Monday, June 22, 2009

The Foundation: a Great American Secret: how Private Wealth is Changing the World

Joel L Fleishman

Chapter 1 - Foundations
"And behind each foundation stands a wealthy individual or family that chose to declare "enough is enough" , and then gave away a significant portion of their wealth for the benefit of the wider community rather than hoard it, inest it, or spend even more of it on personal pleasures." (p.2)

"The bottom line of this book is that foundations, along with the organizations that they support, are the great secret of the dynamism of America's civic sector." (p.3)

Foundations play 3 roles -
(1) Driver
(2)Partner
(3) Catalyst

He concentrates on the foundation as a driver and as partner.

"when a foundation can define and limit a problem, and believes that it can map a strategy for solving the problem, then the Driver role may be appropriate, especially when no other institution can play that role as well or as faithfully as the foundation. If you're familiar with the workings of venture capital, you might think of the Driver role as similar to that of the general partner, who invests a large - often the largest - share o the money required to start a new venture, occupies one or more seats on the ventre's board, and plays a decisive role in hiring the CEO and making other critical decisions." (p.5)

Partner - "the role of Partner is likely to be appropriate whenever a foundation has a strategic objective that can be accomplished by working with an existing, usually nonprofit, organization that shares with the foundation both the goal and the strategy for attaining it. " (p.6)

a Catalyst approach ie "donating to a number of initiatives in the spirit of experimentation." (p.8)

Foundations have limits

-"When a social problem is not discrete and well bounded, when it permeates large segments of society, or when it is created in part by dug-in interest groups, a foundation can usually do little to solve the problem beyond ameliorating some of its symptoms and suggesting, through research or pilot programs, some directions in which ultimate solutions may be found. " (p.10)

On poverty - he says
eg foundations cannot solve issues of poverty - only governemnt can completely remedy. But he says foundations can do something by (a) bringing public attention to it ( b) empirical research on how to tackle it and (c) pioneering solutions that govt can implement.

"..a full-scale solution to our nation's poverty problem. Such a solution waits on government action, which in turn is dependent on the public will to act as expressed through the political process. When the people are ready to take the steps needed to eradicate poverty - including steps that will inconvenience the majority and cost money - then and only then will those steps be taken." (p.12)

Chapter 2 - The Third Great Force : America's Civic Sector

He seems to suggest that a democracy is a sine qua non for a vibrant 3rd sector.
Quare - what about countries which are not democracies?

Civic sector = nonprofit = not-for-profit = third = independent = voluntary = public interest = social. He prefers 'civic sector' because "the word civic connotes what individuals do by virtue of their role as citizens acting voluntarily". ( p.14)

On page 14-15 are figures on the size of the US 3rd sector.

He says the American people places a high value on the civic sector and this is measured by the tax benefits this sector enjoys ie tax exemption for the organization and tax deductions for the charitable contributions.

"the overall revenues of America's civic sector come primarily from four sources - fees for services rendered; income from invested assets; grants or contracts from federal, state, or local governments; and charitable contributions." (p.15)

In the US, the civic sector is large due to -
(a) diversity of views / demands
(b) it is the freeest
(c) historically, the immigrants brought their own needs, and supplied the social services (so compare to Europe, where "governmental provision of many social goods is a long-standing practice that has necessitated a heavier tax burden on the public. In the United States, many such goods are provided instead by nongovernmental, private, nonprofit enterprises." (p.18)
(d)"The freedom provided by public support for the individual citizen's choices is unquestionably one of the greatest benefits of tax deductions and exemptions." (p.22)

Social support for the civic sector

he says there are 2 main kinds of organizations - (a) Charitable groups, which exist primarily to benefit others and 92) mutual-benefit groups which serve their own donors and members. (waqf khairi and waqf al-ahl?). Both types enjoy tax benefits.

"Thus, there is implicit recognition in our legal system and our tax code that civic engagement by groups of citizens is beneficial in and of itself - a form of activity to be embraced and encouraged." (p.21)

So - ta'awon, and waqf are encouraged. Quare - do Muslim governments encourage ta'awon and waqfs and recognize them as beneficial?

Rationale for the tax breaks = public benefit

"The rationale for extending tax breaks to most civic-sector organizations lies not in any specific governmental policy objective but rather in the benefits to society created by the existence of the civic sector itself." (p.23)

Foundations are the operational secret for the civic sector - "...the operational secret is the priming role foundations play in starting new civic-sector organizations, in nurturing them into self-sustainability, and in providing a continuing supply of social venture capital to the civic sector." (p.25)

He quotes Peter Frumkin "Strategic Giving: The Art and Science of Philanthropy" - foundation grantmaking 0 either "instrumental giving or expressive giving".

