Mention philanthopy to most Canadians and it conjures up images of the fundraising appeals they receive through the mail, in the workplace and at the door. For Hilary Pearson, the word brings thoughts of fund giving, especially the impact of family foundations and their contribution to Canada’s charitable landscape.
Pearson, a leader in the field of foundation philanthropy, grew up in a family steeped in public service. She’s the granddaughter of Prime Minister Lester B. Pearson, while her mother, Landon Pearson, was an activist for children’s rights and a member of the Senate of Canada. Her father, Geoffrey Pearson, was a senior diplomat.
She served in senior policy roles in the federal government, worked in corporate strategy and as a consultant in the nonprofit sector, then in 2001 became founding president of Philanthropic Foundations Canada. She led the organization for 18 years as it influenced federal public policy regarding charities, especially successfully lobbying the government to allow the donation of public securities to private foundations.
She has also added her voice to more recent issues, such as the debate over increasing the percentage of the endowments of foundations and other charities that must be disbursed each year.
Pearson has served on the boards of Imagine Canada, the Stratford Festival, CARE Canada, Indspire and the Canadian Cancer Society. Her 2022 book From Charity to Change explores the evolution of private foundations in Canada and their influence on issues such as climate change, the future of cities, education, the changing workforce and Indigenous affairs.
Based in Montreal, she’s a strategic advisor and board member of several family foundations, as well as a regular contributor to publications such as The Philanthropist Journal.
In a wide-ranging interview with Canadian Family Offices, Pearson offers thoughts on the evolution and role of private foundations in Canada, how family offices can better handle philanthropy and the generational changes that are bringing wealthy donors to address the pressing social and economic challenges of our time.
What drew you to focus on private foundations?
As a consultant, I was fascinated by non-profit governance, and then I got to know people in the foundation world and became interested in the role of family philanthropy.
How did the creation of Philanthropic Foundations Canada come about?
The motivation that private foundations had for creating a membership network was the capital gains tax exemption on donations of listed securities to charities. The idea was this would be an additional incentive to give those assets to public charities. But the Department of Finance excluded donors who gave to private foundations.
Why was that?
The rationale was that because private foundations are governed by ‘non-arm’s length individuals’—in other words, people who might be members of a family, or who are closely tied to each other—these foundations are in a position to self-deal, in effect to use the charity for private benefit.
What was the feeling about how foundations operate?
The story in many people’s heads, whether politicians in Ottawa or more broadly, was that private foundations are simply organizations that sit on their assets. There was a lot of data thrown around—which was wrong—about ‘hoarding’ money.
There was no perception that when a donor gave money to a private foundation, that it was money that was no longer theirs but put to charitable use.
Why was that?
Interestingly, the perception is tied to suspicions of wealth, of elitism, of people doing things only for self-benefit.
How did you plan to change that?
My goal was to show that the vast majority of private foundations in fact do work for the public good, that they are necessary and important to the Canadian ecosystem. Whether it’s a policy ecosystem or a charitable ecosystem or a social ecosystem, private foundations play a unique role. And if you take them out of the ecosystem, you lose.
How should we think of foundations?
I call this ‘long-life philanthropy.’ A lot of people throw around the idea that it’s in perpetuity, that the tax benefit comes right away and then the money just sits there. But most family foundations I know are not thinking forever. Many have one, two, perhaps three generations sitting on a board together, so they’re thinking maybe 20 to 30 years out.
One of the two benefits of long-life philanthropy is the fact that it has a long time horizon, so you can invest in something that doesn’t have an immediate outcome, which means you can think about funding an initiative, a project, an effort to change a system over time. Foundations can be focused on the root causes of a social problem.
And the other benefit?
The other benefit is that you can take more risk. You don’t have a shareholder who’s telling you to focus on the next quarter. You can look out five or 10 years without worrying that somebody’s going to come along and force you to focus on the short term.
What was the previous thinking about foundations?
The older generation thought about the foundation as a vehicle. You get a tax benefit by putting the money away in that vehicle, then you can use it to dole out some grants, and the charitable sector gets the money. Everybody’s happy.
So what’s wrong with that?
That is a very limited way to look at the impact of a foundation. You can be much more expansive in the way you think about the work. It can be in the form of impact investing or social-purpose investing, so you’re deploying that capital, you’re still getting a return, but you’re doing it for a social purpose. You can also make grants to non-charities, so you expand the field of organizations you work with.
