Impacting investing: trends, issues and capabilities
Family Philanthropy: A Look at France
by Arthur Gautier
Associated with a global surge in private wealth over the past decades, philanthropy has blossomed and become more visible in many countries. In particular, foundations created and funded by families have received more attention than ever. According to the Council on Foundations, family foundations represent more than half of all independent foundations in the USA: there are nearly 40,000 grant-making foundations involving members of the same family today, and they give more than $20bn annually. In the UK, while the exact number of family foundations is unknown (probably a few thousands), the Family Foundation Giving Trends 2012 show that the 100 largest foundations gave £1.33bn in 2011. More qualitative studies have also been published recently, such as the UBS-INSEAD Study on Family Philanthropy in Asia.
In other countries, however, philanthropy in general – and family philanthropy in particular – has long been invisible. Sometimes, it is because private giving is negligible. In other cases, the phenomenon simply lies under the radar. In France, both were true until the past few decades.
Philanthropy in France: a renewal after decades of secrecy
While philanthropy has had a rich history in the late Medieval Ages and the Renaissance, the French Revolution radically stifled all private initiatives for the common good, leaving little to no room between the State and its citizens. The Catholic Church, which organised the bulk of charitable activities in France, was dispossessed from many of its assets. In the twentieth century, the emergence of a strong welfare state nullified private provision of social security, cheap housing, or retirement pensions.
While discouraged by the French State, giving did not cease altogether during this period. Industrial paternalists and art sponsors remained active but maintained a low profile, partly to avoid government scrutiny. Also, money and wealth have long been taboos to the French: philanthropy, as an outward sign of prosperity, was often kept secret by many donors to avoid queries and jealousies. Another key reason for philanthropy’s anonymity lies in the Roman Catholic tradition of secrecy in almsgiving, as illustrated by this famous teaching of the Bible: “Be careful not to practice your righteousness in front of others to be seen by them. If you do, you will have no reward from your Father in heaven.” (Matthew 6:1).
The welfare state crisis, diagnosed as early as in 1980, and pressing needs to complement public subsidies in many social sectors paved the way for a “philanthropic renewal” in France, that we start to witness today. Quite surprisingly, corporate philanthropy emerged first, but soon philanthropic initiatives by wealthy individuals and families followed suit. Many factors account for this regeneration: generous fiscal incentives, new philanthropic vehicles, professionalization of fundraising and philanthropic advisory, and more media coverage.
The dynamic is positive but figures are still modest, partly due to France’s historical lag. Today, according to the latest figures from Fondation de France, there are 3,220 private foundations in France, among which we estimate around 300 family foundations. Excluding bequests, at least €165m was distributed in 2011 by grant-making foundations created by individuals or families. More importantly: after decades of silence and anonymity, several French philanthropists have begun to speak openly about their giving and share their experiences.
Intrigued by this burgeoning activity, we decided to investigate this matter. First, we identified and convinced 30 families to participate to a study on family philanthropy in France. Second, we paired families with groups of ESSEC students who had to interview them and present their understanding of the specificities of family philanthropy. Third, Anne-Claire Pache and I organised a round of in-depth interviews with 15 families which built upon existing knowledge and formed part of our book, La Philanthropie: une affaire de familles (Paris, Autrement). The following is a snapshot of the most interesting findings of this study.
Who are these families?
Akin to the situation in Anglo-Saxon countries, numbers are a bit skewed by prominent “giants” like the Bill and Melinda Gates Foundation in the USA or the Wellcome Trust in the UK. In France, the largest family foundation is the Bettencourt-Schueller Foundation, created in 1987 by Liliane Bettencourt – the heir of L’Oréal founder, Eugène Schueller – together with her husband and daughter. In 2013, the foundation distributed €30m for health, social welfare and the arts, with assets estimated at €850m. Its grant-making activities would rank Bettencourt-Schueller Foundation at the 10th spot among the largest UK family foundations, and 100th in the USA.
