Generational Transitions and Governing Systems — Katherine Fulton at The Interval

Generational Transitions and Governing Systems — Katherine Fulton at The Interval



if you were starting an institution now as a startup that you wanted to last for hundreds of years what are some of the that one of the ways that that you would put into place now if you are an organization that is at its first generational change like long now is what would you do in that case and if you were an organization that let's say was five generations in but was starting to find the world was changing around you and you were becoming less relevant what would you do in that case and the reason I'm framing it this way is well we want to create this new discipline of long lived institutions and I very much feel as though long now is the first client of this new consultancy I also want this I want us to be the that central place that people come to for all kinds of lessons so while the we mentioned this at lunch the lessons that that that Peter brought up about DuPont that's not a long now lesson like we can't that's not a portable for us and the portability of a lot of these concepts is really important so that you know the the other thing that came up at lunch is just because you know you're the they're the family confectioner family-run confectioner of the the Emperor of Japan that's that's a very that's a very non portable piece of advice for how to be a long-lived institution right and but the the piece of advice that's that that Peter gave on you know selling at Peaks to invest in in troughs is portable for a whole set of organizations maybe not us but what we want to do is and especially in the breakout groups is start to identify what are those things that are portable and not portable and what and where do they fit in different types of cultural organizations and and or companies and governments so with that so I'm gonna demonstrate the thing from the last session about lived experience creating college since I'm not speaking from in contrast to many of the incredible talks we've heard from people have very deep ex forty's I have I think what has kind of turned out to be a lifelong interest and passion in this question of how you deal especially with the thing you said if again the sort of most dangerous moment of the first generational transition my mother's family owned a newspaper in a small city in Virginia that did not survive that transition and I was about 13 or 14 years old when that happened and so later I was very sorry that they had not managed to make that transition but I've now probably worked with maybe 150 organizations served on about 20 boards read a lot of the literature and for some strange reason in the last 10 years have done a number of deep engagements with organizations trying to deal with this kind of transition and so this question of how you get how you set up the conditions that are in fact portable is really of interest to me and so Zander asked me to just jot a few things down and so again very different from what we've heard so far far I want to take us into these next sessions to apply what we've learned and just give you a few of the things that that that come to me and provoke your own your your own reflections I think that one of the specializations that I've had is I've done a lot of work with philanthropic foundations and so some I'm gonna tell you a number of stories some of them have to do with these institutions that actually many of them have been set up to operate in perpetuity and so I've seen a lot of cases of that done bad mostly badly some well and and I think it's a very interesting question at this particular moment where we have a lot of new energy and new effort to solve the world's problems in new ways by organizations that are still founder led either nonprofits or businesses and for the nonprofit's what's really interesting is that the nine figure gifts the big gifts only go to institutions that have proven they can survive intergenerational transition think about it you would not give money yourself to an institution that was still found or led above a hundred million dollars or you know just some fill in job you they go to hospitals they go to you know sleeve a still go to universities hospitals museums you know with very few exceptions they all go to institutions where people know these people will understand long lived institution so it's a non-trivial problem to solve for for newer institutions so here's a little map that I made I'm gonna walk you through kind of three principles that I came up with or through three what I'm calling touchstones because they're not really criteria or guidelines that are what long term what institutions required to have the ability to pass between a monk between and among multiple generations and the first thing is what I'm going to call the founding DNA and somebody told me this recently maybe one of you know where this came from they couldn't remember who said it if a ship is crossing the ocean who is in charge not the captain the designer of the ship which I just love and I think there is something here that I've seen over and over again especially in older institutions that are now not in the first generational transition but in the second or third what was the enduring guidance and what assets were created that are worth stewarding right so and and because because the implication of having a long term institution is it matters that it lasts and there's some kind of anchor that that the founding generation leaves behind it so the trick seems to be so if you go down there has to be some kind of purpose some purpose that matters that that it goes on there has to be some kind of embedded in explicit values that give guidance and there's some sort of institutional design and norms and the trick seems to be enough structure so that there's not free-floating chaos as then as it passes but not too much right so so on the you know the Rockefeller Foundation which was one of the original now independent