On the back of record profit so far this year,Goldman Sachs Group Inc., the global investment bank, is starting a donor-driven philanthropy fund that aims to reach $1 billion (Rs3,940 crore) over the next few years.
The fund, Goldman says, is initially focused on the firm’s roughly 350 partners who will be strongly encouraged to donate a fixed amount of their compensation.
If each partner gives $250,000, the fund will begin with $87.5 million. Eventually, the fund will be open to a larger group of Goldman employees. Goldman’s asset management group will manage the fund for free.
The programme comes at a time of tremendous wealth creation for Goldman employees. The firm is one of a few that has survived the meltdown in the subprime mortgage market, and it stands out among its peers in the amount of money it has been able to make so far this year. In 2006, Goldman made $9.4 billion in profit; for the first nine months of 2007, it earned $8.2 billion.
“We know we make a lot of money, and we know that we live in this world and we have a responsibility to give something back,” said Lloyd C. Blankfein, chairman and chief executive of Goldman Sachs.
Through the third quarter, Goldman accrued almost $17 billion in compensation (investment banks set aside roughly 50% of revenue every quarter for compensation).
Goldman is hardly alone: All investment banks encourage philanthropy.
“At the two firms I worked at, it was not career-enhancing to not do your bit for society,” said Brad Hintz, a securities analyst at Sanford C. Bernstein. “There was a noblesse oblige, a sense that you would be generous with your contributions.”
Other banks have started donor-advised funds, though they are typically aimed at clients. For example, in 2003, Merrill Lynch & Co. Inc. started the Merrill Lynch Community Charitable Fund, which allowed wealth management clients and employees to set aside money that could then be used to make donations to one of 65 community foundations (the donor chooses the foundation).
Using the donor-advised fund allows individuals to receive a charitable deduction for setting aside the money (though it might not be paid out right away) and avoid the taxes applied to private foundations.
Also, donating through the fund means not having to pay the legal and overhead expenses of managing a private foundation.
“I can time when I generate my charitable deduction without having to release the money directly,” said David Ratcliffe, director of the Merrill Lynch Center for Philanthropy and Non-profit Management.
Other banks have different approaches. Bear Stearns Cos. Inc. requires employees to give 4% of their bonus and salary to charity every year. At Credit Suisse, holiday parties are paid for only if they raise money for charity. This year the bank has picked one cause—the Trust for Public Land—and it aims to raise $400,000 from employees, which will be matched by $600,000 from the firm.
Different business units within Credit Suisse choose different ways to raise money. The investment bankers will have a football competition and casino night; equities will have an auction; and fixed-income requires employees at a certain level to contribute a certain amount. The $1 million raised will contribute to a $3 million budget to build three parks.
“We don’t have a culture of this is how you give,” said Eric Eckholdt, executive director for the Credit Suisse Americas Foundation.
Goldman’s founders encouraged wealth creation for clients and employees, discouraged ostentation and expected a level of philanthropy.
While ostentation in an age of $40 million homes in the Hamptons is hard to control, philanthropy efforts are more visible. Before Goldman went public, employees who became partners were required to set up a foundation concurrent with their partnership status. Then when Goldman went public, the firm set up a foundation that now has $200 million. The new fund will not change any of the firm’s established giving.
“We have, as part of who we are, a very long history of charitable giving,” Blankfein said. “Think about the people who leave Goldman and go into public service. They don’t become like that—they were like that when we recruited them and we retained them.”
Partners who run foundations already will have the opportunity to fold the foundation into the fund, providing another source of money to build the fund, besides tapping compensation.
Cynics who have watched the wealth creation at Goldman might think that the programme is little more than a public relations effort to mask the gigantic bonuses it is expected to pay out starting in early December (to be paid next year).
But few want to discourage charitable efforts. “It is better to be charitable than not to be charitable, particularly if you are going to blow the socks off your competition,” Hintz said.
Blankfein said: “It is the long-term interest of this firm to do good things and not just dress up as if we are doing it. And we are really doing it.” ©2007/THE NEW YORK TIMES