How Capitalism Shaped Philanthropy in Germany

When Jakob Fugger died in Augsberg, Germany in 1457, he left behind the world’s first housing complex for needy townspeople – the Fuggerei ¬– and a family-led foundation to keep its doors open. Now 499 years old, the Fuggerei is still going strong, as is the foundation, which is still run by the Fugger family.

The Fuggers are an unusual case. in certain ways: as Jakob Fugger put it in his epitaph, he was “second to none in the acquisition of extraordinary wealth” – some historians believe that adjusted for economic growth, the merchant and banker remains the richest man of all time.  But in other respects, the Fuggers – who remain wealthy today – are a good example of the deep relationship between capitalism and philanthropy in the European Union’s largest country.

Traditionally, German family-owned companies have tended to funnel most of their philanthropy toward projects that benefited their own city. Even today, such companies tend to focus on whatever interests them most personally. Typically, that means either causes in their city or something related to their market, according Dr. Rupert Graf Strachwitz, director of the Maecenata Institute for Philanthropy and Civil Society, a Berlin-based research and policy think tank focused on philanthropic organizations. Nor have the aims changed: Half of German foundations focus not on arts or the environment but social services.

Projects vs. Giving

German philanthropists also still tend to prefer tangible projects to simply giving away money. In the 1950s, Americans tried to introduce the grant-giving style of philanthropy as part of a program to revitalize philanthropic institutions that had languished under the Nazis, but that mode has only caught on in a limited way, observes Strachwitz.

More typical is a relationship that begins with a financial donation and evolves into an operational role, as the philanthropists realize they like being involved in a project, according to Strachwitz. “They start off by saying, ‘I don’t really want to get involved much,’” he says, but “they love inspecting their projects in their gumboots…and they get more and more emotionally involved as time goes on.”

Most of these donor families own small- to mid-cap firms, the Mittelstand group of private companies that dominate the German economy, according to Prof. Dr. Laura Marie Edinger-Schons, chair for corporate social responsibility at the University of Mannheim business school.

For most of those families, like the Fuggers, their philanthropy is something they do simply because it’s something they have always done. “I think that the interesting difference between the Mittelstand and the big companies is that in many of these smaller, family- owned businesses, there was already a very strong tradition of being values oriented, of having a strong social responsibility towards the society that they are active in,” Edinger-Schons says.

Changing fashions

But some aspects of German philanthropy are changing with the times.

Even in deeply traditional corners like the Fuggerei, where tenants are still low-income, Catholic Augberg residents (the religious requirement is a holdover from the Fuggerei’s founding days)  who still pay their traditional rent – a guilder a year (about 88 euro cents) plus three prayers a day – the foundation is now led by a woman: Gräfin (Countess) Maria-Elisabeth Thun-Fugger, the first female Fugger to run the family’s operations in 500 years.

The goals of philanthropic initiatives are shifting too. “You’re not looking at eternity so much these days; you are looking at what needs to be done today and tomorrow,” says Strachwitz.

One reason for the focus on near-term giving is that with investment yields running around 1 percent a year, the impact of a perpetual endowment seems quite limited to many donors. As most philanthropists don’t have Fugger-sized bank accounts – per Strachwitz, the vast majority of German foundations have between 500,000 and 3 million euros in assets – they realize that if they want to have an impact they will live to see, they need to spend much more right now.

Refugee renewal

Among corporate donors, the relationship between the company making the donation and the company’s employees is also evolving. In the past, the founder or the family member who directed the company also directed its philanthropies: whatever causes the owner favored automatically became the priorities of the company.

In recent years, however, that has begun to change at some companies, as a new generation has begun to move the head of the table. “In many of the cases that I have observed, the children, when they take over, don't put themselves so much into the spotlight, but they try to include the voices of a lot of different stakeholders of the business,” says Edinger-Schons.

Encouraging worker involvement in these causes has also led back to the company’s own operations, according to Edinger-Schons, such as when a company donation to an environmental cause leads employees to start thinking about ways to reduce their company’s own carbon footprint.

For a number of companies, this shift toward a more egalitarian approach to donations has been quite recent, dating from the time of the refugee crisis in 2015. Employees seeing dire humanitarian needs in their town began asking their company’s owners if they could borrow company equipment or take time off to help, according to Edinger-Schons. Their volunteering led some family-managers to organize more formal corporate volunteering programs, she says, and indirectly led many companies toward incorporating their employees’ ideas into their good works.

They gave at the office

A number of firms, however, don’t have the same latitude to make this kind of shift: More than 500 German companies are now either largely or entirely owned by a foundation, which retains all their profits.

In the U.S., a foundation can own only up to a 20 percent stake in a company, but in Germany, some of the country’s largest companies, such as Bosch and Bertelsmann, are either wholly or mostly owned by charitable foundations, as well as many mid-caps.

The Zeppelin Foundation, for instance, owns 93.8% of the stock of the ZF Group, the 32-plus billion euro global auto parts maker, and sends its entire 150-plus million euros of annual dividends to the town of Friedrichshaven, where ZF is headquartered. Thanks to the bequest of Graf Zeppelin, the airship inventor and industrialist, the 60,000 residents enjoy a variety of cultural, educational, and social benefits, including youth centers, an adult education center, and a home for the elderly.

A pure free marketer might find this objectionable. Since the 18th century, theorists have worried about the “dead hand” problem – the risk that foundations with unchangeable goals would stunt economic growth and social development, according to Strachwitz.

In practice, however, Strachwitz says, those “dead hands” don’t usually seem to hold  companies back. Economists have found that in this case the old aphorism “the giving hand gets” often seems to be true, as being owned by a foundation tends to be good for the company’s profitability. The reason, according to Strachwitz, is that foundation ownership has enabled companies to focus on investing for much longer time horizons, which tends to be good for the fortunes of the firm. “They are not looking at the quarter, they are looking at the decade, and this is usually good for business,” he explains.

However, that doesn’t mean that executives at foundation-owned firms don’t face shareholder pressure. Managers with a hard-charging temperament in particular may want to think twice before signing on to a foundation-owned company. In 2017, for instance, the mayor of Friedrichshaven, which controls the Zeppelin Foundation, forced out the CEO of ZF, who had tried to refocus the company away from internal combustion towards electric mobility and driverless cars. Instead of the CEO’s aggressive program of acquisitions, the mayor wanted to pay down debt and raise the dividend.

In retrospect, the issue with the CEO, Dr. Stefan Sommer, seems to have been more speed than the destination: although the CEO was replaced, the board didn’t actually change his strategy.  “It’s a question [of] how fast we can go...we have to make it manageable,” explained ZF board member Michael Hankel in 2018.