ILMA Compoundings - June 2021 - 36

BUSINESS HUB
The Value of Diversity in
Governing Family Enterprises
By Kelly LeCouvie, Ph.D.
Y
ou may have one or more
governing bodies in your family
enterprise: a family council,
an owners council, a corporate board,
perhaps a foundation board - or other
groups that represent the larger family.
You depend on these governing bodies
to make decisions that reflect constituent
expectations. When you think about
that objective, what are the circumstances
under which you can maximize
the chances of fulfilling expectations
for the broad group of extended family
members? The short answer is it is not
easy to create those circumstances.
Typically, the low-hanging fruit in
terms of creating the most harmonious
decision-making group is simply
to seek out like-minded individuals.
And why not? When you are sitting
around the table with people who
think like you do, idea generation
is easy, discussions are not typically
drawn out and decisions get made. It
is efficient. That said, is it optimal?
Does it represent the diverse opinions
you witness across the large family?
Will your decisions reflect multiple
opinions and preferences? Will you be
able to defend your decisions?
STRENGTH IN DIVERSITY
Any important decision made by a governing
body must be vetted based on
input from a representative group that
asks the right questions, investigates the
assumptions made in data gathering
and embraces the challenges associated
with distinct viewpoints. How do you
help to ensure that the governing body
can do just that? Throughout 2020,
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JUNE 2021 | COMPOUNDINGS | ILMA.ORG
we saw many of our clients pay close
attention to the real value that diversity
brings. And while diversity within the
same family might not appear obvious
at first glance, it exists, and diversity
should be sought out.
Diversity builds strength and increases
effectiveness within governing bodies
that are composed of either all family
members (often family and owners
councils) or some family members (corporate
boards). Hopefully, something
here will help you to consider ways
in which the composition of those decision-making
groups will sustain and
strengthen stewardship among your
family, key nonfamily management,
suppliers and financial partners.
In the last few years, a number
of social movements have brought
concerns of diversity to the forefront
of business activities. Corporations
including Pepsi, for example,
announced huge investments into
their goals of achieving gender parity
in their workforce and racial diversity
in both their workforce and their supply
chain as a response to the social
activism of 2020. The response to
campaigns like Pepsi's has been somewhat
lukewarm: Social justice activists
question whether such investments
can lead to real change, while business
academics question whether such
investments can lead to positive financial
performance. Diversity continues
to be a topic of inquiry for publications
like Harvard Business Review,
particularly in response to increasing
legislation mandating gender diversity
on governance boards.
EXPANDING THE MEANING OF
DIVERSITY
It is helpful to clarify what " diversity "
entails and to consider the recent
data regarding diversity when giving
suggestions for how diversity can
improve the performance of governance
systems. We define diversity
more broadly than solely gender or
racial lines: While a diverse board
should include female members
(indeed, this has been a legislated
requirement for publicly traded
companies in California since 2020,
while countries such as Norway,
Spain, France and Iceland require that
women comprise 40% of the board),
the concept of diversity should be
expanded to include racial, sexual,
educational and generational diversity.
Expanding the definition of diversity
beyond gender is well-founded: A 2015
review of 140 research studies found
that the relationship between female
board representation and performance
had a positive impact on accounting
returns. In a 2019 Harvard Business
Review article, authors interviewed 19
board directors in response to such
data, working with the chairman of the
board at Deloitte to develop recommendations
on diversity in governance.
Their first recommendation? Expand
the view of diversity; many interviewees
suggested that both social and
professional diversity would be helpful
for increasing the diversity of perspectives
on the board.
This recommendation for diversity
of perspective is equally well-founded.
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