Michael Brophy is retiring from the UK-based Charities Aid Foundation this year after 20 years as CEO. The total funds coming into CAF for distribution to charities grew from £16 million a year to £250 million under his stewardship. Caroline Hartnell asked him about his greatest achievements at CAF and his hopes and fears for the future of the charity sector. Social investment is clearly central to his vision for the future – and this will depend on ‘a kind of understanding of the possibilities of using money twice’.

The origins of CAF International

Michael Brophy didn’t seem that interested in looking back at his greatest achievements at CAF, but I still wanted to ask him a bit about CAF International and how that came to be set up, as it was very much his personal initiative.

The first point is that he has always been an internationalist. ‘I made a habit of going to the United States in the 1980s to find out what developments were taking place there and to reflect on whether they could be transplanted to the UK.’ Give As You Earn, CAF’s payroll giving scheme, was clearly inspired by United Way, particularly the United Way in Philadelphia, ‘which is what’s called an open United Way, where the participants have discretion about beneficiaries’. There was, and still is, a United Way in Merseyside, but it wasn’t developing very rapidly. ‘Seeing at first hand the huge activity of United Way in the US, and the millions and millions of people who were making regular deductions from their payroll, made me think it was worth lobbying for a tax break for payroll deductions in the UK too.’ The scale of the UK and the US were clearly different, however, so his idea was that CAF could be a sort of national United Way – in fact about the same size as the United Way in California – ‘and that we didn’t have to create mini CAFs in every town to reflect the United Way model’. Also in the 1980s, Brophy paid a visit to the Mott Foundation in Flint, Michigan to talk about the possibilities of promoting community foundations in England.

Then, in the late 1980s, came the fall of the Berlin Wall. ‘I think all of us in the foundation world examined what role we should play, if any, in Eastern Europe. It was immediately obvious that there was at least a possibility that the kind of self-sustaining brokerage role between resource providers and receivers that CAF could play might be exactly what was required in Eastern Europe. It didn’t transpire quite like that, but that was our first serious international development alongside participation in the Charity Know How fund. Fairly soon after that we went into Russia for similar reasons, and that has I think been enormously successful. And it kind of grew from there.’ A particularly interesting example, he feels, is CAF Australia, because there the need wasn’t the driving force. It was the possibility that in a successful economy, with already well-established voluntary sector institutions, a kind of CAF might fit well and make a contribution. And he thinks it has. A final comment: ‘The international development has been a bit stop and start, but it is now here for good, and we have even greater plans than we’ve had over the last decade.’

Hopes and fears for the future

CAF International out of the way, we were free to go on to what really interested Brophy – the future of the charity sector. First the UK. His starting point here is ‘a sense of frustration’. The resources flowing into the voluntary sector aren’t really much different from what they’ve been at any time in the last 10 or 20 years, but he would like to see a much bigger sector. ‘Why is it that probably the most liberal tax incentives in the world haven’t led to a much more rapid growth? If we want a much bigger public benefits sector, of which registered charities would be a leading part, then we’ve got to address the problem of getting much greater resources into an effective sector that still retains its values.’

In Brophy’s view, charitable donations will continue to evolve at a rate faster than the rate of inflation, but something else is needed. ‘I’m fairly sure that that something else has to do with social investment rather than giving. We need a culture in which people are used to lending some of their wealth – for example from their pensions funds or savings –for use by public benefit organizations in the immediate interest of their beneficiaries.’ His guess is that some time towards the end of the next ten years the social investment income stream will be bigger and growing faster than the philanthropic stream. Apart from anything else, the amount of money available is vast. The accumulated assets of UK pension funds are approximately £500 billion. ‘Making use of just 1-5 per cent of that could create the kind of scale of public benefits sector that some of us aspire to.’