A second champion was born in 2010: the Daniel & Nina Carasso Foundation, created by the heir of Danone and her family in memory of her parents. Its initial endowment was €500m and it already disburses about €10m annually in the fields of sustainable food and art in the community. Other prominent family philanthropists in France include the Rothschilds and the Mérieux, both dynasties of successful entrepreneurs who distribute several million Euros annually through their foundations.
Entrepreneurs and heirs
These family foundations with large endowments and a professional staff and are still exceptions to the rule: most family foundations in France are much smaller, with no staff, and they do not necessarily create an endowment at the start. With €200,000, it is possible to create a foundation under the aegis of an umbrella foundation, such as the Fondation de France which currently hosts more than 700 foundations. You do not have to be a millionaire to create your own foundation. Besides, all wealthy people do not become philanthropists. So who are these families who engage in organised philanthropy?
Of course, money matters. Only wealthy families can afford to dedicate hundreds of thousands Euros to philanthropy. In our study, we identified two different profiles: entrepreneurs and heirs. In 22 out of 30 families studied in our book, there was a direct link between the foundation and a successful business creation within the family. In seven cases, the founder was the entrepreneur herself. These so-called “new philanthropists”, who made their fortune during their lifetime in fields such as venture capital or new technologies, tend to apply their business acumen to philanthropy.
But most of the time, the capital used to create the foundation is inherited, often over several generations. In those families where traditions and social status matter, philanthropy is seen as a duty to be passed over the next generation – sometimes more than the family business. However, the opposition between entrepreneurs and heirs is often a simple matter of timescale: heirs are usually descendants of entrepreneurs, as family wealth usually comes from a business success at an earlier generation. Conversely, when philanthropists with an entrepreneur profile have children and involve them, these children become heirs when they take over the family foundation.
Social and cultural capital
All rich families and entrepreneurs do not create foundations, so there must be something else than economic capital. In our small sample of 30 families, we noticed the recurrence of some traits: a superior education, often including artistic and religious teachings; a familiarity with giving through earlier participation to non-profit activities, informal or one-off giving, or the presence of “philanthropic mentors” inside or outside the family. Using notions popularised by sociologist Pierre Bourdieu, we believe that families involved in philanthropy have superior levels of cultural capital and social capital. Acquired during youth, these intangible assets complement and reinforce economic wealth, and are also a fertile ground for future philanthropy.
Why do they give?
Motivations for giving are perhaps the most researched aspect of modern philanthropy. There are numerous studies exploring the rich and complex array of rationales driving altruistic behaviours. Our study sheds some light on the specific motivations of family philanthropy in the French context. We identified four main drivers, which are often combined.
First, philanthropy can be driven by faith and religious principles. In all three monotheist religions, giving to the poor and needy is imperative, and many families refer to their spiritual ideals to explain their involvement. Second, philanthropy can be motivated by philosophical, ethical, or even political values. In particular, we were very surprised to hear the American motto “I want to give back” so frequently! Giving back to society, to a medical institution or to a school from which one has benefited in her youth is a powerful driver in France as well. Third, family philanthropy is often driven by the will to honour the memory of a loved one. Many foundations bear the name of an ancestor. In other cases, it is the family’s legacy as a whole that is celebrated. Fourth, a particular cause or passion linked to a family member may be the main motivation: public health for Mérieux, feeding the planet in 2050 for Carasso…
While all these motivations play a key role in shaping a family’s philanthropy, we observed that a “trigger event” always translate a vague idea into reality. Three types of triggers were identified in our study: a painful personal experience, such as the loss of a parent or a handicap affecting one’s child; a life liquidity event, such as inheriting, retiring or selling the family business; or a life-changing encounter, when one discovers a friend’s philanthropic journey or experiences first-hand dire poverty.
What about tax benefits? In France, generous fiscal incentives for philanthropy have been introduced in the law in 2003. Since, some political observers have called them “tax shelters”, since individuals can subtract 66% of their gifts from their income tax annually, in the limit of 20% of their total revenues. However, gifts are note investments, and they still costs more than not giving at all. While tax benefits can “sweeten the deal” for philanthropists, fiscal optimisation does not appear as a serious motivation to create a family foundation.
