To make boards work better, look to family enterprises?

Article content

All boardrooms look and function more or less the same, and that’s indicative of a larger problem, says board consultant Matt Fullbrook. There’s the imposing table. A presentation screen or whiteboard. The same order of proceedings. Even on Zoom, there’s the same solemnity, all dulling the flow of ideas.

Yet we are seeing, finally, out of necessity, faint signs of change, says Fullbrook, who has spent his career assessing the effectiveness of boards. For two decades he led governance research at the University of Toronto’s Rotman School of Management as manager of the Johnston Centre for Corporate Governance Innovation and the Clarkson Centre for Board Effectiveness.

Despite such heavy credentials, there’s a lightness to his message. “Counter-programming,” he calls it.

His is not the same old advice given to boards. There’s an obvious need for directors to be more adaptive and to look with urgency at broader concerns (the climate crisis, for instance) and not just focus on profits, losses and whatever the executive has to say. This can mean reimagining how boards operate, with prototypes coming from an unlikely source: family enterprise.

What got you into such a specialized field, studying and improving the effectiveness of boards?

“You wouldn’t believe me if I said anything other than the truth, which is: It was a complete accident. I don’t think anybody points themselves toward this on purpose.

“I had a really cool opportunity about 20 years ago to be a part of a project that was getting off the ground. The Rotman School of Management at the University of Toronto was launching a set of board ratings for public issuers on the TSX. And we had put together a bunch of criteria, gathered a bunch of data, put it out, and we didn’t know if anyone would care.

“It turned out that they really did care. Shareholders cared. Institutions cared, and the issuers themselves cared. And simultaneously, just coincidentally, the Globe and Mail launched an almost identical initiative that exists to this day called Board Games. We got together with the Globe and said, “There’s no sense in both of us gathering all of this data. Why don’t we just do all the data collection for you? We’ll do our own ratings, and you do yours.”

For boards linked to family companies and family foundations, what do they tend to get right — and maybe not so right?

“It’s really tough to generalize in some ways. I’m really resistant, for example, to apply the term ‘best practice’ to governance, simply because there’s no one process or structure or model that’s really great for every organization. And similarly, there’s no process or structure or model that will remain great for 10 years. It’s a journey, as opposed to a best practice.

“There’s this conventional thinking that I encountered, that once you pass through this gate [such as a milestone in the growth of a family enterprise] you’re supposed to have an advisory board. And then you pass this next gate, and you’re supposed to have a family council. And then the next one, you’re supposed to have a fiduciary board. And we found that that’s not really the experience that most of these organizations go through. Instead, family enterprises tend to be more free to build the models that are appropriate to them, for what’s going on at the time.

You have to remember that if you are a ‘box-ticking’ board, that comes with risks. And the biggest risk is that you’re not taking the time to be sufficiently informed.

“At a certain point, you’ve got to take a step back and say, ‘Well, I can’t just make all these huge decisions on my own.’ But the answer to that concern isn’t necessarily, ‘Okay, build a board of all independent directors.’ It should be to step back and say, ‘What approaches can we consider that will help us?’ I think family enterprises have the tendency not to want to ask these questions, because they look at governance and they think it’s bureaucratic and slow.”

And it may be a tough cultural shift for somebody who is very entrepreneurial, such as the family patriarch or matriarch. It might take a while for them to get used to relinquishing power.

“Right. I think the best way I know to engage in that conversation is first of all to learn the language that they are using and to engage with them using that language.

“If we can acknowledge that it doesn’t have to be a board, then it doesn’t have to be bureaucratic, and it doesn’t have to cost you a lot of money. What can we do to surround you with the people you need, in the ways that you need them, to give those people the space to have their own ideas and perspectives and to challenge you — and to do it in a way that’s not slowing you down? The answer in some cases is a board. In some cases, it’s an advisory board. But in some cases, it’s some hybrid.

“There are of course laws that apply. Every incorporated entity has a board of some kind, but that board doesn’t have to be full of independent folks. What are the approaches that we can consider that a) get you the advice and support that you need, that b) aren’t going to slow you down and make you feel like you’re losing control, but c) are also going to set this organization up so that when you’re gone, it’s not as painful?”

