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287 – Should I Stay or Should I Go? When Family Philanthropy Interests Diverge

August 1st, 2017

Richard Marker

Some of you may remember the song of that title, and its refrain, from the 80’s. [Professor Google tells me that there have been numerous subsequent recordings so some readers may recall later versions.] In it, a couple faces a key moment in their relationship with the choice that will determine their future together.

I was reminded of that title when listening to a panel at last week’s Family Office Forum in Newport discussing behavior challenges within their own families, and the choices they all made.

The convener of the panel invited three speakers from very different families all of whom had confronted pivotally challenging decisions in their family businesses.

Any of us in this or a related field is well familiar with the dilemma. Some may be family therapists, others family business experts and wealth managers, still others are trust and estate lawyers, and some, like me, family philanthropy advisors. Beneath every transitional moment is the underlying question: “should we stay [together as a family] or should we go [our separate ways]?” Some, but by no means all, of these discussions are filled with distrust or accusation or long histories of dysfunction. But even those families with amicable problem-solving skills ask the question, especially when deciding what to do about subsequent generations and family growth and dispersion.

It need not be said that families are complex and relationships, between and within generations, reflect that complexity. Every decision that has to be made is loaded because every one is personal. [In my work, I try very hard to show that every philanthropy issue that some members of a family are convinced reflect character flaws of other family members is in fact a generic one that has a legitimate philanthropic basis. Doing so doesn’t dissipate years of enmity, but it does allow more reasoned decision making about where to put philanthropic dollars.

The challenge, though, is what happens when that decision-making process stalls, or descends into the morass of unresolved family feelings. Outsiders such as we can often wonder why a founder – or, often, his/her attorney – set up such a self-defeating governance or power structure. But, alas, we too often are brought in long after the foundational structure was established, and we have to help make it work. Or not.

Sometimes the choice is quite stark and the question must be asked: Do you want to stay together or go your separate ways? Asked that directly, many families get themselves together, take deep breaths, and affirm their legacy with a commitment to make it work if at all possible. When a family chooses to accept their mutual decision to remain together, often their hard -held and uncompromising positions dissipate, or at least soften. Many families are pleasantly surprised how much they really do care, how cherished their family legacy is, and how committed they are to future generations.

At such times, they are open to considering different decision-making models, broader enfranchisement, modified structures so that they can achieve, as close as possible, a win-win solution. Not everyone is thrilled, of course, because it usually means that someone or some-ones have to yield some power and give up having controlling claim on the family wealth or philanthropy. But they learn to accept it because they have chosen to stay.

Sometimes the opposite is true. When the existential question is asked directly, it becomes evident that all members of the family feel that it is time to split. Indeed, it can be liberating. They can finally make their own financial decisions, or family engagement decisions, or philanthropy decisions – without having to argue for them or justify them to other branches. It can even serve to reduce tensions and enhance relationships. [One philanthropist I met was proud that he had obviated the necessity to break his foundation up: each of his three offspring had discretionary decision making over 1/3 of the foundation. I am not sure what was gained by that other than face saving.]

The real challenge is when the family legacy is built on a long history of dysfunction or jealousy or favoritism or any number of other causes of unhappiness. [The above-mentioned panel even added a case of illegality.] There may be financial entanglements that make a split more complicated and painful than suffering through their current unhappiness. There may be a public face of the foundation in their community that the family members are unwilling to dishonor. There may be legal requirements that mandate that a foundation must stay together. There may be disagreements about what the right answer to the existential question should be and they cannot even come to a consensus on that. What then?

The short answer: that is when those of us who provide services to families really earn our fees.

The longer answer: here are a number of very practical suggestions about how to make the philanthropy questions a little more manageable, and when appropriate, make the family philanthropy work better. I will leave the financial and family systems questions to other colleagues who have more expertise in those areas.

1. Every member of the family foundation board should have a limited discretionary budget. While not everyone in our field concurs, my experience is that discretionary giving serves to remove private interests from the group decision making docket and provides an incentive to take the family foundation seriously. [Some families extend that privilege to all eligible family members, even those not currently on the foundation board.] This typically works only if the total amount of discretionary giving does not exceed 10-15% of total giving.

2. While there is a place for mission/vision statements in a foundation’s planning process, in families it is often more constructive to have the family commit to a family history, or develop an articulation of values for generations not yet at the table or not yet born. Focusing on what they want their own legacy to be beyond current decision making can create a common purpose that transcends all of the other differences. In the case of one family with which I worked, when the third generation told the spatting second generation that they valued the foundation because it brought them all together every year, the second generation refocused their energy to guarantee those annual all-inclusive gatherings and the on-boarding of that generation. It was a lot more gratifying than the dispiriting disagreements that were characterizing their meetings until then.

3. From the beginning, make sure that professional advisors such as trust and estate lawyers and wealth managers understand that they need to set up structures that work beyond the founder. It is tricky because the founder is their client and there are legal and professional obligations to her/him. But what is left after the founder’s passing is a family. Wills and trusts that don’t empower and recognize that family as an entity that needs to function are all too often counterproductive. There are legitimate desiderata that a founder may have but there are also limits in controlling from the grave. Many of us have had to spend too much time working around structures that simply handcuffed, disempowered, or didn’t adequately anticipate the realities of subsequent generations.

One very frequent, and easy, example might be a founder’s long-time commitment to a particular organization. By requiring that the foundation or donor advised fund give a substantial portion of its annual budget to that organization does not engage subsequent generations very effectively. Why even bother to meet if there are no decisions to make? If a funder is truly committed to an organization, provide an endowment independent of the foundation and let the DAF family advisory group or Foundation be empowered to make its own decisions. [Donor intent should be general enough that it can inform decision making but not overly restrict it.]

4. Recognize that not every philanthropy decision need be a precedent for future giving, and that there are valuable learning curves. Especially in the early years, don’t worry too much about making funding decisions that you come to regret and avoid making big bets too early. Learning from experience may well obviate unnecessary tensions at the grants table.

5. As mentioned above, in families, everything is personal, but not every disagreement reflects a personality flaw. In the overwhelming majority of cases, philanthropy disagreements fall within the generic issues that every funder addresses. Disagreements about risk tolerance or recognition or how involved a funder should or shouldn’t be with a grantee are only some of the valid – and generic – conversations that help fine tune all giving strategies.

6. Philanthropy does not and cannot solve unresolved family issues. I have been asked on several occasions to help families implement a foundation that a parent insisted upon with the aspiration that it would get the family to get along. As suggested above, philanthropy can indeed be a vehicle to give a common focus to family resources, but very rarely does a late-in-life foundation solve years of alienation.

7. If the decision, ultimately, is that nothing seems to work, accept that a division is may not ultimately be a failure but an opportunity for different branches of the family to achieve gratification in their giving, expand their philanthropic footprint, and engage in bettering the world in different ways.

And, who know, perhaps future generations will look at each other and say, “let’s get together.” Hey, it happens!

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