What is Family Governance?
Family governance is an organized approach to managing the collective family interests and activities. It involves setting up a structure of clear rules, roles, and responsibilities that promote the welfare of each individual family member as well as the overall health and integrity of the family unit itself.
Family governance is a way of setting up a structure with effective rules designed to support the family’s well-being. It involves creating a system of understanding, objectives and roles, decision-making processes and communication structures that clarify expectations between all associated parties. A well-developed family governance plan can streamline communication, develop relationships between family members, reduce tension and conflict and provide a concrete framework for problem solving.
Family governance models provide a formalized structure to facilitate operations and decision-making processes in family businesses, investment and philanthropic groups. It can also be used in non-business/financial contexts, such as when families have diverse interests or need to manage multiple trusts and other assets. The aim of family governance is not only to help protect family members' interests but to ensure that the family’s goals are clearly defined and orderly managed over time. This ultimately enables each member of the family to contribute actively toward achieving its unified objectives.
In a business context, family governance works as a system of checks and balances to ensure that investments are made in accordance with the family’s wishes. A family board of directors or advisory group led by an independent chairperson should be convened on a regular basis to review strategies, set goals and make decisions. The board should also discuss financial matters such as asset allocation, investment choices and liquidity management. Family meetings allow members to stay informed and offer their input, while enabling key issues such as succession planning to receive sufficient consideration. By providing a formal infrastructure for managing the objectives of multi-generational families, governance models can help ensure best practices while preserving harmony among family members.
Family governance can help enhance communication, minimize conflicts and ensure that decisions are made by consensus rather than majority rule. It can also create an environment in which family members are empowered to contribute to decision-making and take responsibility for investments. Furthermore, it provides a platform for family members to express their opinions and present proposals collaboratively as they think through the various aspects of financial management. Ultimately, engaging in family governance can strengthen relationships and pave the way for families to accomplish long-term success.
The primary goal of family governance is to engage family members in a structured process designed to create a culture of shared decision making, communication and collaboration. Family governance can establish guidelines that provide the basis for effective decision-making, such as standards for disclosure, accountability and conflict resolution. It can also set specific parameters for various tasks related to financial management, including investment strategy and portfolio review, fiduciary oversight, succession planning and future generation education programs. Such steps may help increase the effectiveness of family wealth management operations while ensuring that all family members are aware of their rights and responsibilities when it comes to handling money matters.
A commitment to family governance can help families bridge the gap between generations, promote positive communication and understanding, and create a structure to tackle difficult topics. It is particularly beneficial for those managing wealth through a trust, as it provides all family members with clear knowledge of their roles and expectations while helping them make educated decisions that prioritize the well-being of the entire family unit.
Family governance focuses on preserving family relationships and growing family values while also building unity. To create effective governance, families should first assess their needs and develop a charter that outlines the purpose and core values of the family. Initially, a governing council may be established to set up the family's legal structure; manage its assets; set expectations for all generations in terms of communication, respect, decision-making, financial protocols, etc.; and handle other administrative tasks. Ongoing generational education is essential for a successful governance system
Family governance offers an array of benefits to families and individuals. It strengthens relationships among family members, promotes transparency about assets and finances, ensures protection for all generations in the event of legal disputes or changes in life circumstances, instills a sense of pride and purpose through practicing shared values and traditions, empowers future generations to make decisions independently while upholding the family legacy, creates clarity when making business decisions or decisions related to property division, provides multigenerational support throughout different phases of life, and encourages communication among all family members while maintaining confidentiality when needed. Establishing a strong family governance system is thus essential both for the present generation as well as for any subsequent generations.