Family philanthropy pitfalls to avoid

Families who wish to start, or refine, a giving program should be careful to avoid these incorrect assumptions:

Assuming giving is easy. Effective giving requires strong engagement and deep commitment, as well as careful planning and sound guidance when warranted. The family must pay as much attention to its philanthropic initiatives as it does to its business or investment activities.

Assuming everyone will always get along. All family foundations, whether connected to a family business or not, are affected by family dynamics and changing relationships. A board may operate by smooth consensus for a period and then may find that external stressors — such as business succession or divorce — invade the foundation governance.

Assuming that getting it wrong carries no real consequences. The “halo effect” that giving is said to have can easily become just the opposite if the family foundation is mismanaged. In most jurisdictions, misapplication of funds and other breaches of duty can lead to real consequences for the foundation, including in some circumstances individual board members. Where the association of the foundation with the business has been prominent, or where the family name is shared between the business and the foundation, the business can also suffer reputational damage. The board should be sure to have a good grounding in the operational compliance of the foundation and proper oversight of all projects and initiatives. If things go wrong, tackling the problem head-on, with reputation management advice if needed, is the only way forward.

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