Cowritten with Isabelle Lescent-Giles, PhD, and Jamie Traeger-Muney, PhD

“We are a family company,” statements and advertisements from business families proudly announce. They highlight this because they know that business families are known for their values of customer service, integrity, fairness, dependability, quality, and social responsibility. The accounts of generative families in this book support the reality of this assertion. The description of family business culture in Chapter 6 notes loyalty to and caring for customers, employees, and the community. This chapter continues that discussion by describing how generative families dedicate their companies to values beyond profit, as they assume responsibility for their employees, members of their community, social problems, and the fate of the environment.

By the third generation, family members have often created some distance from their legacy business. Even when the family delegates operational leadership to nonfamily leaders, there is one area where family remains deeply involved: defining values about social responsibility in their company, in other investments, and in the community. The family initiates projects, activities, and visible commitments to these social values.

Sustainability and social responsibility are a reflection of owners' values and their commitment to a long-term future, even if they may sacrifice some immediate returns. One owner notes, “Their concern for the future leads them to consider the impact of their actions on family, employees, suppliers, customers, the environment, and community at large.”

Generative families are acutely aware of the social and environmental impact of their decisions. They live in the community, shop and pray there, and send their children to school there, so they are sensitive to their reputation and how their practices impact others. They care about the community, and as leading citizens, they feel responsible to help the community thrive. Both short- and long-term consequences need to be evaluated when making decisions. They view business, society, and the environment as interdependent by nature.

While family values remain constant, their interpretation, application, and relevance changes over time. As heirs to the company, the younger generations may question current practices, asking questions that were not asked before: Is what we do harmful to the environment? Are our employees treated fairly, and do they benefit from our prosperity? How do we deal with adversity? Do we punish our employees or are we loyal to them?

Their emerging concern about social responsibility and environmental sustainability, as well as gendered norms about the role of women in the business, cause them to ask about and even challenge existing practices. As owners or owners-to-be, they feel they can raise these issues even if they are not directly engaged in company management.

A cross-generational dialogue often emerges about company practices and products. In some wineries, for example, next-generation winemakers question how the focus on tradition and quality creates wasteful water practices. They want to refocus on the experiential aspects of wine appreciation, rather than the more formal approach to ranking and tasting that the older generation grew up with. They want to engage millennial customers in new, more playful or authentic interactions.

Corporate Mission and Social Values

Noted economic theorist Milton Friedman's definition of social responsibility does not resonate very well with the large family businesses in this study, precisely because his perspective explicitly splits the identity of business leaders between their roles as business executives and their roles as community citizens. Friedman explains that a corporate leader “may have many other responsibilities that he recognizes or assumes voluntarily—to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. We refer to these as social responsibilities. But in these respects, he is acting as a principal, not an agent; he should be spending his own money or time or energy, not the money of his employers.”²

However, there is little separation between owners and their appointed agents in owner-managed family businesses: the family spends its own money when pursuing social and environmental goals alongside financial goals without leaving “its conscience” and “its city” at the door. The successful multigenerational family businesses in this study pursue growth with a systemic mindset. Their activities as investors, business leaders, and agents of social change build off of each other. Furthermore, they are driven by a strong sense of identity, framed around a shared history and a sense of purpose driven by core values and competencies.

To generative families, the business and the community it inhabits are deeply interconnected. One family says, “We believe that growth is right. We are proud to be part of the big infrastructure projects that make the country grow. To grow, we need the trust of our customers.” Each new business venture is creating value for the family while paving the way for a more prosperous community, with better roads, bridges, industrial facilities, and also better internet infrastructure.

As owners, generative families are seen as having great influence and wealth (even if the community assumes they are wealthier than they are). The community judges them by what they do with this. Ostentatious consumption is frowned upon while simplicity and discretion are appreciated as signs that they remain “one of us,” even when there are obvious discrepancies in income and agency. One family, rising from lower-middle-class origins, built a huge house that the community branded “The Castle.” Their children experienced the backlash more than their parents. As they grew up, they took the values of the family and started to give back in major ways, creating both a corporate and a family foundation, to balance out their parents' exuberance with their newfound wealth. Another young family member working in the company was reluctant to invite coworkers to his house for fear of their resenting his lifestyle.

The extent of family responsibility can be conceptualized as a series of concentric circles that define how far the concerns of the business and its owners extend. The Friedman model extends responsibility only to an inner circle of owners and their profits. The stakeholder view, held by most family enterprises, is that they are also accountable to employees, customers, suppliers, and the community they live in. Many family companies extend the family metaphor to include these other stakeholders, and they are respected for that commitment.

