Bureaucracy, low interest rates, digitization: foundations face massive change

  • The Association of German Foundations has submitted current figures about foundations and admonishes: foundation law lags behind actual developments
  • Greater transparency: a national register of foundations must be put on the political agenda now
  • Foundations registered 2.1 per cent growth in 2017
  • Foundations tread new paths in capital Investment 

"Foundation growth by 2.1 per cent clearly shows: donating remains one of the most successful models for sustainably engaging on behalf of society."
Prof. Michael Göring, Chairman of the Executive Board, Association of German Foundations

Berlin, 20 March 2018. The number of foundations in Germany grew by 549 new establishments to 22,274 in the past year. The Association of German Foundations announced this figure in Berlin today. “Foundation growth by 2.1 per cent clearly shows: donating remains one of the most successful models for sustainably engaging on behalf of society. Foundation work is ubiquitous: for instance, foundations sustain about 150 hospitals and 270 museums and cultivate at least 154,000 hectares of nature conservation area. Just like venture capital in business, foundations work at a crucial place in the system”, says Prof. Michael Göring, Chairman of the Executive Board of the Association of German Foundations.

The most active group of companies in Germany in terms of foundation work are the German Savings Banks Finance Group – the Sparkassen. The number of savings bank foundations increased by seven last year and currently stands at 745. Savings bank foundations distributed about EUR 75.5 million in 2017. Says Dr Heike Kramer, Director of Corporate Social Responsibility and Event Management at the German Savings Bank Association: “With a total volume of EUR 2.6 billion, Savings Banks Finance Group foundations are indispensable sponsors of culture, sport and social affairs in the different regions and in rural areas. However, our endowment capital is jeopardized, too. Considering the low interest rates and the value-based engagement of the savings bank foundations, the strategic optimisation of our investments is our number one priority. In this respect it is important to discuss modern forms of investment.”

Secretary General Felix Oldenburg also holds that politics is called upon to take action: “If returns on investment continue to decline, many ideas and engaged individuals will be without support. And the increasing bureaucracy is making life difficult for those engaged in foundations, too. For this reason we expect the new federal government to carry out the long overdue foundation law reform quickly – as announced in the coalition agreement. The goal must be not less but more foundation work. We will be able to enlist the next generation only with flexible and modern methods.”

Take, for example, the IOTA Foundation, established in autumn 2017 in Berlin. It is the first foundation in Germany which is based on a crypto currency. Additionally the sponsors have chosen the rare form of the hybrid foundation, part of whose capital may be used for the foundation’s purpose. 
Felix Oldenburg comments: “After all, start-up founders are the sponsors and donors of tomorrow. And foundations are the start-ups, the innovators, of the civil society. The amount of EUR 4.3 billion in the foundations’ annual expenditures alone of which the Association is aware equals the amount of venture capital that was invested in start-ups in 2017.”

Foundation growth at 2.1 per cent

A total of 549 civil law foundations vested with legal capacity received their certificate of approval in 2017. During the same period 75 foundations were dissolved, consolidated or combined with other foundations. The total number of foundations in Germany increased to 22,274 (2016: 21,806). The growth rate stands at 2.1 per cent (2016: 2.4 per cent). Germany-wide there are 27 foundations per 100,000 residents. A number of foundation monitoring agencies have reported to the Association of Germany Foundations an increasing demand for limited-term trusts as well as consolidations and mergers of foundations.

A look at the different German states

In absolute figures, the most population-rich German state, North Rhine-Westphalia, once again showed the strongest increase in foundations with 123 new establishments. NRW also continues to be in first place in terms of overall number of foundations: a total of 4,370 civil law foundations vested with legal capacity are domiciled there. Bavaria is second with 3,997 foundations, followed by Baden-Württemberg with 3,329 foundations. With 547 foundations Saxony is the federal state with the most foundations in East Germany, and it also reports the largest foundation growth rate with 3.6 per cent.

Measured in terms of population size, the city states Hamburg (78 foundations per 100,000 residents) and Bremen (49) as well as the large states of Hesse (33), Bavaria (31) and Baden-Württemberg (30) show the greatest density of foundations among the federal states. The foundation capital city in terms of number of inhabitants remains Würzburg. It has 94 foundations per 100,000 residents and is followed by Oldenburg with 81, Frankfurt am Main with 79 and Hamburg with 78 foundations.

Foundation reform: a register of foundations, greater flexibility and limited liability are the Association’s top demands

Interest rates are low, but demands on flexible foundation work are very tough. Yet foundation law still makes it difficult to change a foundation’s statutes – even those that aim at complying with the founder’s purpose. This must be facilitated, as must be the possibility of a reorganization or merger. The capital market environment is difficult and forecasts are often uncertain: those who manage endowment capital properly and conscientiously should be excluded from liability. We still have no nationally uniform register of foundations which enables foundation representatives to legitimize themselves in legal dealings – and which is more transparent in informing the public about foundations and their bodies. Such a register must be put on the political agenda now. Foundations demand this, too: 73.2 per cent of the foundations surveyed by the foundation panel of the Association of German Foundations (n = 246) favour the establishment of a nationally uniform register of foundations with a publicity effect.

The final proposals on the foundation reform will be presented at the Conference of the Ministers of the Interior in early June 2018.

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