Family offices rethink how they can create social impact
Bringing family members together to work on social impact projects will enable the younger ones to appreciate their privilege and allow the older generation to witness the impact of their investments. PHOTO: BLOOMBERG
THE Covid-19 pandemic that roiled the world was a wake-up call for even the ultra-rich, as it exposed societal fault lines and vulnerabilities that shone a spotlight on the role that they can - and ought to - play in driving positive social change.
Since the global health crisis started, many among the well-heeled have expressed their desire to give back, be it by deploying resources to support communities in their home countries, supporting social enterprises, or setting up philanthropy trusts, said Lee Woon Shiu, group head of wealth planning, family office and insurance solutions, DBS Private Bank.
This came as the pandemic intensified hardships that communities faced, intensifying populist sentiments and raising the possibility of higher wealth taxes and estate duties. It also led the ultra-rich to realise their own mortality and the possible transience of their hard-earned assets, added Mr Lee.
Many of these wealthy families have taken action, through their family offices, to be a catalyst for positive societal change.
Family offices, which are dedicated structures set up to look after the family's interests, have burgeoned in Asia as the region takes centre stage as a fast-growing economic powerhouse.
Compared to a pure business which may focus only on profit maximisation, family offices tend to be structured more holistically with other non-financial considerations in mind. Ultimately, they aim to prime the family's assets and legacy for long-term sustainability.
"They understand that they cannot operate in a bubble focusing simply on wealth creation at the expense of all things else - rather, they need to play an essential role in the communities in which they live and do business, and doing right by them," said Mr Lee.
"This is where social capital comes into play - families have come to realise that this is a key means to contribute to their communities, and to leave behind an impactful and meaningful existence."
Driving positive societal change not only strengthens family values, it also generates goodwill, an asset that can greatly boost the family's reputation and future growth. This can only be earned, not bought, said Mr Lee.
In the past, social capital was commonly deployed via cheque-giving and other philanthropic means.
However, he pointed out that philanthropy is changing and moving towards the likes of venture philanthropy as the wealthy find newer, more collaborative ways to give back to society.
"In the long run, we can expect social capital to increasingly transition from the passive giving process to more sustainable modes, such as helping beneficiaries to develop skill sets to help themselves and pay it forward," he said.
There is also potential in galvanising segments of the community to come together to collectively build a more sustainable ecosystem for not only others in the community, but future generations as well.
For instance, DBS is seeing rising interest from family offices in social enterprises. Social enterprises are dual bottom-line companies seeking both financial and social gains, playing a critical role by creating jobs and solutions that can drive social impact in the long term.
The evolution of how the ultra-wealthy rethinks social capital can be partly attributed to the rise of the second and third generations who are making their voices heard.
"These days, they are becoming much more vocal in sharing their thoughts and views on how the family business can improve, and on how the family's capital may be more optimally deployed to amplify positive impact in the communities where the family business is active," observed Mr Lee.
He flagged that the pandemic has paved a path for these next-generation clients to adopt a bigger role within the family business, giving them the opportunity to lead the family to make direct investments in social enterprises that align with their values or putting in place appropriate frameworks to grow the family's social capital over time.
One way that DBS Private Bank is doing its part to help these wealthy families create lasting social impact is to build the bridge between them and social enterprises.
"Bound by the common objective of achieving both financial and societal returns, both parties can be reassured that values and objectives are aligned, ultimately creating a win-win scenario," said Mr Lee.
Even as social enterprises are well-placed to address many social and environmental issues that persist today, they sometimes attract investors that do not share the same values.
This could result in conflicting agendas, which ends up with the entrepreneur having to compromise on objectives to meet a certain level of profitability.
Social enterprises are also often in need of mentorship. They would benefit from advice from many of these wealthy clients, who are experienced entrepreneurs themselves, on how to navigate this path as well as how best to structure the business and access suitable financing sources.
To this end, DBS Private Bank works closely with DBS Foundation to champion and support social entrepreneurship in Asia.
Beyond ongoing educational and engagement efforts to introduce clients to what social enterprises can do and how they can get involved, the bank is also working with some clients on a more customised basis to see how they can make a greater impact.
It serves as a bridge to facilitate every step of the process, including having discussions with both the social enterprises and clients to ensure alignment and progress on accountability, deliverables and milestones.
Furthermore, it is not just the social entrepreneurs who will gain, said Mr Lee.
"This focus on doing good and doing well can greatly value-add family legacies," he noted.
"This can be a means of refining the family's values, and ensuring they are shared and retained across generations."
Bringing family members together to work on social impact projects will also enable the younger ones to more keenly appreciate their privileged situations and give the older generation opportunities to witness the impact of their investments.
This can also enhance the family's overall capital, said Mr Lee.
"Engaging social enterprises presents a chance to bridge and dial up interaction between the family's social capital and human capital, or the next-gen clients, which will ultimately benefit financial capital in the long run," he added.
While the majority of family offices' engagements with social enterprises still take the form of ad hoc grants, there is room to deepen the conversation and drive the shift towards setting up a philanthropic trust, said Mr Lee.
This provides a more structured approach where every generation of the family can get together to discuss how best to act on these grants, with active effort and time set aside for family members to interact with social enterprises.
He hopes that as family offices rethink how they can drive social impact, more will follow in their footsteps.
"If one family office starts looking at social enterprises in a very big way, we believe this could, over time, spark a domino effect on others to do the same," he said. "It's still early days, but we've seen great progress in recent years and are confident that the trend is here to stay."
This article was written by Vivien Shiao and first published in The Business Times on 28 Jul 2021.