This view is ascendant in the twenty-first century. Much has been made of millennials' appetite for meaningful work. They love social enterprises like Patagonia, which are also social ventures because they put social or environmental impact at the core of “why we exist” and “how we do business.” Patagonia's mission statement (“We are in business to save our home planet”) drives business strategy from materials to branding and is looked up to as a model and a pioneer of socially and environmentally conscious business. Family owners are particularly responsive to views of BlackRock's CEO Larry Fink:

Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose—in fact, profits and purpose are inextricably linked…. Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail. This dynamic is becoming increasingly apparent as the public holds companies to more exacting standards. And it will continue to accelerate as millennials—who today represent 35 percent of the workforce—express new expectations of the companies they work for, buy from, and invest in.³

In 1987, the United Nations' Brundtland Commission created a global compact articulating environmental, social, and governance practices for companies. These principles and practices are incorporated into values held by many generative families. (See Figure 7.1.)

Family philanthropists Sharna Goldseker and Michael Moody⁴ note the young family givers' insistence on going beyond signing checks to also contributing time and skills and working more collaboratively on projects. This insistence stems in part from concerns about preserving the dignity of the employees and local community members they grew up with. These rising-generation donors recognize that skills and leadership, not just money, are at the heart of long-term business success. While contributing valuable resources beyond money is not new, it is particularly important to the rising generation and often drives their commitment to the family enterprise.

US companies view corporate social responsibility (CSR) as akin to philanthropy (i.e., giving outside the business) and tend to focus more narrowly on carbon footprint and sustainability in the narrow sense of environmental impact. On the other hand, European companies tend to approach CSR as part of their core strategy and business operations, with a stronger focus on social, as well as environmental, disclosure and programs. While the term “corporate social responsibility” is widely used in the business community and among families, it is controversial because it has become synonymous in certain circles with corporate communications and “spin.” “Corporate sustainability” is becoming a more comprehensive term to indicate actions and behaviors in the business that address social and environmental impact. Generative families understand sustainability as a long-term view and a focus on stewardship across generations that encompasses profit, people, and the planet.

Researchers have suggested abandoning a “one-solution-fits-all” definition for CSR because definitions vary widely based on context and culture. Instead, companies act on a range of definitions matching the development, awareness, and ambition levels of organizations. Despite varying definitions, CSR initiatives share some common traits. According to Caserio and Napoli, CSR “affects sustainability, local community and society”; it plays a critical role “in preserving the environment, in respecting and promoting human rights and job satisfaction and in developing and supporting ethical and moral values inside the company.” As a result, “CSR affects the image and reputation of companies and thus its financial and economic performances.”⁵ Stakeholders increasingly push for CSR to extend to product ingredients and raw materials, and behavior of companies in their supply chain.

The families in this study evaluate the consequences of their business decisions through a set of criteria articulated around the family values and incorporating social and environmental concerns. For some families, religious faith is the primary glue that binds the family, the business, and the community together and defines its core values. One Latin American family, for example, proclaims the importance of faith, specifically Catholicism, in the family's life and describes how it shapes the family's contribution to society. Another family puts the biblical principle of “Do unto others as you would have them do unto you” at the core of its community agenda.

For example, now in its fourth century, Rothschild and Co. (profiled in Chapter 3) defines itself as “a global and family-controlled group” that provides “M&A, strategy and financing advice, as well as investment and wealth management solutions to large institutions, families, individuals and governments, worldwide.” The company defines its core competency as a “combination of scale, local knowledge and intellectual capital that allows [it] to provide a distinct perspective and effective long-term solutions for [its] partners.” Rothschild's CSR centers on community investment and environmental action aligned on the UN's sustainability development goals (see Figure 7.1). The Rothschild family also practices philanthropy as an entire family (e.g., a network of retirement homes for the elderly members of the Jewish community) and some philanthropy as family branches (e.g., support for the Rothschild hospital in Paris, famous for its excellence in the treatment of eye diseases, as a result of one ancestor's history of eye trauma in the French branch of the family). Other family members focus on causes tied to their home cities and, at each generation, add causes that are meaningful to their immediate family.

CSR: Building Block for Sustainable Success and Long-Term Growth

Long-term sustainability is in the DNA of generative family businesses because their top priority is to pass on the business to the next generation. As a result, these family businesses prioritize long-term over short-term goals. This leads to an appreciation that industries have a life cycle, that sustainability means change, and that there is a need to embrace new industries, new technologies and new practices with each new generation.

Sustainability is not just environmental. It reflects the long-term values of the family and its focus on growing without losing sight of the social and environmental effects of the business. Each family defines this slightly differently, as its history, legacy, and type of business leads it to emphasize different elements.

A family member explained it this way:

You have to decide what and how we're going to create added value for humanity, for people. Then we come back to responsibility—if the family decides you have to maximize making money, that's easy and then you can do anything. My grandmother always told me: never do it for money because you will never be successful or have enough. You have to create added value for the people around you. If you do that well and better than anybody else, then you will make money.

Money is a consequence; it cannot be a target—maximizing shareholders' value to me, the whole free market economy. We have to rethink this whole issue. That's why I'm working on this Polaris project on sustainability. Our company should be part of the solution of the world's problems, not part of the problem. And I hate the rules of Wall Street and our attitudes to always make more money. This is not business; this is a casino.