The growth rate of private foundation registrations in the last 20 years has been very steep. It’s not a curve, it’s a straight line up.
Are there other changes in the way foundations operate? Are they making a difference?
I see signs of hope, yes. The COVID-19 pandemic forced some changes. In the old model, you made a grant, with conditions, for one year, only to a charity. You wanted a report back, and otherwise you stood back. It was a very transactional approach to philanthropy.
But under COVID-19, a lot of foundations decided they were not going to impose all the requirements they had been imposing. They gave money more flexibly, they gave it multi-year and they relaxed some of their reporting requirements.
What are the benefits of that practice?
More foundations now are thinking, ‘We can actually form relationships with these charities, which means we’re going to be working more closely with them.’ So they may have fewer partners and be more focused in a particular area to achieve some change.
Foundations are moving from being vehicles for charitable giving to families saying, ‘We want to achieve this kind of change, in this area, we’re going to have staff to do it and we’re going to work closely with our partners.’
What’s your view of the approach of family offices to philanthropy?
They’re not oriented toward philanthropy, they’re much more oriented toward their client needs, which typically are much more around investing, around management of family assets, around management of succession. Philanthropy is a sideline for most of them, and they don’t have people specialized in philanthropy working in them.
I would like to see more regular relationships forming between family offices and philanthropy professionals, and I don’t mean fundraising professionals. Fund giving has got to be seen as a practice that requires expertise. If you’re a financial advisor or a legal advisor in a family office, that does not make you an expert on philanthropy. You should go out and get experts in philanthropy who can advise your client more effectively.
What’s your message on this to wealthy families?
I would like to light a fire among the clients of family offices, to help them see that there is huge potential in philanthropy, that it is much more than simply writing a cheque once a year to a charity. Philanthropy is not a passive thing, it’s an active thing.
How much has family foundation giving increased in your time?
It has grown hugely. There are about 11,000 foundations registered with the Canada Revenue Agency, and 6,700 of them are private foundations. The growth rate of private foundation registrations in the last 20 years has been very steep. It’s not a curve, it’s a straight line up.
Why?
For a number of reasons. People are wealthier, there is more money around. The tax incentive has played a role, and there’s also more multi-generational wealth. And I think there’s an incentive for older donors to create foundations as a vehicle for bringing the family together around a joint enterprise that is beyond the family itself.
Tell me your thoughts on the raising of the disbursement quota from 3.5% per year. I understand the context for that was need around the pandemic?
Yes, the argument being made then by some charities was, ‘We need the money now. What are you saving for a rainy day for? The rainy day is here, so come on, spend more.’
The quota was raised to 5 per cent. Could it be higher?
I think a 5-per-cent disbursement quota is doable. In reasonable times, that’s not going to force foundations to encroach on capital, but it might limit the ability of some to grow. I would absolutely not advocate for an increase above 5 per cent, because then you start to jeopardize this model. The long-term nature of foundation philanthropy would be under attack in a higher-disbursement-quota world.
Of the 6,700 private foundations, 95 per cent or more have assets of under $5 million. We only have a handful of foundations in this country that have assets of more than $30 or $40 million, and you can count on two hands the number that have over $1 billion in assets. So we do not have giant foundations.
You talk a lot about new models among foundations.
Among that smaller group of foundations that have staff, that have strategies, that are working as autonomous agents, I think a generational change is bringing new ways of thinking. A lot of it relates back to this view that a foundation brings more than simply financial capital to the table.
My goal was to show that the vast majority of private foundations in fact do work for the public good, that they are necessary and important to the Canadian ecosystem.
It’s a shift to a relational model of philanthropy, the idea that you’re engaging in a mutual effort. You’re working with a group of partners in the charitable sector, or it could be non-profits. There are foundations now that are more active, more visible and they’re playing a role as advocates in changing government policy and in pursuing initiatives.
What issue do you see foundations dealing with in the future?
We’re all focusing more on supporting Canada’s sovereignty, and I think foundations can play more of a role in that, along with others. They have an opportunity to put their resources and their effort into initiatives that are going to strengthen our country.
Responses have been lightly edited for clarity and length.
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