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The business of family business giving

Whether to get the family business involved in giving, and how to approach business philanthropy can seem daunting at first but the following overview takes a look at the why and how.

It is fair to say that International Corporate Philanthropy Day 2013 passed this February without much fanfare in the UK. In fact, the year 2011, which the UK coalition Government designated ‘the year of corporate philanthropy’ also came and went without much notice.

But the fact remains that family businesses are more likely to support charitable projects than other businesses. Whether to get the family business involved in giving, and how to approach business philanthropy can seem daunting at first. The following overview takes a look at the why and how. 

Why do family businesses give?
Many family businesses incorporate philanthropy into their business model in order to align the family’s core values and the business strategy. The family’s personal drive to ‘give something back’ may be at the heart of much family business giving – and it may be that the business giving sits alongside a parallel family foundation that reflects the personal giving priorities of family members.

Other businesses may be swayed by the deeper connection that employees and customers may have to a firm that is actively engaged in improving local conditions, supporting projects aligned with the core activities of the business, or simply ‘doing good’. And as businesses of all sizes and across sectors become increasingly aware of market perception and branding, keeping up as a ‘good corporate citizen’ can be another concern facing family businesses.

Many family businesses also prize socially responsible ways of doing business, particularly valuing close ties with the local community and a collaborative spirit between the family and employees. Some family firms have been giving for generations. Others may see it as a marker of business success and start giving when the business can easily afford to give back.

We have seen family business where family succession has led to the start of a giving programme, and others where getting the next generation involved in the business philanthropy is very much an initial step towards business succession, a useful bridge over the generation gap.

Types of giving
Whatever the motivation, businesses can and do get involved in a variety of philanthropic activities, including:

• Gifts of cash to charities
• Designating a particular charity of the year
• Volunteering employee time • Partnership working with
• Employee fundraising
• Providing internships or work experience within the business
• Running particular charitable activities

Generally, family business philanthropy tends to be more informally structured than at non-family owned firms. This may be a function of business size as well as reflecting that giving may have started in an ad hoc fashion within the family.

Whilst businesses will want to avoid constraining their goodwill with unnecessary formality, it may be that moving towards a more structured and strategic way of giving can help the business make a greater philanthropic impact.

Getting employees involved is often a key element of family business philanthropy. Regardless of how giving is structured, it is common to give employees a voice in deciding how available funding should be applied to eligible projects.

Giving through a corporate foundation
According to recent research by consultants Corporate Citizenship, the number of corporate foundations in England and Wales has increased over the last five years. These stand-alone charities are established by businesses of all sizes as a means of structuring the business’ giving out of a distinct but affiliated entity. The phrase ‘corporate foundation’ does not have a particular legal meaning; it is shorthand for any sort of charitable vehicle formed by or in conjunction with a business, which will primarily be funding charitable projects.

In the UK, a corporate foundation can be established as a charitable company, a trust or, a new legal form, the Charitable Incorporated Organisation. Aside from its connection to the business, a corporate foundation is otherwise exactly like any other charity. In England and Wales, registration is likely to be required with the Charity Commission and in Scotland with the Office of the Scottish Charity Regulator, and, as a distinct charitable entity, separate from the business, the corporate foundation will have reporting and compliance obligations of its own.

A corporate foundation will have its own board of directors, distinct from the board of the business (although some overlap with the business leadership is common). These directors will be charity trustees and have particular duties and responsibilities, chief among them to act in the best interests of the foundation, not the business. This means that it may be important to manage potential conflicts of interest between the business and the foundation.

Employee representatives on the foundation board are also common, as are employee positions on foundation committees, for example to assess eligible charitable projects. Corporate foundations often do not have their own employees, but may receive the time of business employees as a benefit in kind.

Corporate foundations can be funded in a variety of ways, including:

  •  Initial donation of shares in the business
  • Annual donation of a share of profits or by another formula
  • Donations by partners
  • Staff fundraising
  • Ad hoc donations from partners, directors or family members
  • A significant gift designed to be invested to produce income (endowment) ‘in kind’ benefits such as staff time, equipment, space or other valuable resources

Tax reliefs are available in respect of gifts from the business to the corporate foundation, and from individual family members and employees, though this will depend to some extent on how the funding is structured.

One important aspect of corporate foundation funding is that the business cannot decide to re-allocate or otherwise make use of the donated funds. In other words, a business cannot decide that last year’s donation was overly generous bearing in mind this year’s financial climate; once given, the donation becomes irrevocably dedicated to charitable purposes as the property of the corporate foundation.

Giving through a Corporate Social Responsibility department
Some families decide that while they are committed to ‘giving back’, they prefer to do so from within a department of the family business, rather than a distinct charitable entity. Without a separate legal vehicle, there is no need to register with a charities regulator, no need for a distinct board of directors (nor any need to think too much about possible conflicts of interest) and no charities reporting and accounting regime to comply with.

These charitable activities may be identical to those undertaken by a corporate foundation, though funding models will differ slightly since funding may be achieved simply by allocating some business budget to the CSR departmental budget.

Tax reliefs are not available on allocating budget to the CSR initiatives, but may be available at the point the business makes a gift to a third party charity. Donations from employees and family members cannot be made tax efficiently to the CSR department, since it is not itself a charity. However, reliefs may be available for gifts at the point they are made to a third party charity.

The departmental approach certainly offers increased flexibility and informality and is the right choice for many businesses. One difficulty with this approach, however, is that some may feel that it lacks the credibility of an independent corporate foundation. In addition, being able to re-allocate the CSR departmental budget back to the business may be convenient, but this flexibility may somewhat undermine claims a business makes of being firmly committed to a philanthropic programme.

Collaboration with third party charities may be somewhat more difficult since the charity will be dealing with a commercial business, rather than a ‘peer’ charity as would be the case with collaboration with a corporate foundation. In addition, there is a risk that the philanthropic programme can get lost within the overall business or become more driven by business goals and preferences than was initially intended.

Getting started
Families who wish to start, or refine, a giving programme within their business should consider the following key issues: 

  • Programme goals – why do we want to do this? What milestones will we use to measure progress?
  •  Structure – how do we feel about independence and ‘credibility’ vs. flexibility and informality?
  • Resources – what resources are available? How would we ideally like to fund the programme? 
  •  Involvement – how much will family members be involved in the programme? What about employees?

There is copious information and support available, including from the Association of Charitable Foundations, the Charity Commission and your trusted advisers.

Alana Lowe-Petraske is a solicitor with law firm Withers specialising in philanthropy.  

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