Family Office – Family Governance in a Nutshell
Family governance is the result of leadership by boards of directors, family councils, family offices, and professionalized top-management teams. The primary responsibilities of a board of directors include reviewing the financial status of the firm, deliberating on company strategy, looking out for shareholders’ interests, ensuring the ethical management of the business, being a respectful critic of management, reviewing CEO performance and holding top management accountable to the family.
The family council is a governance body that focuses on family matters, frequently developing family policies in a family constitution. A family constitution is a
collection of family policies guiding the family–ownership– management relationship. It represents a great investment in governing the relationship between ownership, management and family membership and addressing liquidity issues and estate planning. In larger families, a family assembly creates participation opportunities for all members by meeting at least once a year. In third and fourth generation families it is a great venue for the inclusion and engagement of spouses who, because of sheer numbers, may not be included in the family council. Family meetings are a significant contributor to the unique resource that family firms enjoy: family unity. Family unity and commitment to continuity can be the source of strategies—such as managing for the long run—that differentiate family enterprises from others and endow them with unique competitive advantages.
A family office’s primary duties are to provide and organize a series of services for family shareholders, including legal and financial assistance with estate and tax issues, management of the investment portfolios of the family, promoting transparency by providing information of relevance to shareholders through meetings, e-mails, and newsletters, and fairly and equitably making family or shareholder benefits available to family members.
Key nonfamily managers in the top-management team help set high standards for work ethic, accountability, dedication, and expertise. By doing so they too help govern the family–business relationship in a family enterprise and family office.
Finally, trans-generational entrepreneurial activity and philanthropy are great elixirs for the prevention of affluenza and an entitlement culture in the family of wealth. They also often promote a leading family’s legacy and its continued spirit of enterprise.
The incumbent generation’s leadership and very concrete steps to promote family governance through the approaches and best practices presented, and the family cases from around the world discussed in this White Paper, are meant to inspire you to fulfill this final test of leadership greatness.
Despite the popularity of Thomas Friedman’s well-known book title, the world is not flat when it comes to family enterprises. Many of the challenges to family governance are global indeed. But regional and national cultures, and their influence on family dynamics, make custom-tailored implementation of family governance best practices essential.
In family-first countries, in Latin America, parts of Asia, Spain and Italy, for example, a systematic approach like the one suggested by drafting a family constitution and having a professional family office and a board of directors that includes unaffiliated independents is critically important. The systematic approach to family governance provides a discipline that may be absent in cultural environments where family obligations supersede a business-first focus.
In business-first countries on the other hand, these may include the United States, Germany and Switzerland, for example, nurturing the heart of the family in business through family meetings, family assemblies, much communication and trust-building, promotes the engagement of next generation members that otherwise would be threatened by the loss of family values. The demise of the non-economic legacy often precedes the ultimate loss of wealth and the spirit of enterprise in these cultural contexts, making it vital for family businesses to embrace governance practices that strengthen family bonds.
Trusted advisors and their network of knowledge resources can help tailor a unique approach to the universal challenges posed by wealth to family governance. The need for family enterprises to consult with their advisors on good governance practices should not be underestimated.
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