About Rich Masterson

Ep. 137 Rich Masterson Podcast Transcript

Steve Martorano  
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The Behavioral Corner 
Hi, and welcome. I'm Steve Martorano, and this is the Behavioral Corner; you're invited to hang with us as we've discussed the ways we live today, the choices we make, the things we do, and how they affect our health and well-being. So you're on the corner, the Behavioral Corner. Please hang around a while.

Steve Martorano 
Hi, everybody, and welcome to the Behavioral Corner. It's me again, Steve Martorano, hanging on the Corner, hoping to run into an interesting person or two. And you know what? We always do? The Behavioral Corner is a podcast, as I like to say, about everything. Because everything is what affects our behavioral health, it's made possible with our underwriting partners Retreat Behavioral Health, you'll hear more about them a little bit later, before I introduce my guest, we thought we'd begin the new year in a kind of positive way and take a look at something I think we sort of pay attention to, but not a lot. We're fond in this country of watching people succeed. We really do like it. We may envy it. But we marveled at somebody who is a captain of industry or a great artist. Most often, though, we measure their rise through their acquisitions. Oh, look at the homes they own. Look at the yacht they all were on this past holiday season. How many jets does Elon Musk have, by the way? And all that's true. That's what often comes with success. If you're lucky, there's another side to this and that has to do with giving back. There have been historically very celebrated people who gave back their fortunes. We'll talk about people who are pledging to do that now. So in a word philanthropy is what we're talking about here on the behavioral corner. To that end, we welcome our guest Rich Masterson. Rich, thanks for joining us in this new year on the Corner.

Rich Masterson 
Thank you, Steve, I'm glad to be here and excited to talk to you about philanthropy.

Steve Martorano 
Terrific. The first couple of things about Rich, he is a "serial entrepreneur," which is a wonderful expression. He has been entrepreneurial for over 30 years now and very successful. And having done that, Rich has started, run sold and...exited several very successful companies. And as a result, has the admiration of the business community and the respect of it, and let's face it, he's made a couple of dollars. He's now about and has been for some time now, the business of giving back, as I said, philanthropy is the driving motive. Now among the many things which is accomplished with co-founding of something called Giving Capital, which is a philanthropic organization that has raised over $650 million. We'll find out about Giving Capital as well. I looked up the word because, you know, we toss words around. I don't know where they came from. And, as is so often the case, "philanthropy" comes from the Greeks. They coined the phrase in the fifth century BC. And at that time, I mean, apparently, what I read, the definition was simple love of humanity, is the Greek origin of philanthropy. Today, I noticed that when you read about philanthropy, it's defined a little broader. And it has to do with the willingness to give time, talent, or treasure to philanthropic works. So thanks for joining us. You know, you're so busy, 30 years read, you know, as I said, your, your success of businesses remarkable. Congratulations. It didn't...didn't seem to me that somebody who's working as hard as you were for 30 years building those companies, making them successful, had a lot of time to think about giving your money away. So when did it occur to you that philanthropy was the next phase?

Rich Masterson 
Steve, you know, I think it's always been part of my DNA. And I remember growing up, I went to Catholic schools, and I told myself I would never send my kids to a Catholic school. But I think that that may have been an influence. And you know, I also think, you know, speaking of behavioral health, I remember talking to my son, and my son had been at a corporate event and ran into a life coach, which I've never been to a life coach, but apparently, they're out there. And my son asked a very interesting question to the life coach, he said, "You know, so what's the problem that people come to you trying to solve?" And she said something really profound. She said, "Everybody has the same problem." And he said, "What's that?" And she said, "They think they're not good enough." You know, it's a really interesting thing because when I have shared this observation with others, I get a lot of head nodding. And frankly, I think some of my philanthropic interests come out of that "I'm not good enough. I need to give back. I need to do better." So maybe it's scratching an itch that, that I don't have uniquely. 

Steve Martorano 
Yeah, well, no, the imposter syndrome, which is what your son was being told about. So very, very common.

Rich Masterson 
Yeah.

Steve Martorano 
Entertainers...just a lot of people who got very successful live in mortal fear that one day they're going to get caught. So it's a real common thing. Yeah, yeah, it is.

Rich Masterson 
I don't live in that fear because I have. I'm not perfect. I've, in addition to all those successes that I've enjoyed, I've stubbed my toe and had plenty of failures. And...and that'll keep you humble. So I don't live in that fear anymore.

