Change of heart: L.A.'s most generous givers focus on personal passions rather than civic concerns.

AFTER Michael Milken and 10 other family members battled cancer, the former junk bond king gave $80 million to a research institute he set up and dedicated to finding cures.

For Haim Saban of "Mighty Morphin Power Ranger" fame and his wife Cheryl, the issue was children. After they had two kids using a surrogate and after Cheryl became a child psychologist, the Sabans donated $40 million to Childrens Hospital to fund pediatric medical research.

And then there's the Davis family. Daughter Dana was diagnosed with juvenile diabetes, so Barbara Davis founded the Children's Diabetes Foundation and launched the Carousel of Hope galas. Then daughter Nancy was diagnosed with multiple sclerosis, so she set up a foundation for the disease.

These are the faces of philanthropy in today's Los Angeles.

It's a far cry from the days 40 years ago when a handful of downtown corporations--like Arco and Pacific Mutual and Security Pacific--and families like the Chandlers used philanthropy in an attempt to inject high culture into Los Angeles. They built the Music Center, the Los Angeles County Museum of Art and other cultural institutions as a way to show Los Angeles was not content to look second-rate compared to more established cities in the East.

Today's philanthropists are individuals primarily driven by their own experiences with disease or hardship and passionate devotion to specific causes.

"When it comes to philanthropy in Los Angeles, individuals are now playing the role that corporations used to play. But while corporate giving was more traditional civic support, the individual giving is driven by the passion of the individuals," said John Emerson, president of personal investment management of Capital Group Cos. and the chairman of the board of the Los Angeles Music Center.

Like the city itself, today's philanthropists are more diverse-and scattered around the region than the days when the Committee of 25--a group of corporate managers and other members of the civic elite--set the area's philanthropic and civic agenda. They are also more globally focused than their predecessors, just as likely to give to research in the Middle East as they are in their own back yard.

And when they do make donations locally, L.A.'s philanthropists often give quietly to endeavors in their own suburban communities. For example, philanthropic contributions have helped fuel the explosive growth of private schools in the region.

"People have given to their own little enclaves," said Eli Broad, the billionaire philanthropist who is using his money and influence to try to change this by sculpting a city center.

Stingy city?

Because the giving is so diffuse and hard to track, it has helped perpetuate a perception in many circles that Los Angeles is stingy. Yes, Los Angeles may lag other major metropolitan areas when it comes to overall charitable giving as a percentage of income (see sidebar, page 23). But that's largely because religious donations, which comprise the lion's share of giving in other regions, have never held sway here.

Also, unlike older Eastern cities where high net worth families and corporate titans make the rounds of charity balls and give to traditional civic causes such as opera or long-running social service programs, L.A. philanthropists often create their own niches by founding research institutes or giving for new buildings.

'The reputation of L.A. as a stingy city is definitely not deserved," Emerson said. "All you have to do is look at how many capital campaigns are going on in this city right now--and they all seem to be hitting their targets. Schools and universities, hospitals, museums--the results of people's generosity are growing visible everywhere."

Part of this is being driven by the huge amounts of wealth now accruing to the top income earners. L.A. leads the nation in the number of millionaire households--263,000 as of last year. There are also more billionaires here than almost anywhere else in the nation.

Another phenomenon is also at work: the desire of these newly wealthy not to pass along too much of their wealth to their children.

"They don't want to create 'trust fund children,' who have this sense that they are entitled to everything," said Matthew Brady, managing director of private investment management for the West Coast office of Lehman Bros.' in San Francisco. "They want their children to know the value of work and earning their keep."

Indeed, in a Business Journal interview several years ago, biomedical mogul Al Mann expressed just this sentiment as part of the reason for deciding to funnel virtually all of his net worth into foundations and research institutes.

Another reason many wealthy individuals turn to philanthropy is the desire to avoid taxation, although this is much less of a factor than it was 30 years ago when the top individual tax rate exceeded 70 percent and estate taxes threatened to gobble up much of the rest. Now, top tax rates are in the 30 percent range and--for now at least--the estate tax burden falls on only the top 1 or 2 percent of households.

