Brett Anderson and Thomas M. Kostigen
02/02/2004
The following article is an excerpt from The 100 Year Plan series from the December, January, February and March editions of Robb Report Worth. To subscribe or to order back issues, please call (800) 777-1851 or order online now.
Why We Give: Philanthropy and the Family Mission
Dorothy Buffum Chandler, wife of Norman Chandler, the publisher of the Los Angeles Times, loved music. Her interest in art was only passing. Theater could amuse at times. But music, to her way of thinking, distinguished civilized society from the barbaric. And the city of Los Angeles, in her view, had only recently managed to hoist itself up on its civic hind legs. The Chandlers had made the salvation of the "hellhole of
the West" (L.A.’s quaint sobriquet in the 1870s) their vocation for almost a century, using the power of the Times to build harbors (Col. Harrison Otis, Norman’s grandfather, made the construction of San Pedro Harbor his cause célèbre in the 1890s), lay out subdivisions (Hollywood, along with many other communities, was the personal creation of Harry Chandler, Norman’s father), and found businesses (Harry backed Douglas Aircraft Co., which became McDonnell Douglas). In the process, they raised themselves up from obscurity to become one of the most influential families in America: In the West, what the Chandlers said, went. And Dorothy Chandler—"Buff" to her friends—said that Los Angeles would have a music center.True to the entrepreneurial traditions of her husband’s tribe, Dorothy set about her task with resolve. Her work as a fund-raiser for Children’s Hospital of Los Angeles had already confirmed her reputation among the Old Guard of Pasadena and Hancock Park as a relentless soldier of fortunes (stalking them, that is), and then she commenced her personal program to construct a spectacular new home for the L.A. Philharmonic. Her sharp tongue and potent personality abetted her guerrilla tactics: She harangued and intimidated both friends and family members, often refusing to leave without a check in hand. When the force of her own personality proved insufficient, she would wield the power of the Times as a bludgeon—an especially unfortunate tactic so far as her husband was concerned, for he could then count on a combination of alternating flattery and invective over their evening martinis until he agreed to publish whatever views suited Dorothy’s immediate purpose.
She used her position to recruit other socialites to her cause, sending these storm troopers out into the city, not just to court the dollars of L.A.’s blue bloods, but those of the entertainment industry as well. She also dragooned Times employees into doing her bidding. When Nelson Rockefeller—then governor of New York and seeking the Times’ support in the 1964 California primary against Barry Goldwater—offered to donate Picasso’s Blue Lady to Dorothy’s effort, a Times executive was dispatched to negotiate. Mrs. Chandler appreciated the gift, this emissary explained, but what she really needed was cash. After an explosive exchange, the governor at last said, "You can go back and tell Mrs. Chandler we have made a deal." And the painting (which, incidentally, ended up hanging over Mrs. Chandler’s mantel, rather than in the music center) and a check for $4,000 were dispatched.
The funding of the Dorothy Chandler Pavilion (for which Mrs. Chandler collected more than $19 million) illustrates the second of two categories of philanthropist into which most of us fall: the first category, those of us who regard philanthropy as one aspect of our overall family identity, and the second, those of us for whom a passion becomes a consuming cause and, in a sense, a second career.
"You’ve got people who believe that part of their family’s identity should be as philanthropists," explains Jay Steenhuysen, founder of Steenhuysen & Associates, a consultancy that assists families in evaluating their philanthropic options. "Then you have folks whose next big thing is their philanthropy—they are very different from those who simply have a philanthropic component to their overall family plan. These individuals have a very clear idea of who they are, what they are about. They’re going to make this thing happen. Their philanthropy is a vehicle to learn about whatever it is they have a passion for, so that they can influence change. They set out to solve a problem."
"Venture philanthropy is one of the trends that is becoming more prominent," adds Karey Dye, vice president of the Investment Management Division at Goldman Sachs. "We actually do have a few clients who, when they stop operating their businesses, turn to actual operating foundations more than family grant-making foundations, where they try to accomplish specific objectives."