Steve Martorano 
Well, I you know, as I said, we know the stories of the Carnegies and the Rockefellers and what they did with their money. We're still feeling the effect of those fortunes. Certainly through the Rockefeller Foundation, and...and Carnegie and those guys, today, we are drawn to, I forget the name of it, the giver's pledge or something where, where Zuckerberg and Warren Buffett and others have signed a pledge, saying that they're not going to die with all their money. 

Rich Masterson 
Yep.

Steve Martorano 
They pledge to give it away. And so I wanted to look at that and find out what you know what that's about. Do you feel there's something wrong with dying with too much money?

Rich Masterson 
No, I don't, I don't think...you know, I'm not in that camp that says Jeff Bezos has too much money or Elon Musk has too much money. You know, I am a capitalist. And so I believe that your success should be rewarded. I'm glad that most of the most successful people, like Bill Gates, have philanthropic intent with the money that they've made. But yeah, I don't want to be judgmental enough to say that if you end up, you know, we're coming out of the Christmas season. Now, if you're like Ebenezer Scrooge, and you don't get that wake-up call, you know, if you have died, and you've made a lot of money, and you've chosen not to be philanthropic, I don't think it's my place, or anybody else's to make a judgment about that. Especially when you're talking about some older people that still remember the Great Depression, many of them, because of those early memories, they live in fear that they'll one day again be hungry, so I don't worry about dying with too much money. I do worry about making my philanthropic efforts worthwhile. Yeah. So it says a lot. There are a lot of nonprofits out there. There are a lot of good causes. But there are also a fair share of causes that spend more money raising money than helping people.

Steve Martorano 
Yes, there's also a lot of people who prey on the philanthropic motives on people. It's human nature. We understand that. I do want to get into the kind of the weeds on giving the money away. I mean, it sounds like...it sounds easy, right? Give the money away? Well, it's not easy. I'll bet you it's...I bet you it's bet is hard... It makes...you tell me. Is it...is it as hard or harder or less difficult to give money away wisely than it is to make it.

Rich Masterson 
It's probably as difficult, but you use that very important praise when you said it's not hard to give money away. It's hard to give money away wisely and effectively.

Steve Martorano 
Yeah, I do want to find out...I do want to ask you about some of the, as I said, nuts and bolts of that. But just a couple other foundational things in your mind because I haven't figured this out my myself. But is philanthropy the same as charity? Or is there a difference in your head? 

Rich Masterson 
Um, it seems to me that there is a difference. I'm not able to articulate the nuance at the moment. You know, I view philanthropy as more of an ongoing process where a charity seems more like an event, but I'm stretching a bit there...

Steve Martorano 
I think I understand that if we have a charity, the notion of charity in our mind is that it's a basket of food for a hungry person, perhaps to the holiday season or warm shelter during a cold thing. And philanthropy is placing capital or time and talent in the service of something ongoing. Does that make any sense?

Rich Masterson 
Yeah, I would. I would agree with that. I think philanthropy might be not an accelerated But an elevated form of charity, more strategic perhaps.

Steve Martorano 
What do you...what is this philanthropy...well, you can only speak for yourself. But so, what's the payback for you?

Rich Masterson 
Oh, for me, it's feeling good about who I am. And it reaffirms the ethics and values that I take into business. You know, I will tell you that I have made numerous successful businesses. And one of the greatest rewards I get out of doing that is the ability to be generous, and that generosity can take the form of philanthropy, or it can take the form of looking out for my colleagues, my employees, etc. If somebody were to look on my LinkedIn profile, I have a phrase that I invented for my profile. And I think it captures the spirit of, of how I approach things. And that phrase is, I am not generous because I'm successful. I'm successful because I'm generous. So I take that abundance mentality into the businesses that I start, try to share them with my team members, and you know, knock wood that that approach has served me quite well.

Steve Martorano 
Yeah, yeah, even at a very small level, we can all appreciate that kind of payback. All you have to do is watch somebody's face if you give them a tremendous tip, even maybe a tip that you can't really afford, but you thought, "Well, it'd be nice." And there's a real kind of...I'm sure it's a chemical process, a flood of dopamine in your head. It feels good...

Rich Masterson 
Yeah!

