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Who's giving, who's getting.
Sept. 21 2006 7:48 AM

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Is Google.org the future of philanthropy?

Spend some time listening to leading philanthropists and you might think they were business executives. The talk is of investments, rather than grants or donations, and of how to measure their performance. The foundations and nonprofits these philanthropists support are increasingly using tools of the market to help solve the problems of society. Google's decision to do much of its philanthropy through a for-profit company called Google.org, which the mother company has seeded with about $1 billion, is a theatrical step in this direction—and has the potential to solve a major problem for philanthropy.

A for-profit venture whose mission is to improve society as if it were a nonprofit is free to do a lot of things that nonprofits can't. Unlike them, Google.org can sell stock to investors and otherwise raise money in the for-profit capital markets. Google.org has a pile of money to invest, thanks to Google's founders, who pledged before the company went public that "approximately 1 percent of its equity and profits in some form" would go to philanthropy. Now, it can leverage that stake through equity, debt, and joint ventures.

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Much of Google.org's philanthropy will be done outside the rules designed to provide for public oversight of charity. The new venture does include the Google Foundation, which was set up as a nonprofit and is endowed with $90 million, and has to file annual tax returns and comply with all the other requirements of Section 501(c)(3) of the Internal Revenue Code (like, no lobbying). But in deciding how to use the rest of its money, Google.org doesn't have to answer to the government and its notion of what constitutes charity—as opposed to business or activism. We'll have to accept its good intentions on faith.

Google.org isn't the first major philanthropic organization to take a dual approach. The Omidyar Network, established in 2004 as a vehicle for philanthropy by eBay founder Pierre Omidyar and his wife, funds both for-profits and nonprofits. On his blog, Omidyar explained: "It seems obvious now, but we finally asked ourselves the question: 'If eBay is such a good example of people discovering their own power, then does it make sense that as a Foundation, we wouldn't be able to invest in something like eBay?' We realized that legal structure—for-profit versus non-profit—wasn't all that relevant to what we believed in."

The utopian idea at work here is that all enterprises, for-profit as well as nonprofit, should be judged by a "double bottom line"—the profits or losses they generate and the social good or ill they produce. For-profit companies create social value by contributing to communities through taxes they pay. Nonprofits create economic value through jobs they provide and goods and services they consume. We don't yet have the analytical tools to pin down how the blending of these values would be measured, Jed Emerson, a senior fellow of the Generation Foundation in London, writes. But he argues that the assessment of social and economic value must be integrated so that we see how an organization with a modest financial profit that contributes a lot to society is worth more than one with a big profit but an abysmal social impact.

Because Google.org has so much money and is taking a for-profit form, it's putting to an unusual test the idea of philanthropy judged by its overall impact—by its effectiveness rather than its form. We're in uncertain territory here. It's not hard to imagine a member of one of America's most aggressive bars, lawyers who bring suits on behalf of disgruntled shareholders, cooking up a case against Google on grounds that its support of Google.org is against the mother company's business interests.

And the imprecision of standards like "double bottom line" is a reminder that jargon is a freely minted coin of the realm. In the world of philanthropy, for instance, if you are getting to know someone and haven't yet figured out how she can serve your interests, but you want to keep her close, you call her your "thought partner." As a former journalist, I can't help noticing that the phrase's optimism runs ahead of its clarity.

I entered the world of philanthropy by running a nonprofit magazine. Now, I'm part of a new firm that aims to match outstanding nonprofit organizations with major donors. For the people I've been getting to know, Google's decision neatly ties in with the recent emphasis on performance. In Boston; Washington, D.C.; and San Francisco, venture philanthropists (another phrase not yet in Webster's) work with nonprofits they support as closely as venture capitalists do with companies they're incubating. Management consultants at the world's top firms, like Bain & Company and McKinsey & Company, have adapted the analysis of strategies and finances that they do for large corporations to nonprofits. Bain spun off its nonprofit practice into a nonprofit of its own, called the Bridgespan Group, which has clients like the Natural Resources Defense Council and the Bill & Melinda Gates Foundation.

Despite all the talk of markets and performance in my new world, there's one resource that's inevitably hard to come by: money. Last year, donations to nonprofits climbed to $262 billion and assets of all American foundations totaled over half a trillion dollars. With rare exceptions, though, there are no financial markets to which nonprofits can turn to raise money the way a promising company can tap the public equity markets or a private equity fund. As a result, even the best nonprofits have to spend too much time raising money. When they're ready to multiply their contributions to society through the growth of their organizations, they have to mount expensive fund drives. The best antidote would be to channel to nonprofits the money they need a lot more efficiently.

Google.org, of course, doesn't have to fret about fund raising. And its for-profit status means that it's in a strong position to raise money in ways nonprofits can't. But how many for-profit companies have owners who will let them concentrate on doing good instead of doing well? For the time being, in their efforts to improve society, most philanthropies will still need the saving grace of nonprofit status: While they struggle to raise money, they won't have to turn a profit.

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