January 15, 2016

Decision-making in Family Foundations

If you are a donor with a family foundation, a trustee serving on a foundation board, or a foundation executive interfacing with a board, you already know full well that a board's performance can greatly enhance—or dramatically cripple—your ability to deliver results. Foundation boards are typically accountable for fundamental decisions ranging from strategic direction and resource allocation to staff recruiting and grant approval. If those decisions are not made wisely, you cannot achieve the success you hope for.

Effective board-level decision making can be elusive, however, especially in family foundations. When these institutions work well, they provide a powerful testimony to the enduring values of individual families. But the combination of donor, spouse, and adult children (including, perhaps, their spouses) creates a group often better suited for holiday gatherings than serious decision making. Add in a couple of independent trustees to contribute balance and expertise (along with their own agendas), and you can have quite a volatile concoction, with people importing family dynamics that may have evolved over decades, personal passions, and (often strident) points of view into every board meeting.

Moreover, unlike privately held family businesses, philanthropic boards have no performance metrics or profit motive to defuse these dynamics and help their members align around common goals. If anything, the deeply personal nature of philanthropy can drive the dynamics in exactly the opposite direction. And in foundations established in perpetuity, where the board must have the ability to sustain and renew itself across generations, this tumult is often intensified. How are new board members chosen? Who serves as chair? Do trustees have terms, or are they appointed for life? What is the appropriate mix of family members versus independent trustees? And are all trustees equal when it comes to decision making?

Given such tensions, it's not surprising that foundation boards often lack clarity of purpose. Is the board's primary purpose to provide legal oversight and compliance with good governance practices? Is the real (if unstated) purpose to serve the family, by creating a forum for collaboration, learning, and public service? Or is the board truly accountable to society for adding value in a way that ultimately increases philanthropic results?

These competing imperatives have very different implications, and achieving excellence on all three dimensions can be frustratingly complex. You cannot, for example, perpetually please every family member and, at the same time, make the tough trade-offs inherent in pursuing an effective strategy.

Similarly, the time commitment, board structures, and procedures required by basic governance practices (such as financial and strategic performance monitoring, and the board nomination process) can severely circumscribe the time available for the higher-yield thinking that adds real value to a strategy.

We believe that good governance is necessary but not sufficient; that a foundation exists to serve society, not itself and its trustees. Consequently, boards must be designed and led in a manner that produces the best possible results, given the available resources. That's why the "right people, right jobs, right time" principle is as apt and relevant here as it is for staff, although the constraints on enacting it are typically far greater. (It is usually not very easy to choose one child over another to serve as a trustee, for example.)

Even with the "right" trustees, you will need a decision-making process that yields objective, thoughtful decisions. And you will need to be vigilant about maintaining its integrity in the face of some very natural inclinations: to allow family or personal interests to upstage strategic imperatives; to permit opinion unwittingly to substitute for fact; and, in a quest for consensus (and family harmony), to sidestep the hard choices necessary to develop and execute effective strategies.

Foundations that employ professional staff, whether the number is one or one hundred, often encounter significant problems with the board-staff interface. These problems come in many varieties, from confusion and conflict about how decisions are made, to unproductive working relationships with the foundation's CEO, to excessive and unnecessary burdens placed on the staff by individual trustees.

A foundation is like a luxury automobile, headed in a specific, mission-driven direction, with a clear road map on the GPS. The car is "owned" by the board, but mostly driven by the staff, who work full time, while the board members visit occasionally. During those visits, however, trustees naturally tend to slide into the front seat and grab the steering wheel.

And although they appreciate how clear and shiny the car is (because the staff has stayed up all night polishing the chrome), they can often fail to read the owner's manual (written by the staff). Trustees, quite naturally, feel that they are running the foundation; staff, quite naturally, feel that key decisions are largely theirs to make. As a result, their interactions, however well intentioned, can be laced with flawed communications, wasted time and energy, and dysfunctional decision making that compromises results.

The capacity to make and implement smart decisions is a defining feature of an effective organization. In philanthropy, this capacity is also the engine for driving impact. Clarity around who is accountable for which decisions can lead to more effective, efficient, and responsive decisions, greater transparency, and reduced conflict—all of which not only improve life for the people making the decisions, but also make it far easier for their grantees to engage with them and get on with their own important work.

Ambiguity has precisely the opposite effect, both internally and externally. Poor decision making is one of the most serious ways in which funders undermine the effectiveness of their grantees. Unfortunately, it is also remarkably common.

Dysfunctional decision making isn't limited to philanthropic institutions, of course, but they often exhibit its symptoms in dramatic ways. As noted above, this tends to be particularly true in family foundations. Families are neither rational nor professional, and as a group they seldom make results-focused decisions the way a high-performing company board or executive team would. Even spouses who have been married for decades may find it challenging to work together giving money away. So it's not surprising that agreement and forward motion can get stalled, especially when the decision makers represent multiple generations and very different points of view.

Even when family dynamics aren't part of the mix, decision rights and responsibilities can get tangled over time. One long-established foundation had both a well-articulated set of strategies spanning four distinct program areas, and a clearly delineated process for making grants. Program directors were authorized to commit sums up to $100,000 unilaterally for any single grant in their area. Grants of $500,000 required the approval of the CEO, and grants above $1 million went to the board of trustees.

These policies had been in place for many years, and seemed eminently sensible to everyone involved. But what looked good on paper wasn't working in reality. A careful analysis showed that almost 90 percent of all grants—and the vast majority of annual funding—were commitments of just a shade less than $100,000, and the number of such grants had grown dramatically over the past ten years. In addition, these single-year commitments had an 85 percent renewal rate. As a result, decision making had devolved from the foundation's leadership to the lowest level of its staff, the opposite of what the policies intended.

Had this shift been an explicit imperative—had the foundation's leaders decided to empower the frontline in a way consistent with a theory of change—this could have been a fine outcome. But, in reality, this behavior had literally nothing to do with the foundation's strategy. It had come about so gradually that the organization was utterly unaware of the change. It was the result of professionals pursuing their passions and agendas in their own program silos, which had simply led to further drift.

Achieving results demands clarity about how decisions are made, and the discipline to make them within the context of your theory of change. This usually means saying no most of the time, both to avoid making grants that would throw your strategy off course, and so that you can "double down" when that is desirable from a strategic perspective.

It also means being honest and clear about who gets to decide what. If a board of trustees is responsible for approving every grant and has a 99 percent approval rate, it's reasonable to infer that the board's decision-making role is mainly a formality.

But if a benefactor can override any decisions made by staff, and does so on a regular basis, then perhaps decision-making authority needs to be structured accordingly.

Similarly, if family members exercise direct control over certain programs, to the point of shaping grants and bypassing the foundation's CEO, then perhaps that decision-making loop should be acknowledged. Or if the cornerstone of decision making is consensus within the foundation's executive team, then perhaps the details of the "consensus" should be explicitly defined. Although none of these processes is inherently bad, it is damaging to espouse one process while implementing a very different one. Good people get frustrated, results are diminished, and the odds of making poor decisions multiply.

Decision processes are messy and imperfect in every organization. People lobby behind the scenes. Politics come into play, and personal power is exercised. But if results are your goal, you can't allow the confusion—or disarray around accountability for decisions—to persist. You can have exceptions to the rules. But make them conscious exceptions, so that you can determine how your decisions are compounding over time, either for good or for ill.

Excerpted from: Thomas J. Tierney and Joel L. Fleishman, Give Smart: Philanthropy That Gets Results, (Public Affairs, 2011)
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