The family’s vision for their business might involve philanthropy, but where does it fit in?
Plenty has been written about some enterprising families being active philanthropists and how philanthropy can enable family members to participate and learn some useful skills when they are not involved in running the core family enterprise.
If, however, any of these family members are outside the family enterprise because they do not have relevant ability and experience, it seems reasonable to ask what they have to offer the family’s philanthropic activities? What gives, if anything, when it comes to balancing a charity’s need for talent with the ability available in the family gene pool?
Maybe families use different criteria when measuring what is necessary for one of their own to contribute effectively to their business or their charity. In the latter case, it may be assumed that family will be better at decision-making because they can be trusted to understand the philanthropic ambitions of their relatives in a way that an outsider never would. Also, family involvement can help if the family seeks recognition for their charitable efforts.
Families, however, usually have a broader vision for their enterprise than just enhancing their reputation and offering life skills experience for family members. Their vision will be a unique combination of various levels of financial return and other non-financial returns on investment that contribute to the family’s reputation, status and sense of identity.
The family’s vision for their enterprise might involve philanthropy, but where does it fit in?
If a family includes philanthropy as part of their vision for their enterprise it is wise for them to agree on a hierarchy of needs in case there is ever not enough money to do everything. What gives in such an eventuality; the family’s personal financial ambitions or their philanthropic ambitions?
One family, for example, set their family office executive team targets for the growth and returns that would provide a defined level of financial support to a growing family. They also wanted to contribute a percent of annual profits to the family’s charity. But if these goals clashed, the family felt that charity should begin at home and their own financial needs were to be given priority.
In contrast, the religious faith of the founder of another charity made it important for him that it be continued after his death. The next generation were not as devout as their father but in general terms shared his philanthropic ambitions.
The family agreed to a set of tight guidelines for their giving, including a limited range of circumstances in which this support could be reduced. This balance reflected their belief that individual family members would enjoy sufficient financial security from the family enterprise and should rely on their own talents if more was desired. In this case family philanthropy trumped increasing the returns to family members.
In each case, the family’s decision on how to balance the competition for money fed through into the structuring and governance of their charitable activities. For example, each family created a family council with governance powers to control some decisions, including any that altered the agreed balance between the family’s financial and philanthropic objectives.
The benefits of having a clear vision for a family’s enterprise, including their shared philanthropy, is often mentioned. It is the vision rather than the technical structures that provides the glue that bonds the family together and motivates some of them to give up part of their life in order to spend time with relatives making important decisions that will affect others, which is what philanthropy involves. But must this vision remain unchanged as control passes down the generations or should each generation have the ability to set their agenda?
Family members who feel obliged to preserve the legacy of their ancestors can also feel that their life aspirations have been thwarted. It can be demoralising if the family’s philanthropy remains forever bounded by whatever the founder decreed, when subsequent generations feel that more could be done to extend and reinvigorate this legacy.
If some flexibility is not built into the structures that support the family’s philanthropy then what gives is likely to be the commitment and interest of future generations.
The need for clarity of vision is also important if the family does not want to be actively involved in managing their charity. Outsiders who are hired to do this for the family need to know what is expected of them.
Rather than being relatively distant benefactors, the family could stay involved in overseeing and monitoring those they have hired to run the charity in the family’s name. In order to do this family governance structures and policies can help bring some formality so those running the charity know when and how to account to the family and the family can remain engaged without having to assume a formal role in the charity.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.