Ranking Nonsense

Dear readers,

everybody loves rankings. Let's admit it, they attract clicks like, well, photos of cats. A few days ago, I followed the clickbait to this ranking of the world's largest foundations. Below the Bill and Melinda Gates Foundation, it lists the Howard Hughes Medical Center, the Garfield Weston Foundation, and the Stichting INGKA Foundation. The list does not compare apples to apples, not even to oranges, it compares fruits to trees. Like most lists of top philanthropic institutions, it is misleading if not wrong. Here is why. 

Why ranking lists are mostly misleading

First, the data simply is not available. In many countries, foundations do not have to release financial information the way publicly listed companies have to. US foundations have to file a "990-PF" form with the tax authorities, with assets and expenditures listed fairly clearly. Other countries, including my own, Germany, regrettably do not have publicly available information on foundations. Hence, global lists are either skewed towards US foundations, or they have to invest the time to find additional data. Many emerging foundations from China and the Arab World have yet to find their way onto any list. The annual Forbes list of wealthiest people is compiled by a whole team of researchers, and still by its own admission includes many errors and wild estimates.

Which one is Germany's biggest foundation?

This is not least because some assets are easier to value than others. Let me give you two examples: What is Germany's biggest foundation? The above list identifies the Robert Bosch Stiftung, with assets of $6.5bn. This number is really the estimated market value of the automotive supplier Robert Bosch GmbH, which it owns. Its $78bn in revenues could be used to estimate a debatable market value that would in all likelihood not be $6.5bn. For all I know, Germany's biggest foundation may be the largely unknown St. Katharinen und Weissfrauen Stift, an 800 year old foundation that provides stipends and apartments for elderly, poor women. It owns the land it was founded upon outside of medieval Frankfurt. Today, much of that land is known as the Westend, Frankfurt's most expensive real estate. The foundation derives a modest income from leases dating back the better part of a century, and has no reason to estimate the market value of an asset that its ancient bylaws say it can never sell.

Assets and grants cannot provide accurate pictures of a foundation's power or impact

Even if one could put a clear number to assets such as these, the emerging list would be misleading. After all, the term „foundation“ can mean very different things depending on local legislation. Frequently, as a result, there is surprisingly little relation between a foundation's wealth and its charitable budgets. One global ranking from 2013 saw the Stichting INGKA Foundation as the world's largest foundation but failed to reveal that its main purpose is as a shell for IKEA. According to a recent annual report, it only gave $129m in grants over a 12 month period. Similarly, the Garfield Weston Foundation in London is primarily a vehicle for a commercial holding company, and only reported GBP 64m in charitable spending. Many large foundations (including the top ranked Howard Hughes Medical Center) operate hospitals or universities (some happen to be incorporated as foundations, others do not), and may be better compared to companies or public institutions than to philanthropic organisations in a narrow sense. Other foundations may have little or no endowment at all but still give away many millions provided by a linked company or a living founder. 

Third, and perhaps most importantly, neither a foundation's assets nor its grants really provide an accurate picture of its power or impact. This is perhaps best illustrated by the tiny foundation behind the greatest work in human history, measured by hours collectively invested: The Wikimedia Foundation has yet to build a significant endowment, and has an annual budget of $66m, raised dollar by dollar from its community of users.

Reporting standards for philanthropy

So what DO we know? Yes, the Bill and Melinda Gates Foundation is the world's largest foundation. That is pretty much it. Rather than waste our time compiling or reading debatable rankings, philanthropy should (finally) develop reporting standards (such as the Social Reporting Standard) that capture truly useful and comparable information. The business world has the Global Reporting Initiative, and a whole reporting industry supporting it. Many companies are racing to use the United Nations' Sustainable Development Goals (SDG) to measure their impact on the planet. A great place to start for foundations, too.

 

Full disclosure: The author’s own Bundesverband Deutscher Stiftungen (Association of German Foundations) also publishes a list of major German foundations.

 

 

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