It goes back to being in there for the long term. We're best placed to be the champion of sustainability, and I'm sure that others will follow. We're still under the radar. But eventually with the new balance of power, those who really add value to the world will be appreciated—well, that's the belief, the faith.

But it's also a necessity to keep our free market economy alive. If I listen to my grandchildren—they also are balancing between having a good life and having fun and it's not just sustainable—I think the next generation will be in that effort, that ambition.

There's a philanthropic tradition in the company, charity initiatives by employees. If they show that they are doing something, the company will contribute. If an employee of the company is active in charity work, the company will double his efforts.

Emerging values of the rising generation about social responsibility can challenge business practices or even the business itself. For example, this family owned an oil company. As members of the fourth generation became involved in governance, they questioned that business:

I think there's opportunity for our mix of businesses to change. The push might be in how the family invests or the businesses the family runs. For example, oil and gas, will that be something that my generation embraces? I think that's the big question mark, so redefining the family values and mission, that might be where the rubber hits the road. How do we get the fourth generation involved in some of these businesses, and what do we want to be involved in? It will be very interesting to see how some of the older family members either step back and let us step into some of those roles and make some changes. Or there won't be a lot of change but some addition to balance out the family's portfolio or focus. I'm not sure how that's going to play out yet, and it's being talked about quite a bit.

As families worry about keeping the next generation engaged in the family enterprise and how to best train the next generation of leaders both formally and informally, some generative families use CSR to engage in cross-generational collaborations and build next-generation stewardship. An Asian G3 family member received strong encouragement from her grandfather in early discussions about the sustainability of their business as well as financial support to improve the sustainability of the family agrobusiness empire. Step by step over five years, she built her credibility as a business leader, challenging the family norms and stereotypes about the role of women as well as the age at which family members can have real impact and claim leadership in the community. The rise of impact investing gives the next generation in general, and women in particular, a unique opportunity to demonstrate that they can run profitable businesses with positive social and environmental impact.

The following European family had a long tradition of progressive social involvement, which had been neglected as the family diversified into multiple ventures. Members of the twelfth generation remembered those values and began to realign them with their investments and business practices:

It's always been done because, as a family member, the mayor had that socialist spirit in the sense that we were the first to fight against child labor, to create an educational center for youth, to give each worker a small house and plot of land. There has always been a familial, patriarchal spirit that included the workers and protected them and gave them the best. There was a workshop for handicapped children. It has always been done discreetly rather than flamboyantly. More “corporate.” Like they do it today. That said, we would love to do even more.

There is this responsibility to make an entire region attractive and livable for our five thousand workers. The charitable spirit was always there at the foundation, even maybe a bit socialist. This consciousness that all of the hotels and restaurants in the neighborhood also depend on us. When there were hard moments with difficult decisions, when we had to sell one of the branches of the firm, it was managed and sold off to those who guaranteed sustenance for the community. That was always the first condition. They have this saying, “Not for us, for the others.” They really had a great spirit. Unfortunately, it diminished at that point because that's how it was: it was the “crazy twenties”—you could get 25 percent from the stock market. It was a period during which, if you had power and money, you lived extremely well. But there were complications.

Today, there has been a readaptation. We have to keep this generosity, open-mindedness, and sense of responsibility while at the same time going through hard times where you may have to close a division. How do you do that? Bad moments for the family to go through. There never was a social plan…the tiniest decision taken without everyone being sick over it. That's not what we wanted to do. There's always been this human component and sense of responsibility. My father-in-law, who was very difficult, hated it. It was very difficult for him….

The only way for the firm is to always show that our local roots matter. We make the business a link for people; we make the employees in China or India understand that they are also part of this local history. When they come and visit the homeland, they are very proud, too. To give an example, for four years it was very difficult, and the family didn't take any dividends. When we told our workers, “You know we put all our money in, we had to put more in…and we don't take dividends?” They went, “We have to power through.”

At its simplest, sustainability means shifting investments to tap into new opportunities and avoid being locked in an environmentally destructive or dying industry. One third-generation family firm is acutely aware of this, as its core business revolves around railway equipment where price drives purchase and foreign competition is significantly cheaper. As a result, this firm moved aggressively into two new opportunities: product as a service and wind towers.

