ECONOMISTS PREDICT AN EXPONENTIAL expansion of philanthropic giving in the coming decade, but their explanations for the boom are not always complete. For instance, one little-discussed contributor is the swelling ranks of affluent Americans who opt to leave the bulk of their estates not to their children, but to charity. Indeed, a growing number of entrepreneurs believe that inherited wealth can be more of a curse than a blessing for their children. Most of them feel that the process of building an enterprise is much more valuable than the monetary rewards that enterprise brings. Should that opportunity, they are asking, be denied their children?
The list of those who have made the decision to leave their children only modest inheritances is long. The two richest men in American, Microsoft founder Bill Gates and Berkshire Hathaway chairman Warren Buffet have both put their children on notice that their inheritances will be less than absolute. Gates has vowed to leave only $10 million each to his daughter and any of her future siblings and give the balance of his estimated $40 billion net worth to charity. I, too, am among the “disinheritors.”
My story is not atypical. The son of immigrant parents from Lebanon, I started a consulting practice fifty years ago that has grown to substantial size. In the early 1970s, we became a public company. Having been raised in a modest, middle-class home, our three daughters were startled to find that our net worth was considerably higher than they had imagined.
My wife and I had to face the problem of what we wanted to do with our wealth. We eventually decided that the greatest gift we could leave our children was not financial capital but human capital. We told our three daughters that we loved them very much and had concluded that their trust and additional gifts would provide adequate support for them to live an independent life-and that we trusted their prudence enough to start transferring that money immediately. And then came the kicker: We said we intended to give the rest of our resources away and wanted to start doing so during our lifetime.
We told them our reasons. There is a negative aspect to giving your children a lot of money because of its tendency to spoil them. We didn’t want that to happen, and we knew they wouldn’t want anyone to marry them hoping for inherited wealth. Most importantly, we didn’t want to deprive them of the fun and pride of making their own careers, unaided by parental wealth. In America, our cultural paradigm is less and less to create a family dynasty and indeed the business heroes of today are the entrepreneurs, not those who have inherited old wealth.
Their response was most gratifying. Our daughters didn’t ask how much we would give them but asked if they could help us give our money away. The result was the formation of the Jacobs Family Foundation in 1989. And as we organized and started making grants, an important principle evolved. This was to be “our” money-my wife’s and mine, because we earned it-but also our daughters’ and their husbands’ too, because of the inheritance that they agreed to forego. We are learning to live together philanthropically and it’s a most rewarding family experience, though not without its moments. For instance, some families fight over who gets what. We fight over which grantseekers get what.
For other wealthy individuals who have made the decision not to burden their children with their wealth, the question of what they will then do with their estates is not so clear. Many of the “new entrepreneurs” seem to believe that they have fulfilled their duty to the community when they have written a check to charity, made a bequest, or formed and endowed a foundation. To make matters worse, many entrepreneurs leave the business of philanthropy to professional managers, who frequently adopt policies that would make the original donors spin in their graves.
Randy Richardson, the long-time head of the Smith Richardson foundation, warns donors not to endow foundations in perpetuity. He strongly supports a “sunset” clause and I agree. The Jacobs Family Foundation is designed to go out of business in thirty-five years, the approximate life span of our daughters.
The only way to truly preserve and institutionalize donor intent is to become active in the management of the organizations one supports. Arnold Beckman of Beckman Instruments, David Packard of Hewlett Packard, and Eric Jonsson of Texas Instruments all were intimately involved during their lifetimes in the foundations they created.
Some entrepreneurs, like Buffet, insist that their expertise is in making money, not in giving it away. This, I respectfully submit, is a cop-out. Buffet is no stranger to reorganizing and creating effective, efficient management structures. If he puts his mind to it, I have no doubt he can create an organization that will use his money as effectively in philanthropy as it has been in the marketplace. Moreover, the nonprofit sector needs him. Organized philanthropy is in crying need of the kind of drastic reorganization that we’ve seen in business in the past two decades.
In the ten years of its existence, the Jacobs Family Foundation has traveled a long trail of disillusionment with traditional philanthropy. We quickly moved away from conventional grantmaking to a “venture capital” approach of investing resources in the communities where we live. More than half our current budget is in providing technical support-accounting, marketing, budgeting, etc-to nonprofits and entrepreneurs. We now form partnerships with those we fund, accepting mutual responsibility for investing resources in the community that yield results.
Like any venture capitalist, we have had more failures than successes. But in the process, we have learned some valuable lessons about the business of philanthropy.
First, insist on measuring results, and hold people responsible for their acts. Apply that mixture of discipline and affection that brought your children and your business to independence and maturity.
Second, encourage risk-taking, not only in the nonprofits you fund but in the people they serve. The role of an entrepreneur combines intelligent risk-taking with an ability to “teach.” Assume these roles in philanthropy and a revolution in giving will occur that rivals that of the marketplace.
I urge all entrepreneurs who decide to join the “disinheritors” and dedicate their material resources to philanthropy to bring their business skills along with their money. They will find that private philanthropy can be every bit as interesting a challenge as those faced in the business world.
Founder and chairman of Jacobs Engineering Group, Dr. Joseph J. Jacobs is the author of The Anatomy of an Entrepreneur and The Compassionate Conservative. He and his wife Violet broke the news to their daughters in 1972, and established the Jacobs Family Foundation in 1989.