This class of entrepreneurial philanthropists includes (in addition to the late Dorothy Chand-ler) individuals like Lee Iacocca, who established the Iacocca Foundation after his wife’s death from Type 1 diabetes. Since that time, he and his family have, through the foundation, poured more than $20 million into promising research programs around the world. "The Iacocca family has a real passion about diabetes," notes Steenhuysen, "and [in November 2003], they announced that they may have found a cure for the disease, which many people said could never happen. They’ve been involved for over 20 years. You have to be very engaged to have that kind of desire to become experts and focus on achieving a specific result."
By contrast, the first category views its philanthropic activities as one of several components of an overall identity. "Philanthropy is an expression for these families," explains Steenhuysen. "Their political involvement is an expression. If they own operating businesses, that’s an expression, too, as is their family office. All of these entities vie for first place as the family’s identity. We can pick out a political family—the Kennedys; the Rockefellers with their giving; the S.C. Johnsons for their business; and the Laird-Nortons in Washington state for their family office. All of these
are candidates for leading identities."
Determining into which of these categories our relatives or we fit requires only a little introspection. If we find our contributions tend toward schools our children or we have attended, we are probably supportive but not passionate about them. But if we donate money or time regularly to a specific area—say, for instance, education—and continually seek out organizations conducting research in that field or advocating reform, we may be advancing along the path toward becoming venture philanthropists. Whereas the collective efforts of multiple members drive the former, the will of a single individual usually defines and controls the latter.
The two categories, however, are not mutually exclusive: Many of our families include elements of both. The differences lay largely in the ways in which we relate to the charity or charities in question, as well as in the structures we put in place to organize and account for our giving. Understanding our short- and long-term objectives—whether these emphasize a specific social problem, a disease or cultural endeavor—enables us to better frame our charitable programs within the context of an overall 100-year plan. The logistics of a well-formulated plan can be daunting to some, and will inevitably require that family members refer back to their mission statement (see "Who We Are: The Family Mission Statement," December 2003). But whatever the particular objectives, certain general guidelines to organizing the family’s philanthropic mission apply.
The Right Vehicle
The majority of us view philanthropy as one reflection of ourselves, yet we also recognize its critical implications in shaping the characters of our children and their children, as well as those of the communities in which they live. Choosing the appropriate vehicles around which to structure our giving is perhaps as crucial as the choice of charity itself, since without the correct instrument, the gifts will, over time, potentially fail to reach the intended recipients.
In doing so, we should consult a qualified advisor—someone who understands the context of our family missions and with whom we have a dialogue—in order to establish our family goals. These discussions should occur before we arrive at any final decisions. As Steenhuysen notes, drawing up and signing the papers is rather like joining the military: Once we are in, and the papers are signed, most of the decisions have been decided for us. "There’s a lot of flexibility in this field," he says. "But unfortunately, most foundations are set up by law firms who are cookie cutters. It’s the Model T—pick any color you want as long as it’s black. So coming up with a strategic plan for your philanthropy—a 100-year plan—is so important to making sure your philanthropy is effective."
Toward this end, each of us must undergo a process in which we consider the following:
| • Who will lead the initiative? • What authority will be given? • How will other family members be engaged? • Will the foundation or trust have a board? • How large should it be? • How will power be shared among the board members? |
Perhaps the most essential variable in the long-term success of this equation is not authority itself, but the sharing of it. Continuity being one of the prime directives of our 100-year plans, maintaining the meaningful engagement of all family members must be a prime directive. Here the challenge centers on maintaining an even playing field, even when the family leader is concerned. Those of us with a keener business sense or special know-ledge of a certain discipline may be inclined to push our foundations—and our family members—in the directions we believe they should go. "But if the agenda for coming together as a family is to decide on where to give money away," observes Karen Putnam, principal and director of Philanthropic Advisory Services for Bessemer Trust, "it is one of the few occasions when you can have a level playing field if you are willing to be flexible in allowing individuals to articulate their own points of view."
