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N o . 16 5 N o v e m b e r 2 0 0 8
About Family, Business
and Philanthropy
Families in business face enormous
Concern for the community is at the
challenges in balancing issues as
core of the philosophy of many families
divergent as efficiently running a
in business. It makes sense that heirs
commercial enterprise and managing
would come together to demonstrate
the relationships that support it. Past
this to stakeholders in a very real and
research has shown they generally
tangible way through philanthropy.
overcome on both fronts with great
success and aplomb. Much newsprint
Family office investing activities are
has been devoted over the years to
largely carried out for the benefit of
detailing the problems that can come
the family. But charitable giving is Joachim Schwass
with owning and operating a family firm.
often just as essential to the family IMD Professor of
However, families should be vigilant for
challenges and solutions that may lie
and business culture. A holistic view Entrepreneurship
of commercial enterprises as citizens
elsewhere.
focused globally and locally is common
Family Business and
among closely-held companies. Caring
As a family grows, not everyone’s talents
for the problems that afflict those
or interests can be accommodated
communities comes naturally. Good
through the family business. And,
intentions are not enough. A thoughtful,
sometimes, the family company may
intentional approach must be taken
no longer exist. So how can a family
for charitable giving to have power
with a business heritage find its way
and impact. When done correctly,
through these potentially rough waters
however, the lives of people and the
and remain a close, cohesive and
health of the planet can be significantly Colleen Lief
purposeful group?
improved.
The
complexity
and IMD Research Associate
consequences of philanthropy can best
For many families, the answer is
be illustrated through two examples.
philanthropy and family office. Family
The 6th generation Rockefeller family
commitment to collective charitable
is a long established leader in the
giving
activities
field of philanthropy, having started
(management and administration of
or
family
office
the Rockefeller Foundation in 1913.
family investments, trusts and taxes)
Warren Buffett, chairman of Berkshire
can bring people divided by geography
Hathaway, although much more of a
or sheer numbers together for a
newcomer to the field, has also had a
broader purpose. Many more family
significant impact on the magnitude of
members with different skill sets can be
philanthropy as well as the methods
effectively engaged in these activities,
and strategies applied to it.
than can be accommodated by a family
business. Philanthropy and family
The Rockefeller Family
office can each provide a forum for
family collaboration and for reflecting
The
the family ethos to the wider world.
standard-bearers on how to do it
Rockefellers
are
really
the
right and for the long-term. They started with
“Every right implies a responsibility; every
a unique problem. The vast wealth that arose
opportunity an obligation; every possession
from John D. Rockefeller’s founding of Standard
a duty.”
2
Oil of Ohio eventually cast a dark shadow on the
Buffett shocked the
world in 2006 when
he announced a plan
to give 85% of his
Berkshire Hathaway
shareholdings, at the
time equal to about
$31 billion, to charity.
family. Rockefeller had become involved in the
So, a growing number of Rockefeller heirs took
oil business in 1863 and soon joined forces with
up the mantle of giving. Each generation adopted
the railroad industry. When Standard Oil was
its own innovative and resonant approach to
established in 1870, it handled 10% of US oil
philanthropy. This legacy continues today through
refining. Within ten years, Rockefeller controlled
the works of the Rockefeller Foundation, the
90% of the refining market and was listed among
Rockefeller Brothers Fund and the numerous
the 20 richest Americans. In 1882, a trust was
other family and individual charities established by
formed that centralized and vertically integrated
the Rockefellers. They have even sought to share
Standard’s business, encompassing the entire oil
their many years of philanthropic experience with
production value chain. In 1911, the government
others through the 2002 founding of Rockefeller
dismantled Standard Oil but not before it had
Philanthropy Advisors, which helps philanthropies
1
come to dominate American industry.
espouse effective strategies. In 2008, the family
notably broke with its preference for a low
The money he had amassed came to be linked
profile and called for ExxonMobil (a Standard
with unabashed empire-building in the public
Oil descendant) to amend its positions on global
mind. By the time his son, John D. Rockefeller Jr.
climate
(JDR Jr.), took the reins of the family fortune, two
practices.
change
and
corporate
governance
things had become apparent: 1) such abundant
wealth enabled by a young and growing society
Warren Buffett
should be used to lift the circumstances of its
least fortunate members and seek to improve
Buffett shocked the world in 2006 when he
the health and environment for all; 2) the
announced a plan to give 85% of his Berkshire
Rockefeller’s core belief system and religious
Hathaway shareholdings, at the time equal
heritage required that abundance be shared. JDR
to about $31 billion, to charity. The Bill and
Jr. saw that acting on the family’s core beliefs was
Melinda Gates Foundation got the bulk of the
not only the right thing to do but might also re-
funds, with the rest being divided among family
tool the family’s image for the sake of his beloved
foundations run by each of his three children,
father and future generations.
and the Susan Thompson Buffett Foundation,
3
named in honor of his deceased wife. Buffett
JDR Jr. began a campaign to shape the family’s
had hesitated in giving his wealth to worthy
public persona and provide society with the
causes during his lifetime, as he believed that
infrastructure it was so sorely lacking. His father
the power of compounding would make his gift
had established the first family office in the
more significant the longer it grew. He had been
1880s, followed by the Rockefeller Foundation.
impressed with the work of the Gates Foundation.
