Philanthropy is hard work. In a Globe & Mail article on April 13, “Private Foundations: Giving Away Money is Harder than you Think,” reporter Brenda Bouw highlights some of the struggles that donors face when trying to give their money away – why philanthropy is hard work. In fact if money were the solution and giving away money were easy, we would have solved some of our societies social problems a long time ago. For this very reason when we work with philanthropists, whether they be individuals, families or family enterprises, we design a Giving Portfolio that layers philanthropy, impact investing, retail philanthropy, volunteering and other aspects of social capital management. This done through a Social Impact Lab model.

Late last year we conducted some high-level research on dormant private foundations in an effort to understand how best to re-engage the inheriting generation in their family’s legacy or encourage them to increase the distribution of the capital that is locked up in those foundations. What we learned is that there is almost $1Billlion (CDN) that is tied up in dormant private foundations and Donor Advised Fund (DAF) accounts.Bundled US dollars in a hard metal case

What are these dormant foundations? How did they end up becoming inactive?

What we have learned is that there are two types of dormant philanthropy accounts (either private foundations or DAFs):

  1. Where the inheriting generation is no longer interested in managing the account (typically funds have been sitting for 3+ yrs deploying the minimum 3.5%/yr with little or no funding review process beyond an annual meeting)
  2. The account and the funds were left to external trustees to manage who have little or no incentive to explore different ways of deploying that capital

So how do we make re-engaging with family foundations and making legacies “less hard”?

Rinse, Wash, Repeat – Legacy Management

In the case of the first example we see a pattern around engagement (or lack thereof) in the planning and design process of the foundation and legacy plan. Most notably, the inheriting generation was not engaged in the planning and design of the private foundation or made privy to the Founder’s philanthropic intentions until it was too late in the process for them to influence the decision making, as such “opted-out” of the management of the legacy.

In the second example of external trustees managing the philanthropic legacy of an individual or a family what we observed is that the financial incentives to deploy capital are in direct conflict with the social return. In this case, trustees who retain assets under management are not “rewarded” for unlocking this capital into the charitable marketplace, in fact, the compensation model has disincentives for deploying this capital as that reduces the assets under management. The other challenge facing these trustees is that they are put in a position to honour a legacy and ensure the funds are stewarded properly, unfortunately sometimes honouring a legacy may also mean not responding to the critical needs of a related issue or a similar organization.

In both cases, this type of philanthropy is the Rinse-Wash-Repeat method of legacy management.

Tools & Resources to Make Giving Easier

The Business of Philanthropy is BIG business. Tens of thousands of people are employed in the industry. Hundreds of thousands of volunteer hours enhance the paid work of individuals. Billions of dollars is donated to organizations and spent on the ancillary services to ensure we have a successfully operating charitable sector. Like with any industry there are tools and resources to help guide practitioners along the way. Here are a couple resources we recommend:

  • Ask the following two questions (can be applied to the current funders as part of the planning process, the NextGen foundation leadership, or the Trustees):
    • If we could do for [Name of the Foundation/Issue] it would be great because Y:
    • If I could do X for [Name of Foundation/Issue] it would be great because Y:

You might have more than one answer, and that’s a good thing. Using this information have a conversation with the others who are part of the decision making group. Start crafting a plan around how to activate some of these statements.

Another tool we find helpful is the Aspiring Philanthropist Checklist when it comes to being a philanthropist. This checklist was originally created by Tracy Gary, Inspired Philanthropy. We have since modified it to meet the needs of our clients based on feedback that they provided us.

Lastly check out the articles published in the Stanford Social Innovation Review. This quarterly publication highlights different trends and case studies around the world of people and organizations who are “pushing the needle” on complex social problems.

Of course, we are a phone call or email away so please reach out if you have any questions about how to reengage a family’s social legacy.