Nurturing the Next Generation

Family foundations devise ways to prepare heirs for board service

Owen Knott grew up expecting to serve as a trustee of his family’s foundation — an obligation for those who, like him, are descended from grant makers. But around the time Mr. Knott reached adulthood, that seat became not a birthright, but a position that could only be earned.

Unlike most family grant makers, which usually don’t have a system to prepare young family members for board membership, the Marion I. and Henry J. Knott Foundation, the Baltimore fund founded by Owen’s grandparents, established a year-long “trustee candidate program” seven years ago, and requires all Knott heirs to complete it before they can join the board. The $40-million foundation, whose founders earned their wealth in construction and real-estate development, was established in 1977.

Mr. Knott participated in the trustee program four years ago, when he turned 25 — the age at which Knott descendants become eligible for board service — and has served as a trustee ever since. The program taught him just how complicated giving away money can be.

He confesses he felt overwhelmed when he began the program and realized the responsibilities he would face as a trustee. “It was a little nerve-racking to go into the board grants committee meeting for the first time, understanding you’re in the driver’s seat and having to recommend to the committee a grant proposal to fund or deny funding,” he says. “There can be some intimidating people who have been on the foundation board for many, many years. They ask difficult questions — as they should. You try to answer their questions intelligently. You want to be respected at the end of it.”

Learning About Charities

Mr. Knott, vice president of Knott Mechanical, a commercial heating and air-conditioning company in Owings Mills, Md., says he was especially grateful for the chances the program gave him to tag along with seasoned trustees on visits to potential recipients of Knott Foundation money. The veteran board members taught him to view a charity’s work in its totality, including its impact on the people it serves.

“They took my mind off things I was overly picky about,” he says. Before entering the program, he says, he assumed that any charity that lacked a financial cushion must be mismanaged. “What I learned most was how nonprofit organizations work and that they might not have a lot of funding — they grasp at straws to stay alive. I wasn’t aware before of the instability of nonprofit organizations.”

When donors establish family foundations, they often expect that the work of grant making will draw their heirs together, and that future generations will be better suited than outsiders to carry out their intentions as donors, say experts in family philanthropy. To maintain this continuity, young family members are expected to eventually move into trustee roles — either when they reach adulthood or later, when a board seat becomes available.

And yet most family foundations do not prepare heirs for their grant-making responsibilities, says Karen Green, managing director of family foundation services at the Council on Foundations, a national association of grant makers in Washington.

“Our members have told us succession is one of their most important issues — 60 to 70 percent say it is their number one issue,” she says. “Yet only 37 percent prepare younger members for their roles. It’s on their minds; it’s just a matter of getting around to it.”

However, a small number of family funds, such as the Knott Foundation, are making a formal effort to prepare their founders’ heirs for their future responsibilities. As a result, they are nurturing a new generation of more confident and involved trustees, getting fresh ideas for grant making — and, in some cases, strengthening family ties.

Planning for Succession

The history of family philanthropy can help explain why family foundations rarely plan for succession, says Virginia M. Esposito, president of the National Center for Family Philanthropy, a resource center in Washington. In the past, foundations were started by older people whose children were already established in adulthood. However, the economic boom of the 1990s resulted in a surge in younger donors with younger children, she says — and with them came an increased interest in succession planning, as younger philanthropists put a higher priority on spending time with and guiding their children.

Ms. Green says that succession should be viewed not as a single event, but as a process. “Some people feel board transition is going to happen at the moment when ‘George’ comes off and ‘Bill’ comes on,” she says. “But it has to be part of the permanent fabric of the foundation all the time.”

Those family foundations that prepare their next generation for board service do so in a variety of ways. Among the methods cited in the Council on Foundations’ most recent survey of family grant makers:

• Forty-eight of 200 respondents said they take younger family members on site visits to potential and current grantees.
• Thirty-three reported paying for family members’ professional development, such as attendance at conferences.
• Another 33 created a committee such as a junior board that might control a small pool of funds, or control a particular grant-making program.
• Twenty-nine said they have programs that allow individual family members to donate foundation funds to charities of their choosing, or have their own donations matched by the foundation.

Other grant makers reported that younger members observe board meetings, or serve fellowships or internships at their families’ foundations.

Establishing Programs

The Knott Foundation’s leaders began the fund’s trustee-candidate program because its board kept growing larger as more heirs became eligible for board membership, says Greg Cantori, the fund’s executive director. The grant maker’s board currently includes 30 family members.

“It was essential to have a good process in place,” he says. “Although we have a board manual on governance and grant-making issues, when trustee candidates go on visits with trustees, for instance, they get practice, and learn protocol and sensitivity issues.”

The Knott program requires descendants of the founding donors, and their spouses, who are interested in joining the board and are at least 25 years old, to attend 75 percent of the foundation’s grant-committee meetings, along with two board meetings, a training session on grant making, and one on governance. Program participants must also visit at least two charities and submit reports to the board about them.

The Self Family Foundation, in Greenwood, S.C., which was founded in 1942 by the textile manufacturer James C. Self and currently has an endowment of $35-million, put together its Next Generation Fund Board in 1996 after 11 members of the family’s youngest generation, then aged 9 to 28, were polled about their interest in becoming involved in the foundation’s work. (Family members are automatically asked to join the Next Generation board when they turn 18, but cannot ascend to the foundation’s senior board until a seat opens up.)

During the Next Generation board’s first year, members attended a retreat on Hilton Head Island, S.C., led by the Philanthropic Initiative, a group in Boston that helps donors develop grant-making programs and evaluate their effectiveness.