private foundations founded in 1913 John D Rockefellers mission to the Rockler foundation was basically to benefit humanity doesn't get any broader than that but I got to be in the room when the head of the Rockefeller archives put together a presentation for the family which at that point included David Rockefeller who was almost as old as the foundation he was 98 years old he's since died but the family was assembled in the room and the head of the Rockefeller archives gave a presentation to say thank you from humanity here's what the Rockefeller Foundation made happen over the last hundred years who knew that three members of the Rockefeller Foundation staff died trying to figure out how to how to deal with yellow fever you know it was like they hired two postdoc historians to like figure out what happened it's an extraordinary set of things that happened because john d rockefeller didn't say we're going to work on the future of this place in this area and that was it it was like each generation had to reinvent it and and say what is it that humanity needs now it was an incredible gift on the other hand these kind of broad purposes that can be really reinvented now that wasn't actually I can say cuz the rock floor foundation was one of my clients for a couple years that was almost too broad and so what happened is they distinguished themselves in agriculture and science and other things over the years so actually they had you know some history that helped inform them what to do to interpret what that meant on the other hand on institutional and design and norms a foundation that's now close to a hundred years old foundation that that shall go unnamed at this moment operates with a very specific charter that its board must meet once a month now just think about that that is so unbelievably stupid really really really made sense in the town that that thing was founded in in the 1920s I think where the people would come for lunch once a month and have their meeting now the people in this global foundation either get ready for a board meeting have a board meeting or follow up from a board meeting it's unbelievable I once asked the president Foundation how much time he spent dealing with his Board of the answer was 80% right really not smart right so these things who designs the ship you know really does matter so without some sort of purpose and clarity about the purpose it'll falter but with too much it it's it's some and this I think this is too much of these things it's it's a problem and so what's that sweet spot is really key the the second thing and this is this is harder and more complex is the clarity on who is we so if I walk you through this who selects the leaders and who is empowered to make decisions in trade-offs and there's a flavor of this for private nonprofit I mean private for-profit and there's a favor for a non-profit public this is often equivalent governance and ownership and the answer that question is often equivalent to ownership the control sits in ownership of course that's more complicated in a public publicly held business in a non-profit it so it's its governance is everything who owns long now who's responsible for it who you know carries you know that's a really complex question and I'm going to suggest you some some how critically important it is for a community to actually feel that it owns a not the great nonprofits I know the ones that don't have big endowments like foundations are held and owned by a community in which there is then a guy structure that that has to have the decision-making authority the if you are going to continue to adapt and sometimes have to make really hard trade-offs somebody has to be empowered to do that which is actually why I am skeptical that without without extremely well-designed understood and governance structures that any market-based for-profit business at scale can survive in the long term so just a just think for a second about the New York Times as an institution so New York Times was founded in 1851 the modern company was formed in 1896 when it was bought by Adolph Ochs and and and consolidated maybe with some other papers he owned it was privately held until 1969 when it went public it adopted a dual stock structure so that the family controlled it still controlled it which now a number of the tech companies the big tech companies Google and Facebook have borrowed that same structure so that the founders actually control the company you can say what whether that's a good thing or not in in those cases but the sixth generation family member to be in charge of the company the 38 year old AG Salzburg er just took over the New York Times that's kind of astonishing that and it's a you know so the ownership and governance were designed to empower certain people to be in place to make the trade-offs right because the trade-off between firing reporters and upping the near-term profit or keeping the deeper content and building for the long term is a is you have to be empowered to make that decision and I think mostly in their by the rules of the game then public markets today it's very difficult not always but but it is is difficult the worst one of the worst situations I would say though just because it's over on the on the side of number one of the worst ones I've ever seen was a fifth-generation same amount of time family foundation of some scale that was one of the most dysfunctional situations I have ever seen you know so just because it's you know because it was very poorly designed in the governance structure for how the family would control it how they would bring in some fresh energy it was it was a you know just horrible horrible situation so this one this issue of who is we who gets to decide and and how that is navigated is a really key in my experience question and then the final thing is the resilient resource model and and and here I mean in Maslow's hierarchy if you can't survive I mean that's the fundamental thing you talked about this in terms of business models needing to