The Invention of Charitable Options

The promise of venture philanthropy is seductive.  It aspires to harness entrepreneurial energy for the public good – to meld business methods with generosity to give back and create change.  That was the hope when I helped invent charitable stock options in 1999.

Charitable Stock Options, or just Charitable Options, are a Canadian capital market charitable giving tool incubated in the dot-com era of late 1990s. In 2000 they were adopted by the Toronto Stock Exchange (TSX), and originally included all Canadian public registered charities. To the best of my knowledge, there is no equivalent securities mechanism in other countries.  It’s a modest Canadian innovation story that needs to be told.

Dot-com Bull Market

Inventions are opportunistic and belong to a moment in time.  That’s true with charitable options.  The moment was influenced by a few factors: the dot-com boom (and bubble), venture capital, and the venture philanthropy movement. In my professional community, we were in the thrall of Silicon Valley and its innovative community foundation. Venture philanthropy was the buzz.

In the late 1990s, the Nasdaq was soaring due to a new technology, the internet, and companies with the suffix “.com” or “dot com” shed a rosy glow. Famously, the promise of growth was more important than profits – or even revenue.  While the majority of the market action was in the US, Canada had plenty of new listings and exuberance, which often seemed irrational.  The TSX was shaped by names like Nortel and JDS Uniphase – and there were many other contenders. Some survived; many faded away. The general mood was gold rush. Fear of missing out underpinned every tech pitch, and companies seemed (at least to the outsider) to bounce in a few months from private entity with venture funding to an initial public offering (IPO).

For tech companies with more promise than revenue, employee stock options were (and are) a useful way to attract talent.  They were a new concept in the 1980s and found their moment in the dot-com boom.  In the late 1990s, tech salaries were relatively high, but stock-based compensation offered riches.  Options are contracts awarded to key employees that are tied to future stock growth.  An option is issued at the current price of the stock.  The contract provides the holder the right to purchase a number of their employer’s shares at the issue price.  If the underlying stock rises in value, the options are “in the money” and the holder can exercise the option to buy the associated share, resulting in a profit.  If the stock declines, the options are worthless.

Stock Options

During the dot-com boom, stock options were everywhere.  And Canada adopted donation incentives for employee stock options to unlock this wealth for charities.  In 2000, the Income Tax Act was updated to make donating public stock purchased through an option exercise equivalent to a donation of public securities. In late 2000, there was an off-cycle amendment to extend this donation incentive to the “cashless exercise” of options, not just in-kind securities donations. Until 2021, when policy thinking changed, stock options were also taxed at lower rates, equivalent to capital gains with only 50% of the gain included in income.  Options were hot.

In 1999, options represented easy money and they aligned with employee interests with the success of the company.  I was then employed at The Hospital for Sick Children Foundation, a large hospital foundation in Toronto associated with the Hospital for Sick Children or SickKids.  As a daily reader of The Globe and Mail's Report on Business, I was fascinated by employee stock options (thank you Andrew Willis for your Street Wise column) and started to think the structure could be harnessed for charitable giving.  Could we convince tech companies to issue options to charities at the time of IPOs?  In the Silicon Valley founders and entrepreneurs- so called “venture philanthropists” – were making pre-IPO pledges of shares that were typically non-binding.  Could we innovate even further in Canada by building giving into the IPO process?

Inspiration to Reality

With no capital market experience, I needed some expert advice.  I spoke to Andrew Sheiner - then partner at Onex, now CEO of private equity firm Atlas, and a standout SickKids volunteer.  Andrew thought the charitable options idea had legs, but wisely suggested that we obtain legal advice.  He had just the lawyer: William Ainley a senior securities partner at Bay Street firm Davies, Ward, Phillips and Vineberg LLP.  Bill was intrigued and signed onto our little team pro bono.

That’s when my education really began.  Bill explained that stock options were regulated by TSX policy.  Moreover, we had a problem with the rules.  Employee stock options are (generally) capped at 10% of the outstanding common shares of a company, calculated on a rolling basis.  Employee stock options are a valuable commodity, so no prudent company would want to use their allotment on good-will, discretionary donations to charity. Dilution is also an issue for shareholders of public companies.  Bill, however, had a solution.  Let’s pitch the TSX on a new class of options beyond the 10% cap for employees that would be exclusively for charitable giving at the time of an IPO.  They would be called Charitable Options.

