Giving back is a priority for most of the family businesses we know. Primarily, they do so to make the world a better place. Besides that altruistic motivation, many family businesses see other benefits to their social contributions. Among the benefits are these:
- Deepening the family members’ connection to each other
- Identifying and passing down shared values
- Creating a venue to learn about the meaning and responsibilities of wealth
- Developing talent and leadership in the next generation
- Shifting family assets as part of estate planning
- Building pride and purpose in the family business
- Improving goodwill and loyalty with customers, employees, and other stakeholders
- Assessing the capabilities of family members before they move into the business
- Creating an opportunity to contribute for those whose talents lie outside the business
In these ways, philanthropy can help you sustain a multigenerational enterprise. There’s nothing wrong with having several sources of motivation for giving. We believe that society benefits most when the value that people see in giving back goes beyond pure altruism. If the perceived value is core to your objectives rather than peripheral to them, you will be more likely to sustain your philanthropy over time. Moreover, if the nonaltruistic benefits of philanthropy can only be achieved when you execute the benevolent action well, then your acknowledged self-interest is more likely to motivate you to conduct the philanthropy as effectively as possible.
Regardless of your motivation, there are three main avenues for accomplishing your giving goals:
- Family philanthropy: The vehicles that many family businesses set up for giving back are outside the core business. For example, families often form a family foundation, though there are other vehicles, depending on your country (e.g., donor-advised funds in the United States). Some foundations focus on giving grants; others on running programs. Some families endow their foundation by selling shares of the company, while others use dividends to fund their philanthropy. Although donating money is important, don’t forget about the value of your time, expertise, and political capital.
- Corporate social responsibility: Increasingly, family businesses are integrating socially responsible business practices into their core operations. Some companies also have corporate foundations that serve hybrid business and social objectives. And many family businesses have established programs that facilitate employee involvement in the community.
- Impact investing: Many families are looking to harmonize their investment decisions with social goals. For example, if a company is focused on environmental sustainability with its giving, it doesn’t want to invest in companies whose business model is to indiscriminately cut down rain forests. Some family businesses make more active investment decisions, investing in other companies that are explicitly addressing social needs.
Take the time to identify your philanthropic objectives, including how giving back can help you accomplish the goals you set in your Owner Strategy. Then ensure that the resources you are deploying through your family, business, and investments align with those objectives. But be careful. Because philanthropy involves core values, it can also touch on sensitive topics. When a CCC Alliance survey of the more than one hundred members of its network of family companies asked, “In the broad range of family activities where your family office engages, list three activities that create family harmony and three that create dissension,” charitable foundations or philanthropy appeared on both lists (a).
a. Barney Corning and Laird Pendleton of CCC Alliance.
*Adapted from the Harvard Business Review Family Business Handbook by Josh Baron and Rob Lachenauer. Pages 102-103.
Summary: As the owners of a family business, you can choose what you want to do with your family business and wealth. Many family businesses owners choose to give back to the community through philanthropy, corporate social responsibility, or impact investing. Here’s what your family needs to consider to do this well.