Philanthropy

Philanthropy is glue for business families

A girl drinking from a Tetra Pak, a business whose values are also expressed in the family's foundation. Image: Tetra Pak.

A girl drinking from a Tetra Pak, a business whose values are also expressed in the family's foundation. Image: Tetra Pak.

There are many reasons that people give their money away. But for business families the very act of giving can reinforce the family values, and give family members a shared purpose. 

This is a version of a lecture that was given at Henley Business School

Many business families do philanthropy. Huge organisations like the Ford Foundation, the J Paul Getty Trust or the Sigrid Rausing Trust are among the biggest philanthropic organisations in the world. Most well-known business families have some sort of foundation. Family business is entwined with philanthropy.

Today we are going to look at two questions:

  1. Why do so many family businesses get involved with philanthropy?
  2. How does doing philanthropy affect a business family’s image?

We are talking about business families, by which I mean multigenerational families with either one operating business or (more commonly) a number of businesses and investments.

I want to stress that because I think that the way that these families do philanthropy is different in important ways from the way that entrepreneurs, or business founders, do philanthropy.

In that latter category I would put well-known philanthropists like Bill Gates, Warren Buffett and Mark Zuckerberg. Sometimes people mention them in the same breath as business families, but for the purposes of this talk I want to distinguish between them.

So, let’s take the first question first. Why do so many family businesses get involved with philanthropy? There are two rather glib answers that you often hear.

1. Philanthropy is a PR stunt. It might be true that wealthy people feel that it will improve their image if they give some of their money away, or of peer pressure, in the sense that “every other billionaire has a foundation, so I should get one”.

But it strikes me that this cannot be the whole story. If philanthropy is a kind of “virtue signalling”, then it is an expensive way of doing it. Also, many people are very private about their philanthropy.

2. Philanthropy is a tax dodge. Yes, many countries do give tax relief on money donated to charity, and many people said that Mark Zuckerberg’s pledge to give away his Facebook was a cynical way to avoid paying tax.

Again, that might have an influence, especially for those who have an ideological aversion to paying tax. But there are surely more effective - and less public - ways to avoid it, such as basing your company in certain low-tax jurisdictions, or hiding your personal money in a tax haven. My feeling is that this is not the primary reason people do philanthropy.

(The example of IKEA, owned by the family of founder Ingvar Kamprad, is often used as an example of philanthropy as tax dodge. IKEA is owned by a foundation, and the corporate structure is complicated and opaque. It is hard to know the motivation for this secrecy, but the most recent figure I read said that IKEA paid 17% corporation tax - that is not far below the UK rate of 20%. If that figure is correct, then this is not a very effective tax avoidance scheme - certainly less effective than Amazon or Google’s.)

3. The third reason that people do philanthropy, which I think is far more relevant is that rich people aren’t aliens. You might argue that they are insulated from some of the hardships that less wealthy people have, but they are not unaware of the problems in society. They understand that poverty, poor education, unemployment, illiteracy, inadequate healthcare etc etc are problems and see that they might be able to help alleviate them.

4. Connected to this is the fourth reason - what else are they going to do with their money? Buy another Ferrari? Like the less well-off, rich people often understand that fulfillment does not come from conspicuous consumption. Doing good with their money, however, might go some way to providing it (and give an example to the next generation, too.)

I would argue that the reasons above all play a part in the decision to do philanthropy. Human motivations are complicated, and there are undoubtedly all sorts of other reasons people give money away - for some they might be personal, religious, or ethical. Others might inherit a foundation.

What is a good reason? That is an interesting question. You could argue that the motivation doesn’t matter - if people give money to good causes, who cares if their reasons are bad?

But that is a different discussion. The arguments above probably go for all wealthy people. But the question was why families do philanthropy. Let's zoom in on that now. 

Family philosophy

I mentioned Bill Gates and Mark Zuckerberg earlier. Another person who has a similar philosophy - that they want to give away their money either in their lifetime, or soon afterwards - is the British entrepreneur Peter Cruddas, who left school at 15 with no qualifications, founded an online trading site and became a billionaire and philanthropist. Explaining his philanthropy he said:

"I think it is quite obscene for one person to have such large amounts of money. I am beginning a process to redistribute it to society."

