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“A nobody tries to be himself while a somebody has the entire world in his heart”. The old Chinese saying reveals that the practice of rich businessmen returning the society with wealth is deeply rooted in China’s tradition. Since the reform and opening up, China has witnessed its first generation of entrepreneurs. Now it is time for them to consider how to handle their wealth appropriately.

With the continued economic development and further improved modern charity system in China, the number of private foundations exceeded the number of public foundations in 2010. Among them, family foundations have become a strong force. As first movers in the business sector, entrepreneurs and their family foundations also face challenges as well as opportunities that have not been explored before.

First of all, strategic focus needs to be developed. Donations from Chinese family foundations spread across many sectors. But with influence of China’s traditional culture, the majority are traditional philanthropic sectors.

According to “China Enterprise Foundation Development Report” (2012), education, poverty alleviation, disaster relief, health care, public services, care of elderly and children are the “hot sectors”. On average each foundation invests in more than two of these sectors. Only fewer than 20 of the foundations cover areas such as culture, environment, youth, community development and scientific research.

The reason is that China always attaches great importance to education because education is regarded as the lifeblood of the country, and major disasters and poverty stories are relatively easy to become focal points. Therefore, people can obtain higher social recognition by engaging in these sectors of greater social concern.

However, sectors such as cultural and scientific innovation, medical development, environmental protection, and community improvement, due to long funding period and uncertain results, are neglected. All elements above have resulted in the widespread of donations and imbalance among sectors. Strategic focus needs to be developed.

Secondly, in China, ultra-net-worth individuals are still not very clear about the difference between family foundations and CSRs. The independence of family foundation has been a hot topic.

Judging from global experience, the core of Corporate Social Responsibility is a stakeholder theory, which means a corporate is responsible for its stakeholder groups during business operation. In addition to maximizing profits, a company should also enhance employee satisfaction, protect the interests of customers and local residents, and conserve environment.

However, the mission of family foundations is far beyond the strategic objectives of CSR, which is to build competition advantage, expand market, and avoid legal risks. Founder’s personal experience and family value are closely related to the mission and core value of a family foundation.

Among foundations initiated by entrepreneurs, a lot of them are financially dependent on the profitability of the company. The projects under the foundations are sometimes directly or indirectly influenced by the development strategies of the companies. They even become part of the Public Relations or CSR Department. These have seriously affected the independence of family foundations and gradually deviated them from their initial purpose.

Lastly, what a family foundation does is mainly oriented by the entrepreneur’s personal preference. Professional planning and management is needed to translate those interests into a stable and long-term system.

As the source of funding, the entrepreneur has the power to dominate where the money goes. Often there is not real strategy in place to guide the selection of projects to fund. Due to the absence of strategic planning and project performance evaluation mechanism, foundations tend to pick emergency relief projects or projects that people can see results in the short term.

In addition, research shows that China family foundations have relatively low administrative cost. With average number of full-time employees at around three, these foundations clearly lack institutional capacity. Hence there is great need to collaborate with government, universities, NGOs, media, and consulting agencies, etc. Instilling professional management in philanthropy is the way out.

How do family foundations tackle these challenges and fulfill its vision of altruism, paying back to society, and inheriting family values? In the next three months, VA will work with the Rockefeller Philanthropy Advisors to provide strategic planning for Laoniu Foundation. VA wishes to be the catalyst for China family foundations and uplift them to perform at international standards.