be reinvented the there is a survival sustainability imperative and an ability and and and the need to protect and adapt that therefore back to the design governance the ownership and their multiple ways this can happen cap you know capital can be available in family and business context they're gonna be endowments there can be ongoing customers there can be members and they could be ongoing philanthropic giving but there's got to be the you know the the refreshing way of getting resources in and the creativity to keep adapting I mean just a few years ago look like the New York Times it might not make it right so that was entirely business model question and it's still might not you know it's a these are all three of these things have got to be in place an aspiring purpose you know guidance from the fountain in in in some way that that that goat that gets passed through a sense of who is we and where the power and control sets Anna and a resource model now the the I just want to tell you you know and and what I would say is that too often mission driven organizations don't pay enough skilled attention to the resource model and too often businesses pay overlooked the other two right and in my experience right so every organization I've ever seen it doesn't matter if it's nonprofit or business has to deal with its mission and with its resource model it just looks different whether it's a business or a non-profit and so the you know and one of the reasons that for long-term survivability endowments are so critic an be so critical is that it makes it so fear of survival is not tantamount in moments of stress right so that you so that when the trade-offs get made you don't destroy the the underlying you have to destroy the underlying purpose now two quick stories to just illustrate this model that are hugely different one to two of my really favorite stories one of us from from tightly held in a family situation over almost two hundred years one in in a total pioneering global institution so on the on this the first one is the private one it just so happened that my college roommate was a member of the Forbes family the Forbes family the great great New England patrician family John Murray Forbes in the 1840s 1850s I couldn't figure out exactly when bought a little island called Michonne and Nashawn is off the coast of Cape Cod seven miles long just you can see can see Martha's Vineyard from it and this has been continuously in the family since the 1850s they are now I believe in the in the sixth generation the and here the asset that they own is the land right so they have this land it is the most pristine land in the Northeast it's studied by ever they've allowed no chemicals on the island there's rules about there are no cars there's no you have rules about the trash you drag your own suitcase to the house that you're staying in they had a three year long discussion about whether it allowed bicycles you know it's a it's this is an extraordinary thing right and because it has this DNA right so the land to preserve the land and with values of not materialistic right and so it has it has the mission to preserve the land it has the values and then he didn't have to set up any mechanism when he further who is we he had six children to who was we was very clear but then once the six children went along they realized oh we have to design a governance structure so they did and this is my favorite part of the story over time so the trustees are elected for life they have seven of them anybody in the family they're now almost a thousand people in the family anybody in the family can pay a thousand dollars a year and be a member of which allows them to go to the island or and to elect the trustees but they figured out over time that of the seven trustees two of them must be in-laws so that they get fresh air into the system right and and then on the resource question he endowed it he left money for the maintenance of the island it's now twenty million dollars and they have all kinds of rules to get more money and my college roommate Carlisle says that she thinks it's going to make it two hundred years it's gonna make it through her lifetime she's not sure it'll make it much longer and but but it will become a public trust it will not ever become anything else right yeah there's only I think now there's only about a third of the family really cares it's going to be leadership and enough money to maintain it and it's it's it's it's an awfully big responsibility right and so it'll just be if are there enough family members who have the will to to to keep it going and we there'd be the resources to keep maintaining the the island I believe is what she is what she thinks yeah yeah and so but I think it's a I think there are a number of things in that story about something worth preserving the values the very skillful governance structure and the assets to maintain it that our that our that our part of this this little system that I that I credit here and then the other will be quite familiar to everybody but it's worth just saying how extraordinary is which is Wikimedia the Wikimedia Foundation is only 50 just over 15 years old was founded in 2003 and they are actually I would think you'd have to bet at this point that they've done virtually everything right to become a long-term institution hugely successful thoughtful they actually I was earlier this week with the woman who is executive director of Wikimedia she said they call it regenerative governance they are they really are trying to in reinvent etre a village system but for the globe right so on the assets DNA the purpose is a world in which every single human being can freely share in the sum of all knowledge free knowledge for all inspiring vision an enduring purpose and then they've spent a lot of energy designing the infrastructure of the who is we right so we really incredible they're 250,000 active volunteers they have three kinds of affiliates they have 300 staff that maintain the infrastructure they have 10 board