“We went though a full day’s discussion on the work and history of the foundation and the family, and worked through a process of what the younger members were interested in and wanted to focus their direction as far as grant making,” says Frank J. Wideman III, the Self Foundation’s president. The young heirs wanted to support programs for children and youths in rural Greenwood County, S.C., a direction that was endorsed by the older generation on the foundation’s senior board.

The younger family members were given $80,000, which is 5 percent of the amount the foundation gives away annually, and were asked to distribute the money, with their decisions subject to senior-board approval.

The foundation gathers the Next Generation board twice a year in South Carolina, and staff members take the young heirs on site visits to help them make decisions about which charities to support. From the foundation’s perspective, Mr. Wideman says, the arrangement has worked well.

“Although the younger members are dispersed around the country, their interest in the foundation’s work remains high,” he says. “The senior board has been pleased with their funding decisions.”

William M. Self Jr., a 29-year-old who goes by his nickname, “Bubba,” says his service on the Next Generation Fund Board has helped him draw closer to his kin. “It provides a great opportunity for me not only to connect with my great-grandfather’s intent as a donor, but it gives me a chance twice a year to sit down and connect with family, particularly cousins,” says Mr. Self, who serves as vice president of the private-club division of Greenwood Development, a real-estate-development company in Greenwood, S.C. “And the process of giving has been a great opportunity for me to learn it’s not just about a check. The foundation’s proactive and we use our grants to leverage other resources in our community.”

Mr. Self also points to the psychological benefit for young heirs of having the senior board’s support.

“Probably the most critical issue for us is that the previous generations wanted us involved and put this structure in place,” he says. “That leadership and support has made it easy for us to learn and grow and be a part of this. No one on the senior board acts like his or her toes are being stepped on.”

Far-Flung Relatives

For many families, the biggest challenge of training foundation trustees is drawing together heirs scattered far from their founders’ home.

“Lots of foundations have struggled with this,” says John. J. Mullaney, executive director of the Nord Family Foundation in Amherst, Ohio. “I don’t know that anyone has any sure answers.”

Most of the 39 members of the Nord foundation’s third and fourth generations don’t live in northeast Ohio, where the philanthropy’s founders lived. But the foundation’s mission requires that 65 percent of its distributions go to Lorain County, an area that includes Cleveland.

Over the years, the foundation has done several things to develop the grant-making interests of young family members. About six years ago, says Mr. Mullaney, the foundation started a program for heirs 18 and older to attend board meetings — and have discretion over $15,000 worth of grants: “They’d go on site visits, talk to consultants, and talk among themselves about what they’d seen — and, at the end of the day, make grants to three charities.” In addition to those efforts, the foundation sought to accommodate geographically scattered young heirs by allowing them to make grants in and around the cities where they live. The foundation not only puts them in charge of a small pot of money, but also matches the heirs’ personal donations up to $5,000.

The grant maker has also begun experimenting with internships. In January 2002, Erin Ignat, a now 23-year-old Nord heir from Denver, interned at the foundation offices in Ohio for six months. “I think that served, one, to give her an appreciation for where the family had come from; and, two, it complemented her own interest in grant making and social-service programs,” he says. “We started working with her not only on grant review, but also on the larger picture we’re working on now, which is evaluation.”

Ms. Ignat, who is completing undergraduate studies in journalism at the University of California-San Diego, was elected as a Nord trustee in June. Because of the internship, she says, “I understand really clearly how the grant-making process works. Some older trustees don’t even have that because they haven’t gotten a look like I have at all the programs we run.”

Mr. Mullaney says that although some of the foundation’s activities have been effective, the grant maker is still tweaking the training process: “We’re struggling with the issue of what it means to use the foundation as a way to keep the family together, and how to instill stewardship in younger family members.”

A family foundation, he notes, can only do so much to prepare the next generation of philanthropists. “The foundation can serve to complement intellectual curiosity of young family members,” he says, “but that curiosity has to be developed in families and schools.”

And not every young heir is suited to grant-making work, he says, adding that younger family members should never be forced to serve a foundation.

“It has to be a question of honesty and creating an atmosphere where a young person can say, ‘I’m not interested in the foundation at this point’ and there won’t be repercussions from older members,” says Mr. Mullaney, who adds that the door can always be left open for heirs to serve later in life. “Sometimes the pressure is on in family foundations and you have to participate or it will cause resentments.”

Seeing Results

Since completing his training program, Mr. Knott has stepped into full-fledged trustee duties: Last year, he helped the Maryland Food Bank, in Baltimore, get $51,100 from the foundation to acquire and maintain hardware and software. “I was the grant maker on that,” he says proudly. “I presented it to the grants committee.”

His trustee training, he says, helped make the gift possible. Though he has worked as an information-systems consultant, he says, and thus felt comfortable with technology, the program helped him garner the information the board needed to make its decision, right down to providing him with checklists of detailed questions he could take on his visit to the food bank.

“It certainly prepares you for how to conduct an interview, how to solicit the potential grantee for additional information, how to get past any barriers that prevent you from uncovering certain information,” he says. He has remained involved with the charity ever since, he says, helping it to establish a technology committee. He’s glad his family foundation had something in place to prepare him for his work as a trustee.

“The training takes you from being a person in the boardroom, who may or may not understand the big picture of what the foundation does, to understanding the foundation’s mission and how to handle yourself,” he says. “It definitely clarifies your role.”

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