The article notes that the families benefiting the most from philanthropic planning treat it as far more than about tax. This is the first half of a feature delving into the links between philanthropy and business succession.

Legal expert and Family Wealth Report editorial board member Matthew Erskine – a frequent writer for us – has spoken to Joshua E Chadajo, founder and chief executive of JEC Philanthropy. This article, the first of a two-part series, examines the important role philanthropy plays in family business succession. The editors are pleased to share this content; for responses, please email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

When families prepare for business succession, they typically focus on legal structures, tax planning, and governance frameworks. Yet an often-overlooked strategic tool sits at the intersection of these concerns: philanthropy. Recent research reveals that charitable giving during succession is far more than a tax strategy – it serves as a rehearsal space for leadership, a builder of legitimacy, and a unifying force across generations.

The strategic role of philanthropy
Family businesses face unique challenges during leadership transitions. Successors must establish legitimacy with employees, customers, suppliers, and the broader community. Studies across multiple countries consistently show that family firms strategically increase philanthropic activities during succession periods, with this pattern being strongest when successors are inexperienced or when ownership concentration is high.

"The single most important way philanthropy supports succession is by creating a shared governance experience before the business transition occurs. When next-generation members participate in grant-making decisions, review impact reports, and engage with community partners, they're building decision-making skills, stakeholder relations, and public credibility in a lower-stakes environment than the family business itself."

Joshua E Chadajo, founder and CEO of JEC Philanthropy, emphasizes this governance training function. His perspective aligns with research demonstrating that philanthropy helps families accumulate what scholars call "socio-emotional wealth" – the non-financial aspects of ownership including reputation, identity, and emotional attachment.

During succession, philanthropy serves multiple strategic functions simultaneously: building the successor's public profile, maintaining stakeholder relationships, transmitting family values, and providing evidence of continued family commitment to the community.

Building legitimacy through strategic giving
The challenge of legitimacy is particularly acute during succession. Research shows that family firms deliberately use philanthropy to enhance public image and gain stakeholder acceptance, especially when successors lack the track record of the outgoing generation. This addresses both internal legitimacy (within the family and organization) and external legitimacy (with customers, suppliers, and the community).

The timing and intensity of philanthropic activity often correlates with succession milestones. "Families often increase giving during leadership transitions because it signals stability and continuity," Chadajo notes. "When a family announces both a succession plan and a major charitable initiative simultaneously, it sends a powerful message: 'This family remains committed to its values and to this community, regardless of who's leading the business.'"

However, Chadajo cautions against purely performative philanthropy. "One red flag is when charitable activities increase dramatically during succession, but the successor isn't meaningfully engaged. If the next-gen leader's name appears on press releases but they're not attending site visits, meeting with nonprofit partners, or genuinely seeking to understand the impact, stakeholders may perceive publicity as the primary reason for giving."

The family unity factor
Beyond external stakeholder management, philanthropy serves a critical internal function: building cohesion across generations. Multiple studies emphasize how involving younger family members in charitable decision-making helps instill family values, foster unity, and prepare heirs for stewardship responsibilities.

"The quickest way philanthropy builds unity across generations is through shared decision-making with real stakes. When family members from different generations must agree on which causes to support and how much to give, they're forced to articulate their values, listen to differing perspectives, and reach consensus. These are precisely the skills they'll need for business governance decisions later."

This governance training function is particularly valuable because philanthropic decisions, while significant, typically carry lower risk than business decisions. A grant-making mistake in a donor-advised fund or family foundation rarely threatens the core business, yet it provides authentic learning experiences in analysis, deliberation, and accountability.

Research confirms that family ownership level intensifies philanthropic motivation during succession. Families with higher ownership stakes show stronger correlations between succession planning and charitable giving, suggesting that controlling families view philanthropy as integral to preserving their legacy and identity across generations.

What this means for advisors
For wealth advisors working with business-owning families, these findings suggest that philanthropy should be explicitly addressed in succession planning conversations – not relegated to year-end tax discussions. Philanthropic structures can serve as governance training vehicles where successors develop capabilities and build reputations in an environment that balances meaningful stakes with manageable risks.

The families who gain the most from philanthropic planning treat giving not merely as a tax strategy but as a platform for governance, continuity, and identity. Philanthropy becomes a rehearsal space for succession – one that reveals values, builds cohesion, and strengthens the successor's public standing long before the leadership transition formally occurs.

The second part of this article will be published on January 7. For more about Joshua E Chadajo, click here.