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Governance structures need to adapt to these dual pressures, ensuring both business sustainability and family harmony. At its essence, governance establishes the framework for collective decision-making. It defines who participates, what issues are addressed, when decisions occur, and how they’re reached. This structure is built on mutually agreed goals and values. In practice, governance involves coordinated dialogue among family members, property holders, family office staff, and the board overseeing the family’s interests.
As the family supporting the business transitions through generations, each new generation brings its own values, perspectives, and aspirations, thereby enriching the family dynamic while also introducing potential points of tension. With millennials and Gen Z taking a more active role in family offices, governance structures need to adapt to accommodate their tech-savvy preferences and their focus on family office impact investing, ESG considerations and aligning investments with family values.
There is no one-size-fits-all governance structure to define shared family values and mission. Each family office needs a tailored approach that fits the specific needs and circumstances of the family it serves. For example, small families with a single, knowledgeable decision-maker can opt for a more informal approach, while larger or geographically dispersed families benefit from a formal structure with defined roles and transparent procedures. Nevertheless, there are some key pillars that are essential for any family office’s long-term success such as clear decision-making processes, open communications and streamlined operations.
Clear structures and defined brand
One of the most significant risks associated with weak governance in family enterprises is the concentration of decision-making power. The cornerstone of effective governance is a clearly defined structure that establishes a family constitution or charter that outlines the family’s values, investment philosophy, and decision-making framework. According to J.P. Morgan, only 17% of family offices have a family constitution in place to promote cohesion within the family, with the most popular approach being holding regular whole family meetings (37%).
While many wealthy families have established a well-defined family charter, they often overlook the importance of clearly defining and positioning their family’s brand identity. Developing a distinct brand purpose is crucial, as it serves as a unifying force that guides the management of the family’s commitments and legacy. It also enables swift and decisive action in times of crisis or challenge. Even if the family’s brand is not publicly promoted, it is advisable to develop a comprehensive strategic communications plan to address any potential public exposure that may arise throughout the family’s wealth journey. Having a well-articulated brand purpose and a coherent narrative surrounding the family’s wealth acts as a guiding principle, informing crucial decisions such as succession planning, philanthropic strategies, and proactively safeguarding and managing the family’s enduring legacy. An action plan can look like this:
Fostering open dialogue
Effective communication is the lifeblood of any successful family office. While 82% of family offices are viewed as effective decision-makers, they are less effective in fostering collaboration and avoiding conflict between family members, according to this Campden Wealth report. Regular family meetings are crucial for aligning goals, discussing investment strategies, and fostering a sense of shared ownership. The family office frequently serves as a hub for family gatherings and coordinates retreats, with leadership often tasked with relaying important information to younger family members. These meetings should be structured with clear agendas and minutes to ensure clear communication and record-keeping.
However, fostering open communication goes beyond scheduled meetings. Family office software can play a vital role by providing a secure platform for ongoing communication between family members and advisors. This platform can facilitate discussions, share documents, and ensure everyone has access to the most up-to-date information.
Effective communication and decision-making begin with understanding the family’s core objectives:
It’s crucial to be clear and honest with family members about where the appropriate skills reside and who should be responsible for various tasks. This transparency helps in delegating responsibilities effectively and leveraging each family member’s strengths for the benefit of the entire family office.
Technology investments
Family offices have not typically been associated with cutting-edge technological practices. In fact, only a small fraction – about 28% – of family offices worldwide report that they have successfully incorporated technology into their core operations, according to this Deloitte report.
Digital tools commonly empower family offices to boost operational efficiency by reducing manual processes and offer clear insights via aggregated data reporting to important stakeholders. This not only saves valuable time and resources, but also reduces the risk of bias or mistakes in financial decision-making. With emerging technologies such as Artificial Intelligence (AI), there are now possibilities to reshape how family offices analyse and respond to complexities of wealth management. Indeed, according to Campden Wealth, 38 percent of family offices are looking to increase their involvement in AI, reflecting their willingness to explore new technologies. AI could tailor investment strategies based on individual family goals, integrating ethical and sustainable criteria such as SDGs into their investment decisions, thereby helping to align investments with family values.
Additionally, first-generation wealth creators often informally pass on their values, mission, and family history to their children. As time passes and generations are further from the founder, it becomes increasingly important to document family values and the story around wealth creation. There is an opportunity for technology to be instrumental in managing a family’s complex affairs in a nuanced manner. By providing a central repository for governance documents and clear communication channels, family office software can help ensure everyone has access to the same information and foster a more objective environment for resolving disagreements. Essentially, by thoughtfully implementing technology, family offices can effectively oversee the intricate financial and non-financial matters of wealthy families in a more resilient, efficient, and economical fashion.
To conclude, the evolution of family office governance is crucial for ensuring sustainable wealth management across generations. As next-gen leaders take the helm, they must navigate the delicate balance between preserving family values and adapting to a rapidly changing world. By establishing clear structures, fostering open dialogue, and leveraging technology, family offices can create a robust framework that accommodates diverse perspectives, aligns with family values, and drives long-term success. The key lies in developing tailored governance models that are flexible enough to evolve with both family dynamics and market conditions. As family offices embrace these principles, they position themselves not just as stewards of wealth, but as catalysts for positive impact and enduring family legacies in an increasingly complex global landscape.
Matthew Millard-Beer is CEO & Founder, based in Itriom’s London Office.
Itriom is the global impact platform helping leading families shape a better world. Itriom’s platform enables families to refresh and redesign their values, aligns them with the right UN Sustainable Development Goals, combining them in an agreed purpose and a Family Impact Charter. Itriom’s platform supports the development of impact initiatives and whilst providing discrete and secure spaces for peer-to-peer messaging and collaboration. Itriom’s core practices in leadership, geostrategy, and sustainability benefit clients by developing strategies to engage and support the next generation in building a lasting legacy of which families can be proud.
Itriom’s leadership and resilience practice instils all-encompassing leadership in support of principals of leading families and the next generation preparing for family succession, transition and evolution.
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