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Corporate America’s philanthropy model doesn’t work. It’s time for a better one.

March 01, 2022

Child_health_care_Drazen_Zigic_GettyImages-1287924870Corporate America is exceedingly generous. With nearly $17 billion in donations in 2020 alone, businesses are working hard to address everything from equity to education to addiction. Yet while it’s undeniable that corporate America is philanthropically minded, it’s highly questionable whether all this giving is truly effective. Businesses need a better way to tackle society’s biggest problems.

When it comes to philanthropy, businesses take a traditional approach. They lean heavily on traditional corporate foundations: nonprofits through which they dole out grants to specific causes and marginalized communities, or provide free or reduced-price products and services. While this giving matters, it can’t drive the systemic change that’s needed to address long-standing issues like poverty or economic inequity. Such problems can be solved only by long-term innovation, not short-term programs.

That’s why businesses should adopt a new nonprofit model: a public charity spinout from a corporation. It’s significantly different from traditional corporate foundations and exponentially more effective at driving systemic change.

This new nonprofit model, which my organization has adopted, springs from the realization that public charities have more flexibility than corporate foundations. Public charities are required to receive most donations from noncorporate sources, which means potentially greater resources. They are free to invest in promising innovators and reinvest the returns to spur faster progress—something corporate foundations avoid. At the same time, a public charity can draw on the expertise and infrastructure of the founding company and its employees, giving it the benefits of the business itself.

Add it all up, and public charities can operate more like a corporate startup incubator or seed investor than a corporate foundation. They can easily invest in startups and promising solutions that require more resources or a longer time frame. They can also more easily support innovators who are not well-known in traditional investor circles. This outside-the-box strategy is key to driving comprehensive solutions to society-wide problems.

How can a business make this happen? First, establish a public charity, either instead of or in addition to a traditional corporate foundation. Give it a mission of finding and investing in promising innovators and social changemakers who can tackle the root causes of major social challenges.

Next, get your employees involved in its work. They can donate their time and professional expertise to the public charity, empowering it to support promising innovations far more effectively. That’s another difference from a foundation, which doles out corporate money but not the subject mastery of a corporate workforce. An independent board can ensure there’s no corporate self-dealing.

The next step is to solicit donations from outside the business—a requirement for a public charity. Fortunately, philanthropists have a good reason to support this nonprofit. Their donations are amplified by the founding company’s resources and employee expertise, exceeding the impact that donor dollars would otherwise make. They can also watch their support grow more powerful over time, as investments generate returns and get reinvested.

Add it all up, and what do you get? Groundbreaking solutions to pressing social problems. The public charity gives changemakers the funding they need but often can’t find, as well as the business expertise they want but often don’t have. Historic lack of support for social innovation means that countless advances have never seen the light of day. With this new nonprofit model, they finally have the chance to shine.

My organization is potentially the first to adopt the public charity model. We were stood up by Roivant Sciences, a technology-driven health care company, and our mission is to use technological advances to expand health care access and improve health outcomes for underserved groups. While typical health care-related corporate foundations facilitate free or cheap therapeutics, we focus on supporting innovators who can advance health equity over the long run.

Consider Sunflower Therapeutics, which my organization supports. It is developing a cost-effective means of manufacturing vaccines locally in less developed countries—a basic matter of health equity and an urgent need coming out of the pandemic. In addition to funding, my organization provides Sunflower with corporate expertise. With a public charity like ours supporting it, Sunflower Therapeutics could fundamentally change how the world makes and gets vaccinations, which will protect health globally and end long-standing inequities in large parts of the world.

This new nonprofit model could be applied to virtually any industry. A bank could support innovative fintech startups that expand access to the financial system for the unbanked or underbanked. A homebuilding business could invest in new manufacturing processes that make homes more affordable or more durable. Tech companies could expand consumer access to digital currency, which is being embraced globally and can empower minority communities in America too. Such nonprofits will need to comply with applicable state and federal charitable rules, and also develop a robust fundraising plan for substantial, ongoing donations beyond their founding companies, in order to maintain public charity status.

The possibilities are vast, yet they won’t be unleashed if companies stick with the traditional corporate foundation model. That tried-and-true system has its purposes, but it’s insufficient for tackling massive problems and ending long-standing injustice. A new model can spark systemic change, one that combines the best of for-profit businesses with the benefits of nonprofit public charities. What is corporate America waiting for?

(Photo credit: Getty Images/Drazen Zigic)

Headshot_Lindsay Androski_Roivant_Social_Venures_PhilanTopicLindsay Androski is president and CEO of Roivant Social Ventures and a trustee of the Massachusetts Institute of Technology. This article originally appeared on Fortune.com.

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