He eventually gave $530 million to a panoply of
However, as his admiration for the passion,
charitable causes, particularly public health,
commitment and competency demonstrated by
education and medical research. JDR Jr. sought
Bill and Melinda Gates grew, his thinking altered
to extend this legacy of groundbreaking work by
dramatically:
providing unparalleled support to US and foreign
universities, religious organizations, contributing
“If you think about it – if your goal is to return
to most major medical and public institution
the money to society by attacking truly major
advances of the time. JDR Jr. himself donated
problems that don’t have a commensurate
$475 million throughout his lifetime. Perhaps even
funding base – what could you find that’s
more importantly, he fomented in his children the
better than turning to a couple of people
following philosophy:
who are young, who are ungodly bright,
About Family, Business and Philanthropy
whose ideas have been proven, who already
But Much in Common
have shown an ability to scale it up and do it
right? You don’t get an opportunity like that
The Buffett and Rockefeller experiences, though,
ordinarily. I’m getting two people enormously
have much else in common:
successful at something, where I’ve had a
chance to see what they’ve done, where I
• Both charitable gifts were viewed with initial
know they will keep doing it – where they’ve
skepticism.
done it with their own money, so they’re not
altruism was questioned. Buffett was accused
living in some fantasy world – and where in
of seeking notoriety, in addition to wealth.
general I agree with their reasoning. If I’ve
• The principals were often detached from the
found the right vehicle for my goal, there’s no
details of donations but instead focused on the
4
reason to wait.”
The
veracity
of
Rockefeller
bigger picture.
• Naming respected, independent figures to
So Buffett not only made an extraordinary
administer donated monies helped legitimize
contribution to improving the plight of millions of
the gifts in the eyes of the public.
people throughout the world by his gift, he also
demonstrated an astonishing humility. Buffett
gave the bulk of his enormous wealth back to
society but in a very self-effacing and efficient
• Excellence and results in philanthropic
endeavors remain shared objectives.
• Heirs were taught that giving to others is an
obligation.
manner. He judged that the Gates Foundation had
• Philanthropy was viewed as yet another
already achieved such scale and had espoused
outlet for pursuing one’s own passions and
a philosophy in line with his own thinking that
creating an organization bearing his own name
would be vanity at best and unthinkable waste at
talents.
• Children were not involved together in a family
business.
worst.
Both John D. Rockefeller Sr. and Warren Buffett
Differences in Approach
were influenced by Andrew Carnegie, who donated
$350 million during his lifetime, and his views on
While both the Rockefeller and Buffett gifts
charitable giving :
are astonishing in their scope and reach,
there are some significant differences in their
“The day is not far distant when the man who
approach to philanthropy. Rockefeller passed
dies leaving behind him millions of available
a significant portion of his wealth to his heirs,
wealth, which was free for him to administer
who then determined to share it with the world.
during his life, will pass away unwept,
Buffett’s belief that the blessing of riches may
unhonored, and unsung.”
5
prove a curse to his children and that society
provided the circumstances for his success and
Summary
therefore, should benefit, precluded a large
transfer of wealth to his children. “Leave your
There are several important lessons to learn
kids enough to do anything but not enough to do
from “old” philanthropy, as exercised by several
nothing” paraphrases his philosophy. Further,
generations of the Rockefeller family, or from
the Rockefeller Foundation recently affirmed
“new” philanthropy, as undertaken by Warren
its intent to remain active in philanthropy for
Buffett. Philanthropy, or giving back to society,
perpetuity. Buffett’s gift to the Gates Foundation,
brings two-dimensional benefits: family internal
however, came with strings attached that Bill
and family external.
and Melinda Gates must spend his gift in their
lifetimes. Buffett felt he knew their capabilities
Family Internal benefits
and motivations but could not be as sure of the
– Values dimension: agreeing on and defining
quality of the future.
individual and family values.
While both the
Rockefeller and Buffett
gifts are astonishing
in their scope and
reach, there are some
significant differences
in their approach to
philanthropy.
– Personal meaning of life: finding a deeper
pressing
and
most
basic
human
needs
meaning beyond the creation of financial
and requirements.
wealth.
Rockefellers and Warren Buffett are visible
Entrepreneurs like the
– Learning: from idea to implementation:
examples for giving back to society and helping
managing an actual philanthropic activity is a
out where governments are failing. And there
lesson of change management.
are many less visible or totally invisible donors
– “We”: philanthropy offers a positive platform
for individual family members to construct a
of all societal backgrounds who are doing
meaningful philanthropic work.
shared objective.
Family external benefits
– Family image: a broader recognition of a
– Generational profiles: each generation can
create their own approach to philanthropy,
aligned to their interests.
– Linking Family and Business: improving the
life of the communities where families own
businesses.
1 American Experience: The Rockefellers. www.pbs.org
2 Silverman, Rachel Emma and Bernstein, Elizabeth. “A
Lesson from Buffett: Give While Living; Billionaire’s Gift
Shows Benefits of Giving Now – Still, Some Donors Can
Risk Running Out of Funds”, Wall Street Journal, 5 July
2006:D1.
3 Rockefeller, John D. Jr. Ten Principles: Address to the United
Service Organizations. New York, 8 July 1941.
Today’s world sees governments around the
4 Loomis, Carol J. “Warren Buffett Gives it Away”, Fortune,
10 July 2006:56.
world unable to address many of the most
5 Carnegie, Andrew. The Gospel of Wealth. 1889
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