CSR also involves a sensitivity to the impact of policies and economic hardship on people. Hermès is the independent luxury group best known for its leather goods and silk scarves. It is run by sixth-generation family member, Axel Dumas. Hermès starts its 2018 “Registration Document Including the Annual Financial Report” with a history of the firm, including its historical focus on craftsmanship and exceptional materials:

This year's results once again reflect the strength of our growth model: a model of craftsmanship with humanist values, which has at its heart the creativity and inventiveness of each one of us. Creative freedom combined with exceptional know-how, the constant quest for exceptional materials, as well as the desire to offer outstanding services to our customers are our major assets.⁶

The report continues:

The points scored owe nothing to the luck of the draw. The opening of the Manufacture de l'Allan and the 250 jobs it will ultimately create, the success of the women's and men's ready-to-wear and home collections, the acclaimed launch of Enchaînements libres, the new high jewellery line, the confirmation of the Twilly d'Hermès success, and the dynamism of silk, leather and footwear are the milestones of a well-executed game, played out on embellished, enlarged and now digital playing fields. Once we have crossed the finish line, we can congratulate ourselves on these successes which enable us to share the fruits of this growth with those who contribute to it on a daily basis, to strengthen our territorial roots, and to develop employment opportunities. Thank you for the great game. Now, in 2019, it's time to dream.⁷

Many of the largest and oldest generative families don't view social and environmental impact as an add-on, peripheral set of actions but as part of the core strategy. They use their core values and skills to solve the social and environmental issues they care about and create “sweet spots” where all three elements of the triple bottom line (profitability, social benefits, and protection of the environment) create cumulative effects rather than trade-offs. Also, today the urgency and danger of climate change and deep social divisions and inequality are hard to ignore.

One Latin American business leader puts it in these terms: “We have a long history of very good labor relationships, so that's one part. And we also collaborate a lot with the locals where we participate. So it's basically taking good care of our suppliers, taking good care of our employees and the larger community where we live. And what isn't done by the company is done by the foundation.”

Another example of building on the family core competencies to pursue social purpose is from a European business leader, retired from the active family business and looking for a new purpose. He is building a new impact venture with his Indian partner to bring solutions for rural electrification to India, using the company's manufacturing facilities and core knowledge in electric systems. For him, this new venture is “just another way to carry on the family mission.”

Another family business leader, after a distinguished career in a major consulting firm, returned to take leadership of the family business in his forties, and reflects on the difficult choices he must make. Although he is very focused on profitability in order to keep the family business alive and thriving, closing the business's first factory in a high-cost region is an absolute no-no for reasons of loyalty (“I cannot close a factory where current employees have worked all their lives, as did their parents and grandparents”) and social responsibility (“We are the only source of employment in the region”).

Instead, he adapted his business model to focus on innovation and fast-fashion and uses the legacy factory as a testing ground where top management can develop proofs of concept before sending the product to be mass-produced elsewhere. This is reminiscent of Zara's business model. In this first-generation Spanish family business, the owners have developed a business model of runway to stores in three weeks. This timeline enables them higher margins than the industry norm while also creating and preserving jobs in the company's historical home, La Coruña. These social criteria for the preservation of livelihood are an integral part of the decision-making process for many family businesses.

For others, it is not enough to establish thriving communities and fight local poverty. One next-generation business leader notes that each generation of the family has a duty not just to expand incrementally but also to explore more radical ideas for business expansion. This view is shared by many of the rising generation leaders in this study who have family conglomerates in developing countries. Business opportunity plus social impact is a winning combination for their elders and the family office. One young leader just secured family investment for a social impact project based on this argument of new job creation for the community. To achieve this, he had to prove to the board that it was also a good business opportunity. Another young business leader interviewed for this study shared that he was given the explicit mission by his family and the leadership of his country to go to America and find “the next generation of companies” willing to invest in his home country in order to create jobs and lift his countrymen out of poverty. For our families, entrepreneurship and new business ventures are often framed as business opportunities and in social development terms.

Impact Investing

Alongside projects within their philanthropic foundations and legacy business, generative families increasingly want to build investment portfolios that drive social impact. They invest huge amounts, especially following the sale of a business, and often under pressure from the rising generation, they seek social as well as financial returns. An earlier perception that social returns would lead to lower financial returns has now been challenged by new data, allowing older investors to come on board. Nearly half of the family offices surveyed worldwide by Bloomberg “believe that impact investing is a more efficient use of funds to achieve social impact than philanthropy.”⁸ The boundary between social responsibility, philanthropy, and for-profit ventures is less firm. Impact investing is an approach to profit that is linked also to social impact and values.

Current generations want to practice impact investing movement through portfolio structuring and impact measurement. They look both to filter out negative investments, ones that demonstrably cause long-term harm, and also to support businesses that are actively contributing to social objectives. One family leader explains that impact investing became his passion. The board and his siblings “went crazy when I started to talk about leaving the family business; ‘you can't leave the company,' they all said. I did it anyway. Dad was great all around with this process. The family agrees with this value emphasis. We agreed to take 5 percent of our cash for this purpose.” In addition to the desire for financial returns, the family also wants to consider the returns for society. This conversation may be received by older generations as an opportunity to expand their social impact or as a challenge to the family's behavior and even how the wealth was created. In other families, skeptical elders are won over by the combination of data and enthusiasm of the rising generation. But that evolution takes some time, and patient engagement of both generations is key to successful shifts of investment values.