So much in the world has changed in the 20 years since you started your work at Rotman. But how open are families, have you found, toward change? Especially if there’s a matriarch or patriarch in charge, or if there are generational divides or other family scenarios like that.

“This is, I think, an area where there’s a tendency for family enterprise to think of themselves as really special and unusual. And I would argue that there’s nothing particularly different about a family enterprise facing change, compared to change in any other type of organization. There are lessons that other sectors have learned that family enterprise can benefit from.

“I think there’s an opportunity for family enterprise, as they experience these type of transitions, not just to zero in on ‘What are other families like us doing, so that we can learn from them,’ which I think is important, but also, ‘What other business leaders do we know, or what other organizations are we familiar with, that have gone through transitions that we found interesting? We’d like to learn how they did it well, or what mistakes they made that we can learn from.’”

Is there a heightened need for board oversight, more than ticking the boxes for environmental, social and good governance (ESG) practices?

“Every single board’s job on paper is identical. Every single one. It doesn’t matter if you’re the tiniest community charity or the biggest multinational listed company, your job is the same. And part of that job includes having your butt on the line for literally everything.

“And so, if you walk into that room, and you decide to just be a box-ticker — and I’m not saying that critically — whether you know it or not, you’re assuming a significant amount of risk, because what you’re doing is delegating everything. But you can’t delegate accountability. You’ve made a decision actively or passively to delegate all of the authority for making decisions to management or to the family or whatever. But ultimately, if something goes bad, your butt’s on the line no matter how much you’ve delegated.

“I don’t want to terrify boards, because I think it makes sense to delegate a significant amount. But I think you have to remember that if you are a box-ticking board, that comes with risks. And the biggest risk is that you’re not taking the time to be sufficiently informed. You’re just sort of going in and saying, ‘OK, management asked for A, B and C. We’re giving them A, B and C, and we’ll have a little bit of conversation to feel like we did some due diligence,’ and then it’s over. But we’re not asking, ‘Wait, are A, B and C even the right questions? Are we sure we’re talking about the right stuff? Are we sure we’ve examined all the options in front of us?’”

Let’s talk about the environment and net-zero emissions targets, as an example. How can boards get ahead of the game?

“Now that we have an issue like climate change on the plate of every human being in the world, maybe it’s important for us to look at the convention of boards and say, ‘Hmm, we all have our boardrooms laid out the same way, and our agendas planned the same way, and our committee structures are the same, the rules of order are the same.’ None of that stuff is mandatory. It’s all optional. And in my experience, very few, if any, boards take a step back and say, ‘Are we sure this is working for us?’

“I don’t think these questions and conversations are on the radar of any organization that I’ve ever met. If we’re now facing issues like climate change, where there is a potential that none of us are even going to exist if we continue business as usual, then sitting around the boardroom and just asking, ‘How is climate change going to affect our business,’ isn’t going to get where you need to be. Some other organization out there is going to be asking way better questions than that, and they’re going to win.”

You’ve also created a series of short, one-minute-plus podcasts on governance and board issues, each posing an idea in a highly accessible way, even to someone like me who has only sat in on a few board meetings of daycares and my local cycling club. What’s your thinking behind the podcasts?

“I got to a point two or three years ago where I was starting to get a bit nervous about the resources that were out there in general around corporate governance. Partly because I think there are a lot of people with a lot of knowledge, and they understand governance, but they haven’t seen it in action very frequently. So they put advice out there, as though it is generic and useful, and it seems really compelling, but it does damage in most cases, or it doesn’t help. There’s the temptation on the part of experts to put generic advice out there.

“The other thing making me nervous was that even the most basic resources I could find, whether intentionally or unintentionally, assumed a base level of vocabulary and knowledge – even what governance is, or what’s a board for.”

Which isn’t obvious at all.

“No! I completely agree. What happens is that we end up with a bunch of people using the same words to mean different things. Also that a lot of conventions and orthodoxies, those standard opinions and perspectives around governance, must be true because everyone believes them. But I’d say that’s similarly as absurd as every organization having a boardroom that looks the same. But they do, not for any reason other than no one is out there providing a different model.”

This interview has been edited and condensed for clarity.

Get the latest stories from Canadian Family Offices in our weekly newsletter. Sign up here.