What’s the glue that holds the world’s largest family businesses together?

Peter EnglishPeter Englisch, Global Family Business Leader, EY

Ever wonder what holds the world’s largest family businesses together?

One word: philanthropy.

Don’t believe me? Here are some eye-opening statistics from EY and Kennesaw State University’s recent survey of the world’s largest family businesses, Staying power: how do family businesses create lasting success?  

  • 81% of the world’s largest family businesses practice philanthropy.
  • That giving is almost equally split between charitable giving and service to the community.
  • 47% have a family foundation.
  • 37% plan to increase their philanthropic contributions in 2015; 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 (which also helps fuel profitable business growth). There are three ways philanthropy acts as a bonding agent for families:

  1. Focus on philanthropy tangibly demonstrates the family’s core values.
  2. It allows family members who aren’t directly involved in the business to make meaningful contributions.
  3. In some cultures, religion plays an important role, and philanthropy is often an important part of religious belief.

Let’s examine two of these a little more closely.

Family values

In a family business, there is a tricky balancing act between business objectives and family relationships, needs and desires. Not all family members are capable or interested in joining the business, but it’s important to keep those family members feeling connected. Philanthropy is one way to express the core values of the family.  It demonstrates that the business cares about the long-term future of the world it inhabits. In philanthropic endeavors, everyone can contribute and everyone is welcome.

Nextgen engaged

Philanthropy also helps engage the younger generations of the family. Making money often isn’t a driver for them. Instead, they are 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 any pressure or need to compromise their ideals. It can also be a training ground, encouraging their entrepreneurship and letting them dip a toe into business waters.

Best bet for family philanthropy: family foundations and impact investing

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 I’m delighted to say will be joining me on stage at the EY Global Family Business Summit  in Monaco this year– is an author, venture philanthropist and social entrepreneur, has 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 impact investing. This is investment made both to generate financial return and to make social or environmental impact. It offers mutual benefit for investors and for companies, but without turning without becoming 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 bonding and cohesion, prompting family members to become more responsible shareholders, and even to take active positions in governance. And the best way for family businesses to practice philanthropy is through family foundations and impact investing.

I want to hear from you: why does your family business practice philanthropy? 

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