Why do the rich give after they exit their ventures?


Entrepreneurs acquire enormous wealth after exiting their businesses through sales, IPOs or liquidation. But what happens after they exit their ventures?

In a study, “After the harvest: A stewardship perspective of entrepreneurship and philanthropy,” in the Journal of Business Venturing (2017), authors Blake D. Mathias, Shelby Solomon and Kristin Madison found 4 key reasons why the rich redistribute their wealth after exiting successful ventures.

  1. Intrinsic motivations: They want to do meaningful work after making large amounts of money.
  2. Identification: The rich want to have a sense of identity and advance a cause they believe in.
  3. Personal power and long-term orientation: They crave for an opportunity to influence future generations.
  4. Stewardship norms: Most feel they have a sense of obligation to give back.

This award winning study analyzed “The Giving Pledge” letters of 99 entrepreneurs and separately conducted in-depth interviews with 19 of them. In 2017, when the study was conducted, there were 142 individuals, 70% of whom were entrepreneurs who had signed on to the “The Giving Pledge.”

Today, there are over 200 individuals from 23 countries who are part of the “The Giving Pledge,” and have committed a majority of their wealth to philanthropy or charitable causes.

The study found that the rich display an innate responsibility to “act as stewards of their communities.”

And, this is very evident in the way latest entrants to “The Giving Pledge” like MacKenzie Bezos have committed to pledging over half of the $36 billion she inherited in Amazon stocks. “I have no doubt that tremendous value comes when people act quickly on the impulse to give. No drive has more positive ripple effects than the desire to be of service,” she says in her Giving Pledge letter.

“In addition to whatever assets life has nurtured in me, I have a disproportionate amount to share,” Bezos adds.

This reminds me of a well cited Princeton study “High income improves evaluation of life but not emotional well being,” that showed the world that anything beyond a $75,000 annual income will not buy you emotional well-being. Authors Daniel Kahneman and Angus Keaton found that emotional well-being rises with income but anything beyond $75,000 is not going to buy you happiness.

However, for those who have made so many more multiples than $75,000, their entrepreneurial exits, often called harvests, trigger their ability to give.

And, social expectation will prompt them to give, be good stewards of society and perhaps buy a little happiness on the way. But one thing is very clear: it is insanely difficult for the mega rich not to give!

Global Corporate Gifts Get a Definition


If you are a recipient of  a corporate gift from a Fortune 2000 company at the global level, read the Committee Encouraging Corporate Philanthropy (CECP) guidelines.  CECP’s “The Global Guide to What Counts,” for the first time defines eligible charitable donations across borders. International tax professionals at Deloitte rigorously examined tax laws and related conventions of 17 countries to find out what makes up a charitable gift.

They concluded that any recipient of a corporate charitable gift must meet the following criteria:

  1. The recipient must be formally organized, meaning it should be recognized as a legal entity in the country where it is headquartered. Individuals and ad hoc groups that lack structure are ineligible.
  2. The recipient must exist for a charitable purpose, meaning charity should be its primary purpose. The Guide excludes political parties, business and professional associations, unions and religious entities, except those that fund charitable activities that fall under CECP guidelines.
  3. The recipient must never distribute profits, meaning it should reinvest in achieving the organization’s mission.

The Guide addresses a uniform definition of what constitutes a corporate charitable gift. The yardsticks are similar to those proposed by large Foundations in the United States. However, a standardized check list for charitable entities seeking global corporate gifts is very useful. It creates a level playing field, sort of United Nations for recipients seeking charitable corporate gifts across borders.

The Global Guide tactically avoids religion, politics, labor unions, associations and chambers of commerce. Some of these indulge in corrupt practices, especially in developing countries. However, it offers broad flexibility in defining a recipient of a charitable gift and gives a larger degree of latitude for charitable entities to compete for corporate gifts. Religious organizations that have far-reaching impact on grassroots philanthropy are given some opportunities to seek charitable gifts.  The complete guidelines are available here.