A Place at the Table for Non-Family Trustees?
When a family foundation board works as a team, with harmony in vision and purpose, it may see no immediate need to bring in individuals who are not related to the donor family. The family itself is the board’s first and greatest resource. Over time however, circumstances may arise where family members are not sufficient to meet the board’s expectations or goals for governance.
What are the signs that your board might benefit from adding a community leader to bring new energy and a fresh voice to board deliberations and decisions? And if your board decides to look outside the family, what are the questions and factors you should consider in making your choice?
“The National Center gets many calls from families about issues related to board composition,” says Virginia M. Esposito, President of the National Center for Family Philanthropy. “Should we add trustees who are not family members? What are the reasons to do so, or not to do so? What are the main challenges we can expect? What is the best process for bringing new nonfamily trustees on to the existing board?” These questions offer an excellent starting point for discussing this important issue in board governance.
Some family foundations have never had an outside trustee on the board and don’t want one. Others have had nonfamily trustees since their establishment — either a friend or business associate of the founder, a trusted lawyer or accountant, or a program expert or local community leader respected by the family.
In fact, it’s not at all unusual for family foundation boards to have members who are not members of the family. According to the Council on Foundation’s 2010 Board Composition and Compensation study, as many as one-third of family foundation trustees among the Council’s members responding to this survey were not related to the donor family.
Sidebar: The Nesholm Family Foundation Experience
The Nesholm Family Foundation currently has three nonfamily members as Trustees. Two were appointed 23 years ago, at the foundation’s inception, in order to meet a bylaw requirement since at that time there were no eligible family members. The third joined five years ago to serve as a mentor and example for the next generation of family members. All were recruited as personal friends as well as respected for their professional involvement in the community, each bringing a different dimension and depth of knowledge to the table. The foundation’s view is that these bright, principled individuals contribute a great deal to its work and that their viewpoints are extremely valuable.
– Laurel Nesholm, Executive Director
Interestingly, many people in family philanthropy report that it is often the quasi-family board member — the trusted business colleague, lawyer, or friend brought in at the beginning of the foundation — who clings most tenaciously to what he or she believes the founding donor would have wanted, even long after the founder passes away. Family members often prove to be more adaptive than the long-time colleague.
It’s also useful to keep in mind that, while families are forever, foundation trustees will come and go. In light of this, many families adopt a bylaw requiring that the board always has a majority of family — even blood-line descendants of the founder — to ensure family control of the foundation. The Conrad N. Hilton Foundation, long an advocate of distinguished outside trustees, did exactly this a few years ago; it now requires that a majority of the board consists of direct descendants of Conrad Hilton. (See this month’s “Ask the Center” for details and examples of how to set up this form of governance structure.)
Eyes on the Prize
When Esposito talks with families about options for bringing on nonfamily trustees, her primary concern is that family members approach the matter of board composition with their eyes on the prize, not on side issues. “For some people, it’s about how the foundation got started,” she observes. “For others, it might involve a transition to the next generation, or wanting to diversify the board, or appointing the CEO to the board.” Esposito notes that these issues, while related, do not get at the basic questions regarding board composition. “Somebody should say, ‘This isn’t about whether we should have a diverse board, or whether the CEO should be on the board, or whether we need community people because maybe the family has spread across the country and doesn’t live here anymore.’ ”
Rather, Esposito says, the questions for family board members to think about are what are we trying to do as a foundation, what kind of resources do we need to be successful, and what type of board will give us the best shot at success?
Defining Success
In answering these questions, the focus should be on good governance. A research team led by Kelin Gersick found in the multigenerational study Generations of Giving that family foundations were more likely to invest time and resources in grantmaking, rather than in governance. Generations of Giving, a product of the National Center’s larger research initiatives on generational succession and board continuity, demonstrated that for most family foundations success in grantmaking really stems from success in governance.
Starting from the premise of what does the family board need to be successful, some of the first questions for all-family boards are: What do we need in terms of access to the best possible volunteer leadership, advice, program support, legal support, and investment expertise? Do we need legal or financial management advice, program expertise, or people who understand donor intent, family values, and the foundation mission?
