Please enjoy this week’s blog on “How Are Family Businesses Having a Positive Impact on Society?” by Peter Englisch of the EY Global Family Business Center of Excellence. This blog is based on a longer study entitled Family Business Philanthropy: Creating lasting impact through values and legacy, visit ey.com/familybusiness for more information.
Earlier this year, the EY Global Family Business Center of Excellence and the University of St. Gallen’s Center for Family Business carried out a study of philanthropic engagement, involving 525 family business respondents in 21 countries. We found that family businesses increasingly regard philanthropy as a social investment, while the families themselves look to perpetuate the founder’s values and heritage through the generations.
In my experience, each family business has its own distinctive history, which guides its present and future strategies. Our study revealed that 89% of sixth generation businesses are strongly influenced by the founder’s values, as opposed to 62% in first generation firms. This suggests that the commitment to the family’s heritage grows stronger over time.
We learned as well that family business owners who want to pass their company on to the Next Gen and beyond are also intent on addressing long-term social and environmental issues by engaging in philanthropy. This ambition is strongly focused. Families choose the most promising vehicles to live their family values, and well over half (56%) are personally involved in overseeing their chosen philanthropic projects. Increasingly, they are looking to social impact investing as an effective vehicle for realizing their ideals.
We see the emphasis shifting slowly but surely from charitable donations toward engaging in social investment projects, often undertaken as part of a like-minded consortium. We have been aware of this trend for a while, so we took time to explore social impact investing as a new “device” in the philanthropic landscape. Just now, 47% of businesses with over 500 employees, and 35% of smaller businesses, are involved in social impact investing and, on average, 3.1% of family wealth goes into it. So, why does it appeal to so many family businesses?
One reason is their desire to see tangible outcomes, with 60% of family business owners wanting to enhance the evaluation of their philanthropic projects. In many social investments, assessing the outcome is central to the funding. For example, with the UK’s social impact bonds, the outcomes are predefined and measurable, and funding is based on results.
Such performance-based instruments are taking off in sectors such as health and education, and in countries such as the UK, US and Canada, where financial return is an important aspect of philanthropy. We expect this trend toward social impact investing to continue, especially as governments are unable to fund all the necessary social and environmental progress that citizens want to see.
In short, the philanthropic impulse and the desire for Next Gen engagement go together, with the majority of family businesses looking to the long-term interests of the family, the wider community and society as a whole. As Johan H. Andresen of Ferd AS told us about his company’s investment in children’s education and empowerment: “these efforts have become a very important part of what we are at Ferd and what we stand for.” Effective philanthropy is the perfect realization of the values of well-established family businesses, as well as a significant social investment in the future.
To read the full study, Family Business Philanthropy: Creating lasting impact through values and legacy, visit ey.com/familybusiness.
About the contributor
Peter Englisch is the global leader of EY’s Global Family Business Center of Excellence and the founder of EY’s Junior Academy – a global program for young successors in family businesses. Peter can be reached at [email protected].