We continue with our discussions on wealth preservation and the many considerations that must be harnessed to Institute intergenerational wealth. CLICK HERE to read the Purpose or Why of Family Wealth and Family Business.
After articulating the shared purpose of the family wealth and business, the next consideration would be how do we govern ourselves in view of our shared purpose, to give our families, our wealth and assets the best opportunity to be a lasting intergenerational legacy?
Governance addresses the need to balance the interests of all members of the family (existing and future) as well as the family business (where applicable) to achieve the family’s shared purpose. The power to make decisions lies at the heart of governance, whether the governance is formalized (documented) or subsists in it’s natural form.
The Evolution of Family Governance
To understand the role that governance plays within the family wealth and family business framework, it is important to discuss how governance evolves. This is because there is a significant place for natural governance before considerations are given to formalized governance structures.
“This is the way we do things in this family. This is how we do things around here”. “Everybody does what the boss (Patriarch or Matriarch) tells us to do”.
The above remarks typifies the existence of governance (albeit informal or better captured as natural governance) within the family setting and family business. In this case , the Patriarch or Matriarch of the family have overtime interacted with different aspects and matters concerning the family wealth or the family’s business and developed practices overtime that has worked well and made them successful. Hence the position becomes, if something is not broken why fix it?.
Natural governance thrives under a Controlling Owner, that is, the Founder, the Patriarch and Matriarch (first generation) who created the family wealth or established the family business. However as the family seeks to transition from the first generation to other generations, except it replicates the controlling owner via primogeniture (first son inheriting the wealth or business ) or have hub-and-spoke models* across siblings and family members, continuing with natural governance may be challenging and not sufficient. (*A hub-and-spoke model is where one person, often the leader of the family and the business, is at the center of the hub with everyone else serving as a spoke and getting directions from your center).
When the family comes to the conclusion that more formal, transparent governance is required to move forward and actualize its shared purpose across generations, formal governance structures may be introduced.
This entails putting in place documented rules, practices and policies that are transparent, consensus based, balances the interests of all stakeholders in the family and demands accountability across board. The governance may be structured via Trusts, Family Constitution, Family Assembly/Council or Employment policy (in respect of a family business).
Family governance structures will mainly aim at:
- Communicating the family values, mission, and long-term vision to all family members.
- Keeping family members informed about major business accomplishments, challenges, and strategic directions.
- Communicating the rules and decisions that might affect family members’ employment, dividends, and other benefits (where there is an operating family business).
- Establishing formal communication channels that allow family members to share their ideas, aspirations, and issues.
- Allowing the family to come together and make any necessary decisions.
Developing a family governance structure helps build trust and cohesive expectations among family members.
In conclusion, as a guide to how families or families in business can articulate governance, we ask Patriarchs and Matriarchs, the following questions in the bid to understand the existing governance system in place and to articulate what the optimal governance structure should be;
- How is the family and family business governed at the moment?
- What are the decision making process or protocols in the family?
- What works well and what do you think does not work well with the existing governance?
- Do you think you can keep this governance system in the future or adapt it to make it work across generations?
At Fiduciary Services Limited Limited, we view the governance of a family as a system that not only prevents and manages conflicts but also enables seamless intergenerational wealth. We treat the advisory and structuring of the governance of clients and their families as crucial for wealth preservation purposes. We can guide you and your family towards setting up a sustainable governance structure that is customized for your family.
Reach out to our Advisors to get started.
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