Sustaining Effective Family Governance: Developing a Family Talent Pool
Many enterprising families face a shortage of qualified and motivated family members fit for serving in business and family governance roles – and they are particularly concerned about a lack of engagement among next generation family owners and stewards.
Family members serving in governance roles can be an incredible asset to the family enterprise system. On the business governance side, family directors (alongside their other skills) typically bring a deep understanding of business and family values, culture, and history. They can therefore provide guidance and oversight that aligns with the past as well as the shareholders’ envisioned future. On the family governance side, they coordinate the interface between ownership and enterprise, facilitate tricky conversations, coordinate family gatherings, and arrange educational activities and engagement opportunities for the next generation.
Sadly, family members don’t always manage to successfully perform their various governance roles – sometimes, a family director lacks basic financial literacy or a sound understanding of governance boundaries, or a family council member embraces partial views favoring individual preferences rather than collective wishes of the family. Sometimes, we have boards of family councils that have become dysfunctional because of toxic family dynamics; such governing bodies drive away the best talent.
What we see over and over again is that when a family lacks a transparent, rigorous, and sensible process to educate and develop, identify, select and elect, onboard, evaluate, and eventually offboard family members suited for governance, they typically do not end up with the best talent performing those important roles.
In this short article, we talk both about the capabilities we have seen to be useful for family members taking on governance roles, as well as a sensible process for developing a pool of talented and motivated family members for governance service.
Family participation in governance: what capabilities are key?
Families select and elect family members for governance roles for a variety of reasons. Sometimes, the emphasis is on experience and qualifications; sometimes, the family wants to make sure a certain branch or generation is represented;’ and sometimes, a person might be selected for their ability to exercise independent judgment, bring people together, or simply because they are widely trusted and liked.
None of those reasons are necessarily good or bad, better or worse. Whether it ends up working out depends on the family culture, the purpose of the governance system, the actual role, and the capabilities of the individuals who serve alongside. But through our work, we’ve come to identify a few skill dimensions that seem to be almost universally beneficial for both business family governance roles:
Character and stewardship: good governance starts with people who put the long-term interests of the collective – the enterprise and the family – ahead of their own. Integrity, sound judgment, discretion, a sense of responsibility toward future generations, and the willingness to consider perspectives beyond one’s own branch or immediate interests are key qualities for any family governance role.
Skills and experience: not to state the obvious, but any governance role requires real competence. For a family director, this includes (basic) financial literacy, some business and leadership experience, strategic thinking, and a sound understanding of the role of a board and the boundaries between governance and management. Family council members need a different set of skills; the benefit from an understanding of the family enterprise and ownership system, family governance practices, and the council’s role and responsibilities. Relevant experience for either can be developed in many places, for example, through a career outside the family enterprise, work within it, service on other boards or committees, or increasingly responsible roles within family governance itself (e.g., committees).
Interpersonal capability: teamwork makes the dream work, and governance is no exception, as it is ultimately a group activity. Therefore, the ability to listen, ask good questions, communicate clearly, disagree constructively, receive feedback, and work productively with people who hold different views is critical. For family council members in particular, facilitation, empathy, trust-building, and the ability to navigate difficult family conversations are every bit as important as technical expertise.
Credibility: family members in governance are most effective when the have the confidence of the people they represent and serve. They don’t need to be the most popular person in the family, but they should be viewed as thoughtful, fair, dependable, and capable by many (if not most). For family directors, credibility also needs to extend to fellow directors and management; for family council members, trust across generations and family branches is particularly important.
Motivation and capacity: lastly, someone can have all the right capabilities and still be the wrong candidate if they cannot (or do not want to) devote sufficient time and energy to it. Families should consider why someone wants to serve, whether they understand what the role really entails, whether they are willing to prepare for it, and whether they have the capacity to fulfill its responsibilities. Many families are unclear about the time commitment associated with governance roles and end up with individuals who fail to honor their commitment, leading to conflict down the road.
Of course, all of these sound skills and characteristics sound reasonable – but the problem is, what do they mean in reality, and how do we operationalize (measure, assess) them in the context of the governance roles? That’s typically where families fall short – they do not put in place a system to assess family members’ performance in (particularly family) governance roles, creating ambiguity and preventing growth and development. Families benefit from getting very specific about what they expect from their governance representatives to avoid ambiguity (especially families who already struggle with trusting each other). In other words – and for example – what does it mean that a family director must have ‘basic financial literacy’: does that mean they have to have an MBA or any other professional qualifications, or do they ‘just’ have to able to read a financial statement and draw conclusions? What does governance experience mean – should a family council member be required to have served on a committee for a number of years before being considered for council service?
Families benefit from getting very specific about what they expect from their governance representatives, particularly when trust is already an issue. The more concrete we can be about the requirements for individual roles, the less ambiguity there is in assessing people against them, and the more family members know what they need to do to prepare with intention.
