Why is Family Governance so Important & How to Create it in Your Family?”

Family Governance is how families make decisions together. If they create a good system, i.e. one that includes transparency, accountability and participation—they should be able to avoid the family fights that often occur in inheritance-related disputes. The process the family follows in creating a good governance system is easy to understand but requires the commitment of all family members. By simply going through a good process to create documents like a Family Constitution or a Family Mission, the family is at the same time practicing good governance in a “hands-on” practical manner. This article includes “how to” create a good family governance system.

Why do wealthy families have such public fights about inheritance issues? How can they avoid them? How can creating a good family governance system help?

How does a family create a strong governance system? (Part II)

→Families agree in general that they will do better if they have the benefit of an outside advisor to lead them through the governance process.

The outside advisor is likely to begin with getting to know each family member.

  • Interviews. Individual interviews take place, to provide an opportunity to share their individual views and concerns. An initial question is which family members to include in the interviews (children? Spouses?). Family members need to make those decisions. In the interviews family members often want to share a history of “grievances” which help give background, but are not usually the focus of the ongoing work. (This step, by the way, is an important part of “participation.”)
  • Report from the interviews. After having all of the interviews the outside advisor might put together a written (diplomatic) summary of the content of the interviews (This step, by the way, is part of “transparency”). It is important to show that each person was heard, but to keep the focus on common issues that would benefit from family attention, discussion and decision-making. It is also important to respect the confidentiality of each person’s comments, especially on difficult issues. The report should be shared with each family member who was interviewed (part of “transparency”).
  • Issues from the Interviews. The issues that come out of the individual interviews can be used as the Agenda items for the family meetings. The family meetings might be a smaller group of the family members, or the entire large group may be at the initial meetings. Some families mark the toughest issues as special “white elephant” issues, to be addressed in separate sessions, with an outside advisor (in some countries they are “pink elephants”.)
  • Creating a Family Council. One of the first steps for the family group is to decide who will be the representative group (the “Family Council”) to represent the rest of the group. This smaller group will be “accountable” to the larger group. It should be an “elected” group. Following “best practices” from governments and from listed companies, the members should be elected and have predetermined terms of office.
  • Family Council Meetings. Next is for the Family Council to begin its meetings. The meeting procedures need to be established. How often should the Family Council meet? (quarterly? monthly?) Where should it meet? (an office, a home, off-site etc.) Should there be an Agenda sent around in advance of the meeting? How much notice should be given about the date? Is it “required” to attend the meeting? (is there a penalty for failure to attend?) Can someone who cannot attend give a proxy to someone else? Must there be a minimum number (a quorum) in order to have a meeting?
  • Running the Family Council Meetings. Who will run the Family Council meetings? When creating the new system of family decision-making it is important not to follow the old method of decision-making. For example, if there was a Founder model (who made all the decisions) then the Founder should not be in charge of the discussions to create a new system. This is a role that should be filled by the outside advisor. This frees up each individual, including the Founder, to participate in the discussions. The outside advisor may suggest some rules of protocol to follow during the meetings (such as: no interruptions, sincere statements, respect for differences in opinion, turns for each member to participate, etc.)
  • Voting Rights. Families are often concerned at the beginning with the control issue of voting rights. They may spend some time deciding which category of the family tree would have how many votes, and also on the issue of how many votes would be needed for which type of issue. In practice, however, it usually happens that there are never any reasons to take a vote: a good meeting ends up working by consensus.
  • Written minutes from the Family Council meetings. Many families tend to forget exactly what they may have decided during the meetings. The outside advisor can put together clear and detailed written minutes of each Family Council meeting. These minutes would be circulated to all members of the Family Council, for review, corrections, and approval. (This written record allows for future “accountability”.)
  • Continuing the Family Council meetings. As an on-going process it is very important to continue to have the family council meetings. The discussions in the meetings, regardless of the nature of the actual topic being discussed, give great behavior practice to a family. The skill of discussing and resolving issues during relatively peaceful times will be a valuable shared skills in a future time of crisis.