Editor’s note: The following is excerpted from “Philanthropic Planning in Your Family Enterprise,” a new primer from Lansberg, Gersick and Associates (LGA). In 2004, NCFP partnered with LGA to publish Generations of Giving: Leadership and Continuity in Family Foundations, one of the field’s most widely referenced books. In 2019, a team from LGA is working on an update to Generations of Giving tentatively titled “Complex Philanthropic Families: Identity, Governance, and Impact.” For more information on this study, see the registration page for our August 2019 webinar on “Family Philanthropy Through Multiple Vehicles.”
What follows is a list of questions that families should ask when first exploring the possibility of a common philanthropic project. These can be addressed through personal reflection, a facilitated family workshop, or a dedicated family task force. Whatever process your family prefers, you will find it helpful to answer the questions in the ordered provided.
1. Why should we give as a family?
Entrepreneurial families have many different reasons to give. Some are highly motivated by traditions and values: “Giving back to the community was something that my parents felt strongly about and was evident in their support of local organizations in our home town.” Others follow the example of friends and other business families: “We got involved in philanthropy and set up a foundation due to the direct experience of the charitable activities of a close friend and colleague.” Still others have strong feelings of gratitude about their entrepreneurial success and want to create a vehicle for giving back: “We need to share our success with our employees, clients and community; their work and their loyalty to us have been an important part of our success.” Families may be driven by the economic benefits of these activities for brand and talent management or prioritize the long-term value created by a sustainable and resilient supply chain.
Whatever the reason, it is important to begin the strategic journey by asking your family members about their motivations for giving and seek alignment within the distribution of perspectives and opinions.
2. Should we give collectively or individually?
Personal values, family history, entrepreneurial legacy, size, and geographic dispersion shape our preferences and perspectives about the benefit of coordinated charitable activities in powerful ways. Giving individually allows for autonomy of decision-making, which is a particularly powerful motivator in transitions from a strong founding owner to a second generation sibling partnership. Making philanthropy a family project can unleash the potential for pooled resources (both financial and human) to support a common purpose and can also provide an opportunity for a community of family members – many of whom may not work in the family business – to unite behind an ambitious common project that creates value for the family and for the world. As one family shared: “My cousins and I each believe deeply in giving back, but we know we cannot move the needle on big issues alone. If we want to scale our impact we need to join forces in areas of common interest.”
Shared philanthropy isn’t just an aggregation of individual philanthropic aspirations and activities. The whole has the potential to be greater than the sum of its parts, and many families take advantage of their scale to affect meaningful, lasting social change.
Since the decision to give collectively or individually will have profound legal and organizational implications, families should resist the temptation to dive into grantmaking until the benefits and risks of each approach have been sufficiently explored.
3. What kind of impact do we expect?
There are countless ways that families can contribute meaningfully to the communities in which they live and operate. Paradoxically, the scale and scope of felt needs in modern society often encourage families to spread their limited resources too thinly across the grantmaking spectrum to have any meaningful impact. In other cases, families can become paralyzed by the diversity of choice: “It’s so easy to be distracted by all the non-profits doing great work in the world! That’s why it’s so critical to clearly define and maintain our philanthropic focus. This helps our staff identify potential grantees more effectively, say no to mismatched grant requests more transparently, and focus resources to maximize impact.”
Experience with successful philanthropists suggests that it requires time, education and vigorous debate to define a philanthropic mission and vision that is meaningful to the family and will have a material social impact. As another family expressed it: “our foundation did not begin with a ‘grand vision’…finding its purpose has been a process of debate and development.”
Whatever mission your family chooses to unite its philanthropic activities, be sure to discuss how success will be measured – in lives saved, students graduated, startups funded, and so forth. This will not only help to keep grantees and staff accountable, but also increases the likelihood that your programmatic success can be replicated elsewhere.
4. Should our philanthropic efforts be led by the family, the business, or both?
Many families engage in a range of charitable activities across their enterprise – from corporate social responsibility programs managed by marketing teams, to the purchase of tables by executives at local social events, to the sponsorship of local non-profits by a family foundation, and to social investments made by the Family Office.
Enterprising families need to ask themselves under what circumstances it makes sense for them to integrate their charitable efforts between their businesses, their foundation or donor-advised funds, and their individual discretionary giving. In some cases, coordination can amplify the impact the family wants to have in the world. For other systems, it can limit the breadth of philanthropic activity or the responsiveness of the system to changing needs within the community based on rigid requirements for program alignment.
5. What governance architecture do we need?
Based on the answers to the previous questions, and in accordance with legal and tax requirements, enterprising families must design and launch the governance forums and processes that will allow them to efficiently govern and lead their philanthropic projects. For example, in complex family enterprises, we encourage the creation of a Philanthropy Committee either at the Family Council or at the Board level, to coordinate the various initiatives being pursued throughout the enterprise.
That said, even the best laid philanthropic plans can run aground if the various governance bodies aren’t staffed responsibly. Some families misguidedly use their foundations as a holding tank for family members who can’t build a successful career within the operating business or find meaningful employment outside the family enterprise. Choosing your Trustees, Directors, and Investment Committee members wisely is critical for achieving maximum impact. As one family expressed it: “Balancing family engagement is critical. When family members are fully engaged, they can be catalytic within their Foundations, using their influence among staff and within the community to advance our social mission. However, not all family members get involved for the right reasons, and this has introduced complicated family dynamics around grant-making and staffing. We often ask ourselves what we are missing by not having more outside voices at the table?”
6. What risks might we face?
Despite their best intentions, we strongly recommend that enterprising families educate themselves on the potential risks they face when pursuing meaningful social impact, and establish a culture of risk management within their governance bodies. As one family put it: “Just because you don’t have a profit motive, doesn’t mean you aren’t susceptible to risk!”
In our work, we have seen several situations that call for a greater attention to risk. For example, systems may be exposed to reputational risk if there is a misalignment in values between a family’s corporate activities and their philanthropic work – like pairing investments in tobacco cultivation with the sponsorship of a lung cancer wing at the local hospital. For the owning family, there may be an additional reputational risk if philanthropic resources are used improperly – for instance on excessive compensation or flashy office space for family executives. Family foundations also need to be attentive to compliance requirements – particularly around giving and investments – or they risk running afoul of regulators and tax authorities.
Collective philanthropy, much like collective entrepreneurship, requires talented leadership and responsible governance. Therefore, it is important not to be tempted to appoint a family member with the wrong skills and competencies to a governance or leadership role. Finally, there is a very real risk that the family doesn’t achieve the goal or impact that it desires with a given level of philanthropic investment. Managing this risk entails having the correct operational plan in place to support implementation, a proper evaluation process of the philanthropic project impact, and the willingness to accept and learn from failure.