Book Reviews

How Successful Families Are Using Philanthropy to Prepare Their Heirs for Post-Transition Responsibilities

By Roy Williams & Vic Preisser

Book review by Yvonne Sayson

Introduction

Authors Roy Williams and Vic Pressier, both individuals with a depth of experience mentoring business families and individuals to reach their potential, explore the part philanthropy plays in preparing heirs for a role within their family business.

Drawing findings from interviews with 3,250 families and 100 foundations, they identify common threads that run through families who have incorporated philanthropy in planning for transition and have successfully transitioned their business through multiple generations. They observe that the use of planned philanthropy within a family context improves the next generation’s odds for success. This is achieved as involvement in a philanthropic cause engages children in a meaningful way, facilitates the development of a value system at an early age, helps them to identify with a mission or purpose, and instills a sense of accountability.

Background Information

The book is an extension of the authors’ research in regards to preparing heirs to inherit responsibility within their family business, and their experience assisting families with post-transition planning. In their 40+ years working with business families, they recognize that they have held a mirror to families who have discovered for themselves that the deliberate use of philanthropy as a teaching tool has improved the odds for successful transition.

Summary

The book’s key messages include:

  1. Successful business transition depends largely on how well families have prepared their children to take on responsibility. Approximately 70% of families fail to make a successful business transition to the next generation. There is clearly room to improve the odds.
  2. Roy Williams and Vic Pressier note that “successful families understood what was required of their heirs (re certain skills) and required that those skills be practiced, used, and demonstrated within the family environment.” They seek to learn from their research how successful families applied these principles and how their experience might be replicated in other families.
  3. The best planning can be undone post-transition if heirs do not share the values and vision of their parents. Communication and engaging the family in advance is critical.
  4. Philanthropy can play a significant role in this regard. It can provide a rallying point for families to come together outside the business. When used intentionally, it impacts the development of values, mission, and accountability and can increase the odds of successful business transition.
  5. The authors address key opportunities to hone the development of values, mission, and accountability across five stages of childhood and early adulthood:

    Age Developmental stage Key attribute
    5 – 10 Awakening years Discovering personal influence
    11 – 15 Exploring years Discovering self
    16 – 20 Developing years Understanding accountability
    21 – 30 Applying years Maximizing contribution
    30 + Mentoring years Unifying the family via philanthropy

    The final stage (the mentoring years) comes full cycle with the heir now applying what he or she has learnt in the process, as well as by starting the cycle over as they raise the next generation. The authors note that: “successful post-transition family members often seemed to do a double-take when they realized how closely they were following the patterns modeled by their parents” .
  6. The authors present assessment tools to help identify values, define a mission for the family wealth, and establish a model for holding donor recipients accountable.

Evaluation

Authors Roy Williams and Vic Pressier provide convincing evidence that philanthropy may be one of the most overlooked tools available to families in preparing their heirs for wealth and responsibility. After surveying 3,250 families and 91 foundations across North America, it became clear to them that, in addition to a solid education and exposure to opportunities in the arts and sports, philanthropic involvement can make a material difference in the readiness of heirs to engage successfully in the family business.

Parents can put the most elaborate plans in place for transition but cannot manage from the grave. Unless they build cohesion within the family while they are around, they risk any planning they put in place unraveling. The authors’ research concluded that “successful post-transition families emphasized total family involvement, a process that integrates what family members learn together, and the teaching and practical application of skills in communication, openness, trust, accountability, consensus building, articulated shared values, and sharing a common vision.” Philanthropy provides the opportunity to engage in shared activity and shared learning that straddles family members vertically and laterally. Spending time with family in purposeful activity outside the normal hierarchy of the business promotes intimate bonds and provides a less threatening environment for heirs to step up.

Less convincing and unnecessary to the message of the book was reference to statistics relating to the US (and many western nations) as the most generous in the world. Estimates relating to the quantum of inter-generational wealth likely to change hands quantify the enormous challenge families face and the opportunities to make a difference in communities through philanthropy. However, I find ranking nations on their philanthropic activities neither useful nor convincing. While the report from which the data was drawn (John Hopkins Comparative Non-Profit Sector Report) is extensive, philanthropy and volunteerism outside familial units vary by culture – some would argue that volunteerism is more apparent in individualist western nations that focus less on close knit family support systems and rely more heavily on outsourced services to support their elderly and infirm etc.

Application of the concepts in my work with family businesses …

Patriarchs/matriarchs of family businesses I work with typically engage in philanthropy to some degree, but have not necessarily pursued this as a family activity. As I strive to develop deeper relationships with these families and to be a contributor to their success, it makes perfect sense to broach the subject of the use of philanthropy in a family context as a tool that has differentiated other businesses that have successfully transitioned from one generation to the next. I would like to approach the idea from multiple perspectives:

  1. to identify what is special about and to be celebrated by the family (share values and a family mission);
  2. to engage in family decision making;
  3. to develop and hone skills of family members.

This approach dovetails with the concept of embracing ‘familiness’ and capturing the competitive advantage families can have who recognize and guard their reputation, build strong alliances and facilitate decision making, develop leadership and as a result enjoy longevity (plus benefit from patient capital).

A family close to me stepped out in 2006 and together relocated to an inner city area in the US. The patriarch was a specialist in his medical field and had long donated his time and expertise to medical missions overseas. However, when he and his family came together with a shared purpose, their vision grew legs and demonstrated how philanthropic pursuits can have tremendous impact on inter-generational wealth transition beyond just financial wealth.

Rather than extending an existing practice and developing the patriarch’s for-profit business, the family came together to establish a clinic for those lacking access to medical and dental care. A number of family members recognized their shared values and came together to fund and initially staff a medical clinic. The clinic grew to draw from a local talent pool of volunteer medical and dental practitioners as well as community churches. It has become self-sustaining, receives some state funding, and is now guided by a board of independent advisors– as well as by the founding family. The core family remains true to its original values and mission, and extended family have been encouraged in their pursuits as a result of the legacy established within that one branch of the family. There is a sense of family purpose and pride that has influenced the next generation in their pursuits and, in some cases, in their career choices.

Conclusion

In their book, Williams and Pressier hold a mirror to families who have discovered for themselves that the deliberate use of philanthropy as a teaching tool has improved their odds for successful transition.

They conclude that philanthropy is an often-overlooked tool that can be used to prepare family business heirs to transition wealth and responsibility across generations. This is achieved by engaging children in meaningful pursuit for the good of something beyond themselves and, in the process of: developing their values at an early age, helping them to identify with a mission or purpose, and instilling accountability.

In closing, having focused on the responsibilities of the matriarch/patriarch to use philanthropy to develop their heirs, the authors detail the self-examination that heirs of successful wealth transition families have undertaken pre-transition. The book concludes by highlighting the “focus of successful families viewing wealth as an enabler of opportunities rather than a burden for their heirs”. Through the process successful families have used philanthropy to identify the gift each individual brings to the table and to encourage heirs to realize their full potential.

The book provides a practical guide to approaching philanthropy with families and identifies age appropriate activities, each with a specific underlying purpose. It confirms the approach some families already take to engage their heirs, and serves as a primer for the multitudes who have not considered philanthropy as anything more than a tax planning strategy.