Governance: Trust Fund

A Different Way to Approach a Unique Challenge


While we were not involved in this work, we were aware of the work being done at the time. We are concerned with the conclusion, and present another approach for our readers to consider. Because our firm includes both a psychologist and a CPA/governance expert, we would approach this situation a bit differently – and we discuss our approach at the end of the paper.



A family-owned business generating lots of cash. The founder created the business and expanded it throughout the region – it was very successful. The founder had two children (Generation 2) whom he expected would take over the business someday. One member of G2 had two children (G3), the other had one. Both members of G2 died tragically young.



After the deaths of his two children, the founder set-up trust funds for the children in G3. The founder also brought his long-trusted executives on to the board, with the plan for them to remain as the directors after he too passed. The founder had expectations that G3 would take over the business at the appropriate time. As they got older, one member of G3 went to college, pursued business and worked in the company, while the others enjoyed living off their trust fund. The problem was that the trust-fund children decided they wanted to exercise their ownership, join the board and run the company… having zero experience or credentials!



The existing board was able to convince the two problem grandkids (adults in their 30s) to work through a process to re-set the board. They all agreed that a skills-based approach would work best: first agreeing on the skills needed on the board, then finding people with those skills to interview for board seats.

Because the trust funders were prominent in the community, “community involvement” was included as a skill set. For many years the company sponsored sports teams and other community programs in the region. As a prominent retail organization the board and management agreed that it made sense to have a community service skill on the board. At the same time, it gave the board a reason to include the trust funders on the board, so they would feel they have some say in the business.

There was discussion with the trust funders, led by the third cousin and including chair of the board, and the consultants. Ground rules were set for their involvement with the board, and last we heard, the board was functioning well.



An important responsibility of the board is to plan for the long-term well being of the company. In this case, we question if the board was true to this responsibility. Consider these issues:

  1. Is the company positioned for the long-term with two unqualified people on the board? What if the trust funders decided to take senior management positions in the company?
  2. How will this precedent (unqualified directors) play out in the future? What will happen when the next generation (G4) expects to take a role in the company… if they are offspring of the trust funders will they have an expectation of a board seat or executive management position even if they too are unqualified?
  3. How might the role of the educated/experienced cousin change, with that cousin now the outnumbered owner on the board?
  4. How might this have been handled differently?



In considering these concerns here are some steps we would have taken:

  1. We would meet with the trust funders to see if they understand the complexity of the business, the role of the board, and how they believe they can bring unique value to the board in line with the company’s mission and strategic plan. We would also probe about whether they have expectations of a role in senior management.
  2. If the trust funders remained insistent on being part of the board, we would work with them and the board to agree on a plan to qualify them as directors. This might include a program of education and experience – taking college courses to develop their knowledge, and spend some period of time working in the retail operation to learn the business and serve customers.
  3. We would continue to work with the trust funders to help them develop some unique value they can bring to the board, help them understand how the board functions, and the level of thinking needed to be on the board.
  4. When/if the trust funders eventually join the board, we would continue to coach them on board issues and interpersonal dynamics at work around the table so they can understand their role and be valued contributors to the board and future of the company.
  5. We would also work with the board to amend the corporate documents to set minimum education and experience requirements for future directors, and clearly define education and experience requirements for senior executives.
  6. When they reached an appropriate age, we would propose meeting with the trust funders children to understand their expectations about the company and any future role they expect to have. This would be an opportunity to coach them and prepare them for an appropriate future role.




We believe the original consultants did a disservice to the company and the board. The approach taken was to protect the executives, not to help the company thrive into the future.

We’d also point out to executives and others, that when setting up trust funds for their children and/or grandchildren, thought be given to performance metrics the beneficiaries must achieve to realize the full benefit of the trust. This might include levels of education, work experience, and maybe additional performance metrics unique to each beneficiary of the trust.