Philanthropy and the family business
Translating family ethics and values into giving
Prof. Dr. Bernhard Lorentz
Former Chairman, Mercator Foundation
Visiting Scholar, Stanford University’s Center for Philanthropy and Civil
Society and Partner at EY
Professor Dr. Bernhard Lorentz, PhD, is Government and Public Sector Leader
for Germany, Switzerland and Austria. He has 20 years of leadership experience
in the government and public sector, nonprofit organizations and the media and
telecommunications industry. As Chairman of the Mercator Foundation, he helped to
launch think tanks and schools in the fields of energy, climate, culture, migration and
education. He also has served as Founding Executive Director at the Hertie School of
Governance and headed the Hertie Foundation’s Berlin office.
Bernhard has been awarded a number of fellowships, and he has published papers
on public-private partnerships, strategic philanthropy, third-sector management
and strategy, as well as climate change, energy policy, migration and research and
education policy. He serves on various boards of public, academic and philanthropic
institutions.
Family business philanthropy is a vital
contributor to education, health and
humanitarian aid globally. In the US,
corporations and foundations, many of
which are family-owned, donate over
US$67b per year. In the UK, the top
100 family businesses and foundations
contribute £908m per year to societal
causes and, in Germany, family
foundations donate around €490m every
year to philanthropic projects1.
But what drives families to engage in
philanthropy? What form of philanthropy
do they pursue? How is family business
philanthropy managed and evaluated?
And do government incentives have a
part to play?
closer together. Furthermore, there is
a growing emphasis on social impact
investing.
A new study by EY in collaboration with
the Center for Family Business at the
University of St. Gallen explored these
questions in an in-depth survey of 525
family business owners and managers
from 21 countries, carried out in January
and February 2016. It revealed that
family business philanthropy is driven by
the founders’ values, organized by both
the family and the business, and plays
a big part in bringing family members
Survey demographics
“The study sheds new light on how family
businesses across the world are choosing
to invest — and why,” said Peter Englisch,
Global Leader, EY Family Business Center
of Excellence. “It confirms our belief in
philanthropy as a visible manifestation
of a family’s values and hence a unifying
element across generations.”
There are five key findings in the study.
Firm size
33%
more
than 5,000
employees
21
countries
Feliu & Botero, 2016; National
Philanthropic Trust, 2013; Pharoah,
Jenkins, & Goddard, 2014.
180 | EY Family Business Yearbook 2016
between
500 and 5,000
employees
Generation
525
1
67%
responses
from the largest family
businesses in each
country
19% first generation
39% second generation
30% third generation
12% fourth generation and beyond
EY Family Business Yearbook 2016 | 181
Philanthropy and the family business
What holds the world’s largest family businesses together?
By Carrie Hall, EY Americas Family Business Leader
In 2015, EY and Kennesaw State
University conducted a survey among
the world’s largest family businesses,
Staying power: how do family businesses
create lasting success?
The survey revealed that:
• 81% of the world’s largest family
businesses practice philanthropy
• Giving is almost equally split between
charitable donations and service to the
community
• 47% of family businesses have a family
foundation
• 37% plan to increase their philanthropic
contributions in 2015 and 62% plan to
give at the same level
What these businesses know is that
philanthropy is a key element in keeping
the bonds of the family strong through
generations. A focus on philanthropy
tangibly demonstrates the family’s core
values and allows family members who
aren’t directly involved in the business to
make meaningful contributions.
In a family business, there’s a tricky
balancing act between business and
family objectives. Not all family members
are interested in joining the business,
182 | EY Family Business Yearbook 2016
but it’s important to keep them feeling
connected. Philanthropy is one way
to express the family’s core values. It
demonstrates that the business cares
about the long-term future of the world.
In philanthropic endeavors, everyone can
contribute and everyone’s welcome.
Philanthropy also helps engage the
younger generations of the family.
Making money often isn’t a driver for
them. Instead, they’re interested in
fairness, work-life balance and not
being forced into their parents’ mold.
