It’s no secret, family offices are complicated. Multiple generations and overall family dynamics – which can be tempestuous in any family – are compounded by numerous business ventures, entity structures, global real estate investments, vacation homes, foundations, trusts and various other assets. Together they form a potent cocktail of complexity

Welcome to the world of the uber-wealthy.

With so much at stake, your family office needs to approach decisions in a way that satisfies the diverse family members and that grows and safeguards wealth for future generations. In the words of Ayn Rand, “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

That’s where good governance comes in. It puts you in the driver’s seat.

What is governance?

Governance can best be described as a framework that guides decision-making. It impacts every aspect of managing family affairs – from paying private chefs or renovating the family vacation compound to multimillion-dollar business investments.

Informal or “natural” governance doesn’t rely on written procedures. Decisions are made organically as issues arise, and meetings can take place as easily around the dining room table as in a boardroom. So long as there is a process for decision-making, it’s still considered governance.

While this arrangement might work for a small single family office, it becomes less effective as the family grows and complexity increases. What’s more, these looser structures tend to fray at the edges in times of stress or when presented with extenuating circumstances. Without formalized guidelines, family conflict is inevitable.

Formalizing and implementing a written governance structure within your family office helps to keep peace among family members while protecting family assets in good times and bad for generations to come.

Where to start

While there are many factors to take into account when establishing formal governance practices, some overarching considerations are key to help get you started on the right foot.

Here are 5 pillars for good family office governance:

1. A Shared vision

Coming together to identify a shared vision for the family is the most critical, and perhaps the most challenging aspect of good governance. Without it, decisions may be random and based on the whim of the patriarch or matriarch rather than represent the collective interests of the family. A shared vision ensures decisions align with your family’s values and mission.

2. Customized framework

Each family is unique. For the governance structure to work as intended, it can’t be a template borrowed from someone else. Developing a custom framework with guidelines and documented procedures promotes accountability. It helps your family office act responsibly as stewards of wealth and in accordance with the family’s vision.

3. Avenue for communications

No matter how ‘perfect’ the governance structure, differences of opinion are to be expected. Accommodating open discussions through regular or ad-hoc meetings ensure all voices are heard. Feedback is vital, it provides a means of checks and balances to expose issues where change may be needed. And don’t forget about transparency. Keeping family members apprised of all activities and relevant family matters avoids surprises that can splinter family harmony.

4. Mechanism for change

Reassessing the governance system on a regular basis will ensure that it continues to support the family’s mandate, which may shift over time due to changes in family structure (e.g., marriage, divorce, children) or external world events. In addition, family offices need a structure that is anti-brittle and won’t crack under stress. Flexibility must be baked into the governance framework so that switching course if faced with unusual circumstances won’t completely derail your family office operations or mission.

5. Technology

In today’s world, it is nearly impossible for a family office to implement best practices for governance without technology. Technology helps you assess and manage risk, benchmark against mandate, ensure communication flow, deliver transparency, make smarter decisions and adapt to change. Most important, true governance requires insight into your data. Technology is the ‘fuel’ that powers that insight.

Support your family office governance processes with FundCount’s accounting, investment analysis and reporting technology. Contact us to learn how you can gain valuable insight to steer your family office through generations of prosperity.