Find out how The Trust Company, one of Australia’s largest independent trustees, evolved its funding philosophy from small, ad hoc grants to an ‘engaged philanthropy’ model and how this impacts the grantees.

In the 1880s, Victoria found itself awash with a sudden inflow of wealth from prospectors striking it lucky in the goldfields. These same individuals would often travel home to England by long sea voyage and required someone to administer their estate in their absence.

In 1885, Nathan Thornley and John Mackie saw an opportunity to provide this service and opened their company’s doors in Melbourne, trading under the name Union Trustee Executors and Administrators Company. In so doing, they were building on a trustee tradition that had started 900 years before, during the crusades. A knight, before setting off for battle, would often take the precaution of transferring the legal title of his property, money and family heirlooms to a trustee residing in the safety of the local castle.

From these humble beginnings, The Trust Company now acts as the custodian, responsible entity or trustee for a range of clients: personal, corporate as well as charitable trusts. The company, which now includes the New Zealand Guardian Trust acquired in 2012, administers 850 charitable trusts which have a corpus of over $900 million. More than $40 million of funds are distributed annually to “charitable” causes. While approximately 75% of this distribution is largely dictated by the testator, The Trust Company itself has a degree of discretion over the remainder.

In early 2010, The Trust Company undertook a strategic review which highlighted that despite having a wealth of valuable assets including staff, funding and networks and a long history of helping the community, it wasn’t making as much impact with its discretionary distributions as it could. In September 2010, the company approached SVA Consulting to help it consider ways to improve its granting philosophy and process to enhance the social impact of its distributions.

Understanding the past

In prior years, every June, The Trust Company ran a traditional online funding round for its broad discretionary trusts. Approximately 150 organisations, that focus on a range of issues, were typically successful in receiving a one-off project-based grant in the order of $30,000. The Trust Company realised that it was impossible to clarify the logic of its funding strategy with such a fragmented approach.

Using and building on the insights gained was even more problematic with a one-off grant mentality.

Further, a detailed analysis of its discretionary distribution history highlighted three key points.

Firstly, The Trust Company had very little idea of the impact it was creating. Supporting so many organisations, it was impossible to have a meaningful or consistent approach to measurement and evaluation. This resulted in ad hoc reporting and limited trustee accountability for its discretion in the use of funds. Communicating the impact beyond the formal acquittal reports was a major challenge. Using and building on the insights gained was even more problematic with a one-off grant mentality.

Figure 1. Discretionary distributions from annual funding round, 2009

Secondly, the process used to assess the hundreds of applications was inefficient and overly clerical. A group of four or five staff would review the 500 to 600 applications received each year and do their best to form a consensus on which applications to support. The organisations fell across a complex matrix of program areas and state boundaries (see Figure 1). Applications varied significantly in size, scope and focus and the group had only a loose framework to guide their decisions and minimal engagement with the sector to corroborate their views.

… the current approach gave it very little opportunity for meaningful engagement with the grant recipients…

Understandably, this review and consensus process took weeks, and it was unclear whether it resulted in funding going to the most effective organisations.

The third frustration for The Trust Company was that the current approach gave it very little opportunity for meaningful engagement with the grant recipients, and to leverage its funding strategically with the sector at large. Aside from cheque presentations and occasional volunteering days, the sheer volume of recipients and limited internal resources meant that it was impossible to foster deeper engagement to ensure the team was current in its thinking and across best practice in the sector at large.

Together, a greater necessity to account for trustee discretion and a desire to enhance the social impact for the benefactors of its charitable trusts helped to build momentum for change within The Trust Company.

From ad hoc giving to strategic funding

While the momentum to change was building, it was still not clear: what exactly to change and how to bring all the critical stakeholders – the Board, senior management, staff and non-profits – on the journey. Working with SVA Consulting, The Trust Company decided to develop a clear picture of a future model and its value proposition and then to get buy-in internally before testing the idea with the wider non-profit sector.

Following much internal consultation and with inspiration from Mark Kramer of FSG Social Impact Advisors, the outcome was a commitment to shift to a model that The Trust Company called ‘engaged philanthropy’: supporting a small group of partners in deeper, long-term relationships to deliver a discernible social impact. Figure 2 outlines this shift from ad hoc ‘traditional philanthropy’ to more ‘engaged philanthropy’.

Figure 2. Traditional Philanthropy vs. Engaged Philanthropy. Source: Kramer (2009) ‘Catalytic Philanthropy’

There was lots of internal debate about this shift, and the program areas to support. Ultimately, consensus was achieved by focusing on certain key principles which aligned The Trust Company’s overall mission with its philanthropic purpose:

• Responsibility: Executing fiduciary responsibilities professionally meant The Trust Company had a responsibility to account for the social impact it was making with its granting.
• Knowledge: By focusing on certain program areas, The Trust Company would build deeper knowledge and experience about its granting, and position itself to leverage in stakeholder support from government, corporate, and the broader community as well as its clients.
• Market Position: With relationships at the nexus of the new model, evolving its granting philosophy would enable The Trust Company to differentiate its philanthropic brand from others in the market place as an engaged and transparent grant maker.
• Communication: Adopting a focused approach would strengthen the ability of The Trust Company to articulate its social impact, both internally and externally.
• Variety: Adopting a focused approach to discretionary giving still enabled a variety of charitable areas to continue to be supported, through non-discretionary trusts and staff-matched giving.