members half of whom were elected by the community they just finished a global interactive participatory strategy exercise that set the direction to 2030 that claim that said we see ourselves as a movement rooted in values that have but it has all of these elaborate structures in place first of all to to clarify who is we it's really the 250,000 people who are really part of the community volunteer how they make decision how they select the leaders and this broad ownership of a community that really feels it owns it right so that it's not about who the executive director is or who the board is but it's broadly owned and it's owned and held together by the very top right by the purpose and the values and the and the design of it right and now they've now they've also expanded their resource model so they have started an endowment it's already over a hundred million dollars I only started in 2016 and they are actively they have a pretty big fundraising department they're raising money all the time they raise money from people who use and if you use it you've seen the you know and they course have volunteer labor that's the fuel that the resource model is volunteer labor now the verdict will be out we'd have to be back here in a hundred years to ask did it did it work but I would guess Mike my guess would be that that that's a that is going to work and so those are you know those are two that I think are very interesting different designs and long now will be somewhere in between those two you know yeah there are so many case studies I mean I'm looking at my different lawrence and my friend Marty you guys have more experience than I do with or I'm sure you can tell lots of these tales too you know and I just this I'm sure this is I just made this up but to come to here you know I mean out of my own experience but I would just say I really think you have to have all three of these things and most most situations I've been in that involves intergenerational succession actually falter on the middle one as as much as the others but I I just have a couple more things to say and then I'll finish up Stewart yeah I don't know cuz I don't I don't know either of the stories I just told you intimately but he has a of the ten seats on the board of directors he has one right so they've they've somehow carved a role out for him that it matters to him that you know they've already had I think they're on their either second or third executive director right so they've already done transitions and leadership and they've they've had some controversy like the board didn't like one of the people that was seated by the vote and they tried to throw that person out and then people elected that person again and so I don't know what yeah I'm sure and and I'm sure it's not stable they have to keep adapting it that's why the executive director calls it regenerative Governance you know I mean so so but you're but in that case the reason I'm actually optimistic about them is this is that they're held so that's such an inspiring purpose and it's held by such a large community mm-hmm yeah yeah so let me just say what I think this adds up to for a second and then we can talk this really is about trying to generate these converse as you get you these are these are I was scribbling notes all day long you know from the different the different things and so it it seems to me that what we're talking about is is creating structures that that deliver intangible value of trust and belief so today we know one of the biggest problems we have is the lack of trust in institutions so somehow the combination of these things managed well and wisely with a great purpose gives people a sense of this old fashioned word which I love which is stewardship you know the careful and responsible management of something entrusted to one's care which again implies that there's an asset worth preserving the world's knowledge a pristine people piece of land an institution vital to American democracy in terms of newspapers you know so there's something that's been entrusted to you in your generation you are standing in a river there are people behind you and people are coming after you and your job is to fulfill your responsibilities and your generation of caring for this thing right that that is the the intangible you know trust belief responsibility and but that in order to create that requires these tangibles these tangibles these these these kind of you know you can call it a design you could call it a technology you know it's it's a it's a social technology of ownership of governance of of how organizations work of you know of the of the resource model you know and and those two things that but without those tangibles that support and strengthen the intangibles you you you know the Angels just they won't survive they may be inspiring for a moment in a movement and then they go away so so the a couple of questions that occur to me I'm think it's an interesting question about the scale for purpose it's not an accident it seems perfectly sensible to me that 90% of the things you looked at were under 300 people right there's something about the the belief the belonging the community the the family like the the asset in the case of the family business is the business to pass through the generations and the family the that keeps the family together the the coherence but but look at Wikimedia you know it's actually the right scale for what it's attempting to do it's it has a billion unique accesses each month Wikimedia so so what is the right scale and I do actually I will raise I will raise the question of whether a business operated at scale without some mitigating ownership or control system can survive in the long term but but no in the rules of the market as we currently have it right that there's a reason that there's not very many and there's a reason that it's going down and so it and then I think there's the how the span of control is designed to match the mission so if it's a tightly controlled little island seven people