"Instrumental giving is "strategic" in the sense that it is focused on achieving a particular policy objective and intended to accomplish a significant impact on a specified social problem. By contrast, expressive giving reflects a donor's desire to show support for a cause or an organization without necessarily expecting to achieve a noticeable impact through his or her gift." (p.26)

Fleishman differentiates between private foundations and community foundations. There are alos "supporting organizations". All 3 types function like private foundations.

Chap 3 - reasons for giving

He claims these reasons are:-
(a) self interest or ego satisfaction- social status giving confers, to acquire wider fame, better representations, more customers for their businesses, influence or general self satisfaction
(b) gratitude
(c) religious obligation
(d) to redeem a negative reputation
(e) a desire for a kind of immortality
(f) to avoid giving excessive wealth to kids
(g) to use it as a vehicle to retain control of a closely held corporation (note the US Tax Reform Act 1969 making it illegal , with very few exceptions, for private foundations to own more than 20% of voting interest in any for-profit enterprise. Also under the Tax Code, individuals involved in both a corp and a related foundation cannot engage in certain transactions eg borrowing money from the foundation)

Why choose foundation?
- uncertainty about how or where to give
- tax or estate planning considerations
- inability to choose between recipients
-desire to create a vehicle for promoting large-scale, lasting social change
p.41

"To put it another way, having achieved unprecendented success in the world of laissez-faire capitalism defined by Adam Smith's Wealth of Nations, our gretest capitalist turned to the world of Moral Sentiments, there to pursue goals that Smith's "impartial spectator" might have approved."

Chapter 4 : foundation's mission - justification for foundations

He claims : "America will exempt your assets and income from taxation in exchange for your using them to produce the greatest possible benefit for society. That means pursuing large-scale and lasting impact, and this alone is the ultimate purpose and justification of foundations."

Q: so intention alone is not sufficient reason for tax benefits. must have large scale and lasting impact to social benefit?

Chap 5: Strategy - principle

Early founders followed scientific method - strategic thinking
a scientific method -
1. getting the facts right by research/survey
2. identifying the problem
3. studying options for action
4. identifying the potential beneficiaries or potential opposition
5. developing plan for action

Foundations - better to be given open-ended, broad mandate rather than specific goals, since they are supposed to exist in perpetuity. Because as conditions change, specific goals get obsolete.

Note: cf specific mandate but 10 powers given to the trustee including istibdal in a waqf.

But foundations must have goal-setting and focus - must have a program focus. this is usually guided by the founder's intent.

Chap 6 - Strategies and Tactics

Strategies include

1. Creating and Disseminating Knowledge
2. Building human capital
3. Public Policy Advocacy
4.Changing Public Attitudes
5. Changing the Law

Tactics are such as

a. Convening a conference, meeting, strategy session
b. Creating a blue ribbon commission
c. Offering and award or prize
d. Buildinga model through a pilot program (this only works if the foundation can nurture th model into self sustainability and replicates it with enough copies to launch the network on a course of sustainable growth) p.80
e. Building instituions
f. Building physical plant
g. Financing litigation
h.Catalyszing partnerships among foundations
i. Catalyzing partnerships with the for-profit sector
j. Building organizational capacities for the long term
k. engagin various media

Chap 7 - Impact

How to detect impact?

Check for the object to be changed. see whether there has been improvement in the object.

a. determine causality
b. check for any intervening or moderating factors

Eg of impact
-major benefits to public
-expansion of knowledge
-helping to launch a movt
-helping an existing organization find a new path
-Catalyzing an urgent social change
-taking an initiative to scale

He notes that many foundations not really interested in impact. just want to show the world their altruism. ie more expressive giving rather than instrumental giving

Quare: should waqfs concentrate on instrumental giving rather than expressive giving, in order to be impactful? see case studies

Chap 8 - case studies

Chap 9 - Foundation problems - transparency and accountability

lack of accountability -
-foundations are unlike operating non-profits which have stakeholders to whom thy are responsible eg universities
-so they are deprived of external feedback adn constraints
-foundation staff are self perpetuating and fundamentally unaccountable to anuone else
-foundations don't have to solicit funds , so they are not accoundtable to current or potential donors
-also differentiate from community foundations, which continually raise money to build their endowments or to become ome to donor-advised funds. Also corporate foundations, which are accountable
-other grant seeking NPs are subject ot market forces

Note: it seems that not having to account and justify their funding allows foundations to be unaccountable.

