The investment landscape and how families have approached wealth has evolved significantly over t...
What should wealthy families be thinking of to ensure their legacy is successfully passed on from generation to generation? In an introduction to family governance, we explore its benefits and offer a starting point to the process.
Wealthy families have three main questions they should consider with care:
In many cases, families forget to consider the 3rd question, which should be the first one to be answered. Families tend to focus on financial capital over social, intellectual, and human capital. This is a reductive and dangerous view, as it prevents the family to get strategically aligned with the management and ownership of their assets.
Let’s imagine a family who have set up a trust and a foundation to manage their wealth; this is a perfectly sound strategy. But have they considered whether family members could or should get involved in the management of the wealth? Have they educated the next generation to be responsible owners? If there’s a business, are they being strategic regarding the involvement of family members and having the right people do the right roles?
Wealthy families have unique challenges regarding the ownership and management of their assets because they typically have an informal (or non-existent) approach to governance and decision-making. This can render things difficult when it’s necessary to manage multiple voices, opposing views or different priorities.
Now let’s consider a family who, in addition to a trust and a foundation, also have recurring family meetings to discuss important topics, an investment committee that identifies the family’s collective priorities and a welcoming attitude towards the next generation to allow early development.
This is a family that is much better equipped to strategically manage the collective ownership of their assets, and one that is well-positioned to have a successful generational transition.
Granted, small families of 3 or 4 members may think that such a structure is overengineered as they are able to make decisions consensually and have experienced alignment in their views. However, the biggest feuds in business history are between two siblings with different priorities. The time to plan is when everything is well. When there is tension, it is much harder to reach consensus and unity.
For larger families, the challenges become much more pressing: fragmentation of ownership, a large group of owners, succession planning, the need for professionally run businesses and assets – just to name a few. Here, it is undeniable that the right governance framework should be a priority to ensure good communication and sound decision-making. But where to start?
A crucial steppingstone is for the family to be clear on their identity, values, purpose and vision for the future. These 4 elements can be translated into: knowing who they are, being aligned on priorities, sharing a commitment to the wealth for the long-term and being clear on where they want to be in 10-20 years.
Having a document that clarifies all the above gives the family a unique competitive advantage; there is full buy-in by all family members, expectations are defined, and everyone knows the rules of interaction between family and assets and/or business. It also sets a clear direction of travel in terms of strategic management of the assets for the long-term. If it makes sense to think about a business or assets strategically, creating an alignment between wealth and family should certainly ring sensible as well.
At Bedrock we can help you think through these important questions and many more to create a family governance structure that is right for you and your family. Your needs and priorities are unique, and so will the governance solutions required. The main thing to remember as you develop your family governance framework, is that it is a process susceptible to the same degree of change than the one present in your family. After all, this structure should be a true reflection of your family’s ever-changing needs and priorities rather than an overnight event.
For further information about any of the insights shared above or to find out more about Bedrock’s Family Strategy and Governance services, please do reach out firstname.lastname@example.org
Author: Maria Villax, Head of Family Strategy & Governance