Doing good, doing well: profitable philanthropy

Abell Foundation part of trend that mingles charity with business

September 10, 1999|By Kate Shatzkin | Kate Shatzkin,SUN STAFF

For nearly a quarter-century, Mike Drocella has made a living amid the steamy furnaces at the Carr Lowrey Glass Co. on the banks of the Patapsco River, just like his father before him.

Enduring as it had been, Drocella's was a way of life under threat -- a threat that grew more ominous last year as the 110-year-old company, lagging behind its competition, struggled to find a buyer.

That is, until an unlikely investor entered the picture: Baltimore's Abell Foundation.

Recruiting partners to help manage the investment and the company, the nonprofit foundation put up $7 million to buy Carr Lowrey last year. It might sound like a risky move to the average investor, but to Abell's president, Robert C. Embry Jr., buying Carr Lowrey offered a rare chance to save 320 mostly blue-collar jobs and 198 pensions.

Abell's investment is part of a growing movement of entrepreneurial philanthropy -- a blend of charity and business aimed at swelling a foundation's coffers while addressing its pet issues.

The trend has taken various forms.

In Abell's case, a small portion of the foundation's $270 million in assets goes into for-profit businesses -- start-up or struggling-- as investments that are expected both to make a return and to further Abell's interest in Baltimore's economic development.

Those investments are separate from the foundation's grants to nonprofit organizations and from its more traditional investments in stocks and bonds.

Drocella, 42, doesn't care about the foundation's motives -- he's happy still to be working as the company's quality control manager.

"We were worried, in all honesty," he said. "Now we're doing better probably than any time since the 1980s."

Like venture capitalists

Other philanthropies have begun to act more like venture capitalists in their relationships with nonprofit organizations. They might sit on the boards of those programs, demand more quantifiable results and pledge money -- sometimes as loans instead of grants -- over a longer period.

In addition to its grants, the John D. and Catherine T. MacArthur Foundation in Chicago invests about $4 million of its $4 billion asset base annually in projects to further its philanthropic missions. One of its longest-running investments is in South Shore Bank, which was started 27 years ago to provide financial services in minority neighborhoods of Chicago.

"It's a small number of foundations that are very active in this area, but it's really an area of innovation," said Steven Lawrence, director of research for the Foundation Center in New York City, which monitors foundation trends.

From 1993 through 1995, 126 foundations spent $229.3 million on so-called "program-related" investments -- loans, loan guarantees or outright investments in activities to support their charitable missions -- according to the center's most recent research. Most foundations lent or invested amounts of less than $1 million.

"In essence this money is recycled. Those funds can then be used again, which is a very exciting prospect," Lawrence said. "The difficult part is there's a great deal more oversight involved."

$25 million invested

Abell has quietly invested about $25 million in local economic development over the past 10 years, mostly in emerging companies.

Some of the investments have worked out handsomely.

In 1995, Abell invested $2.5 million in a subsidiary of Guilford Pharmaceuticals formed to develop a drug to block the craving for cocaine, a project dovetailing with Abell's interest in fighting drug addiction. The stock was eventually exchanged for 750,000 shares in Guilford -- an investment that was worth $10.5 million as of yesterday.

In 1992 the foundation began investing in Artform Industries Inc., a Northwest Baltimore firm that employs 40 people who make plastic containers and trays.

Back then, the company sorely needed borrowing power, said owner Steven Wasserman, and banks weren't biting.

"It was kind of getting to the end of the rope," Wasserman said. "They seemed to be keenly interested in keeping the jobs in Baltimore City that were quickly vanishing."

Last year, the foundation created a $30 million "venture fund" to invest in private companies and hired a venture capitalist, Nora Zietz, to manage it. About $5 million of that fund has been invested so far.

But Carr Lowrey is Abell's largest single economic development investment to date, and there is more at stake. While the foundation owns a minority of the company's stock and fills only a quarter of its board seats -- with its partners holding the rest -- the $7 million put in is all Abell's.

"It's a lot of money, is the main issue," Embry said. "We're the only ones at risk."

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