William McKenna grew up in a middle-class world without trust funds, stock options or black-tie charity events. After a decade of trading hedge funds and managing other people’s money, he now finds himself, at 37, in a different league: living in a Winnetka mansion secluded on a private road and contemplating ways to give away large amounts of his own money.
Like many 30-somethings, McKenna has been so busy making money in the economic boom that, until recently, he had little time to reflect on how he spends it. That all changed when his mother, Sharon, succumbed to breast cancer two years ago.
“I make wealthy people wealthier. When I have a good day, it doesn’t benefit society,” he said as 3-year-old Alexander, one of his two children, climbed onto his lap. “When my mom died, I realized that life is short, and I asked myself how I want to be remembered: Are you making a difference or just making money?”
He thought a foundation to help children would be a fitting way to honor the memory of his mother, and discussed the idea with his father, William Sr. “Dad said, `Give the money to Good Shepherd Hospital,’ ” McKenna said. “But, whatever we gave, unless it was enough to put on a whole new wing, we would have no leverage in dealing with people.”
Thus was born the McKenna Foundation. Set up last year with an initial investment of $250,000, it was one of the 443 new foundations registered with the Illinois attorney general’s office in the last two years, which was nearly double the 226 newly registered in 1994-96. McKenna’s wife, Michelle, oversees grantmaking and McKenna manages the fund’s investments.
The McKennas are the new face of philanthropy in America-younger, more entrepreneurial, more hands-on and more interested in having an impact on the organizations they fund than previous generations. “To be quite honest, no matter how much you give to the American Cancer Society, I don’t know what that money does, if anything,” McKenna said. “If you help a kid who needs help, you can say you did that. I live in a world of leverage. It’s something I can do well. I believe you can leverage organizations the same way. You leverage human capital instead of cash.”
America has about 300 billionaires and, according to the Spectrem Group, another 3.3 million millionaires. That’s more than double the 1.5 million American families with $1 million or more in investable assets reported in a 1990 survey by the New York-based consulting and research firm specializing in investment services. The average age is declining as well. Spectrem reports that the average millionaire in 1990 was 65 years old; by 1999, all those 30-something moguls brought down the average age to a relatively spry 59.
Like McKenna, many of the newly rich come from middle-class families who thought philanthropy was something someone else did. Perhaps their families contributed to the church or wrote small checks to a few charities. But they were not rich and they were not philanthropists, which means they have little guidance in navigating the uncharted waters of big-time giving. They also are less likely than previous generations to write a check to the old standbys-the opera or the symphony, a hospital or an alma mater-but according to fundraisers are more likely to follow up their money with volunteer service, joining the board or offering management expertise.
Non-profit institutions have not yet figured out how to operate in this new world of philanthropy. Despite unprecedented growth in Americans’ wealth and the new activism of donors like the McKennas, charitable giving has remained distressingly level at about 2 percent of the gross domestic product for the past 25 years, according to Giving USA, an annual report of the American Association of Fund-Raising Counsel, a trade organization that promotes philanthropy.
That’s the average. Break down the numbers by income level and rich folks in America begin to look downright stingy. A Gallup survey last year found that families with incomes of less than $10,000 gave 5.25 percent of their income to charity, up from 4.3 percent in 1995. Those with incomes of $100,000 or more gave just 2.2 percent away, down from 3.4 percent in 1995, according to the poll commissioned by the Independent Sector, a national coalition of non-profit organizations.
Illinois fits that pattern. An analysis of 1997 tax returns conducted by the Association of Fund-Raising Counsel ranked the state sixth nationally in the number of individuals reporting adjusted gross incomes of $200,000 or more. But, when it comes to giving money away, Illinois ranks 47th–with those richest residents giving away 3.1 percent of their money.
Alarmed by the downward trend, a coalition of funders and other non-profits launched the Greater Chicago Philanthropy Initiative, a program aimed at finding strategies to encourage people to give more. “In past generations, it took 30 or 40 years to build up the family business,” said Project Manager Kassie Davis. “People would save and accumulate an estate and have the amount of resources to be comfortable to create a foundation or a donor-advised fund. Now, we have young millionaires who haven’t gotten that education.”