So what would it take to get 1-5 per cent of this £500 billion invested in public benefit organizations? The first thing, he says, is an understanding that money could be used like this without damaging the purposes of those funds, ie to provide pensions. In fact, in the case of pensions, it would probably increase the benefit to pensioners because of the increase in public provision in the areas in which they live. ‘So it’s a kind of understanding of the possibilities of using money twice – once when you don’t need it and again when you do need it and get it back again.’ The CAF charity bank is ‘a nice example of the mechanism’: people will put money into it for charitable reasons and know that because it’s a bank they will get the money back. Good leadership will be needed, and creative tax encouragement for social investment would certainly help.

In Brophy’s view, legal changes won’t be needed because ‘if pension fund trustees decide that it’s in the interest of pensioners to invest their money in this way – safely and with some return, though not the kind of return they would expect from the majority of their fund – then they’re perfectly entitled to do so.’

The danger of ossification

The worse case scenario, which he doesn’t actually think will happen, is that people will carry on as they are and consider they’re doing well because resources increase by 2 per cent a year. Then, partly because of a sort of ossifying of the ideal and partly, perhaps, because of one or two frauds or one or two stories about 100 per cent of a charity’s funds being allocated to administration, you could get ‘a kind of fragmentation of the present very favourable image of the charitable sector, which could actually lead to a downturn’. But what he sees as ‘the probable worst scenario’ is that people will go on as they are and congratulate themselves that they’re doing very well. They’ll be ossified but pleased with it.

Future of the international sector

What about the international sector? First, inevitably, Brophy mentions globablization. In a shrinking world, where everybody knows pretty well what’s happening everywhere else in the world, he would like to see a real development of international corporate responsibility programmes. The second thing is a more rapid transfer of what works – whether it’s community foundation or payroll deduction or whatever – so that good ideas will spread more rapidly than they’ve been able to do. Third, he’d like to see a continued emphasis on social investment alongside humanitarian aid and philanthropic activities.

In the next few years he hopes that CAF Russia will be able to encourage one of the major companies it works with to set up public benefit organizations in one of the communities in which they operate and in which they are making very considerable profits, and thus to provide funds for hospitals, education, transport and ‘all the other needs of these still somewhat benighted communities’. ‘If we can get that to work in extreme conditions in Russia, then the Russian example may as it were leapfrog present thinking about philanthropy and social investment in the UK, and indeed the US and the West more broadly. It could also serve as a model for Africa and other developing countries. Our aspirations for the UK are therefore similar to those we should have in places like Russia. What is interesting is that these aspirations may be realized more rapidly where the conditions are more extreme and the demand is greater than in a country like the UK where things are comparatively cosy. I think difficult conditions tend to bring change and step jumps rather than slow evolution.’

Brophy is actually talking here about the corporate sector taking responsibility for large areas of public provision such as education, health and social welfare. What about the danger of NGOs undermining governments in places where the greatest need is for strong governments? Brophy dismisses this. ‘If I was a potential beneficiary and wasn’t getting transport or education or a hospital because of somebody’s objections to where the money was coming from, I’d encourage the companies to get on and spend the money. But of course it has to be properly regulated.’

But isn’t it a problem to have non-profits letting governments off the hook? He doesn’t see any difference from Vanderbilt creating a fortune in the US and then building railways and so on. There are multi-millionaires in Russia but by and large they’re not releasing any of their money for public benefit activities. In practical terms, our task is to find out whether we can release those funds in acceptable ways and thereby create flows of resources which will certainly, over the next 10 or 20 years, be much, much larger than those coming from philanthropy. ‘We should look for where the money is, rather than where it should be.’

Finally, what is Brophy planning to do when he retires? His idea, apparently, is to make a clean break for a year or so. He has plans for an extended boat trip. ‘I thought just as a romantic notion I’d sail into New York Harbour at some point and take a meal which has been promised me by the Ford Foundation.’ Then he should be clearer about what he wants to do. ‘If I want to get re-involved after that pretty well year’s break, then I’ll know it’s genuine from my point of view. If there’s a queue, or just one person, that wants me to do something that takes my fancy in the sector, I might well be bored by then and think that that’s a great thing to do.’ He might even want to write for Alliance again, so watch this space.

For more information about CAF, visit the website at http://www.CAFonline.org