Developing a family talent pool: education, engagement, empowerment
A sensible process to establish a family talent pool for governance service – a family governance pipeline, so to speak – starts with being crystal clear about the capabilities required to serve. Once there is clarity around that, we can begin to think about the best process to engage, educate, identify, select, elect, onboard, assess, and eventually offboard family members for governance roles.
Engage: effective engagement means providing clarity around what governance opportunities exist and what is expected of those who pursue them. Families should talk openly (and frequently!) about how family members can contribute to governance, what various roles entail, what capabilities are required, and how the selection and election process works – and why it’s important that family members get involved. By talking about governance opportunities early and often, families give people time to become interested and ask questions before a decision is required.
Educate: families benefit from learning together, and governance is no exception. A governance learning path might not just be offered to the handful of people who expressed an interest in serving, but to the broader family. At a minimum, family members benefit from a shared foundation of knowledge about the family and its history, the enterprise and how it creates value, ownership and the rights and responsibilities that come with it, governance and the respective roles of owners, boards, management, and family governance bodies, and the meaning of stewardship. Effective communication, decision-making, and conflict management are equally important parts of such a family learning journey. Some families build formal family education programs, while others use a combination of workshops, family meetings, outside courses, site visits, and informal conversations with board or council members.
Identify: education creates a fantastic opportunity to see who is genuinely interested and capable; rather than trying to identify future governance leaders based on reputation or assumptions, learning sessions or small assignments give family members opportunities to demonstrate their interest and capabilities. They might participate in a family council committee, work on a family project, help organize an educational program, observe a board or council meeting, or take on another defined assignment. Existing governance role holders can get to know potential candidates through these interactions, and the family members get a much better sense of what the work actually means. Over time, this helps a family identify a broader pool of motivated and capable people rather than scrambling to find a candidate when a vacancy arises.
Select and elect: when a governance role does become available, there should be a clear process for moving from a pool of potential candidates to the person or people ultimately put forward for election. Families must determine in advance how one can express interest or nominate oneself or other candidates, and what the process for assessing and electing candidates looks like. Depending on the role and family, an assessment might include conversations with existing governance leaders or feedback from people who have worked with the candidate, or a more formal assessment process. The most important thing is that the process is understood by all and applied consistently.
Onboard: even a highly capable and experienced family member needs to learn how a particular board, family council, or committee operates. A thoughtful onboarding process clarifies the role’s responsibilities and expectations, governance boundaries, decision-making processes, meeting norms, and relationships with other parts of the family enterprise system. Board and family council observation programs are also a fantastic way to prepare people for governance service, as is pairing a new member with a more experienced mentor to help them get up to speed more quickly.
Assess and develop: families benefit from having a transparent process for periodically assessing everyone who serves in a governance role (not just those whose performance is causing concern). Assessments should connect directly to the expectations and capabilities defined for the role, for example, Is the person prepared for meetings? Do they contribute constructively? Are they fulfilling the commitments they made when they accepted the role? Regular feedback gives people an opportunity to improve and makes development a normal part of governance service rather than something that happens when there is a problem.
Offboard: finally, clear terms and term limits make transitions expected rather than personal and systematically create opportunities for new family talent to enter the system. There may also be times when someone needs to leave a role because expectations are repeatedly not met. Those situations are, or course, more difficult, which is another reason why clearly defined expectations and regular feedback matter so much. And because these are family systems, the way someone leaves matters. Transitions should be handled transparently and respectfully, recognizing an individual’s contributions and, where appropriate, helping them identify other meaningful ways to participate in family life or the enterprise.
If done well, a thoughtful process creates a renewable pool of family talent: family members who understand their roles as owners and stewards, have opportunities to discover where they can contribute, know what is expected if they want to serve, and have a pathway to develop the capabilities they need.
Not everyone who participates in the process will (or should, for that matter) end up in a governance role. But everyone can become a more informed and engaged owner, and the family is much less likely to find itself asking, when an important role suddenly becomes vacant, “Who on earth can we put in this seat?”
Take-aways
Families often think about governance succession when a seat opens up, but by then, it may be too late to develop the experience and competencies that good governance requires. Building a talent pool means engaging and educating family members long before they are candidates for a board or family council seat. Starting earlier is always better.
Families benefit from clearly defining the capabilities, experience, behaviors, and commitment required for each governance role, and make sure those expectations are widely known, so that family members know what is required from them if they indeed wish to serve. Be clear about what good looks like.
Education, committee work, special projects, observation programs, mentoring, and other experiences allow family members to build skills while giving the family a better sense of who is interested, capable, and ready to serve. Create opportunities to learn and demonstrate readiness.
The goal is not to identify one successor, but to continually develop a pool of capable and motivated family members who can step into governance roles as the needs of the family and enterprise evolve. Not everyone will ultimately serve, but everyone who participates can become a more informed and engaged owner. Think in terms of a pipeline, not a seat.
Related articles:
Case Study: Renewing the family council of a 5th generation business family | Generation6
Shifting your board from ineffective to powerful: Do’s and don’ts | Generation6