Family offices are becoming proactive, rather than reactive, especially as the members of the next generation of young leaders are gaining influence. These young leaders ask, “How can we contribute to building a stronger community, leveraging our social capital, financial resources, and skill set?” rather than “What do our clients want to see us doing?”

Articulating a strong sense of mission is not unique to generative families, but they do it in a focused, authentic, and powerful manner. For example, one Asian family is managing a group of new sustainable businesses the family invested in, with a focus on job creation and infrastructure building. As one of the few large conglomerates in its home country, it is focusing on creating foreign partnerships to expand the job market at home and has refrained from expanding operations abroad, beyond sales, in order to prioritize job creation in its original territories. This focus is drilled into the next generation and is also communicated to employees, communities, and elected officials.

Members of the current generations, and particularly rising-generation leaders-in-training, want to go beyond walking the town with the “I know it when I see it” attitude of earlier generations, for whom impact was conveyed through individual stories and artifacts such as bridges and libraries and, of course, job creation and dividends.

But many generative families are struggling with how to measure social and environmental returns. Some approach this issue through collaborations with financial experts. They invest through impact funds or coinvest as equity partners with financial firms that focus on impact investing. Some family offices focus on areas they know best, at the industry and location level, and measure relevant inputs and outputs. For example, families are investing in renewable energy, both because they see the dwindling of their oil reserves and want to build the post-oil world for themselves and their countries and because they are aware of the environmental benefits and the potential for new job creation. Similarly, a fifth-generation family with expertise in the health-care sector is investing in promising start-ups through seed investments, both because they can leverage their domain knowledge to identify good business opportunities and because it continues to serve the family mission to further medical research. They know from past experience the key metrics for the industry.

Investing in education is also common. Some families set up the schools with donations of land, buildings, and equipment and expect the schools to pay for running expenses through tuition. An Asian family leader shares the strong traditions around impact investments in his local community but stresses that it is informal:

We focus on especially the cities or the parts of the town where we came from, where my grandfather came from, where my grandmother came from, where our ancestors came from. We would want to contribute on the development of those cities or those regions, build maybe public facilities, sometimes schools, sometimes houses, and just contributing to the community there and to the closer community that we know and then, of course, we now also have setup. Even before, we didn't set up special foundation for our so-called CSR or so-called social activity.

Another popular area for impact investment is residential and commercial real estate. It is a natural progression from building workers' housing and community buildings, some for-profit, others not-for-profit, to mixed projects with low- or zero-interest loans, which are expected to be repaid and reinvested in other projects. This practice dates back to the company towns build by the Cadbury family in the nineteenth century.

Some families are exploring the benefits and drawbacks of green living and micro-living, whereas others are looking into sustainable tourist resorts to create more value from their land holdings. Some families are building or converting existing buildings into green buildings. And car-sharing pools, micro-living, and urban farming are seen as a natural extension of their mission to drive positive change in their community and to address new societal challenges, such as climate change and the increasing unaffordability of large cities from Dubai and Tokyo to London and San Francisco.

This is particularly strong in families where the real estate portfolio is driving future growth, as they realize the attraction of small residential units to millennials. This group, together with new retirees, drives the search for housing that is mindful of the environment and climate change. Several next-generation leaders in this study are driving conversations with their families and key nonfamily executives around sustainability as both a source of revenue and “the responsible thing to do.” Green buildings and micro-living are seen both as possible drivers of revenues within the next fifteen years and a good fit with the existing family's values, such as value for money and building “friendly” communities by design.

Another important area is infrastructure building, particularly renewable energy and logistics, but also e-commerce platforms and banking platforms. Many families in Asia and Africa are aware that it is impossible for governments to build old-fashioned communications and logistics infrastructure, so they are instead using the potential of apps, cloud technology, and renewable energy to connect micro- and small entrepreneurs to the digital age. They are teaming up with impact experts or tech entrepreneurs to deliver mobile phone market information, banking and financial services, health care, or training for the masses.

For others, entrepreneurship seen as is the route out of poverty. Some support microenterprise with the help of leading organizations such as the Acumen or Grameen Foundation. But increasingly, next-gen leaders want real impact in the form of scalable firms. This reinforces investments in firms that create platforms and marketplace, as mentioned in the previous section.

For some families, tackling old yet intractable problems such as inequalities and poverty is not sufficient. They are turning their sights to new, “dirty” global problems that have proved impossible for governments and NGOs to get a grasp on, such as new diseases and medical treatments or climate change issues. This is particularly true around pollution, sustainable cities, and sustainable agriculture.

