In her quarterly column for Family Wealth Report on trends in the world of philanthropy, Meg Lassar runs through a list of “dos” for advisors discussing family foundations with clients.

Editor’s Note: In her quarterly column on trends in the world of philanthropy, Meg Lassar, analyst at Chicago-based Strategic Philanthropy, runs through a list of “dos” for advisors discussing family foundations with clients.

Being a contributing member of a family foundation board goes beyond fulfilling basic fiduciary duties. Ideally, trustees are engaged in the work of the foundation on various levels: from determining the overall mission and philanthropic strategy to codifying the procedures and policies that guide daily operations. Too often, however, for many family foundation board members being a “good steward” is defined by preparing for and attending board meetings, voting on policies and grants, and in some instances, providing investment oversight.

While these responsibilities are elemental to foundation stewardship, there’s more that goes into effective board service. Family legal and wealth advisors are well-positioned to help clients more fully understand the scope of foundation trusteeship. According to Charles Paikert’s article, The UHNW Market: ‘Soft-Side’ Services Now a ‘Must-Have’ (click here), training and education around trusteeship are the kinds of philanthropy and family governance-related services that advisory firms are offering to differentiate themselves in the market place and appeal to new clients.

So what should advisors be telling their clients about what it takes to be a successful family foundation trustee? Below are some of the more frequently overlooked aspects of foundation leadership. Many of these trustee “to dos” offer wealth and legal advisors additional opportunities to interface with clients. Several may require the additional professional expertise of a philanthropic advisor.

·        Distinguish between individual and collective philanthropic priorities.

Family foundations in which the focus is on “family” exist to carry out a collective philanthropic mission, not to fund each family member’s individual “pet causes”. An effective trustee will leave personal preferences at the door and consider “what’s best for the foundation and for the family?” when making important funding decisions. Often, trustees establish a discretionary grants policy which allows board members to designate a set amount to personal philanthropic priorities each year so that the main agenda of the foundation can focus on collective grantmaking priorities.

·        Articulate the foundation’s mission and priorities.

A mission statement—a few sentences that describe the foundation’s charitable goals—can serve as an invaluable tool for setting a family’s giving agenda and for preventing conflict over grantmaking decisions. The process of developing a mission statement allows families to come together to reflect on their shared values and to identify those issues—be it animal welfare, education or the arts—that they collectively wish to focus on. Both the mission and priorities should evolve with the foundation and should be revisited when new trustees are added to the board and/or when external social and political factors illuminate new areas of need. Therefore, trustees should ensure that the mission and priority areas should be specific enough to offer meaningful grantmaking guidance but flexible enough to enable future generations to adjust them as necessary.

·        Define board structure and responsibilities.

According to the National Center for Family Philanthropy, only 37 per cent of family foundations have written documents outlining the key responsibilities for board members. Trustees must ensure that such “job descriptions” exist so that future board members know what is expected of them when it comes to leadership. Similarly, trustees should develop criteria for board eligibility (e.g. age minimums, volunteer experience, areas of expertise, etc.) and ensure that procedures for electing or appointing new officers are outlined in the foundation’s bylaws. They might also consider self-imposed term limits in order control board size and allow for younger generations to experience board leadership.

·        Discuss foundation lifespan.

The majority of private foundations are set up to exist in perpetuity and most have no language in their bylaws concerning lifespan. Rather than establishing a perpetual foundation by default, trustees should question which structure (perpetual or time-limited) best suits both the family’s needs and the philanthropic mission of the foundation. For families looking to “attack today’s problems with today’s money”, spending down their endowments within a specified time frame might be an appropriate strategy.

·        Draft a spending policy.

While two‐thirds of private foundations have a written investment policy, only 39 per cent have a written spending policy. And most of these spending policies simply default to the legally required minimum payout rate for US-based private foundations which is five per cent of the previous year’s assets. However, trustees can work with their wealth manager to develop a policy based on rigorous analysis of how various distribution formulas will advance the foundation’s mission, be it to involve future generations in the family’s philanthropy or to address the urgent social issues of today. In the face of market volatility, spending policies can provide a roadmap for how future generations of trustees should deal with decreased assets and increased nonprofit need.

·        Involve the next generation of foundation leadership.

Involving children and grandchildren in the foundation can play an important role in preparing younger generations for wealth and responsibility. By starting the succession planning process before the need to transition leadership arises, current trustees can ensure that members of the next generation have time to develop the governance and grantmaking skills they will need to be successful trustees.

·        Get out of the boardroom.

Using board meetings to discuss each and every individual grant can not only be tedious but can also detract from more substantial conversations about the foundation’s overall strategy. To make the most of their meetings, trustees can invite experts on relevant issues and/or representatives from grantee organizations to lead the board in a discussion or workshop. But trustees should not feel bound to the boardroom. One of the most valuable ways to learn about nonprofit organizations is to go out and visit and them. Staff are usually more than happy to make themselves available to “show off” their work for funders.

Finally, to be fully engaged and effective trustees should constantly educate themselves on both the issues their foundation supports and the philanthropic best practices that inform smart foundation management and giving. By joining a funder network—such as a Regional Association of Grantmakers—or a collaborative—such as the Environmental Funders Network or Grantmakers Without Borders—trustees can learn from their peers and connect with experts in the field. Attending philanthropy conferences and workshops can also be helpful in keeping up-to-date on trends in philanthropy and in specific issue areas.  

Because certain aspects of foundation governance are beyond the scope of wealth and legal advisors’ work, many choose to partner with a philanthropic advisor—a professional who can help them to prepare clients to be the most effective trustees possible.

Providing clients with valuable recommendations and guidance around family foundation board service can be a win-win for clients and advisors alike, resulting in more satisfying philanthropic experiences and deeper client relationships.