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Happy Families: The unifying force of philanthropy 

Published 8 June 2023 in Family business • 8 min read

Philanthropy can have a powerful galvanizing effect on the broader family business ecosystem but extracting the greatest benefit requires making trade-offs.

Enterprising families today are uniquely positioned to play a leading role in tackling some of the world’s biggest challenges. The majority of businesses are family controlled and, as such, their contribution to the world economy and society is vital at a time when public funds have come under renewed strain following the COVID-19 pandemic.   

But if the potential for philanthropy has never been greater, what are its effects on the wider family enterprise system?  

That question is now more relevant than ever: the world is about to experience the transfer of generational wealth in history, with at least $15tn set to change hands over the coming years; some estimates put that figure as high as $68tn 

Not only that, but the next generation about to receive this unprecedented wealth is fundamentally different from today’s wealthiest individuals in important ways. For one thing, female philanthropists are on the rise as traditional gender discrimination governing inheritance starts to wane. Women are also increasingly making their mark in business and as entrepreneurs, with a new class of self-made female billionaires 

For another, members of the next generation are typically more digitally savvy than the retiring now generation. They can also hold markedly different priorities, often with a greater focus on the environment and social justice than their empire-building parents and grandparents.  

Against that backdrop, a new report published by IMD, Navigating your family’s philanthropic future across generations, shows how philanthropy can be a powerful and positive force for the wider family enterprise system. This report, conducted across 30 countries spanning six continents, is primarily based on data collected from 70 semi-structured interviews with both experienced and novice philanthropists, non-foundation managers, and some of their beneficiaries.  

Members of the next generation are typically more digitally savvy than the retiring now generation.

The families were identified in partnership with FBN international, regional, and national chapters from around the world as well as through records of families that have visited IMD over the years. This comprehensive and insightful sample allowed us to capture the diversity of enterprising families’ philanthropic giving. 

In this article, we present core findings from our report and provide recommendations for philanthropic families that aim to make a real difference for their beneficiaries as well their families, businesses, and other stakeholders. 

A heightened sense of meaning 

First, philanthropy can unite families around a common purpose. Enterprising families can be both complex and large, consisting of dozens of individuals across multiple generations. Without a focus or being involved, some members can easily feel sidelined. Ultimately, alienation and a sense of drift could even increase the possibility of them selling their shares, weakening the family’s control of the business.  

Philanthropy can help to bring different branches of the family together, beyond ownership. This is particularly important when big shareholders are no longer actively involved with the business or family. Running a family foundation together can become a strong cohesive force. One European female philanthropist and fifth-generation member of the family interviewed in the study says: “We have large [family] shareholders who haven’t been involved [with philanthropy] and now  they are suddenly part of it, and they feel good. They’re saying: ‘I’m not going to sell my shares. I want to be part of the family.’ We were afraid of them possibly wanting to sell their shares because of the loss of connection with the family.” 

Second, philanthropy can provide a rich training ground for upcoming generations to build their financial knowledge and hone their business and managerial skills. One Asian second-generation family member interviewed in the study says that philanthropic causes were invaluable in building knowledge and experience. “In terms of upping my skills, this has been really good because I have to do anything it takes to find the information that I need to create a partnership, to learn more about a problem, to solve IT issues,” she says. “It’s quite empowering because you feel like it’s yours. It makes me feel that if I do this for a little while longer, I would be a little bit more confident about running a business.”   

A second-generation member of a European family reports a similar experience after the family involved its company’s employees in donating money and clothes to schools in Africa

It can also provide a timely “reality check”, reminding younger generations about how lucky they are – and, in the process, potentially reducing differences in outlook and life experience with founding generations, many of whom grew up with scarce resources.  

“It’s very important to be there and see what’s happening, because this not only gives you a good feeling about how your money is spent but also very positive ideas and feelings about the future, and that you can make a difference,” one European philanthropist and third-generation member says. “I think that’s very enriching for the family, and even for the younger children in the family; it’s great to see that not everybody grows up with a silver spoon.”  

Good for family, good for business 

A third benefit of philanthropy in the family enterprise system is that it can boost the core business – and in multiple ways. For a start, bringing a family’s philanthropic activities closer to the business can be good for employees, giving them a sense of purpose beyond financial returns. This in turn can help the business improve its stewardship of environmental, social and governance (ESG) factors – in particular the “S”, where many companies struggle to define impactful policies.   