The latter is very popular among this study's families worldwide, with two main foci: how to introduce more sustainable farming practices and how to build higher added-value services, such as hospitality. One next-gen member who is operating coffee farms in Latin America spent part of her last year at university planning for the launch of a new family venture in a chain of foreign coffeeshops with the help of family members who emigrated at the previous generation. Sustainable agricultural practices, like renewable energy, often create both social impact (e.g., jobs, reduction of pollution) and environmental impact (e.g., better use of soil and water). Others are thinking more systematically and are looking at the impact of cattle raising or alternative sources of proteins.

Impact Investing as a Tool of Next-Generation Engagement

Impact investing comes into the family conversation as a natural consequence of aligning values with business, financial activity, and investment of philanthropic funds. A family has values about its stakeholders and responsibility to society; it expresses those values both in family behavior and in the conduct of the business. As the family does this, the members of the rising generation also look at how the family invests its portfolio. The outcome of these conversations helps determine how deeply they want to involve themselves in the family enterprise. In order to get their commitment, the family builds upon its legacy values to move in new directions. This is an example of the generative alliance in action.

“Why,” they ask, “do we not make sure that our investments reflect our values, just as we ask that our business practices do?” Instead of seeing impact investment as just screening out negative behavior in companies they invest in, the emerging direction is to look at investments in terms of their positive impact. Liesel Pritzker Simmons prefers the more concrete “values-aligned” investing term to “socially responsible investing,” explaining that they “have aligned 83% of their fixed-income assets and 50% of their equities” in 2013, with a full alignment expected in 2020.¹¹

Impact investing is a strong focus of millennials looking for meaningful work, often because they don't share their parents' passion for an industry or region. One next-gen family member remarks, “I have no interest in spending my life building light bulbs in the middle of nowhere. I want to live in a big city and chart my own path.” Parents who attempt to reengage them in the family business as it is, often fail, creating a major threat to family business survival.

If parents are willing to listen and adjust their expectations, however, they often realize that their children are opening new avenues for generating wealth through investment opportunities. Involving a family office—their own or a professional, multifamily one—they shift the conversation from “Come home or we cut you out” to “What can you do to grow the family business in new directions?” This often leads to the birth of successful global, diversified family conglomerates held together by a set of values and joint investors.

Generative families are good at recognizing the opportunity for dialogue and leadership building around the issue of social and environmental impact and have used it effectively to start discussion of what it means to be a business family. These cross-generational discussions achieve more than enabling rising-generation leaders to build credibility. They also transmit and renew values through discussion of past examples of the family social and environmental actions and the guiding values behind them. In particular, my research team and I observed several families in this study where grandparents and grandchildren became closer through discussions of what the family stands for and what it wants to be known for on issues such as climate change, alleviation of poverty, and fostering of strong local institutions such as sport clubs. Handing over the leadership of building an impact investment portfolio and deciding focus, instruments, and metrics, in particular, has helped several of our families build a better understanding of the mindset, skills, and values of the next generation. This process fosters discussion around innovation and entrepreneurship, as next-gen leaders explore whether they want to contribute as part of the family office—building investment portfolios, setting up equity/VC funds, or becoming social entrepreneurs themselves.

By learning how to select, structure, and sell their ideas for new social ventures to the family office based on a mix of profitability and family values and traditions, several of the next-gen individuals in this study have obtained family funding and support for these ventures in Europe and Latin America. In one case, the father himself is now engaging in client discussions by framing what the family stands for and what the next generation of venture with a social impact could be. In another case, two next gens from Latin America are now working as entrepreneurs and funders with a clear social and environmental mission as well as expectations of financial returns.

Some families struggle with cross-generational decision-making; when that happens, impact investing—seen as a useful add-on but not a key priority—suffers. One next-gen leader describes his frustration in trying to get a say with, or at least clarity from, his grandfather, the key decision-maker, on how social impact and environmental issues are assessed:

In my family, that's really not important unless it makes a lot of money. All the focus on investments is on what makes the most money. It's hard to reconcile at times. It's like, “Well, you're not an advisor, so you're not part of the decision….” Based on my experience, [impact investing] probably would be something that would be important for your family to formulate some thoughts around as G5 gets older. You'd probably see more questions and interests expressed among them, and you don't want to just shut it down by saying, “Well, you know, Grandpa is the advisor for our family, so you know, he'll take care of that.” And they're kind of like “Stop asking that question—you're irritating us.” Then it's, “So do you have a problem with the way we're doing things?” “No! I just want to know if there's a plan. And if we don't have a plan, we probably should have a plan.” That's that pushback on the whole, that “we're controlling this, we're doing a good job, and it's none of your business even though your name is on it.”

Corporate Foundations

Another way family enterprises develop social capital is through dedicating a portion of their profits to corporate philanthropy. The family enterprise very often has a philanthropic foundation for the business, which often exists alongside a more personal family foundation. The family has many personal areas of interest to family members that lie far from the interests of their legacy company. Most corporate foundations give to causes that directly or indirectly support the business, for example, promoting health and wellness for employees and their families, endowing local schools with tools and technologies, or supporting the creation of specialized schools to teach rare skills that the company needs in order to thrive.

