Wealth Matters: Family Foundations Prepare for the Next Generation

As parents, we worry about our children. And if we have more than one, we worry about how they will interact with each other, not just when they’re young but when they’ve grown up. Independence is great; interdependence is what keeps them together when we’re gone.

Families of great means often try to encourage this interdependence through the creation of a family foundation, a nonprofit organization meant to give away money to charitable organizations. The idea is almost always that the act of giving to others will keep the family together and help them weather inevitable family discord.

The plans don’t always work out, but when they do, they can offer lessons to families of far less wealth about passing along shared assets to their children — be it the family business or just something that one generation hopes subsequent ones will share.

One issue that some families have encountered is that the types of philanthropy favored by one generation may not be the ones favored by the next — something that could cause strife if not addressed.

A recent report, “Next Gen Donors: Respecting Legacy, Revolutionizing Philanthropy,” produced by 21/64, a philanthropic consultancy, and the Johnson Center for Philanthropy, looked at how younger generations felt about philanthropy. It found that those who followed the baby boomers wanted to give to charities in ways that produced measurable change. The report also found that they wanted to be more hands-on with the groups they give to.

“The belief is that Gen X is cynical and Gen Y is entitled,” Sharna Goldseker, managing director of 21/64, said. “We found this high-capacity subset to be different, to be more involved and interested in stewarding their family philanthropy.”

Their desires will affect how grants are made by family foundations for decades. But the vast transfer of wealth from older generations will first have an impact on how family foundations function from within. Many are large financial organizations, but they are also a collection of family members with all the issues that any family has.

I hoped to learn more about how the generations were managing the transition.

BRINGING THEM ABOARD Succession in family foundations, not to mention family-run companies, used to happen when the founder died. With people living longer, this is happening less often, and the desire to use foundations to teach children and grandchildren about the family’s values is increasing.

As with many things with children, it’s easier to get them to do something if you’re interested in it, too.

Ms. Goldseker said the report found that nearly 90 percent of respondents cited their parents as their model for philanthropy. In her case, she said her parents started talking to her when she was quite young about philanthropy in general and, specifically, the Goldseker Foundation, started by her great-uncle, who made his money in real estate.

But she said she still had to demonstrate interest and competence to get a seat on the board, which she did in her late 20s after paid and unpaid work with various grant-making charities and nonprofit organizations.

Zac Russell, whose grandfather built Russell Investments, the money management firm and creator of the eponymous stock indexes, said he had wanted to be on the board of the Russell Foundation since he was 11 years old. He worked with the foundation’s chief executive and attended various next-generation conferences to learn as much as he could. Now 25, he will attend his first board meeting as a member this month.

“My interests have never been on the programmatic side but on how we fund those programs, how we invest accordingly, how we help people who are passionate about it,” Mr. Russell said. “I didn’t play soccer as a kid. I read The New York Times and The Economist to learn about investments.”

Younger family members are not always so eager to join the foundation. Nor are their parents or grandparents ready to have them.

Bruce Bickel, senior vice president for private foundation management services at PNC Wealth Management, said he runs a directors internship program to counsel family members. The program starts with a history of philanthropy and ends with their responsibilities as board members.

“The big thing that motivated me was to maintain the integrity of the family relationship,” he said. “The best thing a family can do is to use their foundation to help others and to keep together as a family.”

GIVING ALL A VOICE For the board to function well, every member needs to have a say. This may be somewhat challenging when older board members once changed the diapers — or managed the temper tantrums — of the younger ones.

Lisa Philp, vice president for strategic philanthropy at the Foundation Center, said families handled this issue differently. Some let younger members sit in on meetings but not vote. Others give the younger generation a separate pot of money as a test for board membership. But, she said, the most successful ones are the most open.

“The more the next generation actually gets to come on and be part of the decision-making, so it’s not just make-work for them, the better chance you have of getting an integrated flow of ideas,” Ms. Philp said. “You want to be mindful of keeping the next generation engaged.”

Katherine Lorenz, whose grandfather, George Mitchell, has been called “the father of natural gas shale drilling” by Forbes, said she was fortunate to be the right age just as her grandparents expanded their family foundation in 2004 to include their children and any grandchildren who were 25 or older.

Ms. Lorenz, now 34, said her family brought in outside advisers to help them formulate the objectives of the foundation, a process she credits with making it easy for the family to make decisions.

“Sustainability was an area we could all agree on,” she said. “What sustainability means to each one of us is a different question.”

The other challenging part was who got one of the 12 seats on the board. Her grandparents had 10 children, who filled up the board. But when her grandmother passed away in 2009, her seat became a rotating one for the grandchildren, and Ms. Lorenz’s mother and uncle have given up their seats so three of the 23 grandchildren are now on the board.

She said the system had worked smoothly so far, though she admitted there were difficult moments when family members sought grants for an organization and they did not get approved.

“We give the program director discretion to make what grants will best serve our strategy,” she said. “When she comes back and says this is not a good fit for this reason, most of us say this makes sense.”

Having that outside arbiter is one way to manage hurt feelings.

MANAGING CONFLICTS There are often as many issues floating around a board meeting as at the Thanksgiving table. Once the next generation has a voice, they may not understand that their voices are among many.

“The families who do it well are the ones who maintain the original mission statement of the original donor,” Mr. Bickel said. “Where you run into problems is when the next generation says, ‘Oh, goody, I want to do my own thing.’ No one’s said to them that their role is to maintain the priorities and preferences of the foundation.”

This is not to say they have to give to the exact same organizations as their predecessors, or that they have to honor those principles as a group. Mr. Bickel said he once parceled out the five giving areas of a family foundation to each of the five siblings because they could not agree on how to make grants together.

Mr. Russell, who comes across as wiser than his years, said one of the issues with third-generation members was that each nuclear family had different values and concerns from the founders. “We have four families, and each one has a different view on the world,” he said. “The question was how do we bring this together and trust it?”

He said the foundation’s mission statement, which focuses mainly on issues of environmental stewardship, had become a touchstone. “If you don’t believe in this, maybe it’s not right for you to sit on the board,” he said.

Of course, a big reason family members might not want to be on the board has to do with simmering family resentments. Ms. Lorenz said one thing she learned from working with other family foundations was that there were always going to be families who were more and less dysfunctional than yours.

“Doing philanthropy as a family can be really fulfilling and it can be really hard,” she said. “There will be fun and rewarding experiences. Other times, there will be really painful issues playing themselves out around the table.”

Her advice? “Bringing in outside people can really help.”

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