also, foundation impact has not been studied

-lack of accountability resulting in reulatory and legal changes being suggested to correct this

Fleishman suggests that if the foundations become more accountable and more transparent, they can avoid external regulation n control

"How have the most successful foundations managed to rise above the absence of an external environment that challenged them and demanded accountability? The answer is by developing what I call a culture of high stewardship. They have recruited demanding trustees and high-performig program staff with a strong committment to social benefit, a keen sense of self-discipline, and a deep awareness fo the obligations fostewardship. More foundations must learn how to develops such internally generated norms. " p. 163

tax payers have a stake and interest in how foundations spend their money

Chapter 10 - Strategy

Strategy is fundamental to effective foundation initiatives.
Step 1 - get the problem right
"Carnegie was, as usual, the most articulate among them. In his Gospel of Wealth he wrote, "[T]here is but one right mode of using enormous fortunes - namely, that the possessors from time to time during their own lives should so administer these as to promote the permanent good of the communities from which they were gathered." By "permanent good". Carnegie meant systematically addressing the root causes of social problems over the long term, not merely ameliorating their symptoms. this requires, first and foemost, a clear diagnosis of the problem.

Note: Carnegie said to share the wealth to the place where you obtained them from

using empirical research is a key component to high impact grantmaking

Step 2: indentify the factors that are an obstacle to the problem solving itself

Step 3: Formulate the problem solving strategy
Step 4: Select tactics which are specific means to carry out the strategy
Step 5: Draft an implementation plan

Chapter 11: Characteristics of High impact programs

Major Issues that face them: Focus, alignment, due d about the problem, due d about the solution, intelligent talent selection, due d about prospective grant receiving organization

Entrepreneurial Risk taking - social entrepreneurship - seeks a long-term cure

Opportunistic Thinking

Independence

Effective Grantee Selection

Long Term Thinking and Commitement

Chapter 12: Foundation failure

Due to failure to pay attention to a crucial component of the implementation plan eg research
Lacking in strategy
Mismatch between problem and strategy
Lack of a credible logic model
Weak grantee commitement
lact of relevant grantee experience
Incompatible grantee partners
Failure to include relevant stakeholders
Failure to specify desired outcomes precisely
relying on inadequte leadership
fragmented leadership and uncertain collaboration
inadequate market research
unaticipate consequences


Chapter 13: 3 essential

Discipline, boundaries and persistence

longetivity alone is not a prerequisite to program impact. but the trustees are crucial. he finsds that donor influence is the most powerful determinant of the impact of a foundation (p 214)- setting of guidance as to fields and boundaries and limits.

advice to donors
1 - take care in drafting the instrument of establishment or gift to ensure that intentions are clear and will be carried out according to wishes - describe motivating intentions, list the objectives to be served and explicitly proscribe all other objectives

2. tailor your chosen focus to the size of the endowment available

3. in appointing trustee, tailor the selection criteria and personal qualifications as close as possible to the substatntive mission

4. be catious about naming children and or relatives to foundation board (check out family fund foundations - National Center for Family Philanthropy www.ncfp.org)

Chap 14 - should foundations be permitted to exist in perpetuity?

Sunsetting - reasons for this -
1.focus on present needs - unfair for generations in far future to benefit from wealth today when the needs of today and immediate future due to neglect is so great
2. worry about the trustworthiness of the trustees - this seems to be the dominant reason for sunsetting

Many foundations are sunsetting or putting a time limit on their foundations

Fleishman says that you are not limited to only 2 options when creating foundations ie perpetual foundation or giving assets outrights to an operating charity. He suggests other options-

a. donor-advised fund ie donor advices who to pay asssets, income on assets to intended cause or charity over a period of time or in perpetuity
b.supporting organization - similar to donor advised fund, ie but the organization supports other charities

so it seems, a would be philanthropists has several options-
perpetual foundation
time-limited foundation
donor-advised fund
supporting organization
outright contributions to operating charities
supporting organisation

He notes one drawback for society where it is perpetual - "creating a foundation that pays out only the income on a corpus of assets rather than giving assets outright to nonprofits orbanizations greatly diminishes the resources available for immediate charitable use" (p243)

Then there is infidelity to donor intent - due to absence of living donors over time to oversee that their intent is carried out in the same efficient and effective manner.