On the basis of these principles and with clarity of destination, The Trust Company was able to generate enough internal buy-in to test its model with the wider non-profit sector.

Engaging the sector

Having established a hypothesis on a funding model, The Trust Company realised that it was crucial to engage with previous grant recipients and leaders within the non-profit sector to test its ideas and gain feedback. In workshops held in Sydney, Melbourne and Brisbane, the team outlined the model and provided information about how the new approach would affect existing grant recipients, and how funding applications would need to be structured in the future.

The response to these presentations was overwhelmingly positive, with many indicating that they were tired of piecemeal donations tied to projects and excited about the opportunity to develop a more involved, long-term partnership with The Trust Company.

Establishing funding priorities

With internal and external momentum behind the model, the next challenge was what area The Trust Company should focus its distributions on. Unlike ad hoc giving, where you can give to any purpose, engaged philanthropy requires the selection of areas on which to focus. In a world of limitless need, there is no ‘right’ answer as to where a trust should focus funding.

In the case of The Trust Company, this process was made somewhat simpler by the fact that it had a fiduciary responsibility to give primary consideration to the testators’ wishes. Where these wishes were broad or amorphous, consideration was given to the philanthropic example set by the benefactors in their lifetime, the areas where The Trust Company had significant professional experience, and consideration of the social and economic issues impacting the community at large.

Two large trusts, Fred P Archer Charitable Trust and Isabel J Millner, influenced the company’s selection of health and education as program areas. Fortuitously, this also aligned with the areas that the staff was passionate about and there were clear opportunities to leverage pre-existing networks of the organisation.

Having determined the focus on health and education, the next step – as per strategic funding practice – was to clarify outcomes within these areas to which The Trust Company would direct its efforts. Following further internal consultation, it was agreed, in relation to health, that funding would be focused on organisations working to achieve ‘positive ageing’ and ‘living with a disability’ and, in relation to education, ‘socially inclusive education’.

Making it a reality

Having built a solid base of support for its new ‘engaged philanthropy’ approach, The Trust Company then turned its attention to making it a reality.

First, The Trust Company sought to mitigate the impact of this transition on existing grantees. To do this, it gradually implemented the change over an 18-month period, thereby giving existing grantees plenty of notice. In 2011, The Trust Company made a final round of 48 one-off distributions to a broad range of non-profit organisations and signed-off on 17 multi-year strategic partnerships.

In the same year, The Trust Company also restructured its philanthropy and community team. Previously a few staff from across various teams formed a ‘virtual’ philanthropy team under a senior manager with a broad portfolio. In 2011, indicating how integral the philanthropy and community strategy was to the future of the organisation, The Trust Company consolidated and expanded its philanthropy team under a dedicated executive manager.

The Trust Company also seeded a fellowship at the Melbourne Business School (MBS) to help foster the collaboration central to the strategic partnership model and to work on the assessment of the portfolio’s social impact. This ensured The Trust Company could defer to best practice in the sector and draw on the extra resources and insights of the Asia Pacific Social Impact Leadership Centre at MBS that has ‘making social impact through collaboration’ as its mantra.

Lessons learned

The way The Trust Company achieved a profound shift in funding practice has lessons for other philanthropic foundations wanting to follow a similar path.

1. Build momentum internally by developing a shared understanding of why the current model is not ideal, what a future strategic model would look like, and why it matters for your organisation. Involving all the key stakeholders in this process was instrumental in The Trust Company getting internal support for the model which resulted in a successful transition, the importance of the change being recognised, and more resources being allocated to the team.

2. Be open and transparent in your communication with existing grant recipients and the wider non-profit sector in the change process. The Trust Company found that by testing a clearly developed hypothesis and being open about its rationale for the change, it had widespread support and, as a bonus, it enabled grant recipients themselves to think more strategically about the kind of support they should be seeking.

3. Finally, there will always be a place for ad hoc, short-term project funding. By having ‘variety’ as one of its principles, The Trust Company retains the flexibility to respond to pressing needs or simply great ideas, so ensuring that its commitment to engaged philanthropy is not a strait-jacket limiting its scope of action, but rather an approach which enables it to direct the bulk of its resources to achieving meaningful and measurable social impacts.

“We have only just begun to appreciate the enormous value a funder represents in helping organisations to leverage their work…”

When asked to assess how the The Trust Company’s Philanthropy and Community team was doing at this new work, Simon Lewis, the team’s head replied, “The philanthropy team is in a positive and engaged place right now as a result of these changes – it really believes in the merits of this refined approach. As we engage more with our grantees and build strong cross-sector relationships around emerging theories of change, we are pleasantly surprised by the many opportunities that are starting to emerge, including early signs of good collaboration between our strategic partners.”

“We have only just begun to appreciate the enormous value a funder represents in helping organisations to leverage their work so that they can collectively make a dent in some of our nation’s most pressing social problems,” said Lewis.

If you’d like to know more, contact us on consulting@socialventures.com.au