Family businesses can be looked at as microcosmic socioeconomic systems in India with strong ties to their communities and have a tradition of giving back to society.
Giving back is important to family businesses but it is relevant to find out what drives the family business philanthropy. A 2016 report by EY found that the founder’s values play an important role in driving the family business philanthropic philosophy. They also serve to unify expression of the family’s ethics, values and beliefs.
The EY report also said small and large family businesses believe personal overseeing contributes to effectiveness while medium-sized ones feel professional mechanisms reduce personal involvement.
There are three broad models that family businesses use to execute their philanthropic agenda.
One is to set up a foundation managed by the family. Women of the family are encouraged to participate in its workings. The foundation also helps to provide a common forum for the family to meet and discuss matters – not all necessarily related to philanthropic work. The foundation is usually funded by dividends received by the family from the business. Small family businesses find this model most practical.
The second model is to channel all philanthropic work through corporate social responsibility (CSR) activities. Here, the philanthropy is funded by the business and outsourced to NGOs. With little historical distinction between the business and its owner, the latter’s philanthropic activities being channelled through the business is not seen as incongruous.
This model typically focuses on communities that are important to the business and helps employees. While some families find this model useful, non-family businesses use this route extensively and the focus changes with each business chief.
The third model is a hybrid of family and CSR activities, along with their objectives. The family usually sets up a charitable foundation and dividends/funds from the business go into it. Members of the family lead the trust while employees are actively involved as well. The causes supported by the foundation are usually the ones held close to the heart of the family. The Tata Trusts is an example of this model.
Of course, there is no right model for any business family to follow when it comes to philanthropy. Each family has, over the years, arrived at its own method.
One fact, though, stands out. The big philanthropists in India are usually quiet about their work. Forbes Asia has an annual list called Heroes of Philanthropy, which, in 2017, featured 40 philanthropists from the world over, including six Indians.
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© 2017 State Times Daily Newspaper