Many would agree. It seems to me that this quote suggests that Cruddas thinks of his wealth as a pot of money which should be “given away”. It seems to me that this is entirely reasonable for a self-made person who doesn’t intend or expect to create a multigenerational business.

But often business families think in a radically different way. Let’s look at some examples.

The Knut and Alice Wallenberg Foundation was set up in 1917, and receives money from the Wallenberg family business. (They are a Swedish family of investors who have large stakes in most big Swedish family firms, such as Electrolux and Volvo.) The Foundation has given away over a billion pounds to science and research projects.

When the founder of the Carlsberg brewery, JC Jabobsen, died in 1887 he left the brewery to the foundation he had set up. It has given away huge amounts, also to research and science.

German electronics firm Bosch is 92% owned by the Robert Bosch Siftung, a foundation which between 1964 and 2011, provided about €1 billion (£0.77bn) in funding for projects in the areas of health, education, science and culture.

You might call this the “magic porridge pot” model of philanthropy - because the foundations are funded by the businesses, the pot of money is constantly replenished. This is, in the sense that the philanthropy is designed to be sustainable. (In that sense this is similar to the social enterprise model.)

I think it reveals something important about the way families approach philanthropy - they see it as a long-term, sustainable activity. Just as family businesses are said to be long-termist, so family philanthropy is often long-termist too.

Glue for the family

All of this points to one answer to the question, “Why do families do philanthropy?”, namely that it can be glue for the family. Arguably the biggest question for business families is: “what is the money for?” Or, “what common purpose do we have?” Especially when family members have stepped back from managing the business.

Philanthropy can be an answer: it gives the family a common activity and goal. Many families drift apart, especially as families get bigger as the generations go on. Philanthropy can keep them together.

Here is an example. Wates is a British building firm founded in 1897 and currently in the fifth generation of family management. It has a foundation which is run by six family members, two from each of the family’s three branches (the business had three founders).

The foundation gives small amounts of money - in the range of £10,000 - and recent recipients included a city farm and a small art gallery in south London, and have given away about £100m in total.

This is a way to give the family, or families, a common purpose, something that they do together, as a family. The decision to give to lots of small causes rather than give it all to, say, cancer research, also presumably allows the family members to feel that their own interests are being supported, and their own communities.

(There is another, very practical, way that philanthropy can be useful: it is a way for younger family members to get to know each other. Some families give youngsters jobs in the foundation so that they can learn to work together, so that when they work together in the business later in life, they already have a good understanding of each other’s methods, strengths, weaknesses etc. Philanthropy gives them a way to get to know each other.)

In a roundabout way, this provides an answer to the second question: how does philanthropy affect a family’s image.

It is easy to say that giving away your money makes you - or your business - look good to the outside world. It can be part of a CSR strategy or a PR strategy. But it is more interesting to ask this: what does philanthropy do for a family’s self-image?

If done in the right way, it can make the family feel like a family with a common goal and activity, rather than a collection of disparate individuals.

Related to this is the idea that philanthropy can also be a manifestation of the family’s values, and can serve to reinforce them. Just as the values are expressed in the business activities (and family businesses often pride themselves on being fair, ethical, or on doing business “the right way”), so philanthropy can be seen as an other expression of those same values.

Take the Rausing Foundation, which owes its existence to the Tetra Pak business created by Hans Rausing. The business was designed to allow people who couldn't afford fridges to have cheap, healthy milk and other products. The foundation has given £250m to human rights causes. It is not too much of a stretch to argue that both the business and the foundation protect and empower those without power or wealth, and thus are on the same continuum. 

Philanthropy, then, can be one way for the family to understand itself, and its culture. The very act of doing it creates a feedback loop which reinforces that culture. Philanthropy is not only about giving money away, it can also be about bringing a family together.

© Business Family