Personal experience

Whatever the reason, L.A.'s nigh net worth citizens are rewriting the books when it comes to philanthropic contributions.

"Los Angeles is full of newly created wealth and how these new donors make their contributions doesn't mirror what we've known or become accustomed to," said James Ferris, director of the Center on Philanthropy and Public Policy at USC. "Some are more apt to give to environmental causes or give internationally. Others look to have a big impact in a specific area."

That's precisely what billionaires like Broad, the Sabans, the Davis family or entertainment mogul David Geffen seek to do.

They are taking as their cue from what Bill and Melinda Gates have done with their foundation, which has doled out billions of dollars to fight malaria and other scourges in Africa and other places in the underdeveloped world.

A key concern of local philanthropists is beefing up children's education and health care.

"Underprivileged kids don't have the opportunities or resources that others do. Most of our philanthropic activity involves children's health and education to bring them up to standards of being productive members of society," said Steven Ferencz Udvar-Hazy, a billionaire who made nis fortune in the aircraft leasing business.

Through his foundation, Udvar-Hazy has given tens of millions of dollars to UCLA, Stanford University, Harvard-Westlake School in Los Angeles, the Calthorp School in Santa Monica and the Los Angeles Unified School District.

"Just take one small example of what we are doing: the re-equipping of LAUSD elementary schools with new libraries," UdvarHazy said. "The libraries are 30 years to 40 years behind the times. Because they are not state of the art, children don't have access to the materials they need."

The Sabans have also focused much of their attention--and tens of millions of dollars--on children, though for more personal reasons.

"People like Bill and Melinda Gates have been putting big resources into making global changes," Cheryl Saban said. "What I've seen is that kids all around the world, even here in Los Angeles, don't get their needs met. I was inspired to be involved with children on different levels."

The Sabans further refined their philanthropic focus as Cheryl Saban spent time at Childrens Hospital doing research for her doctorate in child psychology.

"I was able to see first hand what these children went through--things like seeing a whole family crumble under the pressure of their kid receiving chemotherapy," she said. "Sure, there is medical care that they need, but they also need the psychological support."

Those observations were reinforced by the Sabans' own experience: because Cheryl Saban was unable to bear more children, the couple used a surrogate womb to bear two of their own. She later wrote a book about that episode.

Haim Saban had amassed a $3 billion fortune from the sale of his cartoon empire and subsequent investments. They donated $40 million of it to fund a research center at Childrens Hospital.

Over the last decade, it's become quite common to see individual philanthropic donations of this size or even larger--all the way up to entertainment mogul David Geffen's $200 million donation to the University of California Los Angeles to fund a medical school on the campus.

More accountability

L.A.'s philanthropists are not content to write blank checks as previous generations did just so they could have their name associated with good works. Back 30 years ago, companies like Arco and Security Pacific set up foundations that gave generously to traditional non-profit service organizations, often with few or no strings attached.

Not so with today's philanthropists. They want to see results from their giving, whether it's the steel and concrete of a new building or milestones of accountability from the recipient nonprofit organizations.

"Ultra high net worth individuals are giving to specific projects where they can see results," said Cheryl Zoller Simon, president of Foundation Management, a Beverly Hills-based consultancy.

Part of this reflects the preponderance among L.A.'s high net worth ranks of the nouveau fiche: people who through hard work and shrewd investments have made their own millions or billions. They don't want their money flittered away in the bureaucracy of some large non-profit service organization.

It hasn't helped that the non-profit sector has seen its share of financial scandals in recent years, most notably involving the United Way in the early 1990s and more recently the J. Paul Getty Trust.

Instead, many philanthropists insist on milestones being set and met, just as they have done in their own businesses. To help them with this, they turn to consultants such as Simon. "We don't let the institutions sit on the money and invest it. My clients want to see results," she said.

In many instances, Simon counsels her clients to donate in phases. "We don't give all the money up front; just a certain percentage up front and then, when the project is finished or a milestone reached, we give the balance."

Another strategy is to "taper down" contributions over time.

"The last thing you want to do is make an institution completely dependent on you. So, we structure donations over a five-year period: $400,000 the first year, $300,000 the second year and so forth," she said.

As for the donors themselves, many want more say in how the organizations are nm.

