Wealth

How family capital over many generations is changing philanthropy

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Philanthropy has evolved over several generations to become better defined and global in scope, according to research by Wise Counsel Research.

The survey – Social Impact in Hundred-Year Family Businesses – was written by Dennis Jaffe, with Isabelle Lescent-Giles and Jamie Traeger-Muney. 

Sponsored by Bank of America Merrill Lynch, its findings are based on research into 82 families with a median age of 114 years. They amount to a response to a newly-published book – Winners Take All by Anand Giridharadas – which argued billionaires are only interested in backing the capitalist system which rewarded them, rather than dedicated to helping the rest of humanity.

Centennial families don’t view social and environmental impact as an add-on, or peripheral, set of actions, but as part of a core strategy

Jaffe is ambivalent over the power billionaires wield. His study concedes: “The pressure on billionaire business leaders to adopt social and environmental issues is mounting.”

But he says the philanthropy taken on by the wealthy has been very real, and need to be judged over several generations. A series of enlightened philanthropic foundations have developed out of the wealth created by tough 19thCentury US businessmen like John D. Rockefeller and Andrew Carnegie, in line with their final wishes. 

Antoine Riboud of food group Danone and Gerard Mulliez of Auchan, the French retailer, were successful in building businesses around workforces they did not wish to make redundant. They saw employees as an asset, rather than a cost centre. 

Their work continues. Riboud shocked French corporate leaders in 1972, by saying businesses actually had a duty to deliver social justice and tackle inequalities. Danone maintains its support for global philanthropy to this day: one of its social ventures comprises the creation of an affordable, and nutritious, yoghurt in Bangladesh. 

Jaffe stresses: “Our focus is not on new wealth, but families evolving beyond the fourth generation. While many of them are billionaire extended families, they are not like the billionaire who feels a proprietary engagement in how his wealth is used.”

But his survey notes charitable foundations can develop while their benefactors are alive. The Gates Foundation would be the classic example.  Warren Buffett has pledged to bequeath large sums to Gates as part of the Gates Pledge, and three of his children run family foundations. 

Research by Credit Suisse and others have shown that businesses managed by families on a sustainable basis have performed better than independent listed companies taking a short term approach. 

An increasing number of these businesses have moved out of the family circle leaving family offices to manage philanthropic pursuits. According to Jaffe: “Many wealthy US givers are being groomed not to serve the business that created the family wealth, but to run family foundations.”

Family offices view philanthropy as a way of rewarding society for nurturing their success, as well as providing new generations with purpose. 

Jeff Raikes, former chief executive of the Gates Foundation, sees the importance of “using our funds and talents to make meaningful, measurable changed on issues and in communities that have been poorly served by institutions.”

The localised initiatives of previous generations, typified by the Cadbury family in Britain, are increasingly given way to a global approach, using the leverage of social media to forge alliances and tackle systemic failures.

The Jaffe study says the modern social impact movement likes to focus on areas where donors feel sufficiently passionate to invest their time and money. 

They seek to carry out a top-down analysis of a problem, to understand what is going wrong, so problems can be permanently fixed. This can be combined with offers of philanthropy on the ground, to alleviate immediate suffering.  

The movement also seeks to forge alliances – with families, governments charities and the private sector to address the challenge using different approaches.

New management techniques, and tools, are being used by a new generation to measure, and achieve, success, in contrast to the more basic approach of former generations.

They can streamline foundation boards, using the advice of consultants, to make decisions easier to achieve. Dialogue is used to achieve a common approach. Data is commonly used. The United Nations has developed a string of sustainable development goals, where social impact can make the biggest difference. The Global Impact Investing Network has defined ways to achieve an appropriate social, and financial, return.

But it can take time for any family to agree a common approach, particularly where several of its branches back different causes. Time is needed to achieve consensus. Direct questions need to be asked. At its simplest: “Should a family serve a foundation, or a foundation serve a family?” 

Urgency is being injected in the debate by a new generation who tend to be passionate about making a social impact, and keen to take on a hands-on approach. Some of them are called hyper-philanthropists, rapidly changing their roles in an hyper-connected world, to make a difference.

Their approach is global.  They can be willing to use the capital, as well as the earnings of their foundations to make a lasting impact.

But their approach can be bridged across the generations. Jaffe says: “If parents are willing to listen and adjust their expectations, they often realise their children are opening new avenues for generating wealth through investment opportunities.” 

Giving circles are a relatively new development, providing a forum for different families to discuss ways to maximise social impacts, while providing members with discussion groups, support networks and shared purpose.

In the US, giving circles include the Vanguard, Haymarket and Threshold Foundations.  Nexus works to bridge wealth and social entrepreneurship. The Global Philanthropists Circle reaches out to broader society, as well as wealthy families.

Jaffe can see some younger family members choosing to manage philanthropy on a full-time basis, although the majority would have other careers. Either way, families like be hands-on, rather than outsourcing philanthropy to third-party professionals. 

The Cynthia and George Mitchell Foundation is dedicated to using their wealth to help society and sustainability. Mitchell, a Texan billionaire, pioneered the fracking of shale gas and wanted to use his money to make the world hospitable and sustainable.

Mitchell spent tens of millions restoring his home town of Galveston. Over a year, his ten children and 27 grandchildren pulled together to develop the foundation, which has distributed more than $400 million in grants.

According to Katherine Lorenz, a granddaughter: “We don’t always agree on what they would have wanted. But there is a sense we would try. There’s a strong feeling that it is their legacy, that we are doing this in a way they would have wanted it.”

According to Liesel Pritzker Simmonds, who runs the Blue Haven Initiative family office: “All investments have an impact – social, environmental and financial.”  

The new generation frequently argue there is more to life than money, which can challenge existing business practices. According to Jaffe: “Centennial families don’t view social and environmental impact as an add-on, or peripheral, set of actions, but as part of a core strategy.”  

 

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