Banyan Software, an American software acquisition company, announced last week the creation of a new corporate foundation to be seeded by US$100 million of the firm’s stock over the next four years.  

The pledge could result in considerable support for Canadian charities and non-profits. 

In addition to offices in the U.S. and UK, the private company has a presence in Canada. 

“We believe in creating an enduring impact through our work by growing and supporting our businesses, taking care of our teams, and having a greater positive impact in the world,” said the company’s CEO, David Berkal, by email. 

The Banyan Software Foundation will welcome grant applications from Canadian organizations that use technology to build a greener and more equitable world, said Berkal. 

Corporate philanthropy is common in the U.S. and Canada, but experts say the company’s pledged approach—endowing a separate foundation with corporate shares—is rare.

The size of the pledge is also significant. “We believe this represents one of the largest instances in history of a technology company contributing stock to a foundation,” said Berkal in a press release. 

Why create a stand-alone foundation? 

In Canada, companies are increasingly opting not to create separate corporate foundations and instead donating directly through their companies, said Hilary Pearson, a philanthropy commentator and the former president of Philanthropic Foundations Canada. 

Companies do not receive the same tax benefit for creating a foundation as individual donors, and doing so comes with additional regulation and accountability, she added. 

“If you can just keep on flowing your money through a corporate giving program, why would you need a foundation?” she said. 

The same is true in the U.S., said Dana Brakman Reiser, a professor at Brooklyn Law School and the author of a recent book exploring changes to American corporate philanthropy. 

Giving directly through a corporation can also offer increased flexibility and alignment with a company’s business model, she said. 

In both countries, foundations are subject to a disbursement quota—a minimum rate of spending on granting or charitable activities—whereas companies are not. 

It can be advantageous for a company to assess its annual performance and adjust its philanthropy accordingly, she said. 

Yet, despite these hurdles, the American professor said establishing a corporate foundation can have brand benefits. 

One of the reasons people continue to use corporate foundations is because they signify distance between the company and the foundation, which can be attractive from a reputational perspective, she said. 

Why endow with shares? 

When companies do establish corporate foundations, they commonly fund them on a year-by-year basis with cash, according to Pearson and Brakman Reiser. 

Like giving through their corporate social responsibility program, this approach gives companies more flexibility and control to adjust their giving in step with their business performance. 

Banyan Software is taking a different approach based on a desire for its philanthropy to grow as the company does, said Berkal. 

“We wanted to think of the foundation as one of our largest shareholders, not just a CSR side project.” 

The example of the Mastercard Foundation demonstrates how this approach can have a significant upside for charities. 

The Mastercard Foundation, Canada’s only “mega foundation” has grown in lockstep with the commercial success of its namesake corporate benefactor. (Graphic: Gabe Oatley/Future of Good). 

In 2006, Mastercard Inc. donated 10 per cent of its shares to endow the Mastercard Foundation, a Canadian private foundation. 

At the time, the shares were worth about $1.2 billion.

Since then, the stock has grown in value tremendously, supporting the foundation to become Canada’s only “mega foundation” with assets of more than $55 billion. 

Owing in large part to the commercial success of its namesake benefactor, the Mastercard Foundation has granted more than $3.2 billion to qualified donees since its launch.  

The Banyan Software Foundation’s first two grants, worth US$1 million each, will go to U.S.- and U.K.-based non-profits, respectively. 

The U.S. organization, Merit America, provides education and training for Americans in low-wage jobs to transition to higher-paid technology jobs. 

TransitionZero, a UK-based organization, will use its grant funding for a social asset mapping project. This project uses technology to estimate global solar capacity to support clean energy forecasting. 

“Banyan is helping us improve access to critical data for effective energy systems planning, empowering countries to pursue sustainable energy solutions independently,” said Matthew Gray, TransitionZero’s CEO in a press release. 

The fine print

However, though this approach can have significant upsides for charities, according to Brakman Reiser, there is also the potential for a downside for taxpayers. 

It’s possible that a company could benefit from a considerable tax break on the donation of their stock, only to see it drop in value, leaving less available for charitable giving.

Still, she said prudent investment rules are in place at the federal and state levels to prevent this sort of thing. 

Under federal law, foundations are expected to consider the need for diversification of their investments to help prevent against losses. 

In addition, there are rules to prevent private foundations from becoming de-facto holding companies for affiliated corporations.

In the U.S., foundations are not generally permitted to own more than 35 per cent of the stock of a related company. 

Berkal said he was not willing to disclose the share of the company’s ownership the foundation will own once the stock donation pledge is fulfilled. However, he said he expects the foundation to be one of the company’s largest shareholders. 

As companies’ values fluctuate year to year, Berkal said an accounting firm will complete an annual valuation to determine the amount in shares that the company will gift to the foundation until the US$100 million pledge is fulfilled.  

Inspired by Patagonia

Because the foundation has forged a unique path, executives have not turned to any peer company as a template example, Berkal said.

However, the tech executive said he was inspired by the decision made by Patigonia’s founder Yvon Chouinard to donate all of the company’s voting stock to an impact-oriented trust. 

In addition to launching the foundation, the company announced last week new impact-oriented initiatives, including funding for employee skill advancement and a new relief fund for staff experiencing extreme hardship. 

While the foundation has not yet established an open granting process, Berkal encouraged Canadian grant-seeking organizations to contact the foundation to be added to a list for future consideration.

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