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The essential building blocks for setting up a family foundation

The essential building blocks for setting up a family foundation by Uma Kymal

By nature, Nigerians are known to be generous people, and those who have achieved financial success often become benefactors for entire communities.

Wealthy Nigerians give back to society through various means; their companies by donating cash or goods for disaster relief and community projects, which typically fall under the umbrella of Corporate Social Responsibility (CSR).

In addition, many wealthy individuals create family foundations to support causes that are close to their hearts, with a particular focus on education and health.

Despite the positive impact of these philanthropic efforts, it is important to rethink the current approach and explore potential ways to improve it.

Evolution of giving

Over the years, philanthropy in Nigeria has seen significant growth and expansion. It has long been a vital part of the country’s religions and culture; deeply rooted in Christian, Muslim, and traditional beliefs.

Religious leaders have played a crucial role in reinforcing and promoting this culture of giving, particularly during religious festivals and occasions. Even today, many wealthy Nigerians continue to follow this traditional path of charitable giving.

While some wealthy individuals prefer privacy, it’s beneficial to have a degree of visibility and transparency in today’s connected world. This allows the Foundation to shape its narrative and collaborate effectively with others for greater impact.

However, there is a new wave of philanthropists who approach giving in a more selective and thoughtful manner. They establish foundations and implement formal governance structures to manage their philanthropic efforts more professionally.

One prominent example is the Aliko Dangote Foundation, which was established in 1994 and has become the largest foundation in Africa. In 2014, it received an endowment of $1.25 billion. The foundation’s primary goal is to reduce the loss of lives due to diseases caused by malnutrition.

With increased funding, it has expanded its focus to include health, education, and economic empowerment. Despite its local focus, the foundation also maintains a global perspective.

Another notable foundation is the Aig-Imoukhuede Foundation dedicated to transforming Africa’s public sector. It achieves this through advocating public sector reforms, partnering with the Blavatnik School of Government at Oxford to train selected public sector leaders, and providing support to the reform efforts of the Office of the Civil Service of the Federation of Nigeria.

It is encouraging to see the involvement of the next generation (children) of philanthropists in their parents’ foundations, bringing new ideas and perspectives to philanthropic giving.

Models for Foundations

Foundations play a significant role in philanthropy, evident from the list of the top 20 wealthiest foundations from public sources compiled and analysed by PwC Nigeria; revealing the diverse models of philanthropic giving that have emerged.

Table 1. World’s top Foundations by endowments, 2021

The Azim Premji Foundation was established by the Chairman of WIPRO, a renowned IT services company in India.

The foundation is funded entirely by Mr. Premji’s personal shares in WIPRO. Initially, they provided support in education, healthcare, and governance, but they realised that focusing on a specific area would yield better results. Consequently, they chose to concentrate on primary and secondary education.

Taking a comprehensive approach, the foundation not only established schools in rural areas but also set up universities for training teachers. They closely collaborate with local governments to ensure effective implementation of their initiatives.

Once the education program was well-established, the foundation created another division that offered grants to NGOs working on various community projects, thereby fulfilling their original purpose.

Bill and Melinda Gates established their foundation in the early 2000s, marking a significant change in philanthropy.

There is a new wave of philanthropists who approach giving in a more selective and thoughtful manner. They establish foundations and implement formal governance structures to manage their philanthropic efforts more professionally.

They introduced new practices like professional management, transparency, and governance, and pioneered approaches to identifying areas in need of investment, collaborating with governments and other NGOs, and creating specific programs.

Despite negative press and social media attention, the B&MG Foundation has demonstrated the potential for significant impact in a relatively short period of time. Their partnership with the Dangote Foundation played a crucial role in eradicating polio in Nigeria.

Another notable foundation is Norrsken (https://www.norrsken.org/), founded by Niklas Adalberth, a tech entrepreneur and co-founder of Klarna, using personal shares valued at $20m. Their goal is to “Help Entrepreneurs Solve the World’s Greatest Challenges” through scalable technology.

Norrsken is a non-profit ecosystem that provides entrepreneurs with the resources they need to make a difference, including infrastructure, funding, and networking opportunities.

They operate in Stockholm, Kigali, and Barcelona and aim to promote social entrepreneurs through media, events, and initiatives.

Building blocks for setting up a family foundation

After providing support to numerous foundations in Nigeria and around the world, we have identified key elements that are crucial for establishing a strong foundation. These building blocks ensure that all important factors are taken into account during the foundation’s setup process.

One of the initial steps is to clearly define the Purpose, Vision, and Objectives of the Foundation. I have previously discussed the importance of Purpose in an earlier article.

Fig 2: PwC’s Building blocks for setting up a Foundation

Purpose:

I have dealt with the topic of Purpose in a previous article; “Purpose: the bedrock of family governance”

(https://businessday.ng/my-family-my-business/article/purpose-the-bedrock-of-family-governance/).

The purpose of the Foundation aligns closely with the founder’s goals for their family and business.

Box 1 in Figure 2 provides questions to guide the Foundation’s purpose. It could focus on amplifying the business’s impact, promoting family values, or supporting causes dear to the founder’s heart.

Key family members should accept the purpose and vision, and contribute to developing objectives to achieve them. It’s also important to involve the NextGen, ensuring the Foundation’s continuity after the founder’s passing.

Discussions often arise about the Foundation’s desired visibility. While some wealthy individuals prefer privacy, it is beneficial to have a degree of visibility and transparency in today’s connected world. This allows the Foundation to shape its narrative and collaborate effectively with others for greater impact.

Read also: Navigating the future: Challenges and opportunities for family-owned businesses in Nigeria

Structuring:

Next, let’s discuss structuring. It refers to establishing the Foundation’s legal and regulatory framework to comply with the country’s laws. This includes obtaining the necessary exemptions for funding.

If the Foundation operates in multiple countries, it must satisfy the rules of each jurisdiction. In Nigeria, foundations typically fall into two categories: Limited by Guarantee (LTD/GTE) and Incorporated Trustees. Incorporated Trustees are inherently non-profit, while LTD/GTE may generate profits as long as they aren’t distributed to members.

Funding:

Another critical aspect is funding. Determine the amount of funding required to achieve the Foundation’s objectives. Analyse the investment needed for setting up and operating the Foundation, as well as funding for projects aligned with the objectives.

If the earmarked funds fall short, collaboration with other foundations, individuals, or donor organizations can increase the impact of the programs. Transparency, openness, and visibility attract interested parties and bring fresh ideas to the campaign.

Governance:

Lastly, governance plays a vital role. Traditionally, foundations involved only family members.

However, forward-thinking foundations now operate like regular organizations, attracting the best talent. Proper staffing, processes, and systems are crucial for achieving results.

The governance structure, including the Board, brings visibility and credibility to the Foundation, directly impacting its community impact.

It’s important to maintain independence between the business and the Foundation to ensure effective corporate governance.

Foundations as we have established provide a way for founders – whether individuals, families, or businesses – to create a strategic approach to their philanthropy in order to make a real impact on society and expand their legacy.

I hope that the insights shared in this article have given you some basic tools to get started on your journey to establishing one. In the words of Aristotle, “What is the essence of life? To serve others and to do good.”

Uma Kymal is the Associate Director, Family Business and Foundations, PwC Nigeria