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Think of your family foundation as a family business

John L Ward is the Wild Group Professor of Family Business at IMD (Switzerland) and Co-Director of the Center for Family Enterprises at Kellogg School of Management (USA). He serves on the boards of four family companies in Europe and the USA.

Some business-owning families believe that family success in philanthropy is much easier than family success in business. Not so. A family foundation still has to pass through the generational stages of involvement and control – with all the associated issues

More and more, families are establishing family foundations.  Three reasons dominate.
- To share the blessings of success with others.
- To promote the values of generosity and care to future
- To build a bond of common interests among the family.

A family foundation can also provide opportunities for family members to contribute to the family's vision of continuity, as a business owning family and as a collective family.

Business-owning families establish family foundations believing that family success in philanthropy is much easier than family success in business. Often a family will sell its business, and then establish a foundation with the proceeds in order to keep the family together.

Alternatively some families will pass the business on to just one family successor as owner, or to trustees if they are worried that collective family ownership will potentially risk the welfare of the family and the business. In addition they may form a family foundation to create shared interests for the family.

Why should perpetuating a family foundation be any different than perpetuating a family business? It probably isn't. Some families believe that business success is more difficult as the competitive pressures of business force more efficiency and competence by the family members. But don't foundations deserve as much efficiency and competence? Isn't it important to the family's continuity that they govern and manage their foundation with as much commitment and discipline as they would their business?

One might argue that the values behind giving money to others are more attractive and solidifying to more family members as the family grows through the generations. Others could counter that the lack of economic incentives lessens leadership's and governors' energy and that long-lasting family businesses have strong social values, too. Regardless, it's difficult to build any durable institution with an increasingly diverse constituency.

So if the family's foundation deserves as much management attention and organisational effectiveness as a family business, then some of the same issues exist and some of the same principles should apply.

The issues
As with family-owned firms, it's useful to think of a family directed foundation as passing through the generational stages of involvement and control. The founding first generation usually directs the foundation, as it sees best, for its own objectives.

The foundation is often set up in the first generation to channel and administer the parents' personal charitable activities. They are looking for managerial assistance and envisioning a purpose for their personal giving. Understandably, they want to pass that specific focus of caring to their children. Isn't it a testament to the parents if their children adopt and perpetuate their parents' specific charitable wishes?

Like with a family business, a first generation's desire to perpetuate its own vision can cause difficulty for future generations. For the family foundation, future generations struggle with the founders' 'donors' intent'. Often future generations find it difficult to identify with the specific activities of the founding generation. Sometimes a specific 'donors' intent' becomes outmoded to contemporary times and fails to capture their successors' passion.

In the second generation the foundation is governed by a team of successors, in a similar way to a family business – and with similar problems. The critical issue is the capacity of the siblings to work together as a team and support common objectives. As with many business families, there is a tendency for the siblings to avoid decision-making conflict and to satisfy each second generation interest by letting each direct their own priorities. The foundation becomes partitioned into equal giving pools for each member of the sibling successor generation and philanthropy effectiveness is compromised to keep peace in the family.

In the third generation the family is now a group of cousins, potentially spread around the world. Those who have a close relationship with their parents seek to take on their parents' interests and roles. Others can feel remote. The economic incentives to stay involved wane, just like in a cousin-owned family business. The identity with the founding generation and its dream becomes less compelling.

In the cousin generation some family members provide more leadership to the foundation (or business) than others. Those who do give more of themselves may feel under-appreciated. They may be seen to be shaping the foundation more in their own interests than in those of the entire family. Conflict follows.

In this situation leadership of the foundation could be turned over to non-family professionals, further separating the family from its institution. What was once formed to keep the family together doesn't achieve that and the core values of the founding generation become shaped by a succession of non-family executives who never knew the founding families values and wishes.

Considering the family business analogy for family foundations provides insights on how to address and resolve the issues. A farsighted understanding of how a collective family enterprise evolves through the generations is valuable. With that understanding, family foundation leadership can build a framework that anticipates the future and is durable to the future's expected challenges. Specific policies can be addressed to avoid future difficulties among family members.

Family business and family foundation synergies
Some families design an interrelationship of identity and purpose between their business and their foundation. The values and goodwill of each reinforce those of the other.

The earlier that generations can develop their philosophies and concepts, the more long-lasting and effective will be family unity and the family commitment to the foundation.

The vision should be focused on strategic philanthropy that future generations can engage in, rather than fulfilling charitable commitments of earlier generations. The mission is to assure an adaptable continuity more than obedience to a specific earlier mandate. The strategy of the foundation is a dynamic portfolio evolving through the generations rather than one particular core focus that may someday lose its relevant or board family appeal.

Managing the foundation evolves, too. Early personal hands-on management and governance benefits from integrating outside expertise in leadership and governance. While family membership becomes broader and more inclusive, family activity in management becomes more restricted based on objective competence. Finally, succession to leadership and governance becomes more planned.

From what to how to why
The essence of long-term success of a family foundation is how well it can re-conceptualise the nature of its existence from 'what' to 'how' to 'why'. Typically the founding generation has a specific charitable wish of how the foundation distributes its funds. The successor generation molds that specific focus into its philanthropy – how the family gives. For the cousin generation, in addition to the how, it's the why that keeps all together – why family giving makes a difference to the family and society, no matter how it adapts its giving.

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