The philanthropist next door

Catherine Muther (left) started the Three Guineas Fund
to help girls gain confidence.

Average Americans, not the super-rich, are the real givers

Author: Thom Geier
December 22, 1997

James Chatman considers himself an unlikely successor to the philanthropic legacy of Andrew Carnegie or John D. Rockefeller. "I never had such a dream," says the 71-year-old retired business consultant from Alexandria, Va. "I was just a poor farm boy."

Chatman grew up fatherless in tiny Atkins, Ark., where his Uncle Sy promised that he would have time for games "only when lay-by comes." A period for leisure never seemed to arrive. So Chatman set himself to work--first in the fields, then peddling newspapers after he moved as a child to Little Rock, and later working as a bellman at hotels in the segregated South. He worked his way through St. Louis University, earning a degree in economics, served 24 years in the U.S. Air Force, and then applied his skills as a supply-services staff officer to founding Technology Applications Inc., a consulting firm for government agencies. By 1993, when he sold it, the firm was posting revenues of $40 million a year.

Chatman realized that he had more money than he or his four children really needed. So he established a $400,000 fund at the Northern Virginia Community Foundation to create a Grandfathers Group to mentor black boys. "My wife and I really hate the idea of black people seeing ourselves as takers and receivers, and not seeing ourselves also as givers," he says.

As the Chatmans prove, philanthropy isn't just for Gettys anymore. The real face of charity in America today can be found in ordinary people who have benefited from the booming economy and now plan to share a portion of their good fortune with others. Call them the philanthropists next door.

They come in many different types. Some are latter-day Horatio Alger heroes who have grown sizable nest eggs through hard work, shrewd investments, and frugal living. Some have cashed in big in the tech-driven stock market of the past decade. And some are unlikely philanthropists such as Oseola McCarty, the Hattiesburg (Miss.) washerwoman who scrimped for years before donating her life savings of $150,000 to a scholarship fund at the University of Southern Mississippi. "When I started out, the typical donor was wealthy, white, male, and dead," says Lynne Woodman of the Cleveland Foundation. "We are seeing many more living donors from all walks of life."

Community foundations like Cleveland's are the fastest-growing element of philanthropy in America today. Nationwide, the 500 or so community foundations had assets totaling $17.1 billion in 1996, a 28.6 percent increase over the previous year. For those plunging into philanthropy for the first time, allying with community foundations offers distinct advantages. Many require as little as $10,000 to set up a named fund that can target a specific project. And foundation staffs often have knowledge of local agencies and the ability to negotiate many of the legal and bureaucratic tangles required in maintaining charitable trusts.

Other philanthropists are exploring private family foundations. The New York-based Foundation Center reports that there are 35,600 independent grant-making foundations (including most family funds but not corporate or community foundations), a 42 percent increase since 1987.

Every drop counts. Last year, Americans donated $130 billion to charitable causes, up 9.5 percent in two years; the majority of donations went to religious institutions. The media played up Ted Turner's $1 billion gift to the United Nations and financier George Soros's donations of millions of dollars to Russia and Eastern Europe. But according to one recent study, more than half of all charitable giving comes from Americans earning less than $50,000 a year. And small donors make a difference. "I couldn't do anything like Ted Turner, but every drop in the bucket will make the bucket overflow," says paraplegic Barbara Decker of suburban Cleveland, who used a large malpractice settlement to set up a trust to benefit children's charities.

"The question you have to ask is 'Who cares if this succeeds?' " Muther says. "We've created a partnership of interests." It's a principle of technology business development: You're only as strong as the interests that have a stake in you. The companies that have contributed capital not only have a philanthropic stake in the Cluster -- they also have a vested interest. Their business interests are aligned with the success of the startups in the Cluster; they want to see these new companies grow -- they become partners as the companies in the Cluster move from incubation to maturity.

Researchers see potential for an even more explosive growth in charitable giving thanks to the estates of older Americans who lived through a half century of record prosperity. A 1993 study by two Cornell University economists estimated that Americans over the age of 60 are sitting on a pot of wealth totaling $10 trillion--more than enough to put every American under the age of 21 through Harvard for four years. And while taxes and children will claim a significant portion of that money as that generation passes on (the federal government now taxes estates over $600,000 at rates up to 55 percent), charities are hoping for a big windfall. "We're at the front edge of a huge generational transfer of wealth," says Fern Portnoy, a Denver-based adviser on philanthropic giving.

Many Americans have been taken by surprise by the amount of wealth they have accumulated. Chatman admits that at first, his success in business made him uneasy: "I always felt that if you made a profit that you were somehow stealing from somebody." Chatman began to reflect on the purpose of accumulating money. "How do you justify making all this profit?" he asked. The answer, Chatman found, was to spend the money forging the kind of relationship he had with his Uncle Sy.

Many of the new philanthropists apply the same business principles to giving away their money that they did to earning it. "For a generation of business people who have become juiced on the deal, the challenge is how you translate that excitement into philanthropy," says Portnoy. A good example is John Abele, age 60, who spent the last 20 years helping build Boston Scientific Inc. into a giant in medical technology, with annual sales of $2 billion. Now he splits his time about evenly between company business and philanthropy.

