On 27 January, STEP hosted a webinar on social responsibility and its role in family businesses in particular. Led by Daniel Trimarchi TEP, the director of family dynamics and governance at KPMG and co-chair of the STEP Business Families Special Interest Group (Australia), the panel discussion aimed to cover the value of philanthropy in a family business, as well as suggest practical ways to start that conversation with a client.
With a panel of speakers including Rennie Hoare, head of philanthropy at C. Hoare & Co; Alana Petraske, partner at Withersworldwide; and Mitchell Spearman, founder of Gifts of a Lifetime LLC, it was clear that there was a diverse knowledge base available for the audience. Host Daniel Trimarchi kicked things off by revealing that a pre-discussion poll had shown that most audience members felt ‘somewhat comfortable’ bringing up philanthropy with their family clients, after which it was the turn of the panellists to begin the discussion.
Embedded values
First up, Rennie Hoare explained the mission of his 12th-generation family business, the private bank C. Hoare & Co: to be ‘good bankers and good citizens’. The purpose statement, he said, was central to their success, framing what the business looks like in a modern world.
The bank puts a lot of focus on measurable giving – donating 10% of profits to charity each year; running a charitable trust; and operating a give-as-you-earn scheme for employees, to which an impressive 60% contribute.
Hoare also touched on the value of philanthropy to a family business in particular. ‘There are two ways of destroying a family business,’ he said, ‘either the business – or the family’. Embedding philanthropic values and a culture of giving helps to protect the business by ensuring that family members clearly understand the values before they join the business.
More than that, philanthropy can be a tool for helping family members to come into the business, he added, recounting a story about his own first contact with the formal mechanism of the business – a letter to the family grants committee.
Identifying philanthropy
Trimarchi then turned to Alana Petraske.
With philanthropy, Petraske said, there are lots of factors that might lead to a ‘near miss’ – her term for the situation in which a client doesn’t understand that the adviser might have something useful to bring to the conversation, and the adviser doesn’t realise that the client is looking for that advice.
Clients might feel that giving isn’t particularly something to talk about, it’s just ‘something they do’, which they might not even consciously name as philanthropy. Petraske pushed the vital importance for future conversations of identifying the behaviour as philanthropic.
As for advisers, Petraske has heard from many colleagues that discussing philanthropy is ‘too personal’ – but most advisers are already dealing with very personal aspects of their clients’ lives, and if they miss out philanthropy, they are losing the opportunity to advise on one of the most meaningful.
Practical tips
Petraske offered some practical tips for how to start this conversation: asking the client questions around these activities is a good way to start, she said. Does the business give? Does the family? Direct questions, but straightforward ones.
Petraske insisted it is possible to ask these questions without crossing a line. ‘As advisors, we’re much more nervous of that than we need to be, frankly,’ she said. The conversation could be had during the ‘getting-to-know-you’ phase of meeting a new client, in periodic check-ins, or even in a succession scenario, without going too far.
She encouraged advisers to think of the positives of philanthropy, echoing Hoare’s earlier point: business can be contentious, and so can family, but philanthropy can be a bridge – from the family to the business, or across generations. ‘Everyone is on the same side,’ she pointed out – no family member benefits, so philanthropic activity can diffuse tensions.
‘Don’t let the conversation wither and die,’ she warned – otherwise, the client might end up doing nothing with their good intentions, and lose out on the benefits of philanthropy.
Mitchell Spearman agreed. ‘Any adviser can deploy philanthropy as a tool sooner rather than later’, he said. Though he acknowledged it may seem difficult, he suggested asking clients to talk about ‘areas of weakness, areas of growth…things they’ve dreamed about that they’ve never done before’. You don’t need to have the answers, he said; just asking the questions unlocks ‘a richer, deeper, fuller relationship with your client’.
‘I’ll bet on philanthropy every time’
Trimarchi noted that philanthropy is one of the few topics that allows everyone – not just employees and shareholders, but also people who have not yet joined the business – to have an opinion on policy.
Spearman agreed, adding that philanthropy can be a great way to allow newcomers to gain transferable skills and knowledge of the business. For example, engagement with non-profits – meeting leaders, learning about their organisations, deciding to invest – develops key skills for a potential leader. Similarly, family members joining events such as employee luncheons, or ‘employee of the year’ elections, helps them to learn about the business, and gain a real affinity for it – a ‘window into the business’, he said. ‘I’ll bet on philanthropy every time if it has an outcome like that’.
B Corps
Alana Petraske raised B Corp status – an important trend. Businesses that pass a fair trade assessment can use the B Corp (‘benefit corporation’) certification: a clear way to prove commitment to the world.
- Hoare & Co is also B Corp certified, and Rennie Hoare talked us through the reasoning behind their applying for certification. The attraction of B Corp, he said, was that it had robustness, but also relevance and resonance for consumers: people understand what B Corp certification means, and can compare businesses using it as a metric.
Hoare did warn that some organisations, when joining B Corp, can struggle if they see their primary goal as being ‘a B Corp’. ‘What does that mean for a business decision?’ he asked. ‘It can quickly get lost.’ C. Hoare & Co, he said, saw it as a validation of their existing purpose statement. ‘It’s an implicit standard’, he said, something the business can test itself against to continue to go forward. As Trimarchi noted, it was ‘more about the journey than the destination’.
Alana Petraske added that legal advisers can shy away from B Corp certification, because its basis on business operations means there is little for them to add. She urged people not to take that approach, saying that even if clients use a different consultant to help them through the assessment, they will thank their adviser for having ‘guided them to the right pathway’.
Donor-advised funds
Petraske made sure to stress that there is no one-size-fits-all solution, but thoughtful businesses are finding many ways to integrate corporate social responsibility.
At one end of the spectrum is direct giving. This may involve employees, the family, or both, but it is at the discretion of the business; at the other is a corporate foundation which has its own board.
Somewhere in between lies donor-advised funds (DAFs). A key theme of the webinar, Rennie Hoare had earlier mentioned that C. Hoare & Co were the first UK bank to use this method of giving, in 2011. A DAF has a single registration with the charity commission, so it can act as an umbrella for charitable donation, allowing givers to focus on where the money is invested instead of on admin.
Petraske now added to Hoare’s comments. Whether a business sets up its own DAF structure, as in the case of C. Hoare & Co, or uses one already in place, it doesn’t involve the work of setting up a corporate foundation, but does demonstrate more commitment than ad hoc direct giving.
In response to a question from the chat, Hoare added that DAFs are tightly controlled, because of the use of a professional corporate trustee at the top of the organisation, whose job it is to audit the DAF on an annual basis, as well as deal with HMRC and the Charity Commission. From the donor’s perspective, this means there is guidance available from someone who deals with this on a day-to-day basis.
As soon as funds go into a DAF, he said, they are a donation to charity, so the donor cannot then benefit from the funds – and the professional trustee ensures that nothing illegitimate occurs.
Final recommendations
Each panellist made a recommendation for the audience. Petraske suggested the Philanthropy Roadmap documents, a series of booklets produced by Rockefeller Philanthropy Advisors, as a useful tool to self-educate or use with clients.
Spearman recommended two books: First Generation Wealth, by Robert Valentine, and Advising Philanthropists by Emma Beeston.
Hoare advised UK-based audience members to look at the upcoming research from Philanthropy Impact on UK-based DAFs and how they operate.