All in the Family: What Does it Take to Engage Next-Gen Heirs in Philanthropy?

The greatest generational wealth transfer in history is currently upon us. And a massive socioeconomic shift like this one doesn’t take place without some serious challenges. In their latest white paper, “Engaging the Next Generation in Philanthropy,” Northern Trust Wealth Management tackles the $30 trillion question—or more accurately, sets of questions—that families should be asking themselves as they look to pass the philanthropic torch onto the next generation.  

At Inside Philanthropy, we report often on how family foundations engage—and ideally, empower—younger family members. See here, here and here for some recent examples. A common theme that emerges is that the mission and values of a family foundation evolve over time as a result of generational transition. What gets prioritized? What gets subordinated? And what gets completely tossed aside?

The staff at Northern Trust have had a front-row seat to many of these (usually) quiet dramas. Recently, I spoke with Marguerite Griffin, senior vice president and director of philanthropic advisory services at Northern Trust, and Kelli Garcia, vice president and associate director of philanthropic advisory services, about the questions family foundations are asking themselves—and the questions they should be asking themselves, but aren’t.

Bridging the Generational Gap

Griffin and Garcia begin their white paper by highlighting the generational differences between traditionalists (those born before 1945) and baby boomers (born between 1946 and 1964) at the front end of the spectrum, and millennials (born between 1981 and 1996) and Gen Z (born after 1997) at the back end.

Millennials and Gen Z were born during and after the digital revolution, so the use of social networks is fully embedded into their daily lives. As a result, they tend to be more globally minded and less localized. For example, millennials and Gen Z are much more likely to have friends from other countries as opposed to their traditionalist and boomer parents and grandparents. This translates into their giving, which is more likely to include global issues as opposed to domestic challenges only.

Younger generations also have an acute desire for transparency, as they maintain a deep distrust of conventional institutions. As the white paper explains, “Both millennials and Gen Zers measure the impact of nonprofit organizations not only through compelling stories, but through data, metrics and transparency. They expect organizations to collect data on the effectiveness of programs and demonstrate how they have created positive change in the populations and communities they serve. They value transparency in all aspects of a nonprofit.”

A globalized worldview and the need for increased transparency are two examples of the asymmetry that exists between the younger and older generations. In order to bridge this gap, Griffin and Garcia stress the need for open and direct communication between family members, and lay out a series of questions families should be asking themselves, such as “why do you want to include the next generation in your family philanthropy?” “What motivates you to give?” “What are your current norms of ways of communicating?” and “How much do your children or grandchildren know about your current philanthropy?” The goal is to facilitate a culture of openness and trust, which will in turn lead to deeper next-gen engagement.

And the sooner family foundations act on this advice, the more likely they are to stave off the problems that can come from generational differences. As we’ve reported, the Nathan Cummings Foundation is a good example of a funder trying to stay ahead of the curve, recently electing Jamie Mayer as its first fourth-generation board chair. Mayer is working to ensure that those involved with the foundation are on the same page by committing to a more integrated governance framework and clearly communicating the foundation’s mission and core values to all stakeholders, both internal and external. The foundation struggled with governance issues prior to Mayer’s ascension to board chair.

Given the delicate nature of family dynamics, Griffin and Garcia stress the importance of creating the right process for talking about the future. “It’s crucial that family members have these conversations away from the typical family structure, since young family members tend to give deference to older generations,” says Griffin.

If next-gen family members do have particular ideas for philanthropy, those views need to be sussed out. To that end, Griffin and Garcia interview family members separately, across generations, to identify personal goals and individual priorities.

One of the biggest challenges for family philanthropy—and the main focus of the new Northern Trust report—is to ensure that family members remain engaged in this work over time. Griffin and Garcia outline several strategies through which foundations can help stimulate family engagement, stressing the need for flexibility in approaching this challenge. Here are a few ideas they discuss.

1. Junior Boards

According to the recently released “Trends 2020” study by the National Center for Family Philanthropy, more than half of U.S. family foundations anticipate providing leadership roles to younger family members on the board, or including them in foundation decisions over the next four years. Yet only slightly more than one-third of family foundation boards currently include a millennial or Gen Z representative.

Griffin underscores this point: “Many foundations aspire to work in perpetuity, but don’t have a next generation who are interested and engaged.” Junior boards create a pipeline of viable candidates and invested family members, and prepare members to serve on the larger board through invaluable, hands-on experience. “That’s the glue that can keep a foundation together over time.”

Griffin and Garcia note that while junior board members should have clear roles and responsibilities, it’s more crucial for foundations to focus on is the experiences they want junior board members to have. Junior boards are training grounds, so success should be measured along these lines. If foundations are too focused on achievement with their junior board, they may end up deterring participation. As Garcia told me, “junior boards are more about planting seeds for the future.”

