Giving it away: When sweet charity turns sour

For many family businesses, philanthropy is a fundamental part of their corporate ethos, but it can also be used as a wealth management strategy or to bolster tarnished reputations.

Family businesses have tended to be at the forefront of philanthropy. Studies have shown they are consistently more generous than non-family businesses.  The Munich-based Foundation of Family Businesses, for example, found that nearly 60 per cent of family businesses support charitable activities and foundations, compared with only 44 per cent of non-family businesses.

Unlike other businesses, family businesses tend to have strong local roots and they also tend to take a more holistic approach to philanthropy, with many including their staff in their giving as well. 

Also, family businesses tend to be more private about it. They’re not particularly given to telling the world about their generosity, unlike listed companies trumpeting achievements to boost their reputation and share price.

This can lead to complications. One example is Wal-Mart. Heirs to the Wal-Mart fortune, worth an estimated $140 billion, were recently busted for not donating to a charity run by their company. While the Wal-Mart Family Foundation has generously supported social and environmental issues, everything from schools to protecting rivers, the family behind it have been less than charitable.

 A report by union-backed activists fighting for fair wages of Wal-Mart workers found that the company’s four heirs -- Rob, Jim, Alice and Christy Walton -- had contributed $US58.49m to the Wal Mart Family Foundation.

Sounds generous? Think again -- that came out to 0.04 per cent of their net worth.

According to the report, it was less than one weeks’ worth of dividends that the Waltons will receive this year and less than the estimated value of Rob Walton’s collection of vintage sports cars. Indeed, the report found that Rob and Alice Walton made zero contributions to the Foundation over a period of 23 years. Jim Walton made a single contribution of $3m to the foundation -- and that was more than 15 years ago.

Even more concerning was the finding in the report that the Waltons had used the tax-exempt foundation as part of a wealth management strategy to reduce or eliminate estate taxes on intergenerational transfer of Walton family wealth.

And there is a lot of it. According to Bloomberg, their stake in the company is worth enough to fill a large backyard swimming pool with solid gold.

Bloomberg points out that the money ostensibly for charity is locked away in trusts, otherwise known as charitable lead annuity trusts for a period of about 20 or 30 years. A certain amount of money set by the donor is given away each year to charity but no figure is set. And that’s the beauty of it: whatever is left at the end goes the donor’s heirs, tax-free.

The Waltons are the largest users of CLATs, which have provided 99 per cent of the Foundation’s contributions since 2008. The CLATs had assets of $US8.8bn at the end of 2012, more than four times the amount of money in the Foundation itself. They are there for a reason.

Family businesses dominate the philanthropic scene in Australia. Examples include the descendants of Sidney Myer who have maintained four generations of professional philanthropy through the Myer Foundation and the Sidney Myer Fund and the Jack & Robert Smorgon Families Foundation which has raised funds for community causes and which has partnered with the Victorian Government through the Scientific innovation award and the Premiers Award for Health & Medical Research. It also established the Australian Council for Children and Youth Organisations, which has now merged with the Australian Childhood Foundation.

Certainly the generosity of these family businesses are benchmarks for corporate philanthropy, setting an example for non-family businesses including listed companies.

But there has been the odd occasion where philanthropy was used to bolster a reputation that had taken a hammering. One example is the late Richard Pratt who established the Pratt Foundation with his wife Jeanne in 1978 which has supported thousands of charities and programs, including a wonderful psychotherapy service for adolescents, and Visy Cares which helps create community-based projects such as youth centres, information and library facilities, hospital infrastructure, facilities for migrants and refugees and school improvements. Pratt’s philanthropy was said to be worth $150m or more.

When the Australian Competition and Consumer Commission fined Pratt a record $36m for his role in a $700m cartel, his supporters cited his generosity and claimed he had been hounded to his death by a vengeful regulator, the then ACCC chief Graeme Samuel. Indeed, the people from the Melbourne establishment backing him included former premier Jeff Kennett and the then union leader Bill Shorten. When he died in 2010, he was eulogised by the then Prime Minister Kevin Rudd and Premier John Brumby. 

Certainly Pratt was a brilliant and hard-working businessman, one of Australia’s most successful leaders, a flawed figure who crossed boundaries many times but whose generosity exceeded anything we had seen before. It is also worth noting that for all the tight-fistedness of its heirs, Wal-Mart remains one of the world’s biggest cash contributors to charity.

This is not to say that family businesses are using philanthropy to dodge taxes or bolster flagging reputations. For many, philanthropy is part of their ethos and gives non-working family members and next genners the opportunity to contribute to the business. But if nothing else, the stories behind family business leaders like Pratt and the Waltons tell us that there are many roads to righteousness. 

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