x Abu Dhabi, UAE Thursday 20 July 2017

Corporate approach to the gift of giving

Philanthropy has long been a Middle East tradition, but in many business empires in the region a more sophisticated attitude seems to be emerging.

Philanthropy has become increasingly important to wealth advisers and is expected to become crucial in the Middle East.
Philanthropy has become increasingly important to wealth advisers and is expected to become crucial in the Middle East.

Stroll around Lake Geneva during the summer and you will find rich families from the Middle East and Gulf combining relaxation with visits to their private bankers. Philanthropy has traditionally played a minor role in their dealings with their advisers. But recently, some families' empires have been sharpening their profile and becoming more proactive in charitable giving.

"I am seeing the seeds of a more sophisticated approach in giving," says Muwaffak Bibi, who heads Citibank's private banking activities in the MENA region. "People are moving more to institutionalise their giving, for example through longer-term donation planning. This is a similar approach to what clients do when they invest." Companies such as Saudi Arabia's Abdul Latif Jameel Group, the UAE's Lootah and Al Jaber groups and the Turkish company Koc Holding, are among those setting up distinct charitable organisations.

Contrast that with the traditional low-profile approach of the Kuwaiti billionaire Nasser al Kharafi, whose business has quietly funded local projects for decades and raised funds among peers for African causes. "Most of our clients keep a very low profile. There is a belief that you don't show off giving because it takes the goodness out of the charitable act," Mr Bibi says. Many predict that philanthropic funds from the Middle East will play an increasingly important role, partly because the financial crisis has not hit their wealth as hard as those in other areas.

While high-net-worth individuals around the world lost one fifth of their wealth last year, the rich in the Middle East managed to keep what they had, according to Capgemini and Merrill Lynch's 2009 Wealth Report. The US, however, clearly still leads the pack in running its foundations as businesses, with organisations such as the Gates and the Rockefeller foundations in the forefront. With assets of US$300 billion (Dh1.1 trillion), the US philanthropic market is considered the world's largest.

Warren Lancaster, the international director for Geneva Global, a consultancy that aims to improve the impact of philanthropy by applying performance indicators and investment principles, has been touring the Middle East to talk to potential philanthropists. "We try to make a better job with the money available," Mr Lancaster says. "We try to get people to think about giving money strategically." People generally "give at more significant levels once they break through £3 million [Dh16.8m]," he says.

The region's wealthiest "understood the businesslike approach without taking out the heart. They have a very personal approach to giving," he says about his experiences touring the area. Philanthropy has become increasingly important to wealth advisers in the US and Europe. Now it will also become crucial in the Middle East. "Private banks in particular believe that long-term wealth creation trends and the growing importance of markets like the Middle East and Russia to the wealth management industry are likely to fuel the philanthropic trends even through the current market downturn," the Scorpio Partnership, a UK-based global consultancy, said in an October 2008 report.

Take Jameel, the large, Saudi Arabian family enterprise and the Saudi distributor of Toyota. Its partnership with the Indian microfinance organisation Grameen is focused on the Arab world, where it provides technical and financing support. Locally, Jameel has set up partnerships with hospitals and supports job creation initiatives for Saudis. Such efforts come as individuals, as well as companies, worldwide are more focused on performance and check the impact of every penny they donate.

"People are looking for strategic and performance philanthropy, not just charity or a cheque at the end of the year," says Walid Chiniara, the founder of Shoora, a UAE-based family business advisory service. "The activities have become more sophisticated. There is definitely a tendency to do good locally as well as to demand performance." The UAE-based Lootah, for example, has set up medical schools and clinics and engaged in agricultural projects, at first locally and then in Sudan, Yemen and elsewhere.

Mr Chiniara says a growing number of families, such as the Lootahs, are using their own brands to give credibility to their projects. "That encourages others to spend with them." He cites the al Futtaim family as another good example. "To many companies it sounds good to co-invest in their backyard, where there is great need in terms health and education. There is a strong interest in the community," Mr Chiniara says.

On the other hand, there are still many businesses and high-net-worth individuals for whom giving is a "one time action and not part of broader strategy", says Lubna Forzley, regional head of communications at BNP Paribas who also oversees the bank's corporate responsibility activities. She points to a direct correlation between the relatively new concept of corporate social responsibility (CSR) and the low visibility of philanthropy. "The fact that CSR is not very developed can influence the degree of professionalism in philanthropy." Strictly speaking, however, philanthropy is not part of CSR.

There are some fundamental differences in the ways businesses give - and have given - in the Middle East. "Generally, there is much less segregation between the family and business activities and philanthropy easily gets mixed up in between," says Bertrand Gacon, head of responsible investment and philanthropy for BNP Paribas. As a result, philanthropic activities are often a spin-off from business. Jameel, for example, provides Toyotas for all its local job-creation projects. Across the region, family members often hold key positions in their philanthropic endeavours. This contrasts sharply with the US or Europe, where those running the daily business are far removed from those managing the foundations - often for tax reasons.

Religion also plays a very different role. "Religion is more present, stated and explicit than in the West," says Mr Gacon. "This is not to say that religion is not a key motivation for people in the West, but they don't speak so openly about it." Zakat, or alms giving, is one of the five pillars of Islam. It requires the giving of a percentage of one's wealth, usually at least 2.5 per cent, to the poor and needy. (Mr Gacon points out that most family businesses give far more than the required minimum.)

"It is part of our genes, part of life," said Ms Forzley. "Locals like to support locals. They like to spend money to set up little schools and mosques in the neighbourhood." But religion is not the only reason that regional philanthropy is so focused on the local community. "The safety net is non-existent in many parts of the Arab World. Charity clearly becomes more relevant where a significant part of the poorer population are left to strive on their own," says Mr Bibi.

Unlike Europe, for example, where government-related institutions are in place to help people who fall ill, lose their jobs or otherwise encounter hardship, there is seldom such support here. "The Arab world faces its own set of particular needs," says Amin Nasser , a partner at PricewaterhouseCoopers. The religious angle can also make people more likely to shy away from publicity. But recently, more advisers are encouraging their clients to publicise their good deeds more.

"The true question for [high-net-worth individuals] is how much do you publicise. We tell them that if there is a public connection, they might encourage others to do philanthropic work," says Mr Chiniara. uharnischfeger@thenational.ae