LMM BLOG
STIFTUNGSMONITOR - QUESTIONS OF THE NEXT GENERATION
With the yearly survey “Foundation Monitor”, our Vienna branch together with the “stiftung-nextgen” platform analyses relevant developments in the Austrian foundation sector. In total, over 200 founders, board members and beneficiaries took part in the survey, reaching up to 10 % of foundations in Austria.
This time, the survey analysed, among other things, the extent to which the next generation is involved in the day-to-day business, how foundations will be managed in the future and how asset management has changed in an environment of rising interest rates and inflation.
Generational change
The topic is naturally becoming more and more prominent, with many foundations now involving three generations. The distance tends to increase with the broadening of family lines. We wanted to find out how actively different generations are involved in foundation issues. The main findings are as follows:
• In 45 % of the foundations, the next generation was not involved in the establishment of the foundation.
• The participation of the individual tribes was ensured in 62 % of all foundations in that each tribe is represented on the advisory board or has a right of appointment.
• In 62 % of cases, only the first generation of founders has a right of amendment.
• In 20 % of the foundations, waivers of compulsory portions were submitted.
These statements give rise to the following questions:
• How should the next generation be involved to ensure positive development of the foundation?
• What problems and legal risks can a lack of transparency and compliance lead to?
• Is there a need for action to involve all generations?
Foundation organisation
The key body in foundations is the board of directors, which in many cases was appointed by the founder. Stiftungsmonitor 23 shows that we have also reached the phase of generational transition at board level. The upcoming change in board members will be one of the major challenges in the coming years. In the case of foundations that are corporate holdings, the corresponding entrepreneurial expertise will be in demand for new appointments. In this regard, the issue of the personal liability of board members and how to cover it, will need to be considered. The main answers in the area of “Foundation organisation”:
• In the next three years, 59 % of foundations will be facing succession planning at board level.
• 65 % of foundations are corporate holdings, which changes the requirements profile for board members.
• 70 % of all foundations have additional internal regulations in addition to the foundation declaration, such as rules of procedure, which must be observed.
• Only 3 % of foundations where the founder's generation is still alive have sub-foundations. This figure rises to 11 % after the death of the first generation.
These answers give rise to the following questions:
• What will be the professional requirements for board members in the future? What criteria should be used to elect board members?
• What is an appropriate fee for a board member?
• How to deal with the unlimited personal liability of the Management Board? How can this risk be hedged from the Executive Board's perspective?
Asset management
High inflation and rising interest rates have been with us for some time now. In this context, it is surprising that around a third of all foundations have not even considered adjusting their investment strategy. Overall, we can see from a multi-year comparison that fixed-interest investments have regained importance. Alternative investments, on the other hand, are being scrutinised. The main answers in the area of asset management:
• 30 % of foundations have not reviewed an adjustment to their strategy despite the changed market environment.
• 75 % of all foundations do not have written investment guidelines.
• The quality of advice from banks was rated as “satisfactory”. However, founders rated the quality significantly lower at 4.5 than their board members at 2.7. (1 very good / 5 not sufficient)
• 50 % of the foundations have a balanced investment strategy.
The following questions arise from these answers:
• How to deal with the different information needs of founders, board members and beneficiaries?
• What are the reporting requirements?
• What action is required due to the change in interest rates? Are the market opportunities being utilised?
• At what intervals and by whom should the investment strategy be reviewed? How to ensure independent advice?
Conclusion
The answers from Foundation Monitor 23 show that the generational change at board level is imminent or in some cases underway. It is a challenge to take into account the different needs of different tribes and generations.
A professional organisation of the foundation with appropriate checks and balances is a prerequisite for ensuring efficient management, safeguarding of assets and avoiding conflicts. Topics such as a family constitution, controlling and reporting are moving to the forefront.
You can access the complete results on all topics of the survey on the platform www.stiftung-nextgen.at and www.lmm-ic.com.
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