Reading through the executive summary of Exponent Philanthropy’s 2023 Foundation Operations and Management Report, I noted those surveyed reported that the top challenge facing their foundations was “the board not considering succession.” Earlier this year a regional leader in philanthropy suggested this was a major concern, and one not limited to family foundations.
It’s tempting for foundation donors and board members to put off conversations about succession. They are never easy, often highly emotional, and always involve complex interpersonal dynamics around power and control. But succession will happen with or without preparation, and the best time to develop a thoughtful succession plan is long before you need one. Delay only increases the likelihood that the loss of a key individual – whether founder, board member or senior staff member – will hamper a foundation’s effectiveness in pursuing its mission.
Having a clear and values-aligned process for board succession is especially critical for donors. It’s one thing to pick board members you trust while you’re living. It’s another to plan successfully for board succession after you’ve passed away. Donor-intent violations often occur during these moments when founding trustees hand their authority to the next generation. Particularly if you intend your foundation to operate in perpetuity, it is crucial to define the process of choosing successor trustees and to include that information in the foundation’s bylaws.
Yet even the most thoughtful plan for succession will face serious challenges if the foundation governance practices are lacking. Good governance is an integral part of successful succession and should always be considered with the future in mind. Consider both appropriate structure and strong operational board policies.
Some foundations choose to operate with multi-tiered boards. For example, the John Templeton Foundation is governed by both members and a board. The members—who include family representatives, Templeton Prize winners and others—elect the board, where one-fourth of the trustees must be drawn from the Templeton family. You might also consider creating a tier of trusted “members” who alone are authorized to amend bylaws or approve board compensation. In considering any such changes to standard corporate structure, you should first consult the foundation’s attorneys.
Committing to paper the specific qualification for future leadership is vitally important, and it is never too late to prepare such a document. Clarity about eligibility is even more critical in family philanthropy where complications often arise from multiple marriages, half-siblings, adoptions, etc. Will your board include spouses or domestic partners? Stepchildren? Make those decisions up front, not when a particular family member is under discussion.
Job descriptions for trustees help explain the foundation’s expectations for the work they are doing, the number of meetings they should attend, the number of hours they should expect to spend on foundation business each week, etc. Such descriptions are especially helpful in family philanthropy to clarify that board service is neither a right nor an obligation. And they are essential if you choose to compensate trustees.
In considering whether to compensate board members, you should weigh advantages and disadvantages. Compensation helps establish a working relationship with trustees and reinforces their role in upholding the foundation’s mission. It can also widen the pool of available board members, including those with special expertise whose time is extremely valuable and younger family members or those from generations where family wealth has diminished. Whatever you decide, remember that to avoid running afoul of IRS requirements, pay must be “reasonable and necessary.” If you choose to pay family members on your board, extra judiciousness is warranted to avoid self-dealing.
Term limits and board policies
Keith Whitaker of Wise Counsel Research advises, “As a general rule, it’s always easier to grow a board than to shrink it. Once people are on there, it’s very hard to dislodge them.” A workaround that avoids the potential for confrontation and damaged relationships is a term-limit policy. After a set period—say, three years—board members must be re-elected to another term or transition off the board entirely. Some policies add a hard limit to the number of terms a board member might serve. But you may want to leave open the option for well-aligned board members, rich in relational and institutional knowledge about you and your giving, to serve for long periods. Even in those cases, simple term limits offer an opportunity to make changes when necessary and – for family foundations – create opportunities for new or younger family members to serve the foundation without the resentment that mandatory retirement based on age may cause.
Stopping short of establishing firm term limits, there are many “creative ways to bring people into the fold without handing them the reins,” Whitaker notes. If you are seeking knowledgeable advice around particular issues or communities, you may establish an advisory council for one of your grantmaking areas. In a family foundation you may create a junior or adjunct board for family members who wish to participate in your philanthropy but will not have a vote in decisions of the governing board.
Other board policies you may want to institute include the regular reading of the foundation’s mission and/or donor intent statement. At the Duke Endowment, for example, trustees read aloud once each year their founder’s indenture of trust. You may also adopt the practice of having board members sign a statement of fidelity to donor intent, as the Daniels Fund and Foellinger Foundation require.
Moving forward with succession
With suitable and accepted governance practices in place, succession will move forward with a far greater likelihood of success as decisions are made with the health of the philanthropic enterprise – not the specific individuals involved – at the center of decision-making. And once succession begins, it becomes a regular part of governance. It rarely entails the replacement of one generation of trustees by the next generation, and such a dramatic transition would hardly be desirable. In most cases, multiple “generations” of board members will find themselves working together on a foundation’s behalf.
The same qualities of character and commitment to donor intent you sought in first-generation board members, and the careful process of cultivating them, ought to be emulated in choosing future generations of the board. Vet all prospective board members carefully and don’t avoid the difficult discussions around core values and principles. Pay attention to deep-seated differences. They are not likely to go away.
Finally, consider various board development practices once new board members are selected. New trustees will appreciate an opportunity to meet and spend time with their board colleagues and staff, for example. They will require all the information about your philanthropy and its routines needed to fulfill their responsibilities. In some instances, it may be beneficial to assign temporary “mentors” to new trustees. Whatever you decide, keep in mind that succession practices that result in an aligned and committed board are essential to fulfilling your philanthropic mission.
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