Frederick Metz Shepperd is managing director of the Quadral Group, a consulting firm with offices in Europe and North America. www.quadralgroup.com
You have achieved economic success, and have all the necessary means to enjoy life to the full. But perhaps this is only one small indicia of a successful life. Frederick Metz Shepperd explains how you can contribute to society and create a true legacy
Anyone familiar with New York City can hardly think of the city without the Metropolitan Museum of Art, the Cloisters, the Frick Museum, or the Museum of Modern Art (MOMA). Hundreds of cities throughout the US cannot view their city without their public library. Cleveland, Ohio and its world famous orchestra are virtually inseparable. Yet, behind these great names in arts and culture lie names more familiar to business and industry. John D. Rockefeller, Henry Frick, Andrew Carnegie and many other captains of industry in their day laid the foundation for culture in a day when government did not, could not, or would not. Their legacy and that of many other family business owners lives today throughout the US.
In Europe, the situation is not much different than those days in the US. The governments of Europe are caught up with their social systems and must focus on very basic governmental services. Their support of every kind of art, music and culture is in full retreat. Many family business owners, already taxed enough, wipe their hands and say that they have paid there tax, so no need for further discussion. In the meantime, cultural institutions in Europe suffer, decline and vanish. Some say it is the economy, some say it is politics, but the effect is clear with a very negative impact on culture. It is the first thing to go. It is the canary in the coal mine of civilised society. For example, a significant portion of the student population in German schools never study music and never learn of Germany's musical tradition. What else will they fail to learn?
The plain fact is that it is everyone's responsibility to preserve and protect their cultural treasures. Paying tax to the government only addresses the economic issue. It never relieves you of that fundamental responsibility. What's more, business owners are in a unique position to step into a very fundamental role in their towns, provinces and countries. They can help assure that the culture and arts that helped inspire their engineers and designers, researchers and developers and their families, who became the next generation in the business, prospers for future generations. You say it is only a US thing? The US industry took its role from the family businesses in Europe. The Medici family is the most famous example.
There are thousands of family businesses currently in transition. They are changing to the next generation, selling, buying, or growing to a new level. In many instances, cash is around and available. A lot of it. Accumulated over the years, it is a sign of the success of many family business models. Yet where do you go from here? It is more than you ever need, ever want, or ever expected. You may never have even thought about something other than the business. That may also be why you have accumulated the cash. You have achieved economic success, but realise, as we all eventually do, that that is only one small indicia of a successful life. You may have all things to enjoy life, but do you have a life to enjoy all things? Maybe it is time to re-think your plans and to help society in a time of real crisis. That is a true legacy.
Although quite often found in the US, many privately held business owners in Europe are starting to create foundations with their excess wealth. They are following a grand tradition that was lost during the rise of socialistic governments. They are striking a pen that will write a story for future generations in a way that they themselves can decide. They are filling a very large void at this time in European history one person at a time.
Private foundations, or Stiftungen in German, can be established with guidelines almost as creative as your imagination. Many families don't know where to start. What should they support? Who should they support? How much should you give? These are very basic, but serious questions. Is it better to give to a charity, or create one yourself? This is a question of structure. Depending on the size of the amount to be given, it is a very appropriate question. What oversight do I have to see the money goes where it should. In light of major scandals following September 11th in New York City and other disasters elsewhere, it is also a valid consideration.
To take a closer look, think about what you would like to do to help make this place a better world. Don't laugh. Some people have never really asked themselves this question. In this global world one person can make a real difference. Do you have a particular interest that you would like to help succeed? It can be as easy as helping a local musical organisation, theatre, or museum. It can also be a broad focus, like the arts, or helping students learn around the world. Define what you would like to do.
It is important to think in the long term. If you want to work on a specific project, such as the repair of an historic building in the area, or eradication of a disease, what happens when the goal is reached? It may take years, but when the day comes, the purpose of the foundation ends, the foundation closes and funds are liquidated. A longer view and more open purpose allows the foundation to continue long into the future.
How much do you have to contribute? This determines the structure of the investment. There are overhead costs to every activity. In the oil business, the phrase is how much money goes, "...down the hole". Some of the most recognised benefit organisations have the highest administrative costs. Administrative costs must be paid to file tax forms, comply with local laws and to assure the money goes where you want it to. Thus, small donations may be better going directly to another organisation who performs these tasks. As the amount of funds becomes larger, there are 'foundations for hire' that can oversee your own foundation, or you can hire the staff and run the foundation as a stand alone entity.
It's your money. It's your call. However, there are limits. The foundation is a separate entity from the family. Stock can be contributed to the foundation to avoid significant tax impact. However, the foundation is the owner of the stock and can vote the shares in the way it deems best. Too much control by the family may endanger the foundation's tax status and allow the tax authorities to treat the stock as if owned by the original owner. Each country draws its own line on this matter, but caution should be taken to know where that line is in your location. It is very important to review the tax and legal aspects of giving, just as you would with a major business transaction.
If the funds you want to contribute cannot afford independent administrative staff, you need to take a close look at the organisation receiving the funds. There are public records and filings that should be readily available to review their giving policies, investment record on contributed funds, their internal costs (how much went down the hole), and information on the key individuals in the organisation. Many larger foundations actually give funds to other foundations and tax exempt entities to oversee their disbursements. They don't have the actual expertise in certain regions of the world, or for specific projects to make certain that funds are properly disbursed.
Last year, the Bertelsmann Stiftung hosted a conference on private foundations and private giving at their offices in Gutersloh, Germany for Family Business Network members. It was a very informative program and they can help other families through the process. They also have worked with the Rockefeller Foundation in New York City to help families make better decisions in their giving process. There are seminars and other programs to help educate potential donors proceed step by step through the giving process.
Family business owners accumulate significant worth through the operation of the business over the years. There has always been planning for the business, its growth and success, but once success is reached, few companies, or their owners have prepared for the time when they ask, "What now?" If the company is high in value, money is trapped in the stock value that can only be taken out at a very high tax cost. However, a foundation can be used to minimise that tax bite. It also channels funds in a way that is designated in written from by the family making the contributions to the foundations now and for generations to come.
Make time available to think about the impact you, or your family would like to make in the world, check the resources you have to make that change, contact Bertelsmann Stiftung, Rockefeller Foundation, or other leading institutions to get some insight into the huge philanthropic world – the good side and the pitfalls – then work with your legal and tax experts to create the right structure to make that difference in the world a reality.