Philanthropy and Civic Leadership

IN HARMONY: Susan and Paul Hirschbiel left the corporate world to dedicate their lives to philanthropy.

Last week, philanthropist Paul Hirschbiel, Jr. was honored with the 2008 Darden Award for Regional Leadership. The award was presented by the CIVIC Leadership Institute, an organization of prominent business and civic leaders in Hampton Roads.

Paul Hirschbiel and his wife, Susan, are well-known supporters of the arts community, but Paul’s major focus has been on early childhood development.

The Hirschbiels moved from New York City to Virginia Beach 11 years after highly successful careers in the business world. They selected the Beach because each had aging parents in the area, and they were looking to raise their children in a family-friendly community. The couple also jointly decided to dedicate their lives to philanthropy.

Today, Paul Hirschbiel chairs Smart Beginnings South Hampton Roads, the investment committee of the Norfolk Foundation, and the Virginia Early Childhood Foundation in Richmond.

In these challenging economic times, I asked him to weigh-in on how not-for-profit organizations in Hampton Roads might be impacted. Here is an excerpt from our interview.

Do you view CIVIC’s efforts as philanthropic?

I see this as civic leadership. Yes, they are all very intertwined with philanthropy. Not only do we have a responsibility to be philanthropic, particularly those of us who’ve had some financial success, but we also have a responsibility to be good citizens. Being good citizens is understanding and focusing on the issues our community has to deal with. That’s why one of the organizations I’m most proud of being associated with is the Norfolk Foundation, which that is their mission. Yes, we want to inspire philanthropy, but with our funds at the foundation I’m most impressed with the process we have of looking to the community and asking what are the big issues that need to be dealt with, and how can we bring our resources to bear, financial and otherwise, to help parts of the community. Early childhood is a great example. It’s something I devote 60 hours a week between my role chairing the state foundation as well as the local Smart Beginnings South Hampton Roads, and it really began at the Norfolk Foundation. We’ve got to make sure all our kids get to kindergarten healthy and ready to succeed. Out of that organization, both the local and statewide initiative grew.

It’s a joint passion between my wife and myself. When we moved here from New York, we knew that we were moving from our corporate jobs–me in venture capitol and she in the public equity side–to the point where we wanted to give back [to the community]. We had two young children at that point, and it just seemed evident that what we were going to focus on were children and education. That could take many forms. It might be from funding a big educational piece with the Virginia Arts Festival, which we think of as the arts but we’re really funding education, to the Chrysler Museum where we endowed a chair for the director of education to make sure it is a permanent piece, to other organizations that are totally involved with education.

In terms of early childhood, before I went back to business school, I was at the University of North Carolina working on a master’s in child development. In a way, that early childhood focus is a return to my original roots right out of college.

Overall, yes, there is a threat to all charities. I come at the not-for-profit world from a many-year for-profit orientation. When the companies I invested in were going through down-cycles, it was actually a very positive time because it allowed the company to focus on what was really important and determine where the fat was that could be cut, and how to make the business as efficient as possible. The same is true for a lot of charities. Yes, they’re going to face tougher times over the next couple of years at least. It also gives them an opportunity to really make sure that they are spending every dollar wisely and not wasting any of their precious resources.

Historically, in economic downturns, while businesses cut back substantially in their funding, individuals tend to pick up. That’s data that The Chronicle of Philanthropy puts out. This is possibly because they feel they need to pick up the slack and give more.

Now, we are in a very different economic downturn than I have certainly dealt with in my business career. I personally think all bets are off with this one. It is absolutely critical for every charity to focus its energies as efficiently as possible.

In terms of Smart Beginnings, at the statewide level, the Virginia Early Childhood Foundation is a public-private partnership that is funded both through an allocation that the General Assembly gives, but we match that with corporate dollars. Here locally, we had Governor Kaine announce a series of incredible grants to help us build, over the next five years, the early childhood initiative amounting to almost five million dollars through the Norfolk Foundation, and some came through the Batten Education Achievement Fund, which is a donor-advised fund that Frank and Jane have there.