Charitable Options

The TSX was remarkably supportive of the idea.  Bill did the initial drafting for TSX Policy 4.7 – Charitable Options in Connection with an IPO, which was integrated in Policy 4.4 in 2013. The options could be issued to any Canadian "charitable organization" - not all registered charities - at the time of an IPO. The limit for Charitable Options for each corporation was up to 1% of market capitalization, on top of the 10% for employees.

The fact that the pool of eligible grantees was limited to charitable organizations was both ironic and appropriate. Ironic because The Hospital for Sick Children Foundation was a public foundation, and is ineligible to receive direct grants of Charitable Options. Appropriate because charitable organizations are "doing" charities that carry out their own activities, not foundations that primarily grant to other charities. This restriction was intended to reduce self-benefit - no private foundations - and put the money to work quickly in the community. We managed this restriction by asking companies to name The Hospital for Sick Children, the Foundation's related charitable organization, as the grantee.

The issue price of Charitable Options equaled the market price (i.e zero initial value and no donation tax receipt is issued), and the option would have a maximum term of 10 years.  The charity would be receive a standard contract and then wait for the upside.  Bill drafted the precedent contract for us to use. The upside would be a tax-free investment return for the charity - and a happy donor. The TSX took less than six months to document the new instrument and it was released in fall of 2000, just as markets had peaked and the bust was beginning.

Timing is Everything

As soon as we had Charitable Options approved, Andrew Sheiner and I - with a swat team from SickKids Foundation - started to meet with all the investment bankers on Bay Street.  Our pitch: tell your corporate IPO clients that they could align their future business success with their values - and help children.  Charitable Options are a simple way to make a potentially high-value future donation at essentially no cost today.

Despite the warm reception on the Street, by the time our campaign began the market had turned and IPOs were drying up.  We secured a donation from a start-up battery lithium ion battery maker on the TSXV, but the effort was not producing the expected reward. We kept fundraising throughout 2001, however markets grew even more jittery after 9/11.  Fortunately, we caught a break.

Shoppers Drug Mart had an upcoming IPO, as it was being spun out of the conglomerate Imasco.  The company said it would include a donation of Charitable Options to SickKids at the time of the offering.  Listing date: November 21, 2001.

But we had more bad luck.  IPO day was two months after 9/11 and there was a random plane crash in the States that made markets jittery, again. Fearing any factor that would negatively affect the IPO, the company pulled the charitable option donation at the last minute.  Late in the day of the IPO, CEO Glenn Murphy called me to apologize and explain – a classy gesture – but his comments made me better understand a limitation of venture philanthropy: giving is subordinate to corporate finance.  After that disappointment, we ended our campaign.  Frankly, I didn’t give charitable options much more thought.  We moved on.

Institutionalization

Over the years, people would call me about Charitable Options, but the structure was on its own journey. The TSX improved and tweaked the structure over the years – probably in response to charity requests.  In 2013, Policy 4.7 (I can no longer find a copy of the original version) was supplemented by Policy 4.4 to allow public companies to issue options to eligible charitable organizations at any time, not just in an IPO.

In 2021, Policy 4.7 was merged with Policy 4.4 in a bit of governance hygiene, although no substantive changes were made to Charitable Options.  They still exist, but I have been unable to ascertain how often they have been issued and if charities have actually profited.  There are some public filings reporting the issuance of charitable options, but no public summary of grants and exercises. I’d welcome any stories from readers or digging by interested researchers.

The Venture Philanthropy space is both more developed and less noisy than it was in the late 1990s.  Inspired by US initiatives, Toronto’s Upside Foundation was established in 2013 to serve as a focus for entrepreneurs to make pre-IPO pledges to charity.  I believe the foundation has also have promoted charitable options, but their current focus seems to be pre-IPO pledges – early stage binding commitments that involve donation tax receipts.  It nice to see that Upside Foundation and SickKids Foundation announced a partnership in November 2025, but it may also indicate a tough market in the space.

Evolution and Gratitude

After this brief venture philanthropy interlude, my own philanthropic planning practice returned to focus on wealth that has been created.  I figure out how to get capital – often illiquid capital – into the charitable sector tax effectively.  I think it’s the better way to transfer wealth to charities, but the charitable sector continues to need multiple points of donor entry and sources of capital.

That said, I’m deeply proud of our team effort of 26 years ago.  I’m grateful to Bill Ainley for his elegant structuring and to Andrew Sheiner for his partnership and entrepreneurial moxie.  And to the TSX for jumping in with both feet and maintaining Charitable Options over a quarter of a century.  May it be a structure that keeps giving.

April 19, 2026