And as they undergo important internal changes, with new generations taking control, these businesses can increase the impact they have in their communities by modernising traditional philanthropic approaches.
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Philanthropy is rooted in the GCC’s economic, social, and cultural context. Family businesses generate some 90 per cent of private sector activity and engage in philanthropy through annual zakat (the religious obligation to give alms) or ad hoc grants.
Strategy& estimates that the annual philanthropic capital of 100 of the largest GCC family businesses to be at least $7bn, based on zakat contributions calculated as 2.5 per cent of their wealth. Family charities often exceed that percentage.
The most successful global family charities use impact philanthropy, which has three aspects: institutionalising philanthropic activities, adopting proactive alternatives to grant making, and measuring the impact.
The Rockefeller Foundation, the Bill & Melinda Gates Foundation, and the W.K. Kellogg Foundation are all examples of charities that have done these three things.
Institutionalising philanthropic activities provides a clear and coherent strategy to identify focus areas that are consistent with family values and corporate strategy.
As their activities grow and become more complex, philanthropies need more structured operating frameworks, whether through an individual family member, a family assembly or council, or a foundation. Foundations are at the highest level because they encourage focused giving and guarantee sustainable funding by taking a percentage of the company’s shares or revenues, or through endowments.
Some GCC family businesses already have foundations. The Abdul Latif Jameel group’s Community Jameel foundation, for example, focuses on six areas including job creation. Since 2003, its Bab Rizq Jameel initiative has resulted in 490,000 jobs in Saudi Arabia and 220,000 jobs in Egypt, Morocco and Turkey through interest-free loans to entrepreneurs, training programmes, and support, as well as job matching and direct recruitment.
Some alternatives to grant making enable family philanthropic activities to do good in their community without waiting for solicitations. One such alternative is social investing, so called because it uses business techniques and gauges their effect.
Social investing can take two forms: venture philanthropy or impact investing. Venture philanthropy, like venture capital, provides seed grants and long-term investments for promising social enterprises. It complements these with skills-building programmes that support their growth and core operations.
Impact investing finances charitable projects through private equity, debt, fixed income securities and innovative mechanisms such as micro-levies and social impact bonds.
One example of social investing is the Rockefeller Foundation’s grants and concessional debt finance for small-scale energy providers in India. This has brought affordable electricity to remote areas and encouraged entrepreneurship. Alfanar, the Arab region’s first venture philanthropy organisation, focuses on improving children’s education and empowering women. It provides social enterprises with tailored financing and hands-on technical assistance to increase their financial sustainability. Since its establishment, the impact of its social ventures portfolio on individuals’ lives has grown at a yearly rate of 39 per cent and have generated 32 per cent more revenue year-on-year.
Another alternative is philanthropy in the core business, whereby family businesses can develop core products and services that have social or environmental outcomes. In 2013, for example, US company SC Johnson tailored its insect-control products and sales channels in rural Ghana to help prevent malaria. While creating a social impact, SC Johnson also acquired new distribution capabilities for its core business.
Impact assessment helps charities measure the progress and effectiveness of their work. A comprehensive methodology determines which initiatives are worth putting more effort into and which need improvement. The W.K. Kellogg Foundation has a rigorous assessment framework that engages project directors, the board overseeing its philanthropic activity, and the wider employee population.
Of course, improving the impact of philanthropy is not just for family businesses. GCC governments can help by fostering a more supportive environment. For example, they can assign oversight of the charitable sector to a single governing entity and implement better regulatory frameworks with easier operating conditions and more fiscal incentives. They can deepen the talent pool of managers and employees through accredited academic institutions and training programmes and promote broader awareness of the charitable sector.
By improving their philanthropy, GCC family business can contribute to their societies and economies by doing good in their communities and developing a capable regional charitable sector.
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