Three powerful governance practices to manage a private foundation

Article content

Many generous families give through foundations, commonly incorporated as private foundations. Unlike public foundations, a distinguishing feature of a private foundation is the relationship between more than half of the directors – they are at non-arms’ length, meaning they are closely related. Given these close relationships, and the objectives that generous families often have for community and family, governance of a private foundation can be an empowering tool that helps the family flourish and avoid difficulty.

Giving through a private foundation may be a family activity, but it is one for which there is public interest and scrutiny. As an incorporated entity and registered charity, a private foundation has specific corporate governance requirements, things a family must do to be in compliance. For example, they must establish a board and conduct meetings, clarify their charitable purposes, provide oversight, avoid conflicts of interest, and file an annual T3010 (which is publicly available). These prescribed functions are intended to protect the public trust and ensure there is adequate stewardship of the charitable assets in line with the approved purposes of the foundation.

Yet, families can also choose to introduce and adopt governance practices that protect and strengthen the family as well as prevent or tackle the common but potentially debilitating challenges that can arise when giving together through a private foundation. Among these challenges might be a lack of direction, difficult power dynamics between and within generations and family branches, uncertainty about roles and expectations, issues related to board composition and renewal, and, sometimes, poor or disruptive behaviour.

Too much governance can be rigid and bureaucratic, but too little can lead to apathy and confusion.

Acknowledging the diversity and complexity of generous families, here are three powerful governance practices that families can explore to position themselves for harmony and impact.

(Re)Invest time to clarify purposes

Clarity regarding purpose and direction brings focus to any collective activity, and for families who give together it offers a shared platform for motivation, strategy and action. It is commonly expressed in statements of vision, mission and values. I have observed that a family’s experience of achieving clarity about their foundation’s purposes for existing and giving can be transformative and should not be rushed. Facilitated effectively and informed by good community data, the process reveals common ground among members, unearths deeply held views of the world and the family’s place in it, and articulates hopes and aspirations for the future.

This is as true for families setting up a new foundation as it is for families with long-established philanthropic legacies. Indeed, families and communities are always evolving and changing, so a foundation’s purposes should be assessed and revised at reasonable intervals to ensure they remain relevant.

Share and develop leadership

Parents or grandparents often tell me they set up a foundation to help the community, of course, but also to benefit the family. They want to engage in a collective activity that keeps the family together over time, models generosity and volunteerism, and even teaches rising generations about leadership. Yet many families with foundations struggle to make this so.

Founders need to be candid about whether the philanthropy is “mine” or “ours,” as this has implications for family engagement and planning for the future. It can be disempowering to participate in something in which you have no voice. But if it is a shared endeavour, then sharing and developing leadership can unite partners and bridge the leading and learning generations. Participation by family members ought to be voluntary but with clearly defined roles and responsibilities – and support – for those who do participate. Opportunities to lead, such as chairing meetings, presenting, spearheading a committee or initiative, meeting with grantee organizations, or holding an officer position (yes, including Chair), help build confidence and trust and unleash the potential of everyone around the board table.

Renewable but defined terms for board service can make participation more accessible and allow family members to flex their involvement depending on their interest, age and stage of life. For larger diversified families, creating criteria and on-ramps to joining the board, and defining exits, provides transparency and clarity. This might include opportunities to be involved in the family’s philanthropy in meaningful ways other than serving on the board.

Calibrate practices and policy

Families are best served when they find a middle way for their foundation governance, comprised of purposes, practices and policies. Borrowing an analogy from Buddhism, the strings of a guitar tuned too tightly snap when you strum them, but strings that are too loose cannot be played at all. Too much governance can be rigid and bureaucratic, but too little can lead to apathy and confusion. What is too much or too little governance varies depending on family culture, values and complexity, but calibrating both foundation practices and the development of policies that suit should be an ongoing conversation.

Process matters. Families benefit from collective dialogue and exploration, gaining insight into each other, building their social capital and seeking consensus. Some families choose to include arm’s length or external directors on the board not just to expand the board’s diversity and knowledge base but to bring objectivity, disrupt unproductive family dynamics and raise the level of deliberations.

More from Canadian Family Offices:

• New spouses invariably upset the inheritance apple cart
• Inheritance power move: leaving money to charity so you don’t spoil the kids
• Can you challenge an unfair will? Where you live makes a difference
• The beer-brewing family who lost it all
• If you want to leave Canada (and its taxes) behind, prepare for a very long goodbye

Policies define action. How many and which policies a private foundation ought to have also varies, with baseline staples being conflict of interest, finance and investment, and granting. Most influential for families, a code of conduct or family giving charter articulates how family members will be involved and engage with each other and the community. Crafting this together helps family members express what they each need to bring and contribute their best selves to the experience, what’s not acceptable, and how they will hold themselves and each other to account. Families have shared with me that the outcomes of this important work have enhanced other areas of their family life.

Blending corporate and family governance practices can help generous families flourish and bring to life the aspirations they have for family and the impact they want to make through their giving.

Dr. Sharilyn Hale, C. Dir, MFA-P, is president of Toronto-based Watermark Philanthropic Counsel, where she helps those who give, give well and channel their wealth and influence for good. With a career spanning the charitable sector, she works with leading philanthropists, generous families and social purpose organizations across Canada and the Caribbean. An expert on governance and multi-generational family philanthropy, Sharilyn’s doctoral research led her to develop a model that helps families approach their giving in a way that works. She serves on the Advisory Council for Canada’s only graduate program in Philanthropy & Nonprofit Leadership at Carleton University in Ottawa.

Please visit here to see information about our standards of journalistic excellence.