How do they give?
Once a family decides to get involved in philanthropy for a given cause, many options are available. It could decide to support a leading charity with repeated grants over 20 years. The family could also distribute seed money to several small, innovative charities for 3 year spans. It could even engage in “venture philanthropy” and provide financial as well as non-financial support to social enterprises with high growth potential. Simply put, there are many “philanthropic strategies” at hand. In our study, we observed that all 30 families had developed some kind of strategy, if only intuitively: they all identified a precise objective or set of objectives they want to achieve, and an idea of the means to achieve them.
However, only a handful of the families we interviewed were eager to monitor the efficiency of their philanthropic action. Despite a growing interest for and literature on “impact evaluation”, many families are not ready to engage in such routes. For ethical reasons, some believe that giving has an intrinsic value, or that beneficiaries should be left alone in determining the best use of the gift. While not opposed to evaluating their impact, other philanthropists think that they do not possess sufficient resources and skills to do so. Actually, only a very specific profile of family foundations in France has taken impact evaluation seriously: foundations whose funders have an entrepreneurial culture, with large endowments and slack resources, and with professional staff. In our sample, we identified (at least) four: the Bettencourt-Schueller Foundation, the Daniel & Nina Carasso Foundation, the Edmond de Rothschild Foundations, and the Ensemble Foundation.
Another key feature of family philanthropy is a long-term perspective, where the foundation is passed over to successive generations. For most families, philanthropy is considered as a way to transmit traditions, values, and memories. The legal entity can be handed over, but it does not matter as much as symbolic, immaterial elements. Besides, many family foundations tackle entrenched problems which will not disappear quickly. This calls for protecting the initial endowment and having no set deadline for completing the mission. However, a new trend quietly emerges among some French families: “spending down” or “giving while living”, as made famous by Chuck Feeney and the Atlantic Philanthropies. The idea is to consume the endowment during the founder’s lifetime, in order to achieve higher impact on today’s issues. In our panel, the French American Charitable Trust, created by Feeney in 1990 and spearheaded in France by his daughter Juliette Feeney-Timsit, has been the vocal leader of this approach.
Conditions for progress
Family philanthropy is blossoming in France. But there are still very few family foundations, with a limited overall impact in all different areas of public interest. France has a historical lag in terms of philanthropy, and the 10-year surge that we have witnessed cannot immediately fill the gap. The good news? There is room for improvement. We identified three areas where progress is needed in order for family philanthropy to fulfil its potential on this side of the Channel.
First, more synergies are necessary between family-owned businesses and family philanthropy. France needs more middle-sized, high-potential businesses. The more entrepreneurs will be able to succeed, the more potential philanthropists with substantial capital to invest. Today, many entrepreneurs-turned-philanthropists after a career in business believe the two should stay neatly separated. But some think differently and want to combine and align both activities during their prime. The Decitre Fund and the Mérieux Foundation follow this ideal so that the business helps the philanthropy, and not the other way around.
Second, family philanthropy needs more skills and talents to be more efficient. In philanthropy, there remains a deep-rooted fear that good organization principles come to the detriment of values and meaning. To the contrary, we think that investing in the right people – skilled volunteers, staff, advisers – and infrastructure is absolutely critical for philanthropy to have an impact. As Dan Pallotta brightly exposed in his book Uncharitable, the obsession of to minimize overhead may be counterproductive. This is true for both foundations and beneficiary organisations, which are often unable to attract and retain the best people.
Third, a few exceptions aside, family foundations are too small and insulated to provide enough resources to solve large-scale and complex social problems. This problem is not specific to France: Steven Goldberg made the same observation in the USA in his 2009 book Billions of Drops in Millions of Buckets. Family philanthropy could play a much larger role in France in joining other funders and project leaders to achieve what John Kania and Mark Kramer called “collective impact”. Families are increasingly involved in collective dynamics. They share experiences, good practices and deserving projects with their peers in family philanthropy circles, such as the newly launched association Un Esprit de Famille. The next step is to open up to other stakeholders and engage in collective action around similar goals.