Are generous families and their advisors prepared for the future?

Generous families and business owners have many people serving as their advisors. They range from attorneys and wealth managers to the staff of community foundations and family foundations. Each brings a different perspective on the value and use of money and other assets.

But what those families and business owners are really seeking is help with finding meaning in their money. How can their resources be used effectively to pass on values to their heirs, benefit society, and even leave a legacy?

On these issues, U.S. Trust and Foundation Source reported in separate studies that families and business owners seek advice first from their peers. They’d like their advisors to help, but find that advisors either don’t discuss the issues or do so through a technical lens. Even foundation staff can become too focused on process and not enough on purpose.

Those families’ heirs are proving fully willing to leave their parents’ advisors, family offices, and even their foundation if they’re not finding compelling ways to connect money and meaning. Those younger generations are the face of trends challenging: 1) how families will come to a common definition of “community”; 2) how family members will work and volunteer together; and 3) how they’ll use their resources for social good.

To navigate those trends, families will need philanthropic tools that are resilient – able to anticipate and shape change and to bounce back after stress. They’ll need to re-examine issues of governance, leadership, participation, and strategy. Their advisors will need to ask different questions – ones that go beyond tax deductions and nonprofit effectiveness. Those advisors and foundation staffers need to help families navigate the collision of how families work and how philanthropic tools work (see graphic below) as both evolve in the 21st century.

Family philanthropy 2 systems

 

Fortunately, there are pioneers charting paths for us. They’re collecting their ideas through networks such as the National Center for Family Philanthropy and Purposeful Planning Institute, education providers such as the American College and 21/64, and free resources by experienced consulting firms such as The Philanthropic Initiative and Rockefeller Philanthropy Advisors.

I’ve been honored to speak about those trends and solutions for resilience for the Colorado Association of Funders, Pikes Peak Community Foundation, and Community Foundation of Elkhart County this year. I’ll be doing so for the Indiana Philanthropy Alliance in September and for the Florida Philanthropic Network next February.

Need to think about your philanthropic family’s journey through the trends and tools I’ve described? If you haven’t been able to make one of those sessions, I’d be happy to talk one-on-one. Feel free to contact me at tony [at] tonymacklin.com or 317.250.3805.

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Revealing Risk in Philanthropy – bonus content

After I researched and wrote about risk in philanthropy, I’ve inevitably been affected by Frequency Illusion. In this decision-making bias, an idea or term that has recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterwards.

So, as “bonus content” to my previous posts and the piece I wrote for the National Center for Family Philanthropy, here are good resources on risk I saw in the past 45 days:

  • Questions Nonprofits Should Ask to Assess Their Risk Management Practices – an infographic by the consulting firm BDO that would serve as a good guide for staff and board conversation.
  • Risk Management for Nonprofits – SeaChange Capital Partners and Oliver Wyman look at fiduciary risk and enterprise risk management through the lens of a study of nonprofits in New York City. The report serves as a sober reminder of how many nonprofits live close to the edge of insolvency.
  • 3 Ways Foundations Squash Risk-Taking – philanthropy consultant Kris Putnam-Walkerly describes three areas “in which foundations that want to take more risks unintentionally limit their capacity to do so: planning, practice and policy.”
  • Philanthropy Lessons: Risk and Mistakes – an 8:37 video by Exponent Philanthropy with observations about a greater tolerance for risk and experimentation by seven smaller foundations and three grantees.
  • Forgetting Failure – June Wang of the William and Flora Hewlett Foundation offers good ideas for discussing and learning from failure, risk, andphilanthropic strategies that didn’t go as planned.

OK. That’s it. I’m done with risk as a topic. On to something else philanthropically geeky…

Risks in Family Philanthropy - A Starting Framework

Revealing Risk in Philanthropy – part 3

In two previous posts, I wrote that I’d been researching the topic of risk in philanthropy. I tested some ideas about the topic at a conference session, co-designed with folks from the Quixote Foundation, Open Road Alliance, and Arthur M. Blank Family Foundation.

Based on my research and feedback from others, I developed this framework for five different types of risk philanthropic organizations encounter:

Risks in Family Philanthropy - A Starting Framework

The framework is meant to serve as a conversation tool to help a foundation or philanthropic family explore the risks most relevant to their giving. No person will worry about all of the types of risk. Few, if any, organizations will have the desire to delve into every type. However, it is easy to forget that each person’s comfort zone around risk may be based on personal and professional experiences very different from yours.

In brief, the five interrelated types of risk in a philanthropic organization are:

  • Our personal risk profiles, shaped by our cognitive biases (our unconscious mental shortcuts), our default decision-making styles, our own giving styles, and our fears about risks to our reputation and identity. We have to continually question our “default settings” and how they apply or don’t apply to a situation.
  • Our organizational risk culture, the “norms of behavior for individuals and groups within an organization that determine the collective ability to identify and understand, openly discuss, and act on the organization’s current and future risks” (McKinsey & Co.). Organizational risk is often intertwined with organizational reputation, legacy, and brand identity.
  • Strategic risk, in one definition, is the “risk that your efforts will come to naught; that the resources you have invested either fail to generate any results whatsoever, or that the results are, at best, unsatisfactory” (Tierney & Fleishman). It involves risks in planning, implementation, and evaluation of an overall philanthropic strategy or a particular grantmaking program.
  • Risk at the foundation grant or investment level involves issues of due diligence, performance monitoring, evaluation, and sometimes opportunity costs. This is the type of risk that foundations and nonprofits discuss the most, perhaps because it feels like the risk that is easiest to mitigate.
  • External risks are factors beyond our direct influence or control. They’re not preventable and often can’t be avoided.

An organization’s risk culture influences its people, its strategies, and its individual grants and investments. All of those are subject to the underlying threat of external risks.

We can often tame the first four types of risk through ongoing processes for: a) risk identification; b) assessment and prioritization; and c) mitigation through better planning, operational controls, staff training, and other tactics. We can’t mitigate external risks, but we can tame their potential impact on our work through scenario planning exercises and developing contingency plans.

Some foundations and donors mitigate risk through participating in a funder collaborative or using an intermediary or fiscal sponsor. Some segment risk into a specific fund or budget, or informally adopt a portfolio mindset by tailoring a mix of high-risk and low-risk grants to meet their comfort level.

Others tame risk, and even embrace it, through creating longer-term trusting relationships with grantees. They practice more flexible adaptive philanthropy and favor investing in leadership development and organizational capacity over investing in a specific direct service or project.

Want to learn more?

Recent research by the Open Road Alliance showed that too few foundations and nonprofits had policies and practices in place for risk mitigation and contingency planning. If you’re interesting in learning more, here are my top picks:

I’ve also written a longer Issue Brief for foundations and philanthropic families that are subscribers or Friends of the Family of the National Center for Family Philanthropy. The brief, Expanding Your Comfort Zone: A Window into Risk in Family Philanthropy (©NCFP, March 2016), has short stories about family foundations and donor-advised funds tackling the different forms of risk, questions to ask internally, and links to a broader set of tools and resources.

As always, I welcome your feedback on the framework I developed. And, I’d be glad to hear your insights on how you’ve embraced risk or tamed risk in your philanthropy.