Bill and Melinda Gates announced their divorce in May, raising uncertainties in the foundation world about the future of the $50 billion Bill & Melinda Gates Foundation. The divorce also highlighted a problem common to family foundations of any size—that the family dynamics which brought the foundation together may not be strong enough to weather strife, tragedy, or scandal.
Turns of circumstance can threaten the very mission and integrity of an organization. It is essential for family foundations to take proactive measures to shield against the effects of family concerns.
Common Family Foundation Stressors
Family foundations can face a variety of stressors, from the death of a powerful head of household to a lack of engagement in the next generation—or even the lack of another generation altogether. In the case of the Gates Foundation, the organization has said that the couple’s roles as co-chairs and trustees will not change. However, the split certainly still complicates things. For example, it is unclear how much of their combined wealth will be contributed to the endowment in the future.
Threats to a family foundation’s integrity can come in forms as unique as the foundations themselves. However, many families’ fault lines lie along generations. If the foundation is headed by the family’s dominant wealth creator, younger generations may not feel they have a right to steer the endowment. Forceful older members may also be wary of letting younger family members make decisions.
Intergenerational disagreements can lead to conflicts over funding decisions as well. For example, a founding generation may lean politically conservative but have grandchildren who embrace diametrically opposite views. Some families may take extreme measures to avoid clashes, such as splitting the foundation into a separate entity for each generation to support its preferred causes.
Scandal can also tarnish a foundation. The Sackler family faced reproof after their role in the opioid epidemic became exposed—so much so that museums around the world stopped accepting gifts from their foundations.
Proactive Protective Measures
Fortunately, family foundations can adopt practices to protect themselves from many of the most common stressors. One crucial area is to involve younger generations in the foundation and prepare them to participate.
To that end, time is an important factor. It means allowing the next generation’s involvement to evolve gradually, letting them familiarize themselves with the family foundation until they can participate and eventually become leaders. In 2013, West Foundation President Emily West brought on two younger cousins as trustees so that they could be ready to take part in a strategic planning process slated to happen over the next few years.
Close proximity can promote engagement during this process. When children live far from each other, they may feel a loose sense of connection. Some families prepare for this by giving the next generation discretion over a portion of distributions, allowing them to support local, mission-aligned investing initiatives that are important to them.
Good governance is also essential—and multifaceted. Diversity among trustees and board members extends to including those outside the family. The Barr Foundation now has four outside board members and three family members, having decided that nonfamily members will always outnumber family members. There also is an explicit understanding that family members be brought on board based on their qualifications rather than their family status.
These steps ultimately lead to a more stable organization—one better prepared to address the matters most important to mission-aligned investors.