Generative families express their values about social impact through how they do business and also through foundations centered in their businesses. These foundations are connected both to the owning family and the leaders of the company, who may not be family members. The family shareholders create the company foundation and delegate responsibility but also retain the right to change that decision if conditions change. Here are two examples:

1: We agreed that giving is important, but we have different needs. The company also has a charitable strategy and a budget and our board and shareholders support, but we leave the giving decision up to management. It's management's responsibility, not the shareholders', to say what is going to be done with that money. But everybody has agreed that it's a good thing.

2: My younger brother actually works with my mom in our foundation; we take 10 percent of the profit of our business and put it into a foundation. We have tried to streamline whole foundation activities. We also have an employee giving program, where they can give a percentage to the foundation, a yearly amount to give away. We'd slice and dice it up along with a certain kind of level and like longevity of employees' contracts and everything, so if you're a long time, you would have more money to designate to the charity of your choice. That is under review by our CEO; [it's] something that we as a family felt passionate about in the past, but we're looking at different ways to do that now. He might end up recommending that that still stays in place, so we're letting him take the lead for it being effective.

In the following case, corporate giving is an outgrowth of the family's deep values and principles, passed on to the company:

We have a philanthropic committee with four of the six older generation members, and we just appointed two of the younger generation. The chairman of the philanthropic committee works in a simple and straightforward way. The committee's goal is to use the dollars to further the gospels. They don't profess to be the Christian organization, but they're doing good works.

They also look at if it's in an area that we own or operate the business and if it is of special interest to the family. They'll put a different request and then manage it in that way. That's one avenue of giving that we do, and that would be done not to benefit the organization but because it's the right thing to do and that's what the Bible tells us to do. The company gives as well. Giving is more of a marketplace giving where they may partner with customers or related to the brand. We give 10 percent of our profits away—tithing.

Company giving is not done only for the owners alone, but as a reflection of the values of the company, which includes employees. In addition to giving money back each year, a company usually has a mission statement about the purpose of its giving. The company often supports causes of its employees through matching gifts. Sometimes, it becomes involved in issues like education and homelessness that improve the community and make it more livable for everyone but also provide benefit for the company. A company foundation is often started by the company founder to support his or her personal values. While family members participate in this philanthropy alongside other company employees, the company foundation is not free to give to causes and ventures not connected to the company or its community. So family philanthropy may diverge from the company's philanthropy.

One company in a small community, where the family members are the leading citizens, adopted a dual foundation structure:

The main foundation, connected to the company, funds works projects within the area. We're now expanding its governance. My grandfather set it up to include all his descendants in helping to decide what that foundation supports. It contains a gifts committee, which is everybody. They make donations to traditional and personal places, such as his kids' schools, Boy Scouts, buildings for nonprofits. We'll match people's gifts to schools and then have one major project. Typically, his focus was on local institutions, buildings, and was a popular thing. The other foundation contains just the family officers—my sister and me and our chief financial officer. We have not expanded governance of that foundation.

Family and company are often partners-in-giving, which helps the family remain connected to the company and allows the latter to embody and align with the family's values. This approach is reflected in this two-paragraph account:

Every family member is on their own to pursue their interest. What generally happens with our business is that we are so tied into this community. There have been in the past specific projects where a family member will be on that board and we as the board of directors agree to spend our budget for charity at that organization. We made big gifts to the Boys and Girls Club through the family or through the business but with the family's blessing.

Our CEO was on the board of the Boys and Girls Club. When it first formed, they were trying to start the organization; that was his pet project, a passion project. As a company, we agreed to give $60,000 a year for five or six years to support that. We do share when we make the pledge. I'm not sure we talk about it every year. It's been something we do consistently. Before that, my father was on the hospice board, and they were trying to build a new building, and we made a similar pledge.

The following fourth-generation construction company has two foundations, with some overlap. They allow the family to pursue different directions in their personal family giving from the family office:

A strong theme of philanthropy covers all three family branches. An endowed fund set up by my father in 1964 was always seen as separate from our company. It received $40 million each year from the company. We also had a company foundation that was governed just by current shareholders [and] set up in 2006. We see business as a force for good. In the communities we work, we support education, environment, and thought leadership. We have a CSR committee in the company that covers two-thirds of funding. The rest is funded by company profits and private shareholders for things they care about. We reach out to causes that our eight shareholders support. We have a peer group review of each shareholder's proposals. My nephew took over leadership of the endowed fund from me. It rotates among each of three families. The company foundation works from our family office across all families and is professionally managed.

