Keeping “Control”

Our foundation has begun discussions to add nonfamily trustees to enhance and complement the skills and perspectives currently on our all-family board. How do we ensure that the family will not lose “control” of the foundation over time?

There are a variety of strategies that family foundations around the country have used to retain control while engaging non-family board members in their work. These strategies may be used alone or in combination, and may include the following:

Strategy 1: Create term limits for current board members.

A technique used by many family foundations, term limits can be a useful tool for:

• clarifying the expectations of both family and non-family board members and encouraging current and future board members to see their role as stewards rather than as “owners” of the foundation, and
• allowing younger and extended family members, as well as other outside voices, to participate on the board over time.

For sample policies on board term limits for family foundations, please contact NCFP at ncfp@ncfp.org.

Strategy 2: Vote on a resolution requiring that family members shall always constitute a majority of the board of directors.

In May 2005, the board of the Conrad N. Hilton Foundation met to review the future of the foundation’s governance structure in preparation for the retirement of long-time Board Chairman and CEO Donald H. Hubbs, and the expected retirement of several other Foundation Directors over the next few years. For more than a half-century preceding this meeting, Hilton family members had constituted a minority on the board.

In preparation for the meeting, Steven M. Hilton, grandson of the founder and incoming CEO of the foundation, prepared a memo to the board on engaging the next generation of Hilton family members:

“I sincerely believe there is something special about keeping the Hilton family engaged with this Foundation. To ensure that Conrad Hilton’s wishes continue to be reflected in the Foundation’s grantmaking and that his charitable legacy continues to inspire other members of the Hilton family, I believe we should think about how best to engage the family and help educate them in the ways of thoughtful philanthropy.”

At the meeting the Board amended the foundation’s Articles of Incorporation to ensure that direct descendants of the Founder would constitute a majority of the Board going forward. The Hilton Board currently includes two second-generation and four third-generation, along with five non-family members.

Strategy 3: Specify the number of board seats to be filled by family and non-family members and/or explicitly state the desire for continued family participation in the foundation.

In more than twenty years of activity, The Nord Family Foundation has contributed more than $79 million for charitable and philanthropic purposes in Lorain County and in several other communities of interest to the children, grandchildren, and great-grandchildren of Walter and Virginia Nord. On its website, the foundation describes its decision to specify the number of board seats to be filled by family and non-family members as follows:

Members of the Nord Family Foundation board consist of the adult descendants of Walter and Virginia Nord as well as their spouses and adopted children. Now numbering more than 45 persons, they meet annually to participate in the development of the Foundation’s policies and grant making strategies, and to elect the Board of Trustees. Nine of the Trustees are chosen from the Membership; three additional Trustees are drawn from the community at large.

The Lumpkin Family Foundation centers its activities in East Central Illinois, where the Lumpkin family operated a business for more than 100 years. The foundation’s board, now led by the 4th generation of the Lumpkin Foundation’s donors, has documented both the importance of ongoing family participation in the foundation’s identity, as well as its decision to involve nonfamily trustees:

Family members currently fill six of nine seats on the Board of Trustees and serve on all grant-making and management committees. The Committee on Trusteeship was created to support the growth and participation of members in relation to The Foundation’s need for leadership. At age 10, children begin their involvement with the Next (Sixth) Generation Committee. The Committee makes small grants to organizations whose mission and work the children think are compelling. Children become Foundation members at age 16.

While family participation is essential to our identity, our members value the involvement of others whose expertise and knowledge support the achievement of The Foundation’s goals. Independent (non-family) members currently participate on our grant-making committees where most grant decisions are made. We also involve community leaders in ad hoc advisory committees and regularly consult community members when we are developing new programs or evaluating existing ones.

Strategy 4: Create a membership structure whereby only family members are given the responsibility to elect or remove board members.

The David and Lucile Packard Foundation uses a two-tiered governance structure in which only relatives of the founding donors, defined as the children of David and Lucile Packard, their spouses and children, are eligible to be Members of the Foundation. Members of the foundation, which currently only include the four children of the founders, are charged with electing the Trustees, who in turn govern the foundation.

The Packard Foundation’s website describes the respective roles of Members and Trustees as follows:

Members of the foundation have the following specified powers:

1. Approve any amendment, revision or deletion of the Bylaws.
2. Determine the authorized number of Members.
3. Elect additional Members whenever a vacancy occurs.
4. Remove any General Trustee without cause or explanation or cancel the election of any person as General Trustee.
5. Elect the Family Trustees. The Members select five representatives from among themselves, their immediate families, or other people who represent the family’s interests to serve as Family Trustees.

The Packard Foundation is governed by a board of directors referred to as the “Board of Trustees.” The Board consists of three classes of Trustees: Family Trustees, General Trustees, and an Ex Officio Trustee. There are thirteen authorized Trustees: five Family Trustees, seven General Trustees, and the President, who is the Ex Officio Trustee.

1. Family Trustees are elected by the Members of the Foundation. The terms of Family Trustees may be 1- 2- or 3-years as determined by the Members. There is no limit on the number of terms a Family Trustee may serve.
2. General Trustees are nominated by the Board of Trustees and are elected by a majority of the Trustees then holding office. The term of each General Trustee is three years. A General Trustee may serve up to three consecutive three-year terms in office, unless a special exception is made.
3. Ex Officio Trustee is a voting member, and is a Trustee by virtue of holding the office of President of the Foundation. The term of office of the Ex Officio Trustee is concurrent with his or her term of office as President.

What techniques and strategies have you used to integrate new voices into the work of your family’s foundation while maintaining active and engaged family participation in the governance and management of the foundation? Please share your ideas in the comments section below!

Editor’s Note: The information in this article should not be taken as qualified legal advice. Please consult your legal advisor for questions about specific legal issues discussed here. The information presented is subject to change, and is not a substitute for expert legal, tax, or other professional advice. This information may not be relied upon for the purposes of avoiding penalties that may be imposed under the Internal Revenue Service.