Steve Martorano 
...to help somebody just feels good. It's in that context is amazing. We don't see more, more more efforts like this, do you think...let me...well, a couple of other questions about sort of the foundations of this. I said, you at the beginning the word just means a love of humanity. And now, in very official places that you know, that monitor and guide philanthropic efforts, they have a definition they all agree on. And that's the sharing of time, talent, or treasure. So do you believe it's possible for your garden variety guy to be a woman to become philanthropic?

Rich Masterson 
Oh, I think it is absolutely possible. And I think it occurs every day. And while we celebrate the Elon Musk's of the world, or moreover, Bill Gates and the Giving Pledge, that's a significant gift. But what could be more significant than people helping the homeless, not just at the holidays, but year-round? Unfortunately, I got to watch, on Christmas Eve, the events in the Texas border where the migrants are pouring across the border. It breaks my heart. But it was Mr. Rogers who said whenever you see a tragedy, you know, look for the good people. And thankfully, there are millions and millions of philanthropists in the US. Some of them might be giving half a sandwich away to a homeless person, and somebody else might give them be giving out a blanket to somebody who's cold. But I think those are, by and large, the people that make the world a better place. Far more than the Bill Gates of the world. They may not get the headlines, though.

Steve Martorano 
Yeah, yeah, our guest is Rich Masterson. Rich is a very successful businessman who is now devoted. I don't want to say the majority of his time, but a great deal of his time to philanthropy. And that's what we're talking about. So it's important to remember what this is about. Just this last point about time, talent, or treasure, we think of it as, you know, endowing this and building that and people putting their names on...on this Medical Center. And that's wonderful. And it does a lot of very good. But in terms of individual people, you agree that the thing we have that's most precious is time. I mean, that's a finite number. You can have a lot of money, but you're only going to get a certain amount of time. So you agreed that in terms of like giving...if you give your time. That's a very big deal.

Rich Masterson 
Yeah, it's the only asset that you can't replenish. 

Steve Martorano 
Right. Indeed.

Rich Masterson 
You know, very often when I'm approached by a nonprofit organization, they're looking for my treasure, not my time, and not my ideas. And I often think that they have missed an opportunity because there are many ways of giving. Limiting the ask to dollars also limits the response. So I think that the time and contribution of ideas is invaluable. So no question in my mind that time is part of a philanthropic effort.

Steve Martorano 
Yes. When you started...when you started on this path, you say it was innate in you going forward. But when you actively became a philanthropist, did you...were there models that you look at other men and women successfully giving away their money?

Rich Masterson 
I did. I did. I read a number of books on philanthropy and looked at some of the people that you've mentioned in this podcast. And I think that one of the more interesting approaches that I read about was to put, do an asset allocation, if you will, of your philanthropy. So, you know, if I have $100, to give away, how much of that do I have to give away because my friend, Steve called me and wants to buy me...wants me to buy a table at his upcoming nonprofit event, I call that social philanthropy. That's where I'm giving, not necessarily because of the cause, but because of who's asking. And then another form of philanthropy that I am very fond of is venture philanthropy, that is giving a gift that can be leveraged for even more giving. And so rather than just approach my philanthropy with one approach of writing a check, I...I established several different buckets. Another way this has been described to me is, let's say, you know, your issue is cancer. Well, there are a number of charities out there who wish to support families that are going through cancer treatment -- might be as simple as paying their insurance premium or paying their electric bill. So if you are a cancer philanthropist, that could be a very interesting way of giving. On the other hand, there are philanthropists and people who give that say, "No, I want to give to research because I want to cure this deadly disease." So there is a continuum of how you give and where you give, and what gives you the...the best return on your investment. And when I say the return on investment, I'm talking about the philanthropic return, and it's okay to feel good about that.

Steve Martorano 
I agree. I agree completely. So, when you talk about methods to give away...to give away money or resources, tell us about Giving Capital, the company you co-founded.

