Philanthropic Indian family businesses out-perform non-family firms

Wealthy family businesses in India say they have “a moral duty” to go beyond state requirements for charitable giving despite outperforming non-family firms in supporting philanthropic causes.

In 2014, India became the first country in the world to legally call on companies with annual revenues of more than 10 billion rupees ($142 million) to donate at least 2% of their net profit to charity. While efforts have been made to reduce poverty, 364 million Indians remain deprived in health, nutrition, schooling and sanitation, according to the 2018 Multidimensional Poverty Index.

Intentions to help relieve destitution were discussed “passionately” by all Indian family business principals interviewed for The Family Wealth Report 2018: A Roadmap for the Indian Family Office. The report by Campden Research was the world’s first study into the country’s nascent family office community and released last month.

Almost all (95%) of surveyed Indian families, with an average wealth of $645 million, told Campden Research they gave philanthropically, but all interviewees believed giving back to those less fortunate was ingrained in them.

This corresponded with a separate study of 1,210 firms and 16,470 project-level observations by the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business (ISB). The centre discovered more family businesses met their mandated corporate social responsibility (CSR) obligations than non-family firms, by 50% to 45.1%

“Family firms are more driven by non-economic utilities and are therefore more likely to contribute to social welfare activities in keeping with the objective of building an enduring organisation as trustees of society’s wealth,” the Thomas Schmidheiny Centre said in a statement.

Family philanthropic efforts were mostly led by second (72%) and first (60%) generation members with the family foundation the philanthropic vehicle for the majority (47%). Almost one-third (28%) of the family’s philanthropy was administered through their business or the family office (18%), Campden Research reported.

The ISB research said such “central institutional mechanisms” as the family foundation gave family business groups the advantage over standalone family firms in delivering mandated CSR.

Families told Campden Research they supported several causes, among them education (82%), youth projects (32%) and alleviating poverty (26%). Social enterprise (24%), health care (21%) and faith-based giving (also 21%) were among their priorities.

Indian families said they were able to measure the direct impact of their charitable efforts by managing their schemes inhouse and focusing on their local areas.

“We support a school for underprivileged and homeless children, and a hospital that does cancer treatment,” a family member told Campden researchers.

“We also run a jungle lodge which is about three hours from our city.”

However, family foundations needed stronger governance over potential issues of conflicts of interest between the family and other stakeholders, as well as philanthropic effectiveness, efficiency, impact and sustainability.

“Families will have to professionalise their efforts and contend with implementing greater transparency and monitoring mechanisms to lend greater credibility to their social initiatives,” the ISB research suggested.