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Goodwill hunting

The global leader in philanthropy is the US, where private foundations gave more than $30 billion in 2009. there are several wealthy businessmen in Hungary, who can serve as role models in the charity business. However, their example is not easy to follow, as Hungary’s tax laws are not exactly charity-friendly. The Budapest Business Journal asked two of Hungary’s most prominent businessmen about their thoughts and experiences regarding philanthropy.

Sándor Demján

Chairman of TriGranit Group, the wealthiest businessman in Hungary according to Napi Gazdaság’s publication The 100 richest Hungarians in 2010. He is the founder of the Demján Sándor Alapítvány and Prima Primissima Alapítvány.

How do you see the state of foundations in Hungary?

The Hungarian foundation and civil society culture cannot be evaluated without taking a look at the general local circumstances in Hungary. One of the main problems of today’s foundation scene is that most foundations are under-capitalized – this is the biggest obstacle in Hungary’s economy in general. There are several excellent foundations operating in Hungary with remarkable results. As in other parts of the world, many dedicated, agile people who in many cases struggle with existential difficulties reach amazing achievements.

I have always supported and helped strengthen civil society, but the general picture differs somewhat from what I have desired. Regulations in the sector appeared too late and, in many aspects, created controversial situations.

The biggest problem is that legislation lacks attractive elements that would inspire potential donators, and this greatly influenced our donation culture as well as the amount of money flowing into the civil sector.

Politics could not overcome its small-mindedness, and has been unable to undertake a large-scale solution that offers fresh perspective.

For my part, I will continue to support the education of nearly 7,000 children living in poverty in two small regions and will provide scholarships for more than 2,000 students in higher education. In addition, my HUF 1.5 billion yearly support consists of traditional social support and the Prima Primissima Award, which finances Hungarian intellectuals, culture, arts, sciences, education and sport.

I hope that Hungarian social moral and public thinking will gradually “improve” and an increasing number of people will take part in thorough social solidarity.

How do you think wealthy Hungarian businesspeople should be urged to follow existing best practices: by setting up their own foundation or supporting existing ones?

The way I see it is that local public life should be cleared first in order to get actual values in focus. As long as avoiding taxes, getting rich under dubious circumstances and playing shady political games are more “profitable” than decent work, we cannot expect a breakthrough. Those undertaking a leading role in charity should be esteemed and the media, with a more responsible approach, should present these positive examples to society.

Tax legislation should be amended in a way that would encourage charity; for example, in-kind donations should not be burdened by disproportionately high taxes.

I’m convinced that civil society could handle several state tasks better, more effectively and more cost-efficiently than current state and local governmental institutions.

Most importantly, legislative generosity is needed as the majority of people want order, well-being and safety, instead of a chaotic and non-transparent environment. As has been proven in many countries in the world, society’s self-organization is the most effective source, and integrating civil society and voluntary work into problem-solving procedures is a very efficient answer that is also an effective cure to many problems.

What other areas could you imagine setting up a foundation in?

I have participated in setting up and operating numerous civil foundations and I’m also the founder of two foundations. The Demján Sándor Alapítvány is the largest private source in children’s education and social support. During its 15 years of operation, the foundation has contributed to improving the living standards of tens of thousands of children and also helped them to continue their studies. I’m extremely proud of this, and it is always a great experience to meet someone whose life is already on track and they thank me for my support. What is making me sad these days is that the majority of the requests are social in nature. I obviously cannot help everyone – the crisis has put many people into hopeless situations. The advisory board helps where it can.

My other foundation, the Prima Primissima Alapítvány, was founded to support Hungarian culture, arts and sciences and has been fulfilling its mission well.

If I wanted to set up another foundation, it would be one that would aim at educating politicians. I think in orienting young people towards politics it is important to place clean values and commitment to the nation in focus and this foundation would serve this noble purpose.


Gábor Kovács

CEO of Bankár Holding, the 10th wealthiest businessman in Hungary according to Napi Gazdaság’s The 100 richest Hungarians in 2010. He is the founder of the Kovács Gábor Művészeti Alapítvány

How do you see the state of foundations in Hungary?

A private foundation can never be independent from a given country’s tax legislation. In Hungary, the system does not exactly motivate the sector: the amount a private person can write off his or her tax base is maximized, regardless of the size of their donations. In the US, there are very effective incentives built into the system – the entire amount of charity can be written off from the tax base.

Until the Hungarian government recognizes the necessity of modifying the law, the situation will not change significantly, and we can only count on a few wealthy private individuals who are willing to do something in the area of philanthropy. However, I don’t think that there is a conscious decision by governments in power when it comes to tax legislation regarding private foundations; I believe that it is because none of the governments of the past 20 years paid enough attention to the area.

But there will always be philanthropists who establish foundations or donate to existing ones – both private individuals and companies. Foundations established by companies, however, can operate under more favorable conditions than private foundations, although stricter tax rules were introduced to public benefit foundations a year ago.

Another anomaly in the system is what is regarded as a public benefit foundation of key importance: strangely, foundations dealing with social imbalances are not considered of high importance. On the other hand – which is positive for our foundation –, art foundations are considered a high priority.

Even so, the operating costs of our foundation are rather tight. We generate our revenues from three different sources. One part, about HUF 200 million, comes from the interest of the founding capital, some HUF 10–20 million comes from donations by companies and private individuals, and ticket sales account for about HUF 20 million a year.

Unfortunately, the crisis had an impact on the charity activity of companies: the number of donating companies fell by nearly 70% last year when compared to 2008.

What areas have suffered from this decline?

There are two areas where the impact of the crisis is visible: one is the expansion of our collection, and the other is that we had to cut back from our marketing budget in some cases. For the latter, our experience shows that an exhibition can attract twice as many visitors with a good marketing campaign than one with a smaller marketing budget.

As for the collection, we have positive results in spite of the difficulties: we launched our art collection project dubbed the “Kogart Contemporary Art Collection” three years ago and have acquired 330 artworks from more than 200 contemporary Hungarian artists since, at a value of HUF 320 million.

In the framework of the project, the foundation provides HUF 1 million per each for three young Hungarian artists every year in order to give them an international study tour.

How involved are you in the operation of the foundation?

When we set up the foundation in 2003, I naturally spent a great amount of time dealing with it. However, I have since reduced my role: I still participate in drawing up the yearly business plans, but I have withdrawn from daily operational responsibilities.

I believe that after a while, once a capable and trustworthy management is set up, management duties do not belong to the founder – the foundation basically lives an independent life without me holding its hands. I have a role in the board of trustees, but I’m planning to retreat from that role as well from the end of 2011.

What other areas could you imagine setting up a foundation in?

I’m already working on the establishment of another foundation. I don’t want to reveal too many details at this point; all I can say is that it is going to operate in an entirely different area from the Kovács Gábor Foundation.

As we are counting on large-scale international donations, this new foundation will be registered in Switzerland.