“There is no fixed point in time when philanthropic leadership passes from one generation to the next.” – Virginia Esposito, National Center for Family Philanthropy
Giving back as a family is a wonderful tradition many people have in common. Some families formalize their giving by establishing a private family foundation. As younger generations are engaged in gift making decisions, differences can be more apparent. In anticipation of this, it is important for families to have a conversation about succession plans and how to pass on the tradition of giving, while keeping in mind the original purpose of the foundation. Succession planning is not a new idea, but it can be a stressful topic if for no other reason than no one likes to acknowledge their own mortality.
As shared by Virginia Esposito, President of the National Center for Family Philanthropy, “We’re leading longer, healthier lives. Many family members with the most discretionary time to give are older. Many younger family members have responsibilities for education and for starting a career and a family. Further, with patterns of “family” changing – divorce, multiple marriages, and having children later in life – the age span of most generations can be dramatic.”
No two generations are alike, and there is no single way to prepare for transitioning leadership from one generation to the next. The youngest of the generations may have grown up in the age of technology, preferring the use of online grant applications and virtual meetings to conduct business. Younger philanthropists may have little interest in providing a short term solution or funding the same projects year after year. They tend to focus on measurable outcomes and desire projects that impart immediate satisfaction while addressing systematic change. A recent report, “Next Gen Donors: Respecting Legacy, Revolutionizing Philanthropy,” found that having information about an organization’s proven effectiveness or measurable impact before deciding whether to support it was one of the top five most important components of the NextGen philanthropic strategy.1 For this group, the prestige that can come with being a philanthropist is not necessarily important.
Next Generation Philanthropists are characterized by:
- Use of foundation websites for accepting applications and viewing meeting materials
- Hands on approach to giving using techniques like venture philanthropy
- Focus on specific measurable outcomes
- Personal involvement with organizations often including board service or other volunteer leadership positions
- Desire immediate satisfaction
The Traditional Approach
In general, the oldest of the generations are characterized as having a primarily relationship-based approach that is less technologically intensive. This generation prefers written communication and welcomes face-to-face meetings. These philanthropists are comfortable supporting the same project or organization from one year to the next with a strong altruistic motive and a desire to “give back” to the community. Recognition as a community leader and civic booster are often seen as an added bonus to senior philanthropists.
Traditional Philanthropists are characterized by:
- Prefer to receive paper grants and meeting packages
- More hands off approach to giving
- Personal involvement with the organizations is less important than making a meaningful charitable gift
- Focused more on altruism than measuring impact
The Importance of Donor Intent
As leadership passes from one generation to the next it is important to ensure that the donor’s original intent is honored. Each succeeding generation is enriched by understanding the reason or reasons that led to the creation of the foundation, and the giving history of the foundation. It is also important that they understand the responsibility they have in preserving the family legacy so that they, too, can pass the reins on to the next generation. This is not to suggest that things must remain status quo. The “Next Gen Donors: Respecting Legacy, Revolutionizing Philanthropy” report found that when respondents were asked if they will continue to give in the same areas as the older members of the family philanthropy it was discovered that there is little generational difference in giving in the areas of education and basic needs. However, the report found that the younger respondents are less likely to give to arts and culture, religious, youth and family, health, community development and “combination” organizations such as the United Way or Jewish Federations.2
Families are encouraged to avoid waiting to have a conversation about succession planning. There will likely be a family member or two who does not want to have the conversation or feels that addressing the issue is more about replacing them than about the successful transfer of leadership from one generation to the next. In contrast, the younger generation may have their own reasons for being uncomfortable with the discussion. A 2005 paper from the National Center for Family Philanthropy identifies six obstacles that can keep young people from getting involved in family philanthropy: family conflicts, lack of education, generational differences, unclear expectations, insufficient sharing of information and shifting missions.3
The Way Forward: A Step by Step Guide
Succession planning is an ongoing process with no single way to complete the task. However, the four steps outlined below provide a roadmap to begin the process.
1. Start Early
Engaging the younger generation in family philanthropy early can help to avoid some of the uncomfortable feelings that both the older and younger generations feel about the succession planning process. The younger generation can be encouraged to engage in philanthropy in a variety of ways. Some of the easiest ways to involve this generation are to encourage them to volunteer at non-profit organizations, include them on site visits made by the foundation board, or assign them a small portion of the foundation’s total giving amount to fund grants.