The non-profit community has more than dot-com moguls and stock market wizards to think about as they try to carve out a share of the new wealth. The truly big money is yet to come, and it will be counted in the trillions. Some of it belongs to the Baby Boomers, that trend-setting demographic bulge whose leading edge is approaching 55, the age that people traditionally have begun to think philanthropically. And some of it belongs to the Boomers’ parents, who have amassed an unprecedented amount of wealth and are entering their twilight years, when they begin looking for ways to transfer their money to someone other than Uncle Sam.
Much of the money will go to their children and grandchildren. But at least a portion will be donated to charity, through the largess of either the parents or their newly wealthy offspring.
Kathy Hurley is a consultant trying to help non-profit organizations understand that they will have to work harder to help these new philanthropists part with their money. “We have more people than ever before who have the capacity to write six- or seven-figure checks, but they don’t have the experience with giving,” she said. “They’re looking to the staff (of the non-profit) to guide them through the process.”
After 20 years of raising money, first for women’s issues as a volunteer, then as a paid staff member for the Illinois Institute of Technology, Hurley has learned a secret to getting wealthy people to write the big check: find out what they want to accomplish with the gift and try to make it happen.
It was how she captured the first-ever $9 million gift from an individual for IIT. A businessman who had donated $10,000 to the school to honor his mentor, IIT alum and Motorola founder Paul Galvin, had millions more to give. Over the years, the donor, Rudy Becwar, had given a few thousand dollars to a number of organizations, but had never written a really big check.
Hurley met several times with Becwar and his family to help him figure out what impact he wanted his money to have on the school. She learned that Becwar, a native Chicagoan, had wanted to attend IIT but couldn’t afford it. He never went to college, instead taking a job with Galvin, during which he accumulated the Motorola stock that made him rich. During their conversations, Hurley asked him what he hoped to accomplish by giving money to IIT.
“He said he wanted to give something back, to give kids the chance that he never had. And he wanted to see some (benefit) of it in his lifetime,” she said. “The more we talked about what was motivating him, the more he became passionate about giving back the Motorola stock. It was symbolic on some level of (the help he had received from his mentor).”
Hurley and Becwar determined that a scholarship fund would be the best way for him to help IIT students. Lawyers and financial planners helped set up a trust that would support him through the end of his life but allow the scholarships to be awarded sooner. Thus, he was able to meet and get to know the recipients-young people he came to think of as the grandchildren he never had, Hurley said-before his death in March.
Finding a way to help him achieve his goals with the money was the key to getting a bigger slice of pie for IIT. “When you come at it from that standpoint, you’re giving from the heart, not the pocketbook. And when you give from the heart, the gift is always larger and more gratifying,” Hurley said. It was the only seven-figure check Becwar ever wrote, she noted.
Art and Jo Moore set up their own fund partly to support advocacy organizations for women, but also to help their three children learn to be philanthropic. “One of the biggest issues for people who have wealth, especially new wealth, is the issue of transmitting values to your children,” Jo Moore said.
She related the story of a professional acquaintance who also lives on the North Shore. He asked his son whether there are any poor kids in his grammar school class. Yes, said the son, and he named a student whose family, the dad knew, had just moved into a sprawling million-dollar home. Why, asked the dad, do you think that kid is poor? Because they hadn’t yet filled the house with furniture, the son replied.
“That’s very troublesome for people. We’re living in a city that is so segregated in terms of race and class, and if you’re in the suburbs it’s even worse,” she said.
Setting up the fund, Moore and her husband, a commodities trader, had imagined family meetings during which they would sit down with their three children and discuss the issues they cared about and how they might use the fund to have an impact. It hasn’t happened quite that way. But, Moore noted, her youngest daughter, now 16, was probably the only person who made a cash donation to the Moore fund. The gift, in honor of her mother’s birthday, consisted of two $20 bills.
