Only a few of them are very large
The financial resources of incorporated foundations – of which we have approximately 20,000 in Germany – vary largely. Far from all of them are large: every fourth foundation holds assets of 100,000 euros or less. The majority (45.9% of all foundations) have between 100,000 and 1 million euros available. A good 4.5% have foundation assets of up to 100 million euros, only 0.8% can top that. As you can see, foundations are attractive even for smaller players.
Charitable and non-profitIt is with charity in mind that most German foundations are operated – a whopping 95% have declared their non-profit status. That means that many founders are entrepreneurs who set up foundations to "give back to society".
Many foundations aim to further science, often in the form of charitable foundations with no operational activities of their own. Well known examples are foundations in the art and music scene, which are often established by entrepreneurial families. Many foundations also focus on providing support to the home region of the founder.
Shaping your corporate cultureFoundations are also interesting from a business point of view. They can be used to realise many aims and objectives of the company, even commercial purposes – in that case, however, the company will not be able to take advantage of the associated tax benefits. Through foundations, facilities are established that focus on their employees. Centres that offer recreational activities are a good example here. Sport offerings immediately come to mind, but other activities such as hiking and mountaineering are also popular. It is more and more common for companies to set up foundations as an initiative to pursue charitable goals – sometimes even in cooperation with the staff. Nature conservation is another hot topic since Germans in general are very nature-loving people. Employees have an opportunity here to make significant personal contributions and this is becoming increasingly important in today's corporate world: involvement strengthens the identification of the workforce with their company.
Some companies strive to attach a deeper meaning to the experience of identity among staff through their foundations – by shifting from "we are a community of commercial interests" to "we are a community of values". Foundations that focus on hot social topics are particularly helpful for strengthening this idealistic type of community building. "Refugee Aid", for example, is a pressing issue.
First choice for long-term solutionsThe earliest foundation, which does not exist anymore but is still well-known, was Plato's legendary academy in Athens. It stayed alive well into the sixth century A.D. – for a little over 900 years. This is topped by the Bavarian Bürgerspital foundation in Wemding, which has been in existence for exactly 1,086 years. It is one of about 250 foundations in Germany which are older than 500 years and still remain true to their original purpose. This longevity is a distinctive characteristic of foundations; no other organisation form is more likely to overcome difficult times without compromising its spirit and purpose.
Foundations as a secure base for future business developmentDue to the high level of stability offered by foundations, legally transferring company ownership into a foundation presents an interesting option – especially in the case of large, branched out families and circles of owners. When it comes to strategic consistency in corporate planning, foundations are among the most effective solutions. Divergent views among family members no longer threaten the further business development of the company. In addition, setting up a foundation can be financially attractive for all members of the owner family as corporate foundations are allowed to distribute earnings in the amount specified in the foundations' statutes and as agreed upon by their Governing Boards. The more consistently the company's guiding principle is followed, the better the profit potential and the larger the potential profit distribution. The price to be paid for this is that the family has to transfer their voting rights to the foundation's restricted management team at the time of the foundation's formation. In exchange, family members can, for example, receive a yearly pension, the amount of which is based on certain criteria, in particular the profit situation.
Disputes over corporate strategy and corporate development among family members become less of an issue, and other disruptions, such as family policy-related tactics or the division of the family into competing camps, lose their breeding ground. As you can see, foundations even contribute to preserving family peace.
The future of corporate foundationsIn Germany, foundations that are set up for asset management purposes are not very common yet. But compared to other countries, Germany is the exception here. In Austria, for example, less than 10% of all foundations are non-profit. Will this difference between the two German-speaking nations remain?Approximately 2.6 trillion euros will be inherited in Germany in the next decade. The majority of foundations are set up by the bequeathers, not the recipients of the estate. It is likely, however, that the number of foundations that are established to safeguard assets and preserve family peace will increase significantly.
Commentary by Stefan Herzer
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