5 questions that the foundation board should ask itself at least once a year
Being a member of a foundation's board of directors entails considerable responsibility, as the board is legally obliged to ensure that the foundation's purpose is fulfilled (Section 17 PSG). To this end, the board manages third-party, often considerable assets. The mandate is therefore not only associated with prestige, but above all with considerable liability risks, the extent of which is often underestimated in practice.
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It is not uncommon for the office to be held by good acquaintances of the founding family as a supposed "service of friendship" and in line with their ideas. However, if there are generational changes, divergent objectives or personal disagreements, this "friendly service" can quickly become a costly liability trap.
To prevent this, it is essential that the foundation board is aware of its legal role and responsibility at all times. In addition to day-to-day management, they should therefore regularly take a strategic look at their own actions from the outside. The following five key questions serve as a practical guide.
Are we actually still realizing the purpose of the foundation with our actions?
The fulfillment of the foundation's purpose is the top priority of every foundation board action. However, over many years of practice, patterns of action creep in that may no longer have anything to do with the actual purpose of the foundation. A comparison of the "reality" with the provisions of the foundation declaration, which serve as a guideline, prevents the foundation from straying from its actual purpose and the foundation board from falling into liability traps.
Do we work in accordance with the governance requirements of the foundation declaration?
Not only with regard to the question of whether the purpose of the foundation is realized at all, but also with regard to the question, like if this happens, a regular reality check should be carried out and a review carried out to determine whether there are any contradictions between the text of the articles of association and actual practice. Are the bodies provided for in the declaration of foundation established and do they fulfill the tasks assigned to them? Do the planned communication channels between the bodies work and do the planned meetings take place? Are the minutes carefully kept and are resolutions documented in a comprehensible manner? The foundation board can only meet its responsibilities and effectively minimize liability risks if the articles of association and actual practice are permanently in harmony and governance requirements are not merely formal, but actually put into practice.
Are our investments in line with the foundation's declaration and are they still up to date and fit for purpose?
Economic conditions and capital markets are constantly changing. This means that once an investment strategy has been chosen, it is not a sure-fire success, but should be constantly reviewed to see whether it is still is still risk-appropriate and return-oriented and the long-term performance of the foundation. At the same time, it is important not to lose sight of the fact that the foundation's declaration often sets out narrow framework conditions for investment. If the foundation's board of directors deviates from this, it is entering into liability-laden waters.
Does the interaction between the Management Board, Advisory Board and family work?
A good basis for communication and a common understanding between the family members and the Board of Directors makes the work of the Board of Directors much easier. Promoting good cooperation should therefore be on the agenda for the foundation board. An annual structured exchange (e. g. At family meetings or advisory board workshops), as well as clear responsibilities and communication channels, promote transparency, can help to avoid misunderstandings and thus strengthen cohesion.
Are we already thinking about the next generation - and how are we preparing them for it?
Family foundations thrive on passing on a sense of responsibility. Involving the next generation at an early stage contributes to this, Actively communicate knowledge about the foundation in good time. Those who make provisions in good time ensure that the foundation will still be what it should be in 20 or 50 years' time: a stable bond between family, assets and responsibility.
Serving on the foundation board requires far more than loyalty to the founder or simply "going along" with existing practices. It requires a clear awareness of one's own legal role, a consistent focus on the foundation's purpose and the willingness to make decisions independently, in a documented manner and in accordance with the foundation's governance guidelines.
The five questions presented are intended to help foundation board members to critically scrutinize their own actions on a regular basis and identify potential risk areas at an early stage. After all, only an active, informed and independent foundation board can effectively protect the interests of the foundation, avoid conflicts and fulfill its responsibilities in the long term.
If you are a board member, advisory board member or beneficiary of a family foundation and would like to check whether your foundation declaration, asset investment or governance structure is in line with current practice or whether it is still up to date, we will be happy to support you. Our experienced foundation law team has been advising around 30 family foundations for years on all legal, organizational and strategic issues - from the modernization of the foundation declaration to liability issues and succession planning.