Arguments for perpetuity are-
1. society's continuing need for well-designed, carefully instructed foundations with perpetual life
2. institutional knowledge and long-term memory that can be created only within perpetual foundations are invaluable assets that are indipsensale to producing long-term solutions to complex problems
2. perpetual foundations have a monopoly on serendipitous discovery, "Life-limited foundations are usually so fizated onproducing results in the short run that they cannot afford the time or resources to explore the byways of problems where solutions are encountered by chance. Only the perpetual foundations have the luzury to prepare themselves today to solve the problems of tomorrow."
3. Longstanding foundation endowments allow the values of past generations to provide a counterweight to the values of the present eg preserving diversity of animal and plant species, preseravaton of dying languages, no-longer-current art and literary form
4. "The accumulated capital held by perpetual foundations plays a critical balancing role in another, broader sense. Thanks to their power and the slow, steady pressure they exert on behalf of the causes they champion over time, the foundationsserve as both a prod and a counterweight to the government, Perpetual foundations are much better able to criticize adn stand up to politicians and administrations, if they exercise the courage to do so, than are life limited foundations.(p247)

His conclusion is that from a vantage point of social policy, the benefits to the American public from perpetual foundations are significantly greater than the opportunity costs they impose on society.


Chap 15 - enhancing Foundation effectiveness

Main criticism of foundations-" The right decries what it regards as the deliberate disregard by (liberal) foundation trustees and program staff of the intent of (conservative) donors, while the left opposes the long-term growth of foundation assets as an unhealthy concentration of wealth and power."

So, mainly how to introduce transparency and accountability?

Suggestion-
1. Self regulation - a voluntary tranparency and accountability code
2.Government Oversight Reform - currently in the US there is no real oversight, in the UK there is the Charities Commission - funded by contributions by foundations that are allowed as tax credits against any federal foundation tax obligations
3.Federal legislation to mandate or encourage foundation openness

Chapter 16 -Epilogue

Foundation Evolution in 20th century US

1914 - Russell Sage Foundations - the first foundation?

1921 - Frederick Harris Goff in Cleveland created 1st community foundation - aggregating assets contributed by many less-wealthy individuals rather than by one very wealthy person or family alone, with income devolted exclusively to local and regional charitable purposes.

Community foundations evolved in to donor advised funds .

There were restricted, unrestricted and donor advised funds, and community foundation-like entities set up by individual religious, ethnic and racial communities.

Then individual public charities and educational institutions set up what the tax code called "supporting organizations" - here the donors or their designees cannot be the sole voices advising on the distribution of the donated funds but instead usually constitute a minority of the board members , with the majority appointed by the host insitutions

Then came charitable foundations established by corporations eg General Electric Foundation, IBM Foundation, AT&t Foundation

Then came foundation mergers

Last decade of the 20th century saw emergnce of venture philanthropy and is cousin, social entrepreneurship.

"Venture philantropists and social entrepreneurs have been deliberate and thoroughgoing in their efforts to transform the ways existing nonprofits go about doing their work. The especially insist on the use of formal strategy, the insitution of metric-based performance benchmarking, and the attainment of sustainability through the diversification of revenue streams. They have also begun to create new hybrid for-profit/nonprofit organizations for their work and to draw existing for-profit corporations into it as well."

See eBay founder Pierre Omidyar's Omidyar Network
Jeff Skoll's Skoll Foundation and Skoll Fund
Google.org
Branson's commitment to invest 100% o all profits from airline and train companies over next 10 years (expected around $3billion) in effort to combat global warming.

All 4 have different structure.

They are driven by - emergence of a powerful new social conscience among many of the suddenly fabulously rich young and not so young business founders of today andthey bring the same focus on measurable results.

Wednesday, June 17, 2009

Saham Wakaf Pahang

Pursuant to Kaedah-kaedah Saham Wakaf 1998 (Pahang) on 2oth December 1998
Tax deductibility of donations obtained LHDN.01/35/42/51/179-6.1

Undang-undang dan pentadbiran waqaf - analisis dan penilaian

Andri Aidham Ahmad Badir
Paper presented at Konvensyen Sistem Ekonomi Islam on 3rd August 2004, Kuala Lumpur

Jurisdiction of the civil courts in waqaf matters - cases such as Tengku Nik Maimunah, etc.

But with Article 121 (C) Federal Constitution, this was moved to the Sharia Courts.

