A lesson from an investment bank

By 1 April 2010

Lesson number two

In a blog post last week, we shared the first lesson from our report, The business of philanthropy, which examines how to build the market for philanthropy advice. That lesson was around innovation, more specifically about the social aspects of nurturing the demand for an innovation (which is how we believe one should regard philanthropy advice). Today, I’m going to share a second lesson, about the importance of collaboration and leadership.

Just over a year ago the investment bank JP Morgan did something that holds an important lesson for all those looking to promote philanthropy advice.

In January 2009, JP Morgan announced its intention to publish and give away for free the details of how it prices credit default swaps (CDSs). A CDS is a complex financial derivative which allows people to insure against (or bet, depending on your perspective) defaults by sovereign governments or companies. They were first invented by JP Morgan. Some people, including George Soros, have gone on record as saying these are dangerous instruments and their use should be restricted. But they are also popular amongst some classes of investors. Therefore, giving away the know-how on pricing these instruments might seem naive of JP Morgan. In fact, I believe it reflected an understanding of the need to develop the market.

By publishing its formula, JP Morgan was able to improve many people’s understanding and use of CDSs. But this was not an altruistic step. Rather, JP Morgan recognised that a more mature market would be a bigger market from which it could gain. The same, or even a bigger, slice of a larger pie.

JP Morgan showed both leadership and collaboration in taking this step. A leap of logic and faith was required to see that giving away some trade secrets to competitors would benefit it in the longer term. The lesson is the potential of leadership and collaboration to help develop and grow a market.

The parallel with the ‘business of philanthropy’ is straightforward. Many people in the UK believe that the market for philanthropy advice has great potential but needs to be boosted. To that end, NPC has brought together a group of interested parties to form a steering group chaired by Dame Stephanie ‘Steve’ Shirley, the UK’s first Philanthropy Ambassador. In the steering group are a number of institutions all of whom recognise the potential for philanthropy advice but many of whom are natural competitors. JP Morgan private bank is among them, as is Barclays Wealth and Coutts. Private client law firms and others are also on the group. In joining the steering group, each member accepts the importance of sharing information and collaborating to grow the field of philanthropy advice. For some this is in their business interests, but all want to do it for its own sake as well, to encourage more and better charitable giving from wealthy individuals and families. Putting aside competitive instincts, and fostering collaboration, is an important step towards this goal. And all members of the group are showing leadership in taking these steps. They are acting in the same spirit as JP Morgan did over CDSs.

Maybe over time philanthropy advice can become mainstreamed, as NPC would like. Indeed, perhaps some of the very individuals who invented, traded and were enriched by CDSs will one day benefit from such advice and give more of their wealth to great charities. That must be the ultimate goal of all efforts to improve philanthropy advice. If so, recognition of the collaborative potential among competing institutions is like to have played a part.