When dealing with family governance, family advisors should keep in mind the following steps: establishing a proper diagnosis of the family needs, implementing appropriate tools and increasing involvement toward family.
Implementing strong family governance
First, family advisors must pay particular attention to the following: family governance cannot and must not be mixed up with corporate governance, even though family play a key role in family held corporations. Both entities do not follow the same goals and are therefore not subject to the same kind of management.
Family governance must be understood as a body of rules and tools designed to enable the family to be more efficient when dealing with its own goals and with a family held corporation.
Hence specific tools should be set up. To determine those tools, officers and advisors should go through several steps and should have a comprehensive understanding of the family, its goals and the individuals who are parts of it. In order to so, Advisors should first establish a proper diagnosis. This step is by far the most important one and Advisors should ask any questions they think are relevant to establish it, during personal and confidential interviews with each family member.
At the end of this step Advisors should have a clear representation of the family: its members, a clear understanding of their responsibilities and their place in the family, how each individual is seeing himself in the family and how each of them is being seen by the others.
A comprehensive knowledge of the family assets must also be made available to the Advisors who should then rank them according to the family goals. It is to be noticed here that the most valuable assets for a family may not have a high worth. Advisors must therefore pay attention to the history of the family and its core value.
This is one of the reasons why family governance differs significantly from corporate governance. Legal advisors may become useful at this step in order to solve any issues regarding the right of each members of the family. It is also to be noticed here that understanding a family organization and history can take time. It is important for adviser to spend time with the member of the family.
In order to help family advisors to reach this first step they may design and use grids, filing them during personal interviews with each family member or by asking those members to file them later. It is important that those members have the feeling that they can disclose everything and that they are free to ask any questions. To avoid waste of time it is recommended that those questionnaires use “yes or no” questions or a scale of value.
Two elements must be analyzed with particular attention: the already existing family organization and what bring its members together. Those elements can be analyzed through several criteria. Communication between members about common goals is particularly relevant.
Once the diagnosis has been established it must be communicated to the family members and should be subject to discussion. This would constitute a first step toward implementation of good family governance.
If the diagnosis of the family situation was properly made, the second step should be easier. Indeed, this step is basically the development of family governance tools, helping to create and maintain a common interest in the family. Those tools can be different and must be adapted depending on the needs of the family, its members, their level of education and level of involvement. As examples, a code of conduct, an association, a foundation, a corporation, a family trust or a contract embodying and formalizing the relation inside the family could be used. This can also be used to help the family to reach its goals by making management of the assets easier.
Nonetheless, it is important to keep in mind that those tools are only tools. They must be able to change when required in order to always meet the needs of the family, its evolution over time and its projects. Therefore, governance of the element that embodies the family organization must be implemented as is the governance of the family. Legal and business advisors could be very useful to help determining the most appropriate tools, their legal consequences and the tax consequences that may arise. Indeed, each country may offer different legal and business tools which could be used to reach different goals.
All members of the family should get involved in this organization and have some responsibility in it. This how family governance leads to great success. Furthermore, this would help to foster communication, relations and would improve commitment of the individuals to the family.
It is important to be noticed that in France, for example, but this could be generalized to most country, 67% of the family held corporations who did not succeed to stay in the family for more than three generations failed to do so due to lack of communication, according to the family members. Hence, family advisors play a key role in family success. Indeed, they must be able to facilitate communication and to understand evolutions of the family: they are a link between generations. Family advisors must meet members on a regular basis in order to know them and to meet the future needs and evolution of the family.
At this point it might be useful for the family advisors to organize seminars, in addition to the family meeting that could be held, in order to provide family with training on very specific subject such as finance, law, business, tax… It is also a good opportunity to strengthen family tie: it might be a good opportunity for individuals living far from each other to meet and discuss. Those seminars should not be held too frequently and should stay the occasion to discuss very specific subjects which take time to think about: the level of information that individuals will have to understand is fairly high and presence of the whole family is necessary.
Finally, family advisors, in order to serve the family will have to rely on a well established network of lawyers, business and financial advisors. Family advisors will be the one who find those experts and who will organize their intervention. More than pure technical subjects those professionals should work on the family governance with a global approach, close to the one required for family advisors.