Triple guarantees for Fund Generators
Updated: Nov 9, 2020
Funds generators must be trusted to perform their duty on behalf of donors. Last month we discussed here the amazing financial power society could develop by establishing Fund Generators.
Trust is the key for donors to get this going. What follows here is a discussion of three reasons why the Fund Generators should be trusted, and if doubts exist, how mitigation might happen.
First of all, are we serving a purpose here? Will a donation that takes 150 years to bear fruit be relevant to society then?
I pick 150 years rather than 100 or 200 years as around then the donations have grown by about three orders of magnitude – three zeroes. For example, at around 150 years, a gift could grow from one million to one billion dollars in size. But the discussions below apply whether it is 200 or 300 or more years.
Will new charitable funds matter in 150 years? Imagine back to 1870, 150 years ago, that society recognized the need for a Fund Generator and started one. Imagine today that enormous new sources of funds were coming online. We would be overjoyed today, especially as charitable groups are fighting to survive lower donations due to COVID-19 restrictions.
However, we don't have those funds now. Even with the progress society has already made, any significant new funds would have been most welcome help today, for example, to reach the UN Sustainable Development Goals.
When will humanity live with no poverty, and zero hunger; with universal good health care, education, and gender equality; with clean water, and energy; with decent work, and reduced income equalities; with sustainable cities, responsible consumption, and a protected environment; along with justice and peace for all?
Will we need reliable charities in 2170? Yes, I am confident, just as we could use money today, I am sure that in 150 years we'll need a financial boost to achieve and maintain our society's goals. While I hope we make significant progress, Fund Generators will be useful, perhaps more than we may imagine today.
If by 2170 Canada is overly abundant, we can certainly share with parts of the world that are not.
The only requirement is seed money—a small donation today to make a high impact in the future.
Can a donor be assured a Fund Generator will mature and payout as it promises?
Yes, it can, via a triple guarantee based upon 1) contract law, 2) corporate oversight, and 3) reputation.
Let's review the practical implementation of this. A separate corporation receives a charitable donation of seed money. This corporation is the Fund Generator Company, a for-profit company that invests the contributions for growth. The Fund Generator Company is, in turn, owned by a reputable wealth management firm.
The charity or charitable foundation contracts with the Fund Generator Company to deliver individual payouts when thresholds meet target amounts. The charity has seats on the board, as does the wealth management firm of the Fund Generator Company.
1) Legally-binding contracts would be clearly written with the parties to define for each charity the details of the Fund Generator's payout plans. Should deficiencies arise in the completion of any contract, the charity would have full justice system access of contract law for redress. Justice would ensure the Fund Generator Company complied with contracted promises.
The Fund Generator Company also would have access to the justice system should the charities try to cash in earlier than the contract permits.
Contract law works with both parties to ensure the donor's plan is protected.
2) Corporate oversight ensures The Fund Generator Company meets all audit requirements. External auditors would validate processes and procedures followed by the company to protect and prevent fraud. Accountants and auditors would establish fund valuations and tax payments at every year-end. Furthermore, donor charities would have access to reporting to monitor the funds.
As precaution and in that payouts would be significant and infrequent, arranging that all payouts require board approval is a must. Board member motivations will help ensure the funds mature as planned.
For example, the charities perhaps may want to have funds dispersed sooner than agreed. The portion of the board seats held by the charities may approve an early payout, however, they would be offset by the owner's majority seats held by the wealth management company. And the wealth management board members would not want to make earlier payouts, as commissions would reduce.
The majority of the board would follow the contract law and only payout when required respecting the above-stated court protections of the contract.
Protection from other concerns, such as collusion or governmental interference also exists. One protection is transparency. By giving the public having access to monitor the fund's growth and payout plan, pressure would occur via public scrutiny on any deviations. The other possible protection is to utilize blockchain technology to confirm payouts are on track with original contract terms.
3) The Fund Generator is run by trusted charities and trusted wealth management firms. The wealth management companies would already have the audit controls and established contract fulfillment practices they could extend to cover the Fund Generator Company.
The sheer size of the wealth management company and its need to maintain a stellar reputation would protect donor seed funds.
What about continuity issues in the future?
Should either the charity or wealth management company be wound down or merged, the rights of succession would be part of the Fund Generator Company's constitution.
I imagine the charity's rights would be re-assigned to a charity of choice selected by the board members, in line with the purposes fulfilled by the first target charity. A third party court confirmation could be appropriate if necessary.
For the wealth management company under acquisition, the new parent company would assume all contracts and liabilities related to the asset acquired.
Board members would be replaced by the two entities as time passed. The balance would remain consistent.
In other words, life would carry on with new players during the period.
With such a triple guarantee set up, and with approaches to deal continuity issues, donors should feel assured and trust the funds planned will be delivered as promised. Donors should know this will make a significant difference.
Thanks for reading this month’s installment.
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