Mining Shale for Oil
Imagine for a moment that a company produces oil by mining shale, heating it, and extracting crude, which is then refined. Such a company might say it is in the oil business, as might a drilling company, or a refinery, or a company that ships gasoline. Likewise, when we say we "work in philanthropy," we may be talking about the distribution of highly refined charitable grants and gifts (via Rockefeller Foundation, Ford, Hewlett, or a community foundation). Or, we might talking about drilling operations tapped into vast domes of liquid money (Wachovia, UBS, Bank of America, Merrill). Or, we might be talking about a mining company that pulls rock out of the earth, crushes it, and move it to the cracking plant. The kind of philanthropy work that I do on the job, inside the life insurance bidnis, is like the shale mining company. Our clients are not philanthropists in spats, like Daddy Warbucks. They are up from nothing entrepreneurs in shirtsleeves and workshirts. They own stockyards, farms, car dealerships, diesel engine rebuilding firms, fast food franchises, junkyards, architectural firms, building supply companies, electrical contractors, nursing homes, medical supply stores, beer distributorships, home building companies, lumberyards, catfish farms, restaurants, strip malls: the infrastructure of Main Street. Some went to college; others did not. Most are small town conservatives, baptized and buried in the same church. They may be in Rotary, or the Chamber of Commerce. They are happy when their kids stay in town, rather than go off the some fancy college and never come back. Their median net worth, as clients of our firm, is $10 - 15 million of which, maybe, 5% at most is liquid. The rest is sunk into the bricks, mortar, land and equipment. Shale, nothing but shale!
Existential Choice for the Small Business Owner
Nothing but shale, but the shale bears oil.
Once or twice in a lifetime the owner of a closely held business has what amounts to an existential decision, or gut check: What to do with the lumberyard at death or retirement? Sell to outsiders? Insiders? Children? If the lumberyard is worth $15 million, and $5 million will go to estate taxes, where will the cash come from to pay the tax collector? The IRS does not want lumber, they want cash. Can the business survive the hit? Will outsiders pay a fair price at death when the lumberyard is struggling without its founder, when banks are calling credit lines, when customers are going elswhere, and when the IRS is demanding an auction of assets? Beyond that, even if the full $15 million is realized, how much should go to each kid (one works in the firm, the other does not)? Do the parents believe in Welfare for the Rich? Do they want the children to be so wealthy they can live a life of aristocratic leisure, or of rampant consumption, get involved with drugs or some other ill? If the $5 million now going to the government could be redirected to local nonprofits, would that be an improvement? Would it make sense to scant the outright inheritance and give the kids a philanthropic inheritance, one they can control, but cannot spend on themselves? If $5 million or more will go to charity, would it be more fun to start giving the money away now, rather than when the founder is dead? Would it make sense to start now and involve the kids and grandkids, so they learn the family values shoulder to shoulder with parents active together in the community? What will the founder do when and if he or she cashes out? Play golf? Hunt? Fish? Sit on the porch and watch the world go by? Or get active in a new realm as a civic leader and so-called philanthropist?
Out of these existential conversations (Who are you? Who do you want to be? What does your family stand for in this community? How do you want to be remembered? What kind of family values do you want to pass on? What kind of world do you want to leave?) comes a set of decisions about that full $15 million. Handled as financial decisions only, the net result will be lower taxes through various arcane planning tools, life insurance to pay taxes, and maximum money to kids. Given an appropriately open-ended conversation about vision, the likelihood is that $5 million or more will go to charity, now, later or at death, and that more may go if the parents do not want to see the kids rich and idle.
No Fundraisers in the Shale Fields
Now, the above is my daily world of work with advisors and their clients all over the country. I meet no or few fundraisers in that world of Main Street closely held operating businesses. (The owner has no money to give, except a trickle; the real wealth is all tied up in the business, as is the owner's time and attention.) I meet no philanthropoids (grant making mavens), among the shale fields, and I have had poor luck getting those whose money is refined to even talk to these Main Street clients. Community foundations seem to relate best to refined money. They don't cultivate or even meet the Muslim guy from Pakistan with a high school education and twelve liquor stores in inner city Dallas, though he may be worth $15 million and may be a giver in his own right. With so much of the intergenerational wealth wave tied up in the oil rich shale, in the small businesses that populate Main Street, we are missing an historic opportunity. Stakeholders include fundraisers, and anyone who cares about philanthropy, small business, family values, and civic renewal.
Why We All Have A Stake in the Business Owner's Fatal Choice
Our clients have much to forgive me for. I am a liberal pointy-head. I do not watch football. I am not just a Yankee; I am a damn Yankee (being a Yankee who came South and stayed). Although I can quote the Gospels, I am evasive about whether or not I have been born again. What makes it work is that I admire these Main Street clients and want to see them thrive. Their contribution to civic renewal - taking risks, putting their savings into new ventures, creating jobs, passing on values like hard work and faith in God and country, setting an example of leadership, and sometimes doing grassroots philanthropy - is inspiring. Pull them out of the mix, and what you have left is big box retailers, big global firms, big philanthropy, and big government. You have college educated people making $65,000 a year who know better than the bumpkin worth $15 million. Without Main Street, you have top down management from the hub cities, and theories of social change, policy wonks, and sweeping legislation. You have metrics andmanagement and bossing about by desk-bound experts who deal wholsale on a national and global stage via spreadsheets and statistics. All that is fine by way of engineering from above. But keeping Main Street America thriving from the grassroots up is a project worthy of the attention of anyone who loves this country.
Civic Renewal: Top Down or Bottom Up?
We don't need to make decisions for these local civic leaders, or act as if we were wise and they are in need of enlightenment. We don't need to lecture them. We don't need flip charts or Powerpoints. We need to ask good questions and listen. We need to put them in a position where they can make informed, visionary,choices, in the light of their values and their faith, about their life, their business, their family, their money, and their community. Given the right time and place to think it through, these local leaders, will do what is right. Or they will do many different things, by their own lights, by their conception of the good. And that is open society, America the Beautiful.
Advisors Flunk the Existential, Vision Conversation
Most advisors (I can speak with authority on this, for I have trained literally thousands of Main Street financial people in the rudiments of their trade in drab training rooms all over this country for 25 years) do not have these larger conversations about vision and civics. The larger conversation is about Who, What, Where, When, and Why? Who the family is, what it wants to accomplish for self, family and society, where (in what community they want to have an impact), when (now, later, or at death, or for generations to come), and why (under what value system, what sense of moral obligation, what religious or spirtual or public-spirited tradition, from what sense of gratitude)? That conversation takes place under the aspect of love, death, and eternity. The How is the last bit. But the how of it all (the tools and techniques of finance, estate planning, business planning, and tax-driven philanthropy) absorbs the full attention of most advisors.
A Call to Conveners
To unlock the oil in the shale, to release the energies of Main Street wealth, we need a place where these Main Street, down home, civic dialogues can be convened, prior to the client turning the vision over to advisors for implementation. The result will be happier families, more money to philanthropy, and communities that do better because these small businesses thrive and survive, providing not only jobs and philanthroy, but civic leadership, and moral purpose. Is anyone interested in organizing such events? Or attending? (I can see the first hand going up already. An investment banker from Goldman, or a hedge fund private equity investor. Yes, the new thing in this Main Street world is the rollup of Main Street by Wall Street. Nestles is buying the farms all on up the mountain, so they can capture the water supply. The big banks are buying the little ones. The money and the children are all moving away. These too are issues to be discussed in these convenings, as the parents make their fatal choices.)