Causes are sometimes similar to those of family foundations, such as poverty alleviation and general education, but are nested in the business because they help build the brand as well as social capital for the enterprise. One Australian company supports the poor in its local community and has a huge impact through collaboration with the local business ecosystem, working hand in hand with other local businesses, as recounted in the next two paragraphs:

We're passionate about education in the dairy industry. This is what the girls have come up with that they would like to do because they're at college at the moment. We would like to provide a scholarship for an individual to go through the four years of the course that they have here. Their second need was placement: within their second year, they will come back to our business, and they would work in the business for twelve months. They'd still have their scholarships that would give them extra income, plus they would be paid their commercial wage. That's the sort of business that we're trying to implement at the moment.

We lost our workers by emphasizing too much about education, and it's not that workers aren't educated; it's just that there's a different way of educating for those kinds of hands-on job[s]. We only graduate eight hundred students a year, Australia-wide, in agriculture, and there's four thousand jobs available each year; so we've got a shortfall before we even start. We thought if we have this scholarship program, it might encourage somebody that is trying to go somewhere else without university to think about the dairy industry.

A second area of action for the corporate foundation is to provide better living conditions for the company's workers and their families in communities where the company has key operations. This is particularly the case for the legacy community, where the family built its wealth, but is also true for new countries where it expands its operations. Housing and health care are the most common areas of investment. Pollution, sanitation, and housing are other priority areas. Many generative families explore and invest in community building and environmentally friendlier communities.

For others, green sustainability is seen as the next generation of real estate diversification. Many generative families have large real estate portfolios and, led by their next generation, are considering testing the concept in their next wave of real estate development. For many, the focus is on technology and “green buildings” certification. These families are following in the footsteps of CBRE, the real estate pioneer, which has proven that the concept of green buildings, with water and energy-efficient systems, is both sustainable and profitable. Some are focusing on higher-end construction for environmentally conscious millennials. Another family, also under the impetus of the next generation, is focusing on building eco-friendly housing with rainwater harvesting and solar water heaters as part of the family portfolio of affordable housing in Asia. Historically, this family has been focused on creating affordable housing for the emerging lower middle class. They see sustainability primarily as a way to make buildings cheaper to maintain through more energy and water efficiencies. These projects are viewed as strategic investments and screened for a maximum fit with both family values and their core competencies.

A final endeavor of families, through corporate foundations, is the creation of more specific training programs and corporate universities focused on business skills, especially those perceived to be imperiled by societal shifts or lack of institutional support. They want to offer educational opportunities to their employees because they regard them as “members of the family” and also because this is an investment of human capital that benefits their long-term success. Many corporate foundations find that these programs are win/win: helping their employees develop marketable skills, which enable them to get promotions within or outside of their organization and also benefiting the business by providing a better caliber of employees, particularly in industries where skilled employees are hard to find and keep. These programs range from teaching craft and construction to engineering and hospitality.

Enriching the Community

As the family moves away from direct involvement in company operations, there is a question of whether the family—now with many members who live in different places—can continue to hold a shared identity and work together. Many generative families launch new businesses, and corporate foundations grow with the business success. For others, community and philanthropic activities take the place of business operations, but the family brings its business expertise to focus on sustainable actions, for example, through a mix of gifts, loans, and seed investing in exchange for a seat on the board.

This may be encouraged by local incentives, too.

In the United States, a family can give stock to a foundation and use the profits for philanthropy. The company gives profits to the community but retains voting rights over the stock, keeping control in the family. As one such family member says, “We have one shareholder that's not a family member, the Community Foundation. We've set up a donor-advised fund through them. The reason we did that is so that people could gift company stock to the foundation. Then over time, through an organized repurchase through the community, the company will buy back that stock.”

The following stories, from families on two sides of the world, exemplify the importance of recommitment to the community and the scale of the results that can come of these efforts.

While not every generative family adopts all these practices, we see an interest in CRS, impact investing, and corporate philanthropy growing in almost all of our generative families. After generations of financial profit, they begin to focus on development of social capital. It is hard not to connect this focus, especially when it emerges more forcefully from the younger generations, as a key element in sustaining commitment and generating innovation in family enterprises. While this is increasing in nonfamily companies as well, the initiative and leadership for many of these practices is coming from business families.

Taking Action in Your Own Family Enterprise

Defining Family Impact Vision and Values

The assessment will highlight many perspectives for your family about what impact means, and what you want to do. Your family should invite the family members to hold a family impact conversation to define their values and vision for their wealth. In addition to supporting and caring for each other, what do we want to see as the impact of our wealth? What is the purpose of our family wealth?

There are two parts to this conversation, which may involve different people. The family will consider how it wants to use its social capital to make a difference in the world. While different generations and family members have different roles in this decision, everyone in the family has an interest in this question. This may be more than a single family meeting. The purpose is to define a vision of what you want to see in the world, and how you see using the family resources to make a difference.

The other conversation is about the family legacy business, the family office or family assets and investment. This conversation may also include nonfamily business or financial leaders. Or the family might set some guidelines from their conversation and then turn the conversation over to the business and financial leaders to apply them.

Each of these conversations may begin with a larger group and then be passed to a task force that will define more clearly options and directions for family social impact.