Germany: Dispensing Bertelsmann's Bounty

It seemed as if every celebrity and politician in Germany, from Chancellor Gerhard Schröder to former tennis star Boris Becker, was at a Nov. 6 party hosted by media giant Bertelsmann to dedicate its opulent new offices in Berlin. But the notables weren't just drawn by the power of the company's TV and publishing empire. They were also attracted by a lesser-known power center that co-sponsored the event: the Bertelsmann Foundation, Germany's largest company-financed nonprofit.

The combined power is impossible to ignore. While Gütersloh-based Bertelsmann controls media such as RTL television, Random House, and Stern magazine, the nearby foundation is a think tank with enough advanced-degree holders to rival a university. It drives public debate on issues as diverse as corporate governance, European Union expansion, and labor-market reform. Schröder was careful to pay his respects; one of the first people the Chancellor greeted was Liz Mohn, who watches out for the interests of the ruling Mohn family at both organizations and is one of Germany's most powerful women. "When Bertelsmann takes on an issue, it is automatically on the agenda," says Annette Zimmer, a political science professor at the University of Münster who studies nonprofits.

Mohn is a little less powerful lately, though. Several years of meager operating profits at Bertelsmann have had a direct effect on the foundation. It owns 57.6% of Bertelsmann's equity and depends on Bertelsmann dividends. After years of explosive growth, the foundation will be forced to cut its 2004 budget by 10%, to $77 million. "The rapid growth has come to an end," says Volker Then, a project manager at the Bertelsmann Foundation.

When wealthy entrepreneurs give money in Germany, a foundation is frequently the chosen vehicle. The number of new foundations has soared in recent years, peaking at 829 in 2001, when a new law took effect that increased the tax advantages. That compares with just 181 new foundations in 1990. Although some have been formed by citizens' groups, many are the work of aging company founders wondering what to do with their millions. All together, foundations spend about $4.7 billion annually, estimates the Association of German Foundations.

The appeal for rich people is obvious. Besides helping to ensure that the donor is remembered as a generous benefactor, a foundation also protects company equity from inheritance taxes and helps keep the company under family control. In Bertelsmann's case, the Mohn family separately controls 75% of the company's voting shares even though the foundation owns a majority of the equity. Because of the foundation, Bertelsmann is takeover-proof.

In German media and political circles such potential conflicts of interest are a non-issue, even though some observers voice concern. "We would like to see more debate," complains Rupert Count Strachwitz, director of the Berlin-based Maecenata Institute, which studies the nonprofit sector -- with help from the Bertelsmann Foundation. For now, Germans seem happy just to have the money.

By Jack Ewing in Frankfurt

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