Rich Masterson 
Yes, so, so Giving Capital was a for-profit, philanthropic services company. And we started this in early 2000. And we had the theory, and the theory was that we could unleash Wall Street brokers and financial advisors to raise philanthropic dollars if we showed them a way that they could profit from that. Steve, to be blunt with you, we appeal to their greed. And we went to JP Morgan, Bank of America, and Merrill Lynch. Back in the day, we went to Lehman Brothers. And we said, you know, guys, at the end of the year, many of your clients are going to want to sell a stock, and they'll incur capital gains tax, and then they're going to donate that money to charity. What we recommend is setting up what's called a donor-advised fund. And the donor-advised fund could be housed at Merrill Lynch, Lehman Brothers, or Bank of America, but it's a nonprofit account dedicated to charity. So instead of Steve selling his stock at the end of the year, incurring the capital gains tax, he transfers the stock to a donor advised fund at his brokerage account. You still get the tax deduction because you've made a donation. However, the financial advisor would continue to earn their management fee. So if it was a 1% management fee, that was a huge incentive for these companies to set up donor-advised funds. So we set it up. We had probably over a dozen big-time financial advisors, banks, etc. And just triggering that greed function. We raised 600 million for charity. We sold the company. I want to say, around 2003 or four. We had raised 600 million. Today, the engine that we built has raised over $5 billion. So that's an example of venture philanthropy, where we created an engine that continues to crank out philanthropic dollars.

Steve Martorano 
Whether you're a lapsed Marxist or not. It certainly never ceases to amaze how the market can adjust to things and make it make sense economically. I mean, the idea that you would start a for-profit charitable engine, it sounds...it sounds counterintuitive. What are you talking about? What is it? When you explained it...it made perfect sense.

Rich Masterson 
Well, yeah. You know, it's it was rather certain it was a huge philanthropic success. It was a business failure for other reasons. But I have to tell you, making your point, we were harshly criticized by the nonprofit community for what we were doing. And it really upset me because we were charging 100 basis points 1% for the, on the funds that we rose...that we raised. Meanwhile, in those days, if you were a nonprofit, and you were spending less than something like 38%... 38 cents out of every dollar, you got the gold star, so merely because we were for profit...

Steve Martorano 
Nonprofit is a magic word. And I don't think people really understand what...what's, what a nonprofit means. You know, I mean, the University of Pennsylvania is a nonprofit, and the President makes $700,000 a year. I mean, they employ people. And it's like, it's a business.

Rich Masterson 
Oh, Steve, you've just touched on something that is near and dear to my heart. You know, my wife and I won't name the hospital. But my wife and I used to be regular donors, Chairman club donors to the local hospital, which is a nonprofit. And then I read an article that said, you know, most of the largest employers in small-town America are hospitals, and most of them are nonprofits, have a look at their tax returns. There were three pages of people making more than a million dollars a year at this nonprofit. Guess what? We don't donate to that hospital anymore.

Steve Martorano 
Well, just this last point on the confusion surrounding nonprofits, I remember I don't know to a handful of years ago now, but very recently, where I brought up during a discussion on my old life as a sports talk show host that the National Football League was a nonprofit. It was a 501. C. And I had guys...I had guys in the room go, "Are you nuts?" I said, "Look it up, my friend." 

Rich Masterson 
Yeah.

Steve Martorano 
It's a nonprofit. They don't pay taxes. And now they...Congress wiped that out, though, right?

Rich Masterson 
Well, all of the bowl games, all of the college bowl games, are quote, unquote, 501 C threes.

Steve Martorano 
Yeah. And don't be fooled by that nonprofit stuff. I mean, just be careful, assuming that they're, you know, it's all about the greatest thing in the world. This final thing, Rich, is about philanthropy and giving a treasure away for good causes. There has been and I know this because of the collapse of that crypto exchange and that bushy-haired cargo pant-wearing kid who seems to have lost a billion dollars here. He was in the forefront of a movement called effective philanthropy. First...so and now there's a lot of doubt about what's going to happen to that movement. But what do you understand effect...that you've mentioned it a little bit now, but when you hear it? What does it mean to you, effective philanthropy?