Philanthropy creates a good platform
for them to contribute to the business
without pressure to compromise their
ideals. It can also be a training ground for
their entrepreneurship.
Family foundations are a great way for
family businesses to be philanthropic.
They create space for family members
to come together that are separate from
the business itself.
The Rockefeller Foundation is an
excellent example. Eileen Rockefeller —
who joined us at the EY Global Family
Business Summit in Monaco last year —
said that her family’s foundation is the
way the Rockefellers, who made their
wealth more than 100 years ago, give
back collaboratively.
She and the Rockefeller Foundation
are leading proponents of Philanthropy
2.0 — also known as social impact
investing. This is investment made both
to generate financial return and to make
a social or environmental impact. It
offers mutual benefit for investors and
for companies but without turning into a
business model. More money is pooled
to make a bigger difference in the places
it’s most needed. And, unlike traditional
philanthropy, the impact can be closely
measured and monitored, ensuring
transparency and accountability.
To recap: why philanthropy? Because
it defines family goals and values.
Philanthropy creates room for
engagement on family members’ own
terms — working together toward a joint
family goal. It promotes family cohesion,
prompting family members to become
more responsible shareholders and even
to take active positions in governance.
Visit ey.com/familybusiness to view the
full study.
Family businesses apply a portfolio
approach to philanthropy
Results from the survey indicate
that families invest in a number of
philanthropic vehicles at the same time.
As expected, providing services to the
community is the most common form of
family business philanthropy, and this is
followed by monetary contributions to
charities and social impact investing.
More than a third of all family business
owners indicate that they are highly
engaged in social impact investing,
with proportions increasing up to 47%
for large family businesses. More than
two-thirds indicate that their wealth is to
some extent dedicated to social impact
investing.
Many businesses have long expected to
see a financial return from philanthropy,
but this desire varies from country to
country. On average, family business
owners in Switzerland, China and Italy
tend to disagree that a philanthropic
project should also provide a financial
return. In contrast, family business
owners in Japan, France and South Korea
place significantly more emphasis on
financial returns in philanthropy. This
might be a predictor that, under the right
circumstances, social impact investing will
rise among this group.
Family firms have a holistic perspective,
centered on the founder’s values
Our findings indicate that there is a
positive relationship between the
owner’s wish to pass on the business
within the family — transgenerational
intention — and family business
philanthropy.
Prof. Thomas Zellweger, Chair of the
Center for Family Business at St. Gallen,
comments: “Family business owners with
strong transgenerational intentions are
Investment in social impact by region
Percentage of family wealth invested in social impact
10
9
As it becomes clearer that the problems
facing society cannot be effectively
addressed by government aid and
charity alone, the concept of social
impact investing — making investments
that intentionally target specific social
objectives along with a financial return —
has become an attractive option to those
who want ‘to do good while doing well’.
8
7
6
5
4
3.4
3
2.9
3.4
3.5
2.8
Global
average
3.1
1.7
2
1
0
Asia
Australia
Europe
Middle
East
North
America
South
America
EY Family Business Yearbook 2016 | 183
Philanthropy and the family business
• Visit ey.com/familybusiness to view
the full study.
Next gen
engagement
Founder’s
values
Succession
intentions
particularly concerned for the well-being
of future generations and therefore more
motivated to address long-term social
and environmental issues by engaging in
philanthropy.”
The number of family members active
in the top management of the business
enhances the business’s long-term,
transgenerational focus, according to
the study. Where no family member is
active in management, only half of the
respondents agree that philanthropic
projects should help to engage the next
generation. This number increases to 74%
where four to five family members occupy
managerial positions.
Many family business owners also pay
particular attention to the past, and
184 | EY Family Business Yearbook 2016
cherish the business’s heritage. Indeed,
the social and environmental motives of
the firm’s founder have a direct positive
impact on family business philanthropy
today. “Family businesses are interested
in philanthropy because it provides a
vehicle to learn about and build on what
the family firm’s founder has done in
the past and to perpetuate the family
legacy,” says Prof. Zellweger. “We were
very interested to find that the founder’s
effect on family business philanthropy is
stronger the more removed the current
family generation is from the founder.”
