Asiamoney: Philanthropy and the generation game

Asiamoney, September 2011

One of the most striking patterns in Asian private banking is the number of clients who are among the first generation of their family to achieve wealth, and are wrestling with issues about passing it on to the next. One of the areas where this first-to-second theme is being most clearly expressed is in philanthropy.

“Ultra high net worth client families consider inter-generational transfer of wealth to include creating a philanthropic legacy: something the family founders will be remembered by, or to continue their lifetime charitable interests,” says Tee Fong Seng, vice chairman and head of ultra high net worth private banking for Asia Pacific at Credit Suisse. “Our clients in Asia increasingly tell us they want to involve their next generation in their philanthropic activities.”

There are lots of drivers to this trend. One is the fact that the first people to achieve wealth often have a very clear recollection of what it was like to have none – to be poor, in fact. “Given the massive wealth transformation we have seen in Asia, we notice many wealthy individuals grew up with very little,” says Jenny Santi at UBS Philanthropy Services. This creates a moral sense of a need to give back. There’s also the necessity of getting younger people involved to continue existing programmes. “Continuity of your philanthropy may require the engagement of the next generation, and in doing so secure a place for them in the family enterprise,” says Cynthia D’Anjou-Brown at HSBC Family Office Services, part of HSBC Private Bank. “This is especially potent when family members are not part of the family business but wish to make a contribution in other areas of family governance. Preparing everyone to actively participate often requires coaching and education.”

Alongside that, patriarchs also tend to fear that the next generation – which has grown up in prosperity – will have no appreciation of what it was like to struggle, and this also informs a need both to give and to seek the involvement of younger family members.

Interestingly, though, bankers report that younger generations are often more keen to give, and structurally better at it. This coincidence of interest also tends to have a knock-on benefit: binding the family together. “The next generation themselves are also more willing to lead the charitable organization and be actively involved as they tend to be more conscious and aware of the need and desire to give back to society,” says Tee. In Tee’s experience the older generation has been more focused on building the wealth and has had limited time for philanthropy along the way. But they also like the idea of “involving the different members of their family to work together and come together as a family to pursue a common cause, and in doing so, to keep the family together and in harmony.”

A shift to second generation involvement in philanthropy can also coincide with a markedly more ambitious approach to governance. Michael Troth, who is responsible for trusts and estate planning at Citi Private Bank, says charitable giving by a first wealthy generation tends to be personal and not necessarily well organized. “The next generation is looking to institutionalize their charitable giving,” he says, focusing on governance and running their philanthropy “more like a business”.

Tee agrees. “The next generation are prepared to sit on the board and provide leadership and support to a foundation or trust, and are also keen to make fieldtrips to visit the projects that they are supporting,” he says. This is something charities themselves like to see: it helps the longevity of a project as well as giving a personal connection to the donation.

“In Asia, the concept of institutionalizing charity-giving is still very new,” Tee adds. “So while there are many wealthy families in the region, few foundations exist. With the second and third generation having studied in the West and observing what is happening there in relation to giving, wealthy individuals and families in Asia are starting to formalize their giving to charity.” He cites a report saying there were 643 private foundations in China by the end of 2008, and that number is growing at a rate of 30% to 40% each year.

So what structural issues should people be considering when giving wealth? “The first thing is, what do you want to achieve?” asks Troth. “What is the timeframe you are looking at – is it something that should survive you? Is the project totally dependent on you, and if so, what are your succession plans?” Other issues include developing a consistent funding plan. “The easy part is putting the structure together from a legal and tax perspective.”

D’Anjou-Brown agrees. “To start, it is important for those wishing to engage in philanthropy to have a clear idea of what they wish to achieve,” she says. “For without this clarity, the chances are greater for drifting away from rather than drifting towards or – better yet – driving their philanthropic agenda.” She says research is important, as well as awareness of the available tools. “One also has to consider that a mix of grant-making styles – from pure charity to venture philanthropy – have value in particular situations and resonate with different donors.”

There are distinct differences in the ways that people give in Asia compared to the rest of the world. One of them is the motivation of tax. “In the west and the US in particular, there are potentially tax breaks for giving to charity, often on income and estate taxes,” says Troth. “In Asia, taxation is not really a big motivation for giving.”

The other is where the wealth goes. According to a new study by INSEAD and UBS, education is the big differentiator in Asian giving: the survey expects it to account for 35% of giving in Asia in 2011. The next biggest cause – poverty alleviation – accounts for just 12%, followed by health with 9% and disaster relief 5%.

Why is that? Santi at UBS says it is partly to do with cultural traditions. “There are strong cultural roots that support education, tied to Confucian, Hindu and other Asian traditions,” she says. Additionally, those that rose from poverty often recall a lack of education, or being the first in their family to receive it, having a particular resonance as they look to give back to society. “One of the most deep seated reflections they have is that they were deprived of a high quality education, so want to give back in that sector; or they recall that the only reason they were successful was because somebody gave them a handout and made a difference in their lives,” says Santi.

In essence, as Tee puts it: “Within Asian communities, education has always been viewed as the poor man’s ticket out of poverty.”

There are other reasons too. Education is an area that lends itself very well to this trend for improved governance. If you’ve paid for a school to be built, it’s not that hard to discover if it’s happened: you can go and look at it. Education-related giving is relatively transparent and easily measured. INSEAD – itself a top place of study – found that Asian educational institutions are often better organized than other socially oriented institutions. It quotes Chew Kheng Chuan, the chief university advancement officer at Nanyang Technological University in Singapore, as describing universities as “leading the professionalization of philanthropic funds solicitation across Asia.”

At the other end, religious giving occupies a much lower proportion of philanthropy in Asia as in the west. Americans, in particular, are much more likely to donate to their local church than people in Asia are.

One other finding of the study was that giving is overwhelmingly domestic. Only 23% of giving from Hong Kong crosses a border, 16% from Malaysia, 6% from India and 3% from the Philippines (Singaporeans give the most across borders, at 33%, probably reflecting the relatively low level of neediness among a small and wealth domestic population).

That said, individual bankers say that cross-border giving is increasing – which gives those bankers more of a role to play. “There is a lot of cross-border giving,” says Troth. “Some of our families are also significant shareholders of major companies; they generally have some kind of foundation which deals with their domestic charitable giving. What they’re coming to us for is to help them structure their international charity giving. They tend to take care of their own in-country philanthropy.”

Wherever the money goes, bankers agree there is a shift in the expectations of what that wealth will then do. “Patterns of Asian giving are changing,” says Tee. “Unlike the traditional philanthropists of old, there is a new era of change makers who shun armchair philanthropy and prefer to roll up their sleeves in engaged giving.  As the worlds of charity and business converge, the nouveau riche seemingly prefer to apply their resources, ideas and networks, and enter collaborative partnerships to maximize the desired social transformations.” This is reflected in different models. “Hence, rather than large sum one-time direct donations, there is a shift towards a philanthropic model based on targeted giving and sustainable outcomes. Today, more philanthropists are keen to embrace impact driven philanthropy and hence a greater interest in microfinance, venture philanthropy, social businesses and responsible investments.”

Troth says part of governance is knowing exactly where your money is going and what it is achieving: that might mean requesting surveyor reports, architect reports and staggering payments, particularly when building a school or hospital, for example. “Some families may even go and visit the sites, sit down with the executives who run the organizations, and want to become actively involved. There is a huge difference between this type of philanthropy and so-called cheque book philanthropy.”

So where next? Probably more of the same: more sophistication and structure around giving; continuing interest in education; and perhaps more cross-border donation. But above all, Asia’s rich donors have a simple message: they want their money to achieve more.