is fine but if it's the world's knowledge and you designed a system of seven people to control it it would blow up instantly right so there's something about about the relationship between the who's the community who owns it and how the control and decision-making is designed that is critical and and and and then I and then the thing that I have observed in my life is the absolutely critical moment is how trade offs are managed so at a at a moment of crisis or a moment of transition or a moment of decision or a moment of adaptation who gets to manage the trade offs and how those trade offs are managed against always conflicting and competing purposes because every institution has competing of conflicting purposes how trade offs are managed I I would hypothesize is maybe V key factor for how whether long to other institutions succeed in the long term so I mean I have some from my own life that are private and I can't share but I think that most obvious one is the New York Times right so so at multiple if you go back and look at the history of that newspaper all the way back into the 1960s almost went our business in the 1960s and they that's when they they reinvented their sections and how all the ways they did things back in the 1960s when Abe Rosenthal was the exec you editor but but it's a you know they they have made they have had to do layoffs they have cut their they had to cut their budget when they went after the downturn some of you in this room we were together in many cases in the mid to late 90s trying to work with newspapers on how they could survive and it was very clear what was going to happen it was just unclear how fast it would happen and it was very hard they were making a lot of money and it was very hard to convince people to do the things they needed to do and then the dot-com crash came and they all went I told you so you know it's all this digital stuff is and then boom the depression recession hit and you know half the reporters in America have lost their job in the last ten years all there are cities in America that have no news no they're called news deserts now you know local news is absolutely decimated and the New York Times had came to a number of junctures Stewart that other newspaper companies made the call a different way there are almost no family controlled newspapers anymore where they could either cut 200 reporters and you know and keep their profit margins up or not and the souls burger family repeatedly because they control the stock they control the board did not decimate the the journalism of the New York Times and that's a that's managing for the mission in the long term versus a profitability now we know there's the most famous large company in the world right now one of them Amazon has repeatedly insisted on doing that and and gotten it so far it's worked but it's a you know managing for the long term market share not the short term profitability the in terms of the way Amazon has constantly you know had lower made lower money in the short term invested it and instead of building you know in order to build for the long term but I I think it's a it's a it's a managing that trade-off between what we need to do for now versus what we're trying to do for other longer purposes rather than in a business case so so let's say let's take a non profit I'm just going to make something up let's take a non profit that has you know relies on philanthropy and you know doesn't have a very diverse business model and the classic the classic thing that happens is a funder comes in and says here's a very large sum of money to do this thing that I want done and it doesn't happen to be the thing that you want to do we've all seen that and the desperate nonprofit that has no endowment no ability to manage that trade-off well has to say thank you very much and I'll take the money right but if the institution has a diverse resource model the strength and will and clarity about its purpose and its decision-making to say no we don't have to take that money we can in fact say thank you very much but we have this this thing that we're set to do right that would be the way it sometimes plays out in in and so you know that latter that the the the bad version of that has weakened or killed a number of you know more public interests kinds of organizations over time but anyway yeah yes yes yeah yes well that all of these things play out in very complex ways and and none of there's not I I was just making sewers asking the I just think that that leadership systems actually that I believe in not just leaders that have the ability to make the right decision to manage trade-offs as they're needed but to make decisions with with the whole in mind that that's just um setting that up and having that work well over time it's just not easy no it's it's but but I think for long-term institutions I know that endowments are not fashionable these days they're hard to raise money for there's a whole lot of people who say you know foundations philanthropic foundations should not be set up in perpetuity I think there's a really strong argument about those things and I think for long-term institutions like long now the existence of at least some endowment not total dependence on an endowment but some endowment allows you it's part of the resilience I mean if I were smart enough I could translate from some of Eric's unbelievably gorgeous pictures into how this would would work because I think there's something about additional resilience and ability to adapt and withstand shocks that that some capital pool and businesses often have capital pools if if nonprofits don't have an endowment they usually don't have capital pools because if they have a lot of money on their books people say why should we fund you have plenty of money you know when they go to ask for money unless they're clever and put it off in a supporting organization so we we were gonna have to break up into a group thank you by the way [Applause] you

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