In the third of a series of articles on the secret to sustainability in family business, Liam Lynch, KPMG partner and Head of Private Clients considers how implementing a philanthropic strategy in a family business can benefit the business, the family and the community.
“A long-term vision focused on ensuring that future generations benefit from the business underpins a sustainable family business”, says Liam. The range of opportunities available for family business philanthropic activity provides an attractive framework to find and foster engagement that will ignite the passion and deploy the skills of family members across generations.
The level of philanthropic engagement by family businesses is growing each year around the world. The philanthropic response to the Covid-19 pandemic shows the impact that this sector can have, notes Liam. Whilst family-owned companies continue to play an important role in the economy, which is their primary contribution to communities, the ongoing challenge is to balance and preserve the connection and passion of the family with and for the business through inter-generational transitions.
“Philanthropic pursuits can enable family members with their own individual skill set to have an opportunity to become involved in the family business building on the values of commitment and connection with the business”, Liam explains. “The common theme of engagement helps to sustain the business and the involvement of its members while at the same time reinforcing the values of the family, including that of giving back”.
“There are a number of ways to put money into a cause that a family believes in, such as making one-off or regular donations, or establishing a family’s own charitable fund to run a project or manage grant-making activities”, notes Liam. “We’re also seeing growing numbers of individuals and families launch initiatives like social impact investment vehicles – alongside or instead of ‘conventional’ philanthropic activities”.
Whatever the approach, it’s important to maximise the impact your money can achieve for the chosen cause and to enable it to benefit from the charitable reliefs available.
The impulse to engage in philanthropy is often initiated by one member before it grows into a family project.
Why involve the business in philanthropic projects in the first place?
Liam talks about this in more detail below.
“The long-term vision of most family-owned and run businesses is to create value and wealth for their descendants and to make a positive impact on society as a whole”, Liam explains.
The entrepreneurial spirit behind family businesses suggests that the family wants the next generation as well as the community to benefit from its success. A family focused philanthropy strategy is a way to express both personal and family values by celebrating and sharing the success of the family business with the community.
“In giving back to the community, it also leaves a strong legacy,” Liam says.
Liam adds that, done well, philanthropy can become the common ground between parents, their children, partners and grandchildren in a project that is outside the business. “It provides, by its very nature, a perfect opportunity to unite members, enabling frequent encounters, dialogues, and exchanges of shared altruistic interests.”
Philanthropy also provides the opportunity for personal growth that can bridge geographic distances as well as generational gaps. It is a great learning tool, helping to accustom the next generation to share their resources and giving them the opportunity to do so in a setting that really matters.
“You might want to have a separate next-generation fund that allows your children to allocate smaller grants to their individual philanthropic choices,” Liam advises. “This helps engender greater responsibility at an early age in the next generation and also helps them build confidence in their business acuity.”
“Regardless of whether the work is philanthropic or purely commercial, it is essential to maintain professional standards, as is appropriate to families who have built their business successfully”, says Liam.
Being philanthropic is also about taking a position on what is considered to be the right course of action. And it is about choosing trustworthy partners with similar priorities and beliefs who can help optimise the impact of a donation. They will be part of a rewarding and challenging experience, so it is important to ensure that respective interests are clearly defined in advance to ensure the best suited partners are selected.
Philanthropy, by its very nature, demands greater transparency and accountability. It also requires the right tools for project management. The latter is a complex process that can involve the planning of objectives and results, based on the predictability and sustainability of a project.
By defining a specific project with the chosen organisation, you should get to know the partner organisation better and start to build trust for greater impact.
The family dynamic, together with available resources, needs to be aligned to achieve the full potential impact. Time is often a constraint, and financial resources may be limited so it is important to do the following, advises Liam:
Advisors help you figure out what to expect from the various projects that compete for your attention. Liam adds that, most importantly, advisors will share their experiences thereby helping to support families on their philanthropic journey.
“Learning from the experiences of others is an important part of philanthropy. In this context it’s important that the initial vision is allowed to evolve,” he says.
“Some may wish to keep the family philanthropy separate from the company policy on philanthropy, so that the one does not succumb to the constraints of the other, even if they have similar values and motivations. In this way, the reputation of the family and the business are protected should either of them be subjected to criticism.”
“Those who have engaged in philanthropy often speak of how much they have benefited in the form of personal enrichment and the satisfaction derived from the social impact of a legacy left behind”, says Liam.
Sharing philanthropic experiences across generations of the family can help strengthen the ties that bind family members together, as well as maintaining connections with the family business where family philanthropic activities are aligned with the business policy on philanthropy.
In the next of this series of articles, Liam examines the challenge of accumulating wealth through the business and preserving wealth for future generations as part of building a sustainable family business.