Rich Masterson 
Well, I was not using the term in the same way that it's been associated with Sam Bankman-Fried. I think it is SBF...the SBF collapse. And I think, you know, any of your listeners can decide what's effective for them. I give you an example of one of the most effective philanthropic investments I've made. And this is probably a term that none of your listeners have ever heard of. And it's unfortunate because I think it's a brilliant way to give. And that's called a program-related investment. A PRI, and the shorthand of what a program-related investment is, is it's not a charitable gift. It's a charitable loan. So let me tell you how I stumbled across this. My good friend, Eric Smith. Eric is a big thinker. He called me one day and said, "Rich, I'd like you to donate $100,000 to the Johnson house in the Germantown neighborhood of Philadelphia. It was one of the first homes on the underground railway. And it's, it's falling down. It's collapsing. We really need your help." And I said, "Eric, I'm a generous guy, but I'm Irish Catholic. I have you no, no slavery in my background. I have no African American Heritage. It's just not something I connect with." And he said, "Please, let me just pitch you an idea." So Eric came out to my home, and he said, "Here's what I'd like you to do. I'd like you to lend us $100,000 because we can take that $100,000. And we can. Because we're on the National Historic Register, we can get reimbursed by the federal government for repairs. We just don't have the money for the repairs." So what I did was I took out a CD in a bank, and I went to the bank, and I said, "Give this organization, the Johnson house, a line of credit for $100,000 secured by my CD." Steve, over the course of three years, they made something on the order of $400-$500,000 of improvements. It saved the Johnson House, and I got my CD back three or four years later, with, like, $106,000. So I don't know... I don't know how you can be more effective, then than that.

Steve Martorano 
Well, yeah, you know what? I mean, it's a great...what a great illustration because of what I was going to get you to comment on, and I think he just did was I, when I first heard about effective philanthropy, I thought, Well, that makes sense. You don't want to throw good money and have it come back and do, you know, not any good. You gotta be smart. You gotta be smart about this. But then, I also began to go, well, wait a minute. Now, is it the role of this? Is it innate in philanthropy that the philanthropist, the giver, should be the person that decides whether or not the money has been effective? Using the example of if you give a man a fish, he eats for a day. If you give him...you teach him to be a fisherman, he eats forever? But if you apply effective philanthropy to that, then suddenly you're in a position as the philanthropist to go I don't like the way the guy fishes. I think he should fish a different way. And suddenly, it's not about the love of humanity. But it's, it's sort of like trying to manipulate the event because you have some money. Does that make any sense to you?

Rich Masterson 
Well, I know it's done. And I think sometimes it's done with the best of intentions. And I think other times it's done based out of ego. So there's no question that many donors are trying to influence the nonprofit that they're giving to; whether or not that influence is welcomed is...is another question. Whether or not that influence is net positive is another question. You know, I found that in business, people are, by and large, logical about the approach they take to things. When you move into the nonprofit world, it can get, you know, highly personal and an ego-driven. There are a lot of things in the nonprofit world that makes no sense. For example, disliking, GivingCapital, because we charge 1% as a for-profit company. If we had charged 30% as a nonprofit, but that would have made us better in some people's eyes? Yeah.

Steve Martorano 
Yes. 

Rich Masterson 
I recently visited a food bank. And they told me that by virtue of a grant, they're limited in the amount of flour and sugar they can accept. This is a Philadelphia foodbank. Consequently, they had to turn down a truckload of Tastykake donations. Now, if you're hungry during the holidays, should we be making those kinds of decisions as to whether or not the nutritional value of the donation is appropriate? I don't know. Some of your listeners would probably say, "Yeah, that's a good idea to attach that to the grant." I think hungry is hungry. Give them a Tastykake.

Steve Martorano 
Yeah. You know, and we'll finish up with this. I mean, he's just said it perfectly. I mean, in the context of giving back and philanthropy, the two realms exist, and they exist under the sort of preconceived notions. The, you know, the profit...profitable organization is supposed to be driven by data, intelligence and reason. And on the other hand, people look at nonprofits and go. This is more emotional. This is more, you know, and so don't tell me about bottom-line stuff. This is about doing good. And I think that's where we get messed up.

Rich Masterson 
I think you said a lot better than I did, Steve. 

Steve Martorano 
Anyway, Rich, thank you so much. It's a kind of a quirky topic for us. But as I said, this thing is about everything that affects us. And philanthropy is just a well, it's an ancient Greek expression, but it can be applied in many ways every day in everybody's life. We thank you for your time and, obviously for your generosity.

Rich Masterson 
Of course, as I leave you, I would tell people to look up donor-advised funds as a way to be effective in their philanthropy and also consider program-related investments. And lastly, you know, before you write that check or make the donation, you might want to check people nonprofits out on GuideStar. They have a really nice site. It's guidestar.org. And that can help guide your well-intentioned giving.

Steve Martorano 
Terrific. Thanks for the advice. Take care, everybody. Don't forget the subscription. It says subscription right here on the site. Push the button. Do me a favor. We have a great rest of the day. We'll see you next time on the Behavioral Corner. Bye bye.

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