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Embracing the 'I' in Philanthropy

December 10, 2012

(Josh Baron is a partner at Banyan Family Business Advisors. This is his first post for PhilanTopic).

Family_philanthropyOver the last decade or so, there has been a movement to treat philanthropy more like business. Under this "new philanthropy" rubric, giving money to good causes is considered successful to the extent that it produces a measurable impact on society. While some fantastic success stories have emerged from this approach, overall it has yet to gain much traction among the world's leading philanthropists, who still often equate giving with altruism. For many, the value of philanthropy is somehow diminished if it is motivated by anything other than unadulterated altruism: if it's not pure, it's not worth doing.

This is a real tragedy. Focusing on the benefits that philanthropy creates solely for the good of society severely and unproductively limits its reach. In reality, the decision to spend time and money to promote the welfare of others is rarely driven by pure altruism. People may participate in philanthropy for a whole range of reasons: a desire to secure their legacy, burnish their reputation, create opportunities for their children, or increase the loyalty of their employees and customers.

There's nothing wrong with having multiple motivations. It doesn't mean one lacks a heartfelt desire to make a difference, and the value of the work isn't reduced by wondering: "What's in this for me?"

Indeed, we believe that society benefits most when people see value in philanthropy that goes beyond pure altruism. In these cases, philanthropists more often treat their giving as something that is core to their lives rather than something on the periphery, and as a result they tend to be extra generous, even when times are tough. Moreover, if the non-altruistic benefits of philanthropy can only be achieved by doing it well, then acknowledging an element of self-interest in one's giving is more likely to produce a powerful desire to do it as effectively as possible.

These are the findings, at any rate, that are emerging from our work on philanthropy with client families around the globe. For example, we are working with a prominent family in Southeast Asia that decided to substantially increase its philanthropic work because it saw how important that work was to keeping the country successful and stable. The family is deeply aware that if the country moves in a different political direction, its wealth could be appropriated by a new government. Thus, while the family has long been generous, it is determined to scale up its philanthropic activities. At the same time, it is increasingly important to the family that it be able to demonstrate that its philanthropic work is making a tangible difference to society. As a result, it has hired experts, conducted extensive best practice research across the region, and established measurable targets. Self-interest is not the family's only reason for giving -- family members have a genuine desire to improve a country they deeply love -- but it has been a powerful motivator in terms of bringing a new level of energy and rigor to the family's philanthropy.

Another family business we work with has seen how being philanthropic can have a meaningful impact on the bottom line. The family's business is focused on the working class, and the family came to see that a program aimed at meeting the needs of customers' communities could inspire more intense brand loyalty than a mere marketing campaign. The family also realized that employees were interested in participating in the program, which enabled the family to operate it at lower cost while gaining the added benefit of greater employee satisfaction. Neither benefit could be attained without a program that was producing positive results -- for the company's customers as well as its employees. And so, under the leadership of the CEO, family members developed a strategic plan for the program and established benchmarks for success that they now review on a monthly basis.

Philanthropy also can be used to create a legacy that goes beyond business. There are a number of examples where a business has been sold but the foundation attached to that business lives on, serving as a vehicle for sharing the story of the business, advancing the philanthropic values of the founder or founders, and helping to keep the family together across generations. We work with a client who built up a large business from scratch, was deeply grateful for his good fortune, and wanted to set up a foundation for exactly these reasons. That foundation will serve as a living monument to both his business acumen and his contributions to the community.

Lastly, many of our clients are recognizing the contributions that philanthropy can make in preparing a family business to transition leadership from one generation to the next. Foundations can help foster closer ties between the ownership group and the broader family. They are a place where members of the extended family -- employee and non-employee, blood relative or spouse -- can gain experience working together. If the foundation is focused on social causes, family members can discuss their values and learn about the meaning and responsibilities of wealth.

Family foundations are also places for developing talent and leadership within the next generation. Many younger family members are not interested in the family business, at least not at first. We have seen several instances, however, where a foundation served as a steppingstone to more engaged leadership within the business. Conversely, philanthropy can provide an avenue for a smooth transition of aging leaders out of the business. A philanthropic role can help those family members find purpose in the next stage of their lives and continue using their talents to advance the family’s legacy. None of these benefits can be realized unless a family treats its philanthropy as an important part of its business portfolio.

Some client families are understandably reluctant to talk about the mixed motivations that drive their philanthropy, while others openly acknowledge and embrace the "I" in philanthropy. In either case, we encourage families to think about their objectives and the full range of benefits that philanthropic work, done well, can deliver. Doing so will ensure that their philanthropy creates the greatest possible impact for society -- and delivers the many rewards that the thoughtful investment of time and money warrants.

-- Josh Baron

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Posted by Dan  |   December 14, 2012 at 01:57 PM

It is true that there is nothing wrong with multiple motivations, but it must be acknowledged that some motivations lead to less-than-optimal outcomes. Many corporate giving programs (and foundations) require nonprofits to jump through excessive hoops to promote the corporate sponsor, requiring the expenditure of time (and therefore money) that could be better spent actually doing the true work of the nonprofit.

And we should not be afraid to acknowledge, as you do, that people engaging in philanthropic activities may be attempting to preserve their personal wealth. Those activities may benefit society, but they can undercut democracy as well. It must be judged on a case-by-case basis.

And should we really use the tax code to subsidize the creation of a foundation that makes it easier for an aging leader to "ease out" of a business? How, exactly, is this a "charitable" purpose that the rest of the country should pay extra taxes to subsidize? Perhaps they should create an organization that gives away money without utilizing the tax advantages.

Motivations matter, and we should judge motivations. Philanthropy motivated by altruism will inevitably be better for society than philanthropy motivated in part by more selfish urges. Both can do good, but one will inevitably be more democratic and open to what is truly best for the largest number of people. How, and why, you choose to give away your money is just as important as how and why you choose to earn your money.

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