One European philanthropist and third-generation member of the family interviewed in the study says that bringing his family’s philanthropic work closer to the company gave employees a sense of perspective and purpose. “They would get a day off so they could work in a social project,” he explains. “We thought it was a good idea to get people together. We allowed our people to do social work in their working hours, to see different things.”  

A second-generation member of a European family reports a similar experience after the family involved its company’s employees in donating money and clothes to schools in Africa. “The biggest impact internally in the company is the sense of purpose and meaningfulness to all the employees that comes through the school,” she says. “This is also why I try to tell them every now and then what’s going on, what’s happening in the school.”  

“A third benefit of philanthropy in the family enterprise system is that it can boost the core business – and in multiple ways.”

Bringing philanthropic endeavors closer to the business can also help other stakeholders. From suppliers to customers, people want to see that there is more to a business than profits. From shoe manufacturers to ice-cream brands, there are myriad examples of companies excelling financially in part because they prove to their customers that they have a strong social and or environmental responsibility. 

Cautionary tales 

Inevitably, there is a flipside to all of this. While philanthropy can give added meaning to a family and provide important roles for those not directly involved in the day-to-day running of the enterprise, it can also reinforce long-standing rivalries or differences.  

In one case involving a European family, high hopes that philanthropic causes could create a bridge between generations quickly fizzled out. “I was convinced that philanthropy could be a great part of our transition [succession in business], and a great part of making us committed properly,” says a third-generation member of the family interviewed in the study. “Sadly, it is not the case; philanthropy ‘suffered’ from the differences and conflicts that occurred in the family business. Philanthropy did not help but was negatively affected by the rest.”  

That experience is not unique. And it highlights that, in spite of philanthropy’s positive impact on the family enterprise system, common issues that enterprising families are challenged with can decrease the “joy of giving together”. It is therefore of critical importance to align, as a family, with the overall purpose of giving before getting started. 

A third-generation male member of a European family reports: “For my dad’s generation, the corporate values had been usurped as the family values, and they weren’t lived that way. Later, one of my cousins and I who run this ‘three-ring circus’ said to the family: ‘We can’t force you to believe that the five corporate values are yours. We have to have our own mission. It’s okay to have a set of values for the family and a different set for the company. You’re not betraying anything.’ That’s very hard for the older generation to understand.” 

Based on our research and experience, we find that there are no specific “right” or “wrong” approaches to philanthropy, and any journey in giving will have wins and losses that we can learn from and share. While there are just as many ways to approach philanthropy, if approached in a thoughtful and structured way, family giving can be an impactful and engaging calling. It can become a lifelong passion as families start to see that they can make a real difference in the world.  

While philanthropy can give added meaning to a family and provide important roles for those not directly involved in the day-to-day running of the enterprise, it can also reinforce long-standing rivalries or differences.

To help with that process, families can use the Family Philanthropy Navigator, a practical tool for family philanthropy we developed that is built around three core pillars of any philanthropic journey: purpose, relationships, and organization.  

Each pillar of the navigator consists of crucial elements with supporting questions to facilitate reflection, all with one simple aim – to provide a one-stop, practical and interactive pathway that helps to improve the philanthropic journey.  

Ultimately, and as the report shows, philanthropy involves multiple trade-offs. But, structured thoughtfully, it can bring huge benefits to the wider family enterprise system – both in terms of the family members themselves as well as the business that they own.  

Authors

Malgorzata Smulowitz

Malgorzata Smulowitz

Postdoctoral Research Fellow at the Debiopharm Chair for Family Philanthropy at IMD

Malgorzata Smulowitz is a Postdoctoral Research Fellow at the Debiopharm Chair for Family Philanthropy at IMD. She has published work on numerous topics including family philanthropy, cohesive giving, the use of blockchain in philanthropy, and impact data management. She holds a PhD in economics, management and organization from Universitat Autònoma de Barcelona.

Peter Voegel - IMD Professor

Peter Vogel

Professor of Family Business and Entrepreneurship at IMD

Peter Vogel is a Professor of Family Business and Entrepreneurship, Director of the Global Family Business Center (GFBC), and Debiopharm Chair for Family Philanthropy at IMD. He is Program Director of Leading the Family Business, Leading the Family Office, and the Lean Intrapreneurship program. He is globally recognized as one of the leading family business educators, advisors and academics, has received numerous awards and recognitions and is the author of the award-winning books “Family Philanthropy Navigator” and “Family Office Navigator”.

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