Putnam recalls one family in which the adult children, after their father’s death, explored the option of establishing discretionary sums to donate to charities of their choice. Having spoken with each of the individuals, she assumed this was an idea they would endorse. But the youngest sibling’s reaction surprised everyone. "He said, ‘Wait a minute, I’m not bringing my ideas here to have to justify them in front of all of you.’ But when we made it clear that he would have discretionary funds to give regardless, and that all he would be doing is sharing his thinking and why he decided to make a gift, his whole perspective on the occasion shifted." Interestingly, Putnam notes, the resulting openness of this exchange led to healthier interaction when the family came to issues of financial planning and wealth management, because the group had established a kind of mental "muscle memory" for working together as equals.
Despite this focus on family, however, the introduction of nonfamily members to a board offers advantages, as well. "I’ve seen many foundations benefit from having independent members on their boards," says Goldman Sachs’ Dye, "because of the expertise, knowledge and objectivity that those outside board members can bring to the organization. So many people think, ‘As a family foundation we’re going to have the family involved with this.’ And so they don’t tend to consider bringing in outside experts or outside advisors or board members. But oftentimes that is very enriching to the family and the entity itself."
The Supporting Organization
rivate foundations structured as corporations deliver the greatest flexibility to the board in terms of defining or redefining its mission. While this elasticity of interpretation may be regarded as an asset among those for whom philan-thropy serves as one component of the family identity, for venture philanthropists intent on a mission, this presents rather a grave prospect. The venture (or activist) philanthropist, after all, wishes to remain in control: He or she will make the decisions and is often reluctant to share power. Like Dorothy Chandler obsessed with her music center or Lee Iacocca in search of a cure for diabetes, this individual wants to determine to whom money will go and how. For this reason, when such a person chooses a private foundation as a vehicle, it is often structured as a trust, obliging the board members to heed (or at least consider) the founder’s intent as outlined in the founding trust document. But just as frequently, this individual elects to employ a supporting organization as a vehicle.
The advantages to this instrument stem from its close ties to specific charities. In contrast to the private foundation, the supporting organization exists to serve and support charities around which it is established—those the founder chooses. Later board members (family members remain the minority on the board, the majority of seats being filled by representatives of the designated charity) cannot alter the organization’s intent. The venture philanthropist, having circumscribed the charities to be funded, remains in the leadership role through the organization while, at the same time, developing a solid rapport with the charities that address his or her particular passion.
"There is a very intimate tie between the expert philanthropist and those charities that help that person to give money to them," notes Steenhuysen, "but the supporting organization also helps that person extract information and accountability back from them. The private foundation allows 100 percent of the family members on that foundation board, and the idea is to have the family give to all kinds of different causes. That’s all about the relationships within the family. The other one [supporting organization] is all about the relationships with the charity. I’ve had several families create multiple structures—one structure being their platform for the expert and another being their platform for the family."
Flexibility
In both cases, our charitable trusts and foundations operate much like businesses. Over the long term, the same issues will crop up as in our businesses. Some family members will be extremely interested in and committed to the work at hand, while others will prefer to follow their own paths. Geographic dispersion, as our children and grandchildren relocate to different cities, can create tension between the original mission of a foundation (oftentimes charities are local) and the evolving lifestyles of our families.
For this reason, Bessemer’s Putnam notes, flexibility is essential in upholding philanthropy’s role within the family. "This is where shared values help us to transcend the particulars, for example, of our relationships with an institution," she says. "Today, where families no longer live in the same hometown generation after generation, each generation has to find charities that speak to them. The charity may vary, but everyone can regroup around the idea that the shared values are being promoted. It’s very hard for a parent or a grandparent to let go of a particular charity, but there needs to be flexibility between the generations."
In some instances, flexibility can also mean terminating a vehicle. "Families do have people with different goals and objectives and different values," concludes Dye of Goldman Sachs. "Sometimes families continue resolved to stay together and work as one charity. But other times, I see a family say, ‘You know it makes more sense to break this up,’ and actually have different charities that can more efficiently respond to the needs of the geographic area they’re interested in. I think that both are good models—whatever is going to work best for that family."
Additional Information
Intent and Oversight
Three Paths to Giving
Any Volunteers
Transforming Tragedy
Resources
Bessemer Trust
212.708.9295
www.bessemer.com
Goldman Sachs
Private Wealth Management
877.GOLDMAN (877.465.3626)
www.gs.com
Steenhuysen & Associates
401.246.2110