How entrepreneurial vision can impact philanthropy

Many family business owners use their entrepreneurial skills and vision in their philanthropic endeavours. As a result, these 'philanthropic entrepreneurs' have challenged traditional charity and set up some of the most successful foundations in the world

Successful entrepreneurs and family business owners often consider their work a lasting contribution to society. Their addition to the public good promotes both economic growth and public welfare. In Germany, this link between the liberal pursuit of entrepreneurial freedom and the public realm has even received constitutional sanction. The German 'Grundgesetz' explicitly ties private property back to a recognition of public welfare – 'property is an obligation' is the memorable motto of constitutional law.

Entrepreneurial spirit
In thinking about their role in the public realm rather than the private realm, entrepreneurs and family business owners consider their philanthropic options in society in the context of their entrepreneurial spirit. They seek an expression of their philanthropic intentions that is consistent with their corporate or business backgrounds. Furthermore, they hope to make valuable contributions in their philanthropic endeavours not just through their funds but also through their competencies and experience.

Historically, the role of the philanthropist has changed from a giftgiver role to an investor perception. Today's philanthropists are investors in the public good. Their investment usually intends to combine their corporate background and their philanthropic intention, which results in a number of consequences.

Reasons and strategies
A number of prominent European entrepreneurs who owned substantial family businesses not only developed successful careers as the initiators of remarkable foundations but also considered the establishment of their foundations to be a strategy to sustain the independence and continuity of their businesses. They donated a substantial holding of shares to their foundations, in some cases even the majority of stock, and in doing so set their corporations up for security from hostile takeover bids, mergers or controlling influences. Depending on the legal peculiarities of their respective countries, many European entrepreneurs established substantial foundations to serve the public good and at the same time maintain substantial ownership in the corporations. Examples include the Wallenbergs in Sweden, the van Leers in the Netherlands, the Nuffields and Rowntrees in Britain, the Boschs, Koerbers and Reinhard Mohn at Bertelsmann in Germany, the Varsavskys in Spain and many others.

Legal requirements in these countries resulted in different governance structures for these connected philanthropic and corporate institutions. In most countries, the foundations do not exercise direct corporate control (and are legally prevented from doing so). Instead, they are connected to intermediary structures that exercise the voting rights and corporate control of the stock the foundation holds. In cases such as Bertelsmann and Bosch in Germany, both corporations leading global players in their markets, the voting rights are separated from the dividend entitlement and through a 'golden share'invested in a separate trust company. The owner's family usually is either a partner or has seats in this trust company. The foundation receives the dividend payout (on its shareholdings) as proposed by the corporate board and accepted by the general assembly of the corporation.

However, the creation of foundations in the context of substantial family ownership in a large corporation not only provides a means to address issues of family control and continuity, but also provides independence of the corporation and effective tax management in cases of succession. It also has impressive consequences for the foundation sector, in that it allows members from business backgrounds to create foundations modelled after their own investment perceptions. Their value systems usually finds expression in foundation strategies that are more focused, driven by entrepreneurial momentum and spirit.

The foundations also provide 'second careers' for some donors who shaped their foundation during their lifetime and continue to do so. These foundations are driven by personal zeal and competencies, not by administrative execution of someone else's intentions.

Some of these foundations have been established as 'public-benefit corporations' to the extent that their founders, after careful deliberation, set them up as 'operating foundations': think tanks, reform laboratories, welfare institutions, research and policy centres. These foundations do not act on the traditional grantmaking model. Rather, they result from a market about the blind spots in the public realm that the donor identified according to his or her preferences and values. These donors then set up their institutions and take an active role in bringing them on course and governing them.

Entrepreneurial skills, management competencies, leadership and governance experience, and a vision of change for the public's better are brought to the fore by those donors who actively pursue the establishment of their foundations during their lifetimes. Recent philanthropic sector lingo in the US arena describes these entrepreneurs as 'venture philanthropists'. In Europe, this concept has existed long before this label came into use.

The effects
Philanthropic entrepreneurs have implemented their strategies in forms different from the traditional grantmaking role model. They use their foundations to provide large scale institutional support grants, which help create institutions whose development plans, strategies and goals are shaped by these entrepreneurs. In doing so, they have set up new research centres and institutes, policy advocacy institutions, care centres, museums, theatre companies, performing arts institutes, or film and photographic documentation centres. Thus, public institutions become enriched by the implantation of entrepreneurial skills into public-benefit organisations (or non-profit institutions, as they are traditionally called). The field has experienced a wave of vigorous, viable new players pursuing philanthropic goals. As a result, venturesome approaches have challenged traditional charity.

The effect has been a considerable increase in professional management qualities available to the public-benefit sector. In getting involved on this account, entrepreneurs and family business owners truly prove their strategic visionary qualities in making them available to the public arena. In seeing their communities flourish and their polities well run, they are rewarded for forgoing the creation of private profits and investing not only their funds, but their minds in philanthropy.