While family businesses play a vital role in the giving ecosystem, a cascade of developments has prompted a seismic shift in philanthropy and strategic investing this year, accelerating the need to think more carefully and strategically about giving.
As family businesses assess the ways they can help combat the humanitarian crisis COVID-19 has unleashed, the severity of the pandemic has changed the tenor of philanthropic pursuits and investing decisions.
For those families whose businesses are rooted in purpose, philanthropy can be a visible demonstration of their commitment to the community and causes they believe are important. Done right, this visibility can help an organization thrive. Purpose-driven companies tend to witness higher market share gains, tend to grow faster than their competitors, and achieve higher employee satisfaction. Conversely, while family businesses don’t have to answer to the same regulatory, shareholder, or corporate approvals as publicly traded companies, they are not immune to the scrutiny of the causes they support. Customers and other stakeholders have a wealth of publicly available information to determine whether family businesses are truly practicing the values they profess—and penalize organizations whose pronouncements don’t align with their principles.
Philanthropy can also play an important role in strengthening family bonds. Because not all family members may be involved in management or ownership, a strategic philanthropic agenda can be a rewarding way of fostering family cohesion by offering those members an opportunity to contribute in a meaningful way to the “family brand.” It can also be a powerful vehicle for engaging the next generation for whom social responsibility and responsible investing are becoming more and more important. And because family philanthropy typically can be highly structured with a board and committees, it could be an ideal training ground for future family business leaders.
Setting the stage for social impact
Defining their philanthropic motives and objectives is an important starting point for family businesses in determining purpose beyond profit.
For instance, if environmental sustainability is the lens through which family business leaders view their philanthropic and investment decisions, it’s appropriate to expect that beneficiaries and investment targets have a demonstrated focus on conservation. Furthermore, family businesses that engage in these types of investments should have a reasonable expectation that there are mechanisms for accountability built into their strategic investing efforts. Just like their business operations, families should understand the return on investment of their philanthropic activities.
As you evaluate your strategic philanthropy and investing goals, here are some questions to consider.
- Are the family leaders aligned around core values?
- Are those values easily articulated and written somewhere?
- Are the family/business values expressed to the public?
- What gifts have most aligned with the family’s values?
- How will you ensure that strategic investment priorities continue to align with the family’s values, especially those of the company’s leaders?
- How will you ensure transparency in your philanthropic pursuits?
- How will you create shared value through your strategic investments? In other words, will your investments create economic value and also address societal problems?
- Are you willing to ask if each investment furthers those values and if not, pass on the investment?