September 2nd, 2019
This post from 2009 still seems to ring true despite all of the attention given to best family foundation practice over the last 10 years.
In my work with family foundations, there are few matters that arise as frequently as the questions of succession. “Who”, “when”, and “if” come up all the time. Sometimes raised by the founder, more often raised by next generations, the all too frequent absence of clarity can be an open or barely hidden source of contention, resentment, and puzzlement which often gets in the way of good and open decision making, and as often taints the well-deserved family legacy of giving.
In the current philanthropy environment, it is crucial to return to core matters such as this. All too often, in the face of books and press which challenge the larger conceptual issues of philanthropy, especially given the economic and political crunch of these times, people are reluctant to raise questions like this. They may feel that their energies should be spent making sure that their philanthropy is effective, or high impact, or transformative, or cutting edge. All of that is valid, but if there is internal disarray or disappointment, it will be hard to get to those other issues in a way that is reinforcing to the family.
No single article can address all of this in depth but from my experience there are a number of issues and bits of advice which can prove helpful.
- Trust and Estate planning, I have learned, is an inexact science especially as it relates to philanthropy. Often tension arises because the trust attorney simply didn’t ask or didn’t want to force a discussion on succession planning with the founder. It may have been hard enough to determine who would sit on the foundation board among the heirs; to recommend or mandate what rules should define who follows them was not easily on the table. Thus I have often seen trust and foundation documents which simply obfuscate, and implicitly push the question down one generation. If the foundation is created as part of an estate, the most one can do is participate in a question of “donor intent”. If the funder is alive, one would often do well to engage him or her in understanding what his or her expectation may be. [Sometimes this is best done by an independent outsider who can engage the question without the emotional overlay a family member inevitably has.]
- Some few funders seem to leave matters of succession vague on purpose. It is their way of empowering heirs to take ownership of management of the family legacy – to make it work. These founders seem to recognize that not only can one not rule from the grave, but also it isn’t fair or wise to try to do so. In some cases, the founder knows that there is sibling rivalry and hopes that giving them the responsibility to work together will bring them together. In a healthy family environment, this empowerment can be refreshing and engaging. In a family with unresolved issues, this can often serve to be even more divisive. Any of us in this field quickly learns that one cannot solve unresolved family issues through philanthropy.
- Address succession early. In whatever way the question of succession is resolved, it will never anticipate every possible permutation. However, the later the discussion takes place, the more likely it will be to become personal and not simply “policy.” For example, the question of spouses of family members’ eligibility for the board is more easily dealt with before there are spouses. Eligibility for 3rd and 4th generations is best addressed before any of them is at an age when that might be an issue. Is eligibility to be based on family units or numbers in each generation? I have known and worked with families that have adapted quite different answers to these questions and have done so quite effectively. In most cases, it is when they are making policy decisions of succession which will enfranchise or disenfranchise people already in the room that bad feelings can arise.
- For how many generations is it intended that this fund or foundation exist? We have addressed the question of perpetuity elsewhere. Suffice it to say that the question of succession is very different if all eligible people are alive and known than if planning is for future un-born heirs. I know of several families that define the anticipated length of their foundation to the time when anyone who knew the founder is no longer living, or some other objective point in the future. This may not define when the heirs may participate but it surely defines who is eligible. Other families, which assume a permanent endowment, structured to last for many generations, have a highly systematized rotation and selection system.
- Be aware that there are different dynamics that define the 2nd generation from subsequent ones. The 2nd generation may have been patronized by a domineering parent, ultimately having no real say in decision making until the founder’s passing. They may acquire decision-making authority late in the day. Intellectually, they may know that they want their children to be spared this waiting game, but emotionally they may be protective of their own long awaited role. The reasons for subsequent generations’ involvement may be quite different from that of the 2nd generation, and the emotional connection will be very different.Let me be clear: Much has been written and spoken about intergenerational issues of the 21st Century. We live in a time when younger people really do think and act differently, and that manifests itself in giving strategies and priorities. That is an important topic about which I have written and spoken extensively. However, for our purposes here, the question is not giving strategies but succession strategies. And these are perennial and universal.
- In setting up policies, it is constructive to have each generation meet without the others. Each of these may bring a different set of concerns, preferences, and recommendations which may never arise in a single joint meeting. In my own experience, at least two foundations changed their name based on recommendations which would never have surfaced had everyone met together. Older generations may have very distorted assumptions about what the foundation does or doesn’t mean to their own children, who in turn may have some very crisp and poignant observations about their parents. If a constructive succession system is to be put in place, it needs to incorporate as honest and complete an understanding of what different branches and generations bring to the discussion.
- Succession is meaningless unless there is real decision making. If the by-laws or practices of a family foundation predetermine where the majority of grants are given, it is hardly interesting for subsequent generations to participate. Whatever formal succession is in place matters little if what happens at the table is pre-determined. Similarly, if, as happens, the founder essentially divided the spending equally among siblings or branches of the family, done more than one may imagine to avoid in-fighting, why bother to be at the table at all with others who have full autonomy over substantial parts of the grants process? Why not simply stay home and call in your allocation instructions? Therefore, as important as it is to address the principals and policies regarding who sits at the table, it is equally important to assure that the table is a worthwhile place to be.
All of us who work with families are fully aware of the dynamics of families. When a family embraces a legacy in a healthy and robust way, it not only honors those who established the foundation, it ennobles those who follow. Yet as all of us know, achieving that sometimes requires diplomatic skills and Solomonic wisdom. Fortunately, the majority of families really do want to do it well.