Raised in suburban Boston at the tail end of the Depression, Abele lost his father in World War II and spent much of his early childhood in and out of the hospital with osteomyelitis, a bone disease. "They tried an experimental drug on me that didn't work. A few years later, they tried it again and it did work. The experimental drug was penicillin." Abele never forgot the experience. After studying physics and philosophy in college, he got into the medical-device business and co founded Boston Scientific, a company that specializes in developing less invasive medical procedures.

The frontiers of charitable work offer similar challenges and rewards. Abele has established his own family foundation, with a $9 million endowment, and is involving his three grown children in the grant-making process. Often his support goes to educational programs like the Concord Review, a 10-year-old quarterly journal that publishes high school essays on history in hopes of elevating the status of the subject and rewarding students for academic achievements. Buoyed by his own experience, Abele now finds himself encouraging other business people to take the plunge into philanthropy. "It shouldn't be a guilt trip," he says.

Philanthropic projects are not as hard to nurture as they might seem, Abele says. "If you're going to produce sustainable social value, you have to use the same tools you would apply to any business project, setting benchmarks and then following through," he says. At first, he admits, he erred by straying from a strict business model. For example, some charities spend too little on management. "I had always felt that it was important to aim money at the final recipient," he says, "but programs that cut too short on their leadership have no staying power."

Catherine Muther, a 50-year-old from San Francisco who made her money in Silicon Valley, agrees with the strategic approach to philanthropy. And like many of the younger breed of donors, she seeks out causes that have traditionally been given short shrift in the charitable world. For some, that means environmental or gay rights issues. Muther focuses her charity on improving the lives of women in education and the workplace.

With her business background, Muther takes an active interest in targeting her resources, through her own foundation and through restricted gifts to institutions. "It's trying to understand some structural problem in society--like women's access to capital or young girls' self-esteem--and then figuring out where some resources could be deployed that might influence change," she explains.

The focus of Muther's philanthropy--young women--is no mystery. The granddaughter of a suffragette, she grew up with her three brothers in Newton, Mass., where she became the first girl in town to deliver newspapers. "The idea of being financially independent was a central value in our family," she remembers. "And it wasn't about accumulating money but learning how to support yourself."

Muther carried that notion with her to Sarah Lawrence College and Cambridge University in England. She had wanted to become a Rhodes Scholar, but the program did not accept women at the time. However, Muther took advantage of the newfound acceptance of women into major business schools. Armed with an M.B.A. from Stanford, Muther headed to Silicon Valley in 1984 and eventually became a senior marketing officer at Cisco Systems, the fast-growing computer networking company.

After retiring in 1994 at age 46, Muther set aside $3 million in profits from Cisco's stock to establish the Three Guineas Fund. The foundation, named for a favorite book by Virginia Woolf, is launching an "incubator" program to assist female entrepreneurs in launching businesses in information technology. She has also funded a fellowship for a female doctoral student to study entrepreneurship at Stanford Business School.

Like Abele, Muther hopes to forge giving patterns for her progeny. While she has set up trusts for her two young children, Muther and her husband have stopped making large cash gifts to them. "It's our belief that one can burden one's children with wealth," she says.

In many respects, the new philanthropists hark back to an earlier age. Nearly a century ago in his book The Gospel of Wealth, Andrew Carnegie issued a challenge to fellow moneybags to disburse substantial portions of their income during their lifetimes. He even supported levying estate taxes so that the state could better express "condemnation of the selfish millionaire's unworthy life."

Many argue that the philanthropic spirit Carnegie articulated needs to be reawakened. Studies suggest that Americans on average give just under 2 percent of their annual income to charity--a figure that tops other nations' but that has not budged despite record economic growth (and decades of tax benefits from giving). Moreover, Carnegie's message has yet to spread widely among the swelling class of ultra rich. Eight of 10 Americans who earn at least $1 million a year leave nothing to charity in their wills, often making Uncle Sam the charity of choice by default. "The vast majority of the very rich show, if anything, less of a philosophical inclination to give than their predecessors," says Peter Dobkin Hall of the Yale Program on Nonprofit Organizations.

Millionaires now account for 3.5 percent of U.S. households, but it doesn't take substantial means to become a major donor. Helen Sandfort, a retired schoolteacher living in a retirement home in Columbus, Ohio, set up a fund at the Columbus Foundation in 1981 to support arts education in the public schools. "Young people simply do not know what to do with their time," says Sandfort, who served as director of fine and performing arts in the city schools for 25 years. "The arts encourage people to be creative and resourceful, to help them find something really rewarding in life."

Though she retired in 1974, the 87-year-old still contributes each year to the fund, which is now worth $85,000, and plans to leave a quarter of her estate to the foundation as well. "I have enough to take care of myself, but I have enough to share, too," says Sandfort, who has no children. "The reason I'm so rich is because I didn't have time to spend my money." Another reason Sandfort's life is so rich might be that she's spent so much of her money on others.