Taking time to improve how families govern their philanthropy arrangements wins big dividends in how they achieve their goals and keep their values on track.

The start of a new year brings out the usual lists of resolutions - how people might want to change their behavior, whether it means getting fitter, saving more money, spending additional time with family or learning a foreign language, for example. The area of philanthropy is no exception to this approach.

To run through a series of issues is Caroline Hodkinson, director of philanthropic advisory at Bessemer Trust. The editors at Family Wealth Report are pleased to share these insights and invite readers to respond. The editors do not necessarily endorse all views of guest contributors. Email the editor at tom.burroughes@wealthbriefing.com.

For other recent features and commentaries on philanthropy, see here and here.

While the New Year often comes with a fresh set of resolutions and to-do’s, discussing your family’s philanthropic legacy may not be on the list. But perhaps it should be - with family members across generations reflecting on the year ahead, January can be an ideal time to discuss what you hope to accomplish next year and how your impact can be most effective. When everyone is aligned on the mission and goals, family philanthropy can strengthen ties and make a real and lasting difference in the world, but a lack of cohesion can often make your philanthropic efforts less successful than they could be.

There are a number of factors that can lead to discord among family members when it comes to charitable giving, such as the complex relationships within each family (including various internal alliances, ingrained leadership roles, or rivalries and tensions), disagreement on the areas of focus for giving or the best strategy for giving, and poor communication about each family member’s roles and responsibilities. 

Implementing an effective governance system - a formal legal and operational framework - can both improve dynamics and enhance the effectiveness of a family’s philanthropic efforts. Many families treat governance informally, and don’t properly outline the foundations of their philanthropy such as the mission, policies, and roles and responsibilities. However, a legal framework explicitly outlining policies and procedures may work best to maximize effectiveness and ensure all family members are aligned. This framework is particularly helpful when navigating transitions, such as the death of the founder, new leadership on the board, or an influx of assets.

There is no one-size-fits-all approach when it comes to building a good governance structure for your family’s philanthropy. The steps to more effective governance could include drafting a mission statement, formalizing grantmaking guidelines, or defining board roles and responsibilities. However, each family is different and will require unique documents and policies. Below, we explore the key factors to keep in mind when creating your governance system:

-- State your mission. The first step in ensuring cohesive family philanthropy is to confirm that all members are aligned on the mission. Draft a mission statement to clarify your family’s values and vision; 

-- Consider family interests at every age. What do you do when different generations don’t agree on the areas of focus for giving, particularly across generations? We suggest parents and grandparents support diversity in interests by allowing for individual initiatives as well as joint giving. Furthermore, prepare to transfer some of the decision-making responsibility to the next generation to encourage a sense of authority in younger family members; 

-- Choose the legal structure that works best with your family’s goals and characteristics. A private foundation, donor-advised fund, or direct giving — or a combination of some or all these approaches — are among the most popular options. There are several factors to consider when evaluating these various vehicles including your family’s desired level of involvement, the level of control and responsibility, costs, privacy, as well as the time period of your family’s engagement (one-time gift or a long-term commitment);    

-- Customize governance documents to reflect family dynamics. Many families struggle to implement the terms of their governance structures - bylaws, trust agreements, articles of incorporation – when they’re generic or misaligned with how your family operates in practice. These policies, guidelines, and legal documents should be highly customized and provide a feasible framework in which to operate. These documents should also be updated over time if the ways you run your foundation evolve and depart from the practices outlined in your governance system; 

-- Establish written decision-making processes that make sense for your family. Involving all foundation board members (or, if you’re not using a foundation, family members and/or advisors) in this process can reduce the potential for tension and confusion about roles and responsibilities. This is especially important when working across multiple generations; 

-- Assign the right people to the right roles. Many different types of expertise can be useful on a foundation board and they don’t always entail formal qualifications. Leverage the diverse experiences of members and examine their skill set to assign each member a role that’s best fit to their background. Furthermore, consider tapping non-family members when needed, who can bring in specific expertise and help counterbalance challenging family dynamics; and 

-- Take advantage of educational opportunities and other support. Attending a philanthropic education forum or a training course on how to become an effective board member can ensure family members are aligned in the basics of philanthropy and governance. We have also seen clients benefit from joining affinity groups and establishing peer-to-peer connections with other philanthropists.

It’s worth discussing how these ideas can be adapted to your family’s needs to bring you one step closer to good governance. Taking the time to craft a governance system that considers your family’s unique dynamics can help to improve communication and decision-making, ensure that all family members understand their roles and how they fit into your family’s philanthropic mission, and increase the overall effectiveness and satisfaction of your family philanthropy. 

Disclaimer:

This summary is for your general information. The discussion of any tax, charitable giving, or estate planning alternatives and other observations herein are not intended as legal or tax advice and do not take into account the particular estate planning objectives, financial situation or needs of individual clients. This summary is based upon information obtained from various sources that Bessemer believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in law, regulation, interest rates, and inflation.