Last month, 181 American chief executives issued a collective ‘statement on the purpose of a corporation’ that abandoned their long adherence to shareholder primacy. Instead, the group pledged “a fundamental commitment to all our stakeholders". Why question capitalism now? Can philanthropy be mainstreamed as a capital allocation strategy? How can the dual objectives of profit with a purpose be met?
Let me break this question into three parts and start with the originality of the idea. First, while laudable, there is nothing new in this idea and, in India, Jamshetji Tata espoused this over 125 years ago when he said: “In a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence." The Tatas had a rich legacy of profit for purpose and they were not unique because, around the turn of Independence, we had other prominent Indian groups, such as the Godrej, Bajaj and the Birlas, who had a similar ethos.
So, after many decades of having seemed to have lost our way, on this dimension, with some notable exceptions like Mr. Premji, a few first generation entrepreneurs and professionals, we seem to be coming back a full circle with this concept.
The second part of your question is how can this be done?
I personally don’t think this is at all difficult, except for those who want to find excuses to not want to give. The Tatas found ways to give away pretty much everything via charitable trusts in a perpetual holding structure and Mr. Premji is doing so via an alternate structure that might not be permanent, but yet he needn’t really worry about control for a long period of time and his bigger challenge is going to be sensibly deploying the kind of money he has given away.
For more modest wealth creators—be it entrepreneurs or professionals—trying to overanalyse how they can engage with social issues is an extremely low-return pastime. I personally feel, given how large and pressing the problems are, people would be best off trying to deploy both money and time with some urgency, even somewhat imperfectly.
The third part of your question is can purpose coexist with capitalism?
As I mentioned earlier, history has showed us that it very much can and the Tata group and Wipro are just two shining examples of this. In fact, I personally believe that while there is no real alternative to capitalism as a model to wealth creation, much of the problems inflicting it are on account of it losing its sense of purpose.
So, is impact investing the future of philanthropy?
Impact investing is a very interesting area that opens up a whole new world of opportunities for investors, entrepreneurs, beneficiaries, and therefore, for society as a whole. However, I think to say that it is the future of philanthropy or of solving our social problems is stretching it too far. Not all problems have a markets solution to them and the role of both governments and pure not-for-profit players is crucial in many situations. It is just that we need far greater accountability and urgency for solving problems, which often exist in markets.
India has no shortage of billionaires. We added 17 new ones in 2017 alone, taking the count up to 101. During the same year, the wealth of this elite group increased by ₹20,91,300 crore—an amount equal to the total budget of the central government in 2017-18. When it came to philanthropy, though only 38 men and one woman made it to the annual Hurun Indian Philanthropy List 2018. It looks worse when compared with China. What can India do to own the ‘future of philanthropy’ narrative in India?
First, I can say with reasonable certainty that some of these lists are somewhat inaccurate. However, despite that, your question would be very valid because we should not be mixing corporate social responsibility with individual giving. And, when you separate those, see how wealth has got created, including the growth in compensation levels of many top notch professionals—it does look like there is tremendous potential for both our millionaires and billionaires at large to be more philanthropic.
For us Indians to own the narrative, we need to do a few simple things. First, we need to be proud of our culture and true to the great religions of our land—in both of which giving back to build a better world around us is deeply embedded as a way of life.
The second thing policymakers can do to encourage philanthropy meaningfully is to engage with wealth creators in a dialogue on what are tax disincentives that are inhibiting a quantum increase in their giving. For example, while the government should not allow creation of structures that will simply allow charitable vehicles to be used for purely tax efficiency in perpetuity, some middle ground needs to be found.
Also, having a very low deduction for donations might be suitable for people who donate little, but if we want to build a ‘giving’ society, shouldn’t we be encouraging it by allowing for higher deductions, more so when we have introduced the super-tax concept?
What are the trends driving the future of philanthropy?
Firstly, many are moving away from cheque writing to problem solving.
Second, there is a big shift from anecdotal measurement to more structured measurement and evaluation, and therefore, higher accountability.
Third, there is a refreshing influx of resources—both human and capital into the social sector.
The glass is still half full and a lot more needs to happen but I think we are entering what I call the golden age of Indian philanthropy or the social sector and I am optimistic that in the coming decade very good things will happen.