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Family Governance – Putting it into Action (Part 3)

“Vision without execution is hallucination.”  Thomas Edison

Nothing comes to fruition unless action is taken to affect the change.  Establishing clear policies, protocols, and practices for how family members will govern the management of family wealth is what pushes the wheels of family governance into motion. Ultimately, what should be achieved is a written document, commonly referred to as a Family Constitution or Family Agreement. 

Purpose of Policies

Management of significant family wealth should be approached like any operating business to give clarity of vision and purpose, define rights and obligations, set expectations and boundaries, designate roles and responsibilities, and to provide accountability and access to information.  Formal businesses have policies to meet these objectives.  A policy is a statement of intent or principle that is adopted, or a set of guidelines or rules that determine a course of action.  Protocols and procedures are how policies are implemented.  A lack of policies cause family members to make their own assumptions often creating an environment of distrust and conflicts, while clear policies influence behavior to achieve a desired outcome.

There is no right or wrong answer for the number and type of policies that should be in place. Because every family is unique, it largely depends on the characteristics of the family enterprise, for example: Is there one or more family business(es)? Are there real estate assets and is it income producing or for family personal enjoyment and use? Is there a substantial liquid portfolio invested in the public markets or concentrated family legacy business stock? How many family members, generations, and family branches are involved? How many estate planning vehicles, such as trusts, have been established and who are the beneficiaries?  What types of trusts exist and for what purposes?  What are the family’s philanthropic goals (if any)?  Consequently, no two family governance structures are exact and families should avoid the tendency to craft their own policies based solely on another family’s constitution.

Nonetheless, common categories exist where policies may be considered: 

Policies in Action

Once a policy is identified and adopted by family members, written protocols define the procedures to implement the policy.  This provides clarity and guidance, manages expectations and fosters an environment of fairness and trust among family members, keeping everyone aligned and rowing in the same direction.  However, the family must take it even further by putting the policy into action – through practice.  In other words, family members must adhere to and follow the protocols as agreed upon by all. 

A simple example:

  • Policy:  The Bond Family adopts a policy of committing to a minimum of semi-annual family meetings where all family members are invited, including spouses, in-laws and significant others (“Family Meeting”).  The purpose of the Family Meeting is to provide a forum where all family members may gather to develop personal relationships, have fun through various activities and learn more about one another to keep the family bonds strong.
    • Protocol & Procedures:  Each Family Meeting will be over a 3-day period.  Family members who opt to attend will have all of their travel, lodging and group activities paid for by the family business.  Formal notice of dates and locations of each Family Meeting must be sent out 1 year prior to the meeting event date (“Meeting Date”) so that families may plan; those opting in must RSVP no later than 8 months prior to the Meeting Date; the Family Meeting agenda will be sent out no later than 3 months prior to the Meeting Date.

In this simple illustration, a policy is adopted identifying the purpose for having a Family Meeting.  However, to actually have the event, clear procedures must be laid out to inform family members when, where, and how the meeting itself will take place along with details for each meeting day.  The procedures could further include rules for establishing a committee of select family members who will take on the tasks and responsibilities for planning and communicating all aspects and details of the Family Meeting to all family members (“Family Meeting Committee”).  It may further state whether the Family Meeting Committee will be voluntary positions, or will the group be paid; and if paid, how much or what other non-cash benefits may be included for their services?

The act of holding semi-annual meetings is a practice; the act of following the protocols for planning and communicating the Family Meetings is a practice.  Having clear guidelines for the process of planning Family Meetings and defining roles and responsibilities ensure the Family Meetings can take place.  Practice is how the policy is put into action – and ultimately achieves the Bond Family’s goal of providing a forum to nurture personal relationships and maintaining strong family bonds.

Mind Your Ps (Not Qs)!

In sum, the first step for any family embarking on the journey of family governance should be to identify their why, to establish a shared purpose and commitment.  However, to complete the journey, action must be taken to realize the long term vision.  Policies, protocols and procedures put into practice is where the rubber meets the road between families who are successful or unsuccessful in achieving true family governance.  So just remember to mind your “Ps” – Purpose, Policies, Protocols, Procedures, and Practice!

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