See cases:
Mohamed Habibullah Mahmood v Faridah Dato' Talib
Soon Singh Bikar Singh v PERKIM
MUIPP & SP v Shaik Zolkaffly Shaik Natar & ors

Pengurusan Waqaf Berkesan: Ke Arah Kemantapan Ekonomi Ummah

Dato' Ahmah Tajudin Abdul Rahman
Chairman of Board of Trustees
YPEIM
Paper presented at Konvensyen Sistem Ekonomi Islam on 3rd August 2004, Kuala Lumpur

Economic system has 3 parts:
1. Government ("Siasi")
2. Commercial / Market ("Tijari")
3. Social / Nonprofit ("Ijtimai'")

He concentrates on the Ijtimai' sector. Under this sector, the different applicable concepts are zakat, fitrah, sadaqah, waqf, bait ul mal and qard ul hasan.

He considers the waqf as the backbone for the Ijtimai' sector and that it should be deployed as a macroeconomic strategy. It should be given a new dimension in Malaysia by giving an administrative and management structure that is systematic and viable.

He suggests that it should be insitutionalised at a central level. His suggestions include a centrally incorporated institution under the Trustees Act 1969 with participation and membership of both central government and state religious department officials. It should be run based on corporate governance, and there should be a CEO plus committees and departments taking care of such matters as investments, risk managment, audit etc. Accounting should be done regularly according to standard set by MASB and AAOIFI. Under this concept, the statem religious departments will work together with the central governmennt,

My observation: Was this suggestion taken up and leading to the now established Yayawan Waqaf Malaysia?

Waqaf An-Nur Corporation Berhad

Waqaf An-Nur Corporation Berhad

JCorp established a chain of clinics and dialysis centres under the name of Waqaf An-Nur Clinics since 1st November 1998[1] . This was pursuant to its “Corporate Waqaf” concept as part of its Corporate Social Responsibility initiatives.

The clinics were initially managed by KPJ Healthcare Berhad, one of JCorp’s subsidiaries. On 25th October 2000 JCorp incorporated Pengurusan Klinik Waqaf An-Nur Berhad (“the company”) and took over the management of the Klinik Waqaf An-Nur chain. [2].

The company is a company limited by guarantee and not having share capital. According to the company’s Annual Report 2007, the principal activities of the company are as beneficiary, managers and administrator of waqaf and also acts as “Maukuf-alaihi” for shares and other kind of company business securities from “waqif”, including especially Johor Corporation, the general Muslim community and company or body or other organization and also acts as investment holding company.”[3]

On 1st December 1999, the company obtained tax deductible status for contributions from donors pursuant to section 44© of the Income Tax Act 1967.

Pursuant to a “Hujjah Wakaf” signed by JCorp on 24the October 2000, a waqaf of the clinics including the lands upon which they were situated was created by JCorp with the company as trustee.[1] The Board of Directors of the company consisted of representatives from the State Religious Department and JCorp.

This waqaf was made pursuant to the Johor Administration of Islamic Religion Enactment 1978 (section 44) and Kaedah-Kaedah Wakaf Johor 1983. These were subsequently repealed and substituted by the Administration of Islamic Religion Johor 2003 (see section 89).

On 19th July 2005, the company changed its name to Kumpulan Waqaf An-Nur Berhad.[2]

On 3rd August 2006, JCorp granted another waqaf of all its shareholdings in 3 listed companies ie Kulim (M) Berhad (4.68% of equity), KPJ Healthcare Berhad (4.32% of equity) and Johor Land Berhad (3.57% of equity) totalling a value of RM200 million.[4]

On or about 18th May 2009 the company changed its name to Waqaf An-Nur Corporation Berhad.

70% of the dividends owned by the company through its shareholdings in the listed companies are reinvested in growing the business core as well as in human capital investments to meet long term growth needs. The remaining 30% is channeled to fund the activities of the company.[5]

The Profits (after tax) and Distribution of funds to Special and Trust Funds Account (ie for the purposes stated in the waqaf testimonial) for the company is as follows:-

Year Profit (after tax) Special Funds distribution
2006[6]
3,802,488 2,236,099
2007[6]
1,467,392 1,895,225
2008[2]
2,670,000 (before tax) 540,000







1. Wahid, M.A., Konsep dan pelaksanaan wakaf di Klinik Waqaf AN-Nur Johor Bahru, in Latihan Ilmiah Reserves. 2005, Akademi Pengajian Islam: Kuala Lumpur.
2. Waqaf An-Nur Corporation Berhad, Waqaf An-Nur Corporation Berhad in Mingguan Malaysia. 2009: Kuala Lumpur.
3. JOhor Corporation, Annual Report. 2007.
4. Johor Corporation, Waqaf Korporat untuk Jihad Bisnes, J. Corporation, Editor. 2007.
5. Johor Corporation, Corporate Wakaf Concept. 2006.
6. Kumpulan Waqaf An-Nur Berhad, Annual Report. 2007.