European Philanthropy Experts Disagree on Rules for Giving in Era of Euro

Europe will soon have a single currency to spend: the euro. But philanthropy leaders are divided over the wisdom of establishing one set of rules to govern how that currency may be given to charity.

At “The Future of Foundations in an Open Society,” an international conference held here this month by the Bertelsmann Foundation, created by the former head of the German publishing giant, participants disagreed about whether a uniform set of rules would encourage more people to be philanthropic — or put a damper on new gifts.

John Richardson, director of the European Foundation Centre, in Brussels, said he suspected that members of the European Union would seek to impose new regulations on foundations and other charitable activities as part of a general trend toward adopting a single set of tax laws to govern all European countries. He urged foundation officials to begin considering what regulatory approach they thought would be best, saying that otherwise they risked getting left out of the debate.

“At a very basic level, foundations are pots of money,” said Mr. Richardson. And officials of the European Union will want to exert control over foundations because those pots of money will soon be very large — and full of euros, he said.

Carl-Heinz Heuer, a tax lawyer from Frankfurt, argued against treating charitable giving as just another economic activity. He noted that each country in Europe now has a separate legal approach to regulating foundations that reflects each nation’s distinct culture and history. What’s more, he said, the laws governing charity are often decided at the local level, not in national parliaments. For example, each of Germany’s 16 states now has its own rules governing foundations. “This pluralism is something that ought to be maintained,” Mr. Heuer said.

The need to maintain pluralism was exactly the argument that was used against the idea of coming up with the euro, the new form of currency that will be introduced in many European countries starting next year, said John Brademas, a former Democratic member of Congress from Indiana and president emeritus of New York University. Mr. Brademas called upon European lawmakers and foundation leaders to create more incentives — across the continent — for people to create foundations and make other contributions to charity. For example, he said, European policy makers should consider crafting unified tax laws and other policies that would encourage philanthropy across borders.

Richard Fries, chief charity commissioner of the Charity Commission for England and Wales, questioned whether a common legal framework would actually encourage more philanthropy and said that any new regulatory proposals should be judged against that criterion. But he acknowledged that his view reflected the generally skeptical approach taken by Britons, who have not adopted the euro and have otherwise been cool about the idea of European integration.

Luc Tayart de Borms, managing director of the King Baudouin Foundation, in Brussels, observed that new laws will be drafted governing foundations, whether they like it or not. “It will come to us eventually,” said Mr. Tayart de Borms. “We have to be willing to think about it in advance.”

* * *

As people who created successful businesses in the aftermath of World War II die off, the resulting transfer of wealth may have ramifications as significant as the multi-trillion-dollar shift some experts have forecast in the United States.

Estimates of the coming wealth transfer in Germany suggest that assets worth nearly five trillion Deutsche marks — more than $2.8-trillion — will change hands over the next 10 years.

Many of the people who created family businesses are expected to put a significant chunk of their fortunes into foundations, accelerating a trend in philanthropy that has recently begun to take root. Here in Germany, for example, most of the country’s more than 7,000 foundations have been created since World War II. Two-thirds of the foundations that existed in 1991, the most recent year for which data are available, had been created since the end of that war, and more than 50 per cent had been created after 1969.

But the full bloom of German foundation expansion may still lie ahead. Writing in a compendium published by the Bertelsmann Foundation for the meeting here, Helmut Anheier, a professor at the Johns Hopkins University, stated: “For the first time in nearly a century, personal wealth has not been destroyed by either inflation, war, or both.”

In coming years, many Germans may try to avoid huge inheritance taxes by putting family businesses into charitable foundations, since the country’s tax law offers significant advantages to such philanthropies.

Under American tax law, foundations are in general prohibited from owning more than 20 per cent of a company’s voting stock. By contrast, in Germany, as in many other European countries, foundations are generally permitted to own controlling interests in companies. The result is that many very big European companies are owned, in large part, by foundations.

For example, the Robert Bosch Foundation owns over 90 per cent of the shares in the electronics manufacturer of the same name, which makes Blaupunkt stereo equipment and many other electronic goods. In 1996, the business had revenue of more then 41 billion Deutsche marks — about $23-billion — making it one of Germany’s largest industrial companies. The foundation distributes a portion of the company’s profits to a variety of charitable activities, including a 500-bed hospital it runs in Stuttgart.

As more entrepreneurs learn that they can avoid big inheritance-tax bills and maintain their businesses indefinitely, while at the same time benefiting society, the number of foundations owning corporations is sure to increase.

But it is difficult to know just how much money is tied up in foundations in Germany or in the rest of Europe. Unlike in the United States, foundations in most European countries generally are not required to provide detailed accounts of their assets and expenditures.

Nevertheless, as European foundations grow larger and more prevalent, there is bound to be more scrutiny by the press and the public at large, foundation officials agreed. And Mr. Tayart de Borms had a warning for foundation leaders who hoped to continue operating in secrecy: “If foundations still think they can hide, it’s really not possible.”

* * *

A top official of the World Bank called upon American and European foundations working in Eastern Europe and in developing countries to find ways to collaborate more effectively. And he suggested that one way to improve their programs would be to undertake projects with the World Bank.

Elaborating on a similar appeal from the bank’s president, James D. Wolfensohn, at last month’s meeting of the Council on Foundations (The Chronicle, May 7), Caio K. Koch-Weser, managing director of operations at the bank, argued that foundations could have greater influence if they coordinated their actions with bank officials.

For foundations working to alleviate diseases, illiteracy, and poverty in developing countries, the challenge is not simply doing good work in their own programs, Mr. Koch-Weser said. “We must do so efficiently, to insure that the impact of our collective efforts is greater than the sum of its individual parts.”

Like their American counterparts, European foundation officials are somewhat skeptical of the World Bank’s ability to collaborate effectively with private philanthropy. “All of our experience has not been positive,” observed Mr. Richardson, of the European Foundation Centre. Where his organization’s members have attempted to work with the bank, he said, “they have found it difficult and time-consuming.”

And some foundation officials pointed out that such problems are not only a matter of history. Recently, the Welfare Association, a Geneva organization, was awarded a grant to deliver aid to Palestinians in the West Bank. “We went through a tedious learning curve in drafting the agreement,” said Victor Kashkoush, director general of the organization, adding: “The bank was not ready.”

Some foundation officials challenged the notion that working together would necessarily produce more fruitful results. Akira Iriyama, president of the Sasakawa Peace Foundation, in Tokyo, said that there is no reason to think that coordinating many small actions will have a greater effect than if they were all run separately. “I don’t buy that at all,” he said.

Mr. Koch-Weser said he harbored no illusions that collaborations between the bank and foundations have been — or will immediately become — entirely harmonious. “I am intimately aware that it requires a huge change in corporate culture,” he said. But, with a grant-making budget of more than $150-million and a 10,000-person staff spread out across the globe, the bank offers opportunities for cooperation too valuable to ignore, he said. “I believe we are on the way.”