Lansberg·Gersick & Associates
Advising the world's leading family enterprises
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We hope you enjoy this commentary from the firm's consultants on a variety of topical issues facing family enterprises. Many of the articles include PDF versions which are available for download. Please feel free to share!

 

Demographics and Family Governance: The Vanishing Middle

Many of us spend a lot of our time advocating and designing family governance:  boards of directors, family councils, family offices, family assemblies, foundations, and ad hoc committees to decide everything from the terms of a shareholders’ agreement to the menus for board meetings.  There is no doubt that responsible ownership requires the right architecture and process of governance.  But these designs are not theoretical exercises, they are the locations of critical organizational work, and all of our structures and plans have one thing in common -- they need bodies to do that work.  People -- family members -- are the ones who will attend the meetings, join the conference calls, review the materials and agendas, take their turn at leadership, do the site visits, attend the conferences and informational sessions, and answer the phone when somebody has a crisis or just needs to get something off her chest.

There are a few lucky families that are large enough so that finding volunteers to fill all the governance roles is easy.  Some of them even have to solve the problem of selection and representation, resorting to elections, term limits, and waiting one’s turn.  But many other families have a limited pool of candidates, and the work seems to expand faster than the family can grow.  For them the problem is recruitment, not selection, and the family labor pool is a critical issue.

The demographic trends highlight the challenge.  In 1960, the average family in the United States had about 2.3 children.  By 2010, that number had dropped to 1.8.  If the parents have college degrees -- common in the second generation and beyond in these business owning families -- the numbers drop another 25%.  So as the level of wealth and the complexity of operations in these business families expands, the number of available bodies for governance is not going to increase as fast, and in fact may be relatively or absolutely) shrinking.

In addition, some things can make it harder.  If the family culture believes that only blood descendants of the founders, not spouses, should be eligible for governance, then the pool is cut in half.  If there are also gender restrictions, or strict requirements for equal representation across branches of increasingly disparate size, the pool shrinks further.  Take out the cousins who have moved to Madagascar, and the ones who are busy raising children or struggling with careers or just not interested, and the ones whom the rest of the family would never allow to fill any leadership role no matter what, and it's easy to see how some families face a serious human resource challenge.

Beyond the sheer numbers, an equally serious problem is "governance fatigue."  I led a workshop a few years ago at the FFI Conference on "Mature Family Councils."  One of the audience members voiced a common experience:  "At the beginning, we were so enthusiastic, everyone wanted to serve, and we had a very lively discussion and election.  At the end of the first terms, we still had people who had waited for their turn and were ready to take over.  By the third term, we had to go back to some of the original people and ask them to run again.  Now, after a decade and a few elections, it's a big job to recruit candidates, and some of the old timers are really burned out."

The message to designers of governance is clear.  We can’t keep going back to the same family leaders over and over to carry the load of family governance into the later generations.  It will be important to take a hard look at practicalities, not just ideal designs.  Should some boards, committees, and councils be smaller, or combined?  Can some be "sunsetted"?  How can we use technology to reduce the travel demands for meetings?  What about in-laws, and younger family members?   What about term limits and restrictions on re-election?  They work beautifully to democratize participation in governance in those families who have a surplus of eager candidates.  In a world of scarcity, they may be conceptually justifiable but pragmatically unrealistic.

Finally, there is an interesting hidden consequence of shrinking family size.  In 1960, of those families with children under 18, about 40% had 3 or more kids.  By 2010, that percentage had shrunk to 24% -- and closer to 20% for college educated parents.  So what?  That means the number of middle children has been drastically cut, by almost half.  Without making too much of the complicated research on birth order, there is some evidence -- and strong face validity -- that there are differences in the typical approaches of different birth order offspring to career and to collaboration.  Oldest and only children are overrepresented as business executives and professionals -- ambitious, seeking leadership, opinionated, and anxious.   Last-borns are the paradigm changers -- artistic, freedom-seeking, and challenging. The potential for conflict between the structure-embedded first-borns and the structure-challenging last-borns is ever-present in the process of family governance.

Where is the lubricant for this gritty process?  The only consistent profession with an over-representation of middle children is consulting.  They do not have the access to authority that goes to the first born, or the indulgence that falls to the youngest, so they have to learn to use communication, alliances, and strategy to get their share of the family's resources.  They need to know how the system works, and how to work the system.  That makes them tremendously valuable in collaborative governance.  What happens if the shrinking family size provides fewer and fewer of these natural family facilitators?  It's not just the numbers that will pose challenges – it’s the scarcity of those essential "process champions," the middle kids, that will add additional pressure to governing families in the coming decades.