaningful ways to engage families, the report’s authors said.

The conclusion that wealthy Americans say they would give more if they were better able to measure charities’ accomplishments should send a significant message to fund raisers, researchers said.

Patrick M. Rooney, director of research at the Center on Philanthropy at Indiana University, said this finding shows that charities need to communicate their needs more effectively to donors.

“In America, we’re very comfortable with the notion that it takes money to make money in the capitalist sector,” he said. “We need to be comfortable with the notion that in the philanthropic sector, it takes money to raise money and to implement best practices.”

Many wealthy donors (53 percent) also said they would contribute greater amounts if they felt more financially secure. Entrepreneurs, however, were less affected by financial security than some of their peers.

Forty-five percent said they would give more if they felt more financially secure, while 39 percent said they would give more if they had a better return on their investments. That compares with 47 percent of other high-net-worth donors.

“The entrepreneur has the attitude that if I give away too much, I’ll go out and make some more,” said Mr. Rooney. “They are less concerned about preserving the corpus than someone who has inherited their wealth.”

Wealthy donors differed slightly in terms of what kinds of people they asked for advice on charitable giving. People who were leaving a quarter of their estate to charitable causes were much more likely to seek assistance, particularly from fund raisers and accountants.

Entrepreneurs were more likely to seek advice from foundation staff members.

The study also looked at how people made their contributions. Nearly 65 percent of wealthy donors gave to charitable campaigns; 41 percent stipulated in their wills that they would give; and more than 31 percent contributed stocks.

Dynasts — namely, people who gave their children money to contribute to nonprofit groups — were more likely than their peers to use various giving techniques, such as donor-advised funds and foundations, to support nonprofit organizations.