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Published in Small Business

Experts see short, long term shifts with family business philanthropy

BY Sunday, September 13, 2020 05:00pm

Family-owned businesses have been key contributors to West Michigan’s culture around charitable giving, but the COVID-19 pandemic and lingering questions around a seeming lack of succession planning may change the nature of that philanthropy in both the short and long term.

Michael Moody, Frey Foundation Chair for Family Philanthropy at Grand Valley State University, said it’s important to first distinguish family-owned businesses’ philanthropic might by separating large and well-known family companies from “mom and pop” operations.

“In general, we’ve always known family businesses are essential as community citizens and philanthropic actors in a place like West Michigan,” he said. “There’s a tremendous culture of philanthropy here in general, but it’s very diverse in how they do that.”

The COVID-19 pandemic has highlighted nonprofits’ need for more flexible support from wealthy donors — such as for general operating funds rather than earmarked grants — but it also is changing the way charitable giving is defined, particularly for companies struggling during the pandemic.

One example is how family-owned businesses “tighten their belts” or dig into reserves to keep employees on the payroll.

“That’s not a purely business decision in all cases,” Moody said. “It’s also to be a good employer and make sure the family legacy continues to thrive. If you make that tough choice to do what’s right for employees even though in the short term it wouldn’t be the decision you make purely on business grounds, that to me has a shade of philanthropy to it. These things are mixed.”

Other ways the pandemic is “expanding our thinking” about business philanthropy include more flexible family leave policies and options for employees to work from home to be with school-age children.

“Any decision a family business makes is going to have some mix of philanthropic impulse and business savvy,” Moody said. “Some of the sacrifices family businesses are making are in the name of employees.”

The situation also cuts both ways, he added. Consumers deciding to purchase goods from a local business, often family-owned, is “not just a business transaction, it’s a little philanthropic for them. It’s blurring those lines of what is philanthropy.”

Despite these blurring lines, the more immediate effect of the COVID-19-induced recession may simply limit family-owned businesses’ ability to give. 

“We know family businesses are like any other actor: The No. 1 factor that determines where they give and how much will be based on their personal economic situation,” Moody said. “As family businesses struggle, they’re going to be cutting back on philanthropic activities.”

Diana Schad, director of the Grand Rapids-based Family Business Alliance, said 95 percent of family-owned businesses “participate in some sort of philanthropy,” though many companies, particularly smaller and service-based businesses, have been hurt by the recession.

However, she agrees with Moody that philanthropy has taken on new meaning during the pandemic, whether it’s donating personal protection equipment, offering free food or services to frontline workers or donating computers or tablets to area school districts.

“I’m not hearing about things on a huge scale but rather these personal, thoughtful gestures directly to the communities that family businesses are connected to,” Schad said.

Long-term uncertainty

Beyond the near-term effects of the pandemic on charitable giving, experts say long-term uncertainty remains as most family-owned businesses lack formal succession plans or are enticed to sell to outside companies or private equity-backed firms.

Moody said the answers to these long-term questions are filled with speculation.

“If one of the things that happens is more of them become subsidiaries of bigger corporations or get bought out, that’s going to have an effect on philanthropy,” he said. “We’ll see whether it diminishes it significantly.”

For fundraisers, Moody said the pandemic has underscored the need for “long-time supporters to step up. They need donors to be adaptive and flexible for shortening the time of their grants, converting to general operating grants and relaxing reporting requirements. There are a lot of things donors can do to make this easier on nonprofits.”

To Moody, the pandemic also has raised long-term questions about area family-owned businesses and their outsized role in the philanthropic sector. As the pandemic continues to showcase inequities in access to basic necessities and income, large donors will play a significant role in determining which nonprofits’ missions continue.

“This crisis is a big test for philanthropy, and everyone in the philanthropic field knows it,” Moody said, referring specifically to “justifiable criticism” that the pandemic will further “extend the concentration of power and resources in our society.”

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