Project Manager Davis hopes to collect stories like those for the Greater Chicago Philanthropy Initiative. Over the next three years, she will look for ways to spread the word about philanthropy among four target groups: the wealthy, entrepreneurs, mid-size business leaders and the lawyers, accountants and money managers who advise the wealthy.
Allen Hancock thinks he already knows what’s keeping some young millionaires from becoming philanthropists. He runs an organization called More than Money, based in Eugene, Ore., that helps people explore how their wealth affects their relationships, self-esteem, class background and other personal issues.
“First, they’re in a real denial culture about money,” Hancock said. “It used to be that being a millionaire was enough. Now you have to have $10 or $15 million to meet our standard of wealth. And if you don’t feel wealthy, it’s hard to think about giving substantial amounts away.
“Another reason is they’re still busy earning the money,” he added. “I’ve heard stories of people who are working 80, 90, 100 hours a week. They barely have time to eat or sleep, let alone think about setting up a foundation. Even for those who have time on their hands, they’re more concerned about raising a family, or they may want to use their money to start another business. Even Bill Gates, up until recently, had that mind-set.”
Often, the first suggestion that a wealthy individual should consider using assets in some philanthropic way comes from a financial planner or tax attorney.
“An attorney told me once that taxes had a significant influence with respect to the timing and the eventual scope of the philanthropy, but taxes never turned anyone into a philanthropist,” said David Luckes, a former executive with the Chicago Community Trust who now is a senior philanthropy consultant for Merrill Lynch Trust Co.
Demand for his services has grown over the last five years, as the number of trusts managed by the firm has grown from 350 with $380 million in assets to 4,500 with $4 billion in assets. Four hundred other Merrill Lynch clients have opted to set up donor-advised funds at their local community foundation.
Family foundations have proven particularly popular with his clients, said H. King McGlaughon Jr., director of the firm’s philanthropic financial services. “There has been such a phenomenal increase in wealth,” McGlaughlon said. “These families wake up one day and say, `Wow. I never knew I would have this much money. What am I going to do with it?’ “
Concern over how the money will affect their children is a key part of the decision to set up a family foundation, he said.
“The foundation provides a balance. If they give the children $15 million through a well-reasoned estate plan and they also place the children on the management team of a $15 million family foundation, there is some balancing of wealth with community responsibility,” he said.
Of course, it doesn’t take $15 million to launch a foundation or take some responsibility for the community. Roberto Ramirez launched a foundation in honor of his parents, Jesus and Guadalupe, with less than $20,000. The foundation raises money to provide scholarships to needy Latino students.
Ramirez, owner of the Warrenville-based janitorial firm Tidy International, was just 8 when his father was murdered in their hometown of Matamoros, Mexico, an event so traumatic that the 40-year-old entrepreneur still gets tears in his eyes when he tells the story. A few years after his father’s death, his mother moved Roberto and his six brothers and two sisters to Chicago.
Ramirez, who “spent a good portion of my life being afraid of being taken by immigration and deported,” entered junior high school in Aurora without knowing a word of English. He later dropped out of East Aurora High School and, after a few years working in a restaurant, took a job as a janitor. He worked his way up through the company, until he asked for a job in sales and was refused.
That was 1991, the year he launched Tidy. The company now employs 70 people year-round and as many as 250 in the summer. But he never forgot his dreams as a youngster sitting in Mexico, looking across the Rio Grande to America.
“I knew that if I was ever in this country and was able to make money, I was going to help people,” he said quietly. “I wasn’t able to go to college and I thought the best way to give back to the community was to give someone the opportunity to go to college.”
Thus was born the Jesus Guadalupe Foundation, which gave seven $1,000 scholarships last year to Latino students who could show they were involved in the community and who maintained a grade point average of at least 2.5.
A foundation is not a symbol of immense wealth, Ramirez said. “How much money is enough to start a foundation? I don’t think you have to be a millionaire. I’m not a millionaire,” Ramirez said. “I just think that if you want to do something good, it happens.”