Based on the answers to these fundamental questions, the conversation can move to the following related questions: What resources must come from the board? What does our board want to be? What values do we wish to embrace and what capacities must we provide? In many cases, after considering these questions, family foundation boards may conclude that the current membership meets all the necessary criteria for good governance.
“For some families, however, collateral discussions may develop,” Esposito continues. “If we’re not getting what we need from the board, how can we get it through other means? For example: We may not want program experts on our board, but should we have some on retainer or on the staff? Should we have a community or issue advisory committee?”
“These collateral discussions are about how to get the things the family trustees need. Once those questions are on the table, then the family trustees can have a conversation about who’s in the pool of people they might consider for any of these purposes. Obviously, interested and qualified family members are in the pool. Experts in their community or program area can be considered for the pool. Or you may wish to include a staff member or advisor or a best friend from the family business.”
“And once you’ve decided on who is in the larger pool of candidates, how do you go about making the selection? What kind of criteria and what process will you use?”
“My concern about turning too quickly to trustees drawn from outside the family,” Esposito concludes, “is this: people sometimes start by having the discussion focus on whether the board should be all family or not all family, as if that’s the end of the conversation. It’s not. It’s one of the values that help you make your choices. So if that’s the value that helps you make the choice — only family will have the same shared heritage, only family will have the same experience, and in many cases, only family can be expected to participate as board members on a volunteer basis.”
Another example is a case where current board members begin talking about whether the foundation needs a program expert. Often this discussion may revolve around how a particular candidate would fit in with the family members on the board, without considering an equally valid question: why does a program expert have to sit on the board at all? What are the gains — and losses — in defining a governance role for a program expert?
Sidebar: A Strategy Emerges at The Durfee Foundation
The all-family board of the 50-year-old Durfee Foundation debated throughout the first half of 2010 about the strength of the board. One member had retired, another did not seek reappointment, and a third was asking for a leave of absence for a year. At the same time, some board members had expressed an interest in incorporating new perspectives into the foundation.
The board found that its mission aligns well with its operations, that family will continue to play a dominant role in governance, and that the foundation had a strong identity that nonfamily trustees could build on and make even stronger. Board members and staff interviewed other family foundation leaders around the country, and board deliberations continued for some months.
At its June 2010 retreat, the board shaped a strategy: to invite two people to serve as “Board Fellows” who would attend meetings and have access to the same materials and decision process as family trustees, but would not vote on board actions. Some family members expect that as family trustees become more comfortable with the Fellows, the board may decide to add them as full voting trustees.
Planning for Transition: Board Composition
Another important consideration for many families is the state of the family foundation board as it prepares for a moment of transition. The transition may involve an aging chair or other leaders who are preparing to retire. It may involve board turnover as several family members reach their term limits, and members of the next generation prepare to join the board.
Family members say that what they really want to pass on is a highly functioning foundation with a highly functioning board — which in turn may lead to an examination of board composition going forward. If this is the situation your family is preparing for, it’s important to frame this as being not about the skills of the oncoming new members or next generation family members, but rather as a statement of sound practice: Are we passing on the best governing body we can? One way to ensure that this does not become confrontational is for the current board to outline its plans for new membership, but leave it to the new board to devise and carry out its own plans.
Additional Resources from the National Center
Later this year, the National Center will release a new edition of its Passages Issue Paper series on the topic of nonfamily trustees. For additional information on how families deal with changes in the family’s composition and its affect on the board, see “Families In Flux: Guidelines for Participation in Your Family’s Philanthropy.”
And for families that seek to explore the quality of their foundation governance, the National Center has developed Pursuit of Excellence, a self-assessment tool specifically for family foundations. Pursuit of Excellence is offered by the National Center for any family foundation interested in making a deeper and more systematic assessment of their overall performance, including governance. Families interested in using this tool may contact the National Center at 202.293.3424 for more details.
What experiences have you had with nonfamily trustees? What has worked well, and where have you had problems? Please share your experiences and perspectives in the comments section below.