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Straight Talk from the Experts: Doug Mellinger on Family Philanthropy

By Jennifer M. Pendergast, Ph.D.

Doug Mellinger, founder of Foundation Source, is a strong proponent of family philanthropy. Foundation Source is the nation's leading provider of outsourced support services for private foundations. The Company provides "back-office" administrative and accounting, an internet technology platform and a support team to enable the family to focus on giving in a productive way.

Mr. Mellinger, a successful entrepreneur early in life, found he enjoyed giving money away as much as he enjoyed making it. Jennifer Pendergast, Executive Editor of The Family Business Advisor®, talked to Mr. Mellinger about the role of philanthropy in business owning families.

JP: Doug, tell us about what led you to create Foundation Source.

DM: Foundation Source was based upon my personal experiences. I have been an entrepreneur and have founded several businesses. When I was able to set up a family foundation, I was looking for technology to make the administrative part of running a foundation easier, so we could focus on giving. The other important aspect was to allow family members involved in our philanthropy to collaborate in our giving even though we didn’t live in the same place.

We’ve built a company that serves foundations of all shapes and sizes – from $200,000 to multiple millions. We provide them turn-key administrative support so that their officers can focus on what really matters, which is making a difference in the world and for the people who are participating. We support our clients in three ways - through software based solutions, expert staff that can help families build their philanthropic missions, do research and support doing the work needed to run the foundation, and through our community of foundation clients who learn from each other.

JP: Family business owners often worry about the impact the wealth generated through their business will have on successive generations. Is this fear warranted?

DM: It is warranted. We’ve seen more stories than you want to repeat about kids with money who don’t want to do anything. They don’t build any self-worth.

JP: Is there an upside to the wealth as well?

DM: There are enormous positives – access to traveling, business experiences, business and social contacts. You can use these positives to creating wealth and doing something good with it. You can use these experiences, skills and relationships as a foundation for philanthropy. The question is what are you going to do with them?

JP:What can elder generations do to prepare younger generations to deal with wealth?

DM: It is important to let the children know about money so they can be prepared to deal with it. Give them an environment that allows them to learn how to express their personal beliefs and desires and at the end get to a business decision.

The big dream families have is to see the next generation work together, either in a business or as a family unit. It is a wonderful desire but it is very difficult to achieve.

JP: What are common mistakes elder generations make?

DM: We need to recognize that kids are growing up in a different environment than we did – with the Internet and other technologies and hobbies that distance them from one another. We need to give them opportunities to think and work together.

In addition, many elder generation members try to force next generation members to get along rather than providing them opportunities to make decisions together. Philanthropy is a strong and safe environment to learn and work together.

The problem is that parents typically get their children involved in philanthropy at 18-35 years old. They think their kids need to reach this age to be mature enough to deal with money. In reality, the 18-35 range is often the worst age. It is the age where their DNA is programmed to break away from the family. The parents want to pull them in, just as they are trying to escape. This creates friction.

The absolute best time to engage kids is 5-12 years old. This is the age where there primary learning comes from the family. Kids are much smarter than parents give them credit for. They are capable, with guidance, of beginning to make decisions about money much earlier than parents expect.

JP: We have been talking predominantly about wealthy families. What about families who are still building their businesses and don’t have a lot of liquid wealth. Are there opportunities for them to be involved philanthropically?

DM: Some people don’t realize you don’t have to be a Ford to have a foundation. You don’t have to have a billion or even a million dollars to make a difference. The question you need to ask yourself is - are we going to be charitable or philanthropic? Most people operate in the charitable mode. The opportunity to make a greater difference is there. But, they don’t optimize their giving. They spray their money around and don’t focus on a mission for their giving.

Charitable giving is reactive giving. There are over a million charities out there, all of whom have needs. The model out there is to build fairly substantial boards and dinner committees and sophisticated outreach committees. Many family business owners get lots of requests from friends. It may be school, community, faith-based organization. They respond to requests or invitations to events and before you know it, all the money you have to give is already allocated. We call this “plant a thousand seeds and hope that something blossoms”. Philanthropic giving is where you start exploring what you believe to be issues in areas you care about and then you become more proactive in finding the organizations that serve the needs.

I recommend creating two missions. The external mission is about making a difference in your community. The internal mission is about what I want to do for my family.

You can create these missions regardless of how much you have to give away. You can visit charities and understand what they do. You can build volunteer philanthropic work into your travel.

JP: Business owning families don’t always see eye to eye on matters involving the business. Is this also the case in philanthropic decisions? If so, what can families do to avoid conflict?

DM: One of the common mistakes is for elder generations to take too heavy of a hand in determining how money will be given away. I don’t think it’s fair for elder generations to lock the next generation into a philanthropic mission. If the next generation members are expected to participate but not given any decision-making power, they probably won’t be engaged. If elder generations have made the mistake of not preparing the next generation to make good giving decisions, that is their fault. If the elder generation is really set on what they want to give to, hire a bank trust person and let them administer the funds. Don’t burden the next generation with a menial task. Then let the next generations have discretion over some money so that they can give in areas that interest them.

 

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