Governance can be defined as a framework of rules and practices by which a board of directors or trustees ensures accountability, fairness, and transparency in its dealings with its stakeholders.
For family foundations, these stakeholders include family members, beneficiaries, employees, government, and the community at large. Each country has particular laws relating to the governance of companies, including charitable foundations.
What are the responsibilities of a family foundation?
A family foundation has fiduciary and legal responsibilities. As an entity working for public benefit, foundations are expected to be committed to pursuing the best interests of its designated beneficiaries – in other words, a foundation must work to achieve its charitable aims and purposes.
Furthermore, foundations must be formed according to the law and be properly registered. Some foundations receive tax incentives from government; this means that they have an added responsibility to manage their affairs wisely, for the public good and with due consideration for the taxpayer.
Generally, most family foundations are run by family members who serve on a board, sometimes called a Board of Trustees or Board of Directors. They are the primary custodians of the foundation.
Stewards of the family foundation
As stewards managing assets for the benefit of others, directors and trustees must take care that they exercise their responsibilities. This means that they should, amongst other things:
- Make sure they adhere to the relevant corporate and tax statutes of their country or territory
- Act diligently and competently
- Avoid conflicts of interests
- Take care when overseeing the foundation’s operations
- Recognise that they are responsible and accountable for the actions of their foundation’s staff members
- Make sure they keep up to date with all relevant legislation.
The foundation’s board collectively has a responsibility to ensure that the leaders it puts in place are competent and skilled, that legal and fiduciary responsibilities are duly carried out, that risks are identified and well managed and that the foundation’s assets are protected. In addition, they should ensure that the investments or grants it makes are wise ones.
Establishing a governance framework
The specific legal requirements may differ from region to region, but at the heart of establishing a sound framework for governance is the founding document – it may take the form of a memorandum of incorporation or a trust document, for example.
In addition, a charitable foundation may choose to draft a mission statement, which sets out its intent and/or purposes and values. Compiling a policy manual which directs or guides the conduct of trustees or directors and other staff members is also useful.
One of the most important guiding principles of good governance – and one increasingly called for by civil society and legal requirements – is transparency. Information pertaining to the foundation’s activities, as well as founding documents and policy manuals, should be made available for scrutiny by communities, beneficiaries, and other interested parties. Such information can be published in an annual report or on a foundation’s website.
Common governance mistakes
If you wish your family foundation to be successful, achieve its aims and grow from strength to strength in the years to come, avoid these common mistakes:
- Not knowing the law
- Not managing risk adequately
- Not investing wisely
- Not keeping proper records and holding proper management meetings
- Not checking out designated beneficiaries or staff members thoroughly.