The International Journal
of Not-for-Profit Law
Volume 7, Issue 4, September 2005
By Kelin E. Gersick, with Deanne Stone, Katherine Grady, Michele Desjardins, and Howard Muson
Lexington Books / 279 pp. / $70
Reviewed by Al Lyons 1
Family foundations are a major philanthropic force in this country – and are likely to become even more influential in the future. In Generations of Giving, Kelin Gersick provides insights on how family foundations function, how they evolve, and how their strengths and weaknesses affect their – and our – future.
In 2004, gifts to private foundations increased by 8 percent, the largest growth for any type of nonprofit group (Chronicle of Philanthropy, June 23, 2005). Of the 40,000 private foundations in the United States, an estimated two-thirds are family-managed (National Center on Family Philanthropy, www.ncfp.org). In Forbes (October 30, 2000), William Barnett noted that three-quarters of the wealthiest Americans have their own private foundation. Much of the heralded intergenerational transfer of wealth will find its way into new or existing private foundations, many of them controlled by families. The future philanthropic role of family foundations is significant.
Gersick and his research team investigate the inner workings of these family-managed charitable entities. Generations of Giving is not a broad study of family foundations, or a “how-to” book for establishing such an organization. Instead Gersick conducted in-depth interviews with nearly 300 staff and trustees from thirty family foundations that have endured through several generations. He uses these case studies to develop guidelines on how family foundations might best function – with particular attention to how they manage the critical phase of transition.
Family foundations are an integral part of our philanthropic heritage. Their historic roots are found in the Carnegies, the Rockefellers, and the Fords; modern examples include the Gates, the Hewlett, and the Packard families. But only in the past decade has formal attention focused on family foundations. The National Center for Family Philanthropy was founded in 1997; the Council on Foundations provides numerous resources on family foundations; and the Foundation Center distributes a report, “Key Facts on Family Foundations.” Generations of Giving adds to these resources.
It should be noted that a “family foundation” does not have a legal definition distinct from any other private foundation. But family foundations are informally defined as being self-identified (such as by including the word “family” in their name), having a living donor whose surname matches the foundation name, and involving at least two trustees whose surname matches a living or deceased donor’s name. The presence and potential conflicts of these family trustees are central to this book.
Many if not most family foundations grew out of family businesses. As the author of a book on family businesses, Generation to Generation, Gersick builds on his experiences to identify the unique problems of combining philanthropic interests with a concern for a family’s legacy. He observes that whereas businesses can draw together families into a common cause, family foundations tend to emphasize individuality and can easily drive family members apart. Family involvement provides the potential for succession and a continuation of their legacy, but it also presents an opportunity for family conflicts to play out in the philanthropic arena. Throughout the book, Gersick sets forth guidelines on how to anticipate and manage this process.
Generations of Giving is organized into three sections. Part I provides a concise historical and contemporary context for family foundations. Gersick identifies three motivations of founding donors: to support worthy causes, to protect funds from taxes, and to create a family legacy. Balancing these motivations and their potential conflicts forms an ongoing challenge for any family foundation. He also outlines “The Transition Process” – emphasizing how normal pressures can develop until a significant trigger event, such as the death of the founder, prompts the need for a major transition.
Part II further structures these developments and transitions. Gersick outlines three types or stages of family foundations: the Controlling Trustee Foundation, the Collaborative Family Foundation, and the Family-Governed Staff-Managed Foundation. He then investigates the challenges and decisions that family foundations face in shifting from one stage to the next – particularly as generational leadership changes. He notes that evolving from the first stage to the second stage is usually inevitable over time. To evolve from the second stage to the third stage, however, becomes a critical organizational choice. With excerpts from the interviews, Gersick illustrates the varied and at times conflicting dynamics at work within families. In these times of potential conflict, the strength of the foundation’s mission and its organizational stability are critical for its continued survival. The thirty family foundations included in the study have dealt with these transitions in one way or another. Those that have been most successful serve as models.
The third and final section summarizes “Lessons on Governance and Continuity.” These include the importance of a defined mission, the role of family dynamics, options for developing organizational structures, and the need for sound succession planning. An effective board of trustees gives as much attention to mission, succession planning, and effective operations as it does to the grant-making process. Distinguishing between governance and management is critical for effective foundation operation. It is also important to ensure that adequate resources are invested in the operation – a point that Gersick acknowledges can conflict with recent concerns over limiting foundation administrative expenses. An underlying theme is the need to develop true collaboration among the (mostly family) board members rather than settling for mere coexistence.
Two elements of success are repeatedly emphasized here. The first is the need for a focused mission. The original donor or family leader may have defined the foundation’s initial purpose, although Gersick reports that most founders were not as concerned with defining a mission as they were with supporting their specific interests. But as foundation leadership evolves to a second or third generation, it becomes crucial for succeeding trustees to ensure that the mission reflects their own shared philanthropic dreams. Failure to reexamine the purpose of the foundation continually can lead to a splintering of the operation and of the grant-making process. It also can fracture the various branches of the family.
The second element of success is the advantage of a strong non-family mediator, either as a paid executive director or as a member of the board. A trusted non-family advisor helps family members focus on common interests rather then on differences. The very presence of a non-family mediator or leader can provide needed objectivity as well as expertise.
The strengths of Generations of Giving are the clear and practical guidelines that Gersick identifies through his case examples. For trustees or staff of a family foundation, this book provides an opportunity to evaluate their current stage of evolution. It can also help pinpoint specific governance or management issues that may need to be addressed. The organizational stages and solutions are proven approaches found not only in foundation practice but also in the literature on organizational management more broadly. Gersick effectively adopts these approaches to family foundations by incorporating methods to manage conflicting family dynamics.
To be sure, Generations of Giving has some weaknesses. Beyond its emphasis on family foundations, it ultimately offers few new organizational insights. Rather, it applies to family foundations approaches similar to those developed by organizational management and recent work on family businesses. A further drawback stems from the anonymity Gersick granted and the limitations of the thirty family foundations studied. The anonymity of the foundations, though a necessary condition for the research, produces little context for the selected quotes and stories. Rather than strengthening an argument, these quotes and stories can become anecdotal and at times distracting. Also, despite the impressive effort involved in conducting and collecting more than 300 detailed interviews, this study represents less than one-tenth of one percent of America’s family foundations. This raises a concern about how broadly its conclusions may apply.
But these are minor criticisms of a book that adds a welcome perspective to the family foundation literature. Gersick maintains that despite the small number of foundations studied, valuable lessons still emerge because of the depth of the investigation. Most readers will ultimately agree. Generations of Giving provides valuable insights into how family foundations operate and evolve. Trustees, staff, and professionals working with family foundations will find the book can help focus their own family foundation work. Leaders of nonprofit organizations will find it enables them to better understand the dynamics of those family foundations that may be prospective donors to their programs, improving their grant-seeking process. And, as Gersick says in conclusion, the most important audience could be those who are thinking about starting a family foundation. Ultimately, most of us can relate to the family dynamics illustrated by the case examples, allowing us to empathize with the challenges faced by this increasingly important philanthropic entity.
1 Al Lyons has been a consultant for nonprofit organizations for more than 30 years. He is currently pursuing a doctorate in Philanthropic Studies through Indiana University in Indianapolis and the Center on Philanthropy.