Philanthropy is not only learned at home; schools play a role as well. Starting as early as kindergarten, children are involved in philanthropic activities such as book drives, clothing drives, or collecting coins for a favorite charity. Many schools now have formal coursework, school-based programs and summer camps focused on philanthropy. These programs allow the younger generation the opportunity to become involved, find organizations or causes they are passionate about, build their confidence and create their own impact. Parents should encourage their children to participate in opportunities that are available to them, and should volunteer to help themselves. Ms. Esposito provides further insight into this notion of introducing children to philanthropy, “When inspiring your child to care about generosity, community and the role of philanthropy, emphasize some level of personal investment. This is not the time to teach them that philanthropy is about giving away someone else’s money. Consider a matching gift for time and contributions rather than discretionary gifts. Value a young person’s personal charitable interests even if they depart from the shared work the family does together.”
The Future Stars of Philanthropy survey found that NextGen donors want to invest not just their money, but also their time, talents and skills to help shape the future growth and sustainability of the organizations they support.4 The same survey revealed that of respondents less than 30 years old, 33% said they want personal involvement with causes about which they care deeply, compared to 16% for the respondents over age 45.5 Once the younger generation is involved, a more formal approach to succession planning can begin.
2. Leverage your philanthropic “tool box”
Philanthropic advisors use a number of age and situation appropriate tools to jump start the engagement of the next generation in a private foundation’s philanthropic giving. In addition to junior decision making boards, there are advisor led workshops, themed card decks, giving challenges, external board service and a host of related charitable giving opportunities. Families should consider all of their options and select the best fit for their leadership life cycle.
One of the most popular tools listed above is the creation of a secondary or “junior” decision making board. This type of board allows the younger generation the opportunity to become engaged in the foundation’s grant making process on a smaller scale. Allocating a small part of the required yearly distribution to this board allows them the opportunity to make decisions independent of the primary board, introduce new projects to the foundation and create their own philanthropic identity all while honoring the original donor’s intent. It is important for the junior board to be familiar with both the family history and giving history of the foundation as well as the decision making processes. It is imperative that all board members are aware of mandatory required distributions, qualifying expenses, prohibitions against self-dealing and conflicts of interest. Serving on a junior board allows the younger generation to begin to learn about the strict regulatory environment surrounding private foundations. The creation of a junior board lays the foundation for a smooth leadership transition. It also prepares the young, new board members to be knowledgeable, experienced and committed.
3. Make it a part of the strategic plan
Some foundations choose to make succession planning part of the overall strategic plan. While conducting strategic planning, these foundation boards will carve out time to devote to succession planning. Engaging a consultant or independent third party to facilitate this discussion helps to alleviate some of the stress that is often associated with the process. When family members come to the table with an open mind, willing to ask and answer questions and share their experiences and concerns, common ground can be found to move forward while honoring the past.
4. Embrace a multi-generational approach
The National Center for Family Philanthropy encourages a multi-generational approach to philanthropy that leverages the wisdom and experience of senior leaders with the energy and new ideas of younger family members. The ultimate goal is to benefit from multiple perspectives and different experience levels. Ms. Esposito suggests that, “…Not only can governance be enhanced but there can be a deeper appreciation for family legacy, the talents of family members, and the inspiration of working across generational, geographic and family branch lines.”
Sir Winston Churchill said “we make a living by what we get, we make a life by what we give.” Private family foundations play a vital role in philanthropy. In 2012, giving by foundations totaled $52 billion. Independent foundations made up 68% or $35.4 billion of this giving. It is estimated that independent foundations gave $37.1 billion in 2013 and that this number will continue to grow.6 By embracing succession planning, family foundations ensure their continuing place in giving. While first steps may be a bit unsteady, beginning these conversations now pays immeasurable dividends in the future, since the successful transition of leadership is critical to sustaining foundations for generations to come.
Special thanks to Virginia Esposito for participating in this article
Virginia Esposito is the founder and president of the National Center for Family Philanthropy (NCFP). For 17 years, NCFP has helped thousands of families transform their values into effective giving by uniting a national network of giving families, extensively researching and reporting on family giving trends and topics, and promoting best practices in the family giving field. For more information about Virginia and the National Center for Family Philanthropy, please visit their website at www.ncfp.org .