2. Emerging Platforms

The growing popularity of unconventional giving vehicles, particularly donor-advised funds and giving circles, highlights philanthropy’s evolving nature. While many in the boomer generation are skeptical (or outright averse) to these changes, Griffin and Garcia spotlight the benefits of incorporating such vehicles into a family foundation’s structure.  

For example, DAFs 0ffer an easy way to create “charitable bank accounts” that allow next-gen leaders in training to earn their philanthropy wings. “Some individuals use DAFs to promote generations of giving by naming next-generation family members as additional advisors and successor advisors to the fund,” the report says. “Additional advisors are able to make immediate grant recommendations from the fund and successor advisors are named to continue making recommendations after the death of the original donor(s).” DAFs maintain other benefits, of course, such as donations growing tax-free while donors maintain an extended time period for distribution (although DAFs are not without criticism).

On the fun side of the coin, giving circles can bring together families and engender a deeper sense of connection. Griffin and Garcia point to a family whose members gave individually until this year, when they were introduced to the concept of a giving circle. They pooled $100,000 into a multi-generational giving circle, and collaborated on the process of nominating organizations for consideration, attending site visits together, and generally learning how to work with one another. What was previously a disparate family dynamic suddenly became intertwined, and the result is a much closer bond between family members.

When given the opportunity, millennials and Gen Z are test driving and adopting these emerging structures. That’s why Griffin and Garcia encourage families to consider these platforms now, while boomers still have their hands on the wheel and control the extent to which they are implemented. A little flexibility now will pay dividends in the future.

3. Impact Investing 

For many families, impact investing is a foreign notion, and a threatening one at that. Yet the fact remains that impact investing is growing in popularity with younger generations, especially millennials. According to the white paper: “Millennials have the strongest commitment of any age segment to social or sustainable investing and have an increasing belief that it is possible to invest in for-profit companies that have a positive social or economic impact while also achieving healthy financial returns.” With that in mind, Griffin and Garcia stress the ways in which families can foster conversations around impact investing that facilitate engagement, rather than turn people off.

The first step is remembering that impact investing has different connotations. “Impacting investing is an umbrella term,” explains Garcia. “It can mean a lot of things. If the cash in a portfolio re-invests in a CDFI, that might be impact investing, even if family members don’t call it that.” When broaching the topic of impact investing with clients, Griffin and Garcia first help them generate an idea of what the term means. At the very least, millennials often want to ensure that the family’s “investments are not working at cross-purposes with their charitable mission and values,” the report states. Griffin and Garcia relayed the story of a group of their clients—a Quaker family in the Northeast. The parents were adamant about not investing in companies connected in any way with firearms. However, their daughter took it one step further, and insisted on expunging any steel companies from the portfolio whose product goes into the manufacturing of bullets.

The lesson here is that views about socially responsible investing can change over time—and it’s typically next-gen family members who are pushing the envelope. To mitigate the risk of surprises down the road, family members should identify their personal definitions and communicate those with one another.

The Future is Now

While many are watching to see how the greatest wealth transfer in history will pan out over the coming decades, Griffin and Garcia say the transfer is already underway, and next-gen family members are increasingly stepping up.

Often, their parents are encouraging them, as we described recently in our profile of Barry Sternlicht, the founder of W Hotels. “Now that my three kids are in their 20s, we’ve allowed them to pick charities and donate money from the foundation every year. We’re going to be sitting together now and figuring out where we can make significant impact. I think this is the common evolution of philanthropy, and families like ours, which is first-generation wealth… it’s now more about trying to pick a few things we’re going to do and scale.”

As generational transition plays out, Griffin and Garcia expect new charitable vehicles to emerge. They believe there will be fewer family foundations in the future, and a higher percentage of those that remain will have set time limits, as opposed to existing in perpetuity. “More clients are saying they’re not sure what their grandkids will be interested in,” says Griffin. “Or that the issues they’re addressing are so urgent they want to make sure they tackle them now.”

Even in a best-case scenario in which the next generation looks to amplify the current mission, as opposed to completely altering it, the mission is likely to change. Take the case of the Remala family. One of the first 50 employees at Microsoft, Rao Remala and his wife Satya launched their foundation with a relatively narrow focus. One of their efforts, for example, was an initiative called the Reconnecting Youth Program, which helps incarcerated youth and young people who have “fallen through the cracks” to earn their GEDs. The Remala daughters are now broadening that focus by providing greater access to the arts for low-income youth in Seattle in an effort to stave off incarceration before it even happens. So in the case of the Remala family, the first generation was tackling a symptom of incarceration, and the second generation expanded that effort to tackle the issue of high incarceration rates.

When I asked Griffin and Garcia what questions they wish they heard more often about family philanthropy, they responded that they’d like for family foundations to be thinking more about systemic change. Rather than thinking about their foundation as an entity that lives on forever, families should be bolder in their giving and consider how they can solve problems instead of merely mitigating their impact.

That guidance ties in nicely with the pair’s broader goal of spurring greater engagement in family philanthropy across generations. After all, what better way to engender next-gen participation than by audaciously committing to solving the problems of today?