The whole issue of early childhood, just so you know, I came at this as a businessman. Why this has gotten such traction across the country is because business has stepped up and said this is critical for two reasons: number one, we know that when we look at our current workforces, one of the largest drags on productivity is because of childcare problems. Making sure there is enough childcare and seats in those facilities is absolutely critical to productivity. More importantly, a large part of the workforce is going to retire in the next 10 to 15 years. So they have a lot of people they have to replace. The whole issue with early childhood is that if children arrive at kindergarten not ready for school, then more than likely they’re not going to become part of that highly productive workforce. In fact, the exact opposite is true. They will cost us in everything from early grade retention, higher drug use, lower graduation rates, higher teen pregnancies, more use of social services, incredibly higher incarceration rates, lower home ownership, it goes on and on.

We’ve had some wonderful studies that have shown how effective dollars spent in early childhood education can be. If we can get the kids to kindergarten ready, they are more than likely going to be part [of the productive workforce].

In our community [Hampton Roads], about 20 to 25 percent of our children arrive to kindergarten not ready. And you’d think we’re a pretty good community across the board. Across the state there are some communities that have a third of their kids not ready.

The underlying reason for this is based in science. By the age of five, approximately 90 percent of the brain is fully developed. If we don’t use those first five years with the right educational stimulation and motivation, by the age of eight or nine all those neurons in the brain that have not made connections actually die. Several studies have shown children who come from low stimulus environments have brains that are physically a third smaller than other kids. So there’s a scientific reason why we really have to take advantage of that time.

Now, business looks at this and says, this is how we create our next workforce. Beyond that, the things that business leaders always talk about as the most important in their workers are creative thinking and abilities to work in groups. Those are really formed in the first five years of life. That’s why business gets it and that’s why I don’t think businesses are going to back off of this because of the economic downturn. It’s in their current and long-term interests.

At the end of the day it’s the right thing to do to make sure we maximize the potential of every child, but I look at it as economic development and workforce development for our community.

There is a whole industry around asset allocation, whether that be in our 401(k) or in foundations, and clearly the larger the foundation the broader the access they have to asset categories. For a four or five million dollar foundation, it doesn’t make sense to be doing things like using hedge funds to reduce the risks, or investing in venture capitol because it’s such a long-lived asset that you don’t see your returns. But when you get to larger asset pools, $100 million up, you can do a better job, not just buying stocks and bonds, but buying across asset categories including real estate, venture capitol, hedge funds and commodities; things that provide you a longer term liquid investment and higher returns. Hedge funds, if done properly in a downturn, are not going to perform as badly as stocks will. They will have an upward momentum.

So, yes, I’m sure a lot of foundations will take a look and say, ‘Oh, my gosh, our foundation is down 20 or 30 percent because we have so much in stocks. What are we going to do?’ Hopefully, most of them will try to get good advice. For the most part, if you own a lot of stocks you don’t change right now.

Once again, I think a significant downturn like this provides an opportunity for foundations to take a look. So maybe the Norfolk Foundation will be doing that. We’ll be looking at our asset allocation, and given that this is a very different world than it was three or six months ago, should we look at changing that?

For the most part, foundations set a spending policy that is substantially below what they expect to be earning. Most spending policies are between four and five percent. Over the last 10 or 20 years, most foundations have been earning well above that. So I don’t think a two or three year downturn is necessarily going to impact their spending. If the market does start to pick up within a year or two years this will be seen as a blip, but it will be averaged through.

Unfortunately, when it comes to the arts the weight of these downturns tends to fall on individuals more than corporations.

We do support the arts. My wife is Virginia Commissioner for the Arts, so she understands on a statewide basis the importance of the arts as an educational tool for children, but it is also very much a fabric of a community. We need to keep them going.

But once again, every charity, whether it’s health and human services or the arts, they’re all going to have to look very carefully at their budgets and figure out how best to make it through this time, assuming that donations will be down.