"Of course we want to know where the money is going. People are looking at this much more closely these days," Cheryl Saban said. "I'm going to be a squeaky wheel and a vocal participant. That's how I am with Children's Hospital."

Udvar-Hazy echoed this sentiment. "It used to be that a lot of funding was spent on administrative overhead and did not end up being used for the intention of the donors," he said. "Given this, we like to have a say on how the money is spent."

Some donors have taken this accountability to the extreme, actually suing the recipient organizations for not following their wishes.

One such lawsuit was brought against UCLA by the L.B. Research and Education Foundation, which accused the university of reneging on its contractual promise to place people with certain qualifications in an endowed chair position and withdrew the endowment. Last year, the state 4th Circuit Court of Appeals ruled in favor of the donor.

"With this ruling, there can now be real consequences. If the money isn't spent properly, the recipient institution can lose the money," said Leah Bishop, a partner with Loeb & Loeb LLP.

Another way this penchant for accountability has manifested itself is in a movement called "venture philanthropy" that emerged in the 1990s, especially among Silicon Valley millionaires. The idea: give seed money to a promising non-profit entity in exchange for an increased say in the policy and direction of the organization or in how the money is used.

In Los Angeles, a major practitioner of venture philanthropy has been Broad. One example he cited: doling out $18 million in $100,000 grants for research into inflammatory bowel disease.

"It's not the traditional charity of investing in social causes through the traditional service organizations. Rather, it's investing in science and medicine to find treatments and cures for diseases," he explained.

Non-profit challenges

All of these trends in local philanthropy place much more of a burden on L.A.'s nonprofit sector, which must work harder to find high net worth individuals and market to them and then, once they've gotten the donation commitments, work harder to meet the performance targets.

"There are close to 50,000 501 C-3 organizations in Southern California," said Fred Ali president and chief executive of the Weingart Foundation. "Most of them are very small and very undercapitalized and really face a hand-to-mouth kind of existence. They are competing for the same dollars and human resources that the big boys are. With the wealth so much in the hands of individuals, it's very tough for them."

To cope with this, it takes much more research, according to Andrea Van de Kamp, chairman emeritus of the Music Center.

"You have to look into the community and find the pockets of people interested in your organization's goals. In a decentralized place like Los Angeles, that's much more difficult," she said.

Whatever the challenges for the traditional non-profit sector, most experts on philanthropy expect the level of giving to keep rising in the future.

"Today's wealthy are creating foundations that are intended to stick around for a long time to come," Brady said. "They are obligating their children to continue their philanthropic work."

What's more, he said, as the baby boom generation begins to pass on, a tremendous amount of wealth will transfer to their children over the next 20 to 30 years. "It's a massive amount of money that will change hands."

While most agree the overall philanthropic pie will get larger, there are concerns, especially as members of the next generation--now in their 30s and 40s--comes to the fore.

The concern is not so much about the children of the current philanthropists themselves, who have set up foundations and encouraged their children to play a role in running those foundations. "Our children are very active in our foundation," Udvar-Hazy said.

Rather, the concern is for the future business leaders.

"We have to get to the younger generation of entrepreneurs that have made a lot of money, get them to understand that philanthropy is the right thing to do, the socially desirable thing to do," Broad said.

One way to do this, he said, is to get younger people onto the boards of cultural and non-profit institutions. "We're starting to build a younger board at the Los Angeles County Museum of Art," he said.

Giving It Away

Large, recent donations by Los Angeles-area residents.

Donor                      Amount        Recipient                Year
                        (in millions)

David Geffen                $200        UCLA                      2002
Alfred Mann                  100        USC                       1998
Leslie Gonda                  73        UCLA                      1996
Eli ant Edythe Broad          60        Los Angeles County
                                           Museum of Art          2003
Weingart Foundation
  of Los Angeles              56        14 private colleges
                                           and universities       1992
Blanche Ebert Seaver          50        Pepperdine University     1996
Lillian B. Disney             50        Los Angeles
                                           Philharmonic           1994
Lillian B. Disney             50        Los Angeles Music
                                           Center                 1987

Source: The Center on Philanthropy at Indiana University