Eighty-nine per cent of family members
of the sixth generation agree that
philanthropic projects should be in line
with the founder’s values, compared to
only 62% of family members in the first
generation. This provides additional
evidence that the legacy motive is
particularly important to many family
businesses and becomes stronger over
time.
Philanthropy is organized through both
the family and the business
Previous research into how family
business philanthropy is organized
has limited itself to examining either
the business perspective or the family
perspective. The EY study set out to gain
a more complete picture by exploring
business and family together.
The survey showed that around two-thirds
of family business owners organize their
philanthropy through a family-specific
vehicle: 40% through a family foundation
or trust and 30% through a family office.
However, half of the respondents stated
that their philanthropy is also organized
directly through the family business. Only
21% said there is no coordination. This
shows a very high level of engagement
within the business — much more so than
by the family.
This is borne out by the fact that only
15% of respondents indicate that family
members not active in the business
are involved in managing the family’s
philanthropic activities and only 16% that
non-family experts and advisors play a
significant role.
By contrast, in more than 40% of cases
the CEO of the business is actively
involved in running the family’s
philanthropic activities, 40% indicate
that board members of the business
are managing the family’s philanthropic
engagement, and a quarter state that
other family members active in the firm
are involved. This suggests that there
is increasing alignment of the family
business and philanthropy strategies.
Governmental support is a decisive
factor in family business philanthropy
Support and incentives for philanthropy
vary greatly between countries. In
countries where there are tax benefits for
charitable giving, family businesses are
more likely to engage in philanthropy.
“We see that family businesses adjust their
philanthropic portfolio according to their
local cultural, political and jurisdictional
conditions, whereas the vast majority
of respondents in Germany and France
believe that they receive tax relief for
their philanthropic giving, only a third of
family business owners in Australia say
the same.
And, interestingly, the majority of family
business owners perceive governmental
support for social impact investing to be
better (28%) or similar (62%) compared to
the support for traditional forms of giving.
However, there are large country-specific
differences.”
Families are united in their search for
effective solutions
Family businesses increasingly see
philanthropy as a social investment, with
a clear value base and transgenerational
motivations. Fifty-six percent of all family
business owners mostly or strongly agree
that they personally oversee the progress
and effectiveness of their philanthropic
projects. The level of supervision is
related to company size, with small family
business owners (100 employees or
fewer) being the most likely to oversee
their projects personally.
“This finding indicates that many owners
of small family businesses do not have a
professional system in place to delegate
the evaluation of philanthropy to a third
party,” observes Peter Englisch. “As
the family business grows, operational
complexity increases and the evaluation
of philanthropic projects is often
outsourced to non-family specialists.
However, when family businesses reach
a very large size, family owners are often
less involved in day-to-day business
operations and more likely to take on
a supervisory role, which increases
the family’s control over philanthropic
projects.”
When it comes to measuring project
effectiveness, the survey revealed that
relying on quantitative and qualitative
measures is not an either/or decision,
with 88% of family business owners who
strongly rely on quantitative evaluation
also using qualitative measures.
Family business owners see scope for
improvement in this area: 59% mostly or
strongly agree that they wish to enhance
their ability to evaluate the effectiveness
of philanthropic projects.
A summary of our conclusions
Family business philanthropy is driven by
a holistic view of expressing family values.
Governance and control of philanthropy
are adjusted to framework conditions and
reflect regional and country differences.
Nevertheless, a generally strong interest
in social impact investing indicates a
trend toward effectiveness, which is
also reflected in the levels of personal
involvement in governing philanthropic
activities as well as in the approach to
evaluation. Family business philanthropy
is increasingly regarded as a social
investment — not unlike the corporate
investment by the families — but with a
clear value base and transgenerational
motivations in mind.
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