What is Family Governance & Education?
Family governance and education are two key and related components of an effective family office. They serve as the foundation for responsible stewardship of wealth, preservation of family values, and transmission of wealth from one generation to the next. These services help ensure that families flourish across generations.
Failure to pass wealth from generation to generation usually stems from a breakdown in trust rather than poor legal structures or wealth management. Thus, family governance and education fill an essential role by helping families articulate their shared values, goals, and objectives, and ensuring that everyone is aligned in terms of their vision for the future.
Family governance refers to the structures, systems, and processes that families use to manage their wealth and decision-making. It can include both the formal decision-making structures (such as the Board of Managers of a Private Family Trust Company), or informal ones (such as a Family Assembly). The complexity of the family will determine what level of governance it needs to decisions to build the family’s wealth.
Education is how governance becomes part of who the family is. It provides family members with the knowledge and skills necessary to effectively manage their wealth and make informed decisions about their financial future. This includes education about financial literacy, investment strategies, tax planning, and estate planning. It also includes education about family values, communication, and conflict resolution, which are critical for maintaining strong family relationships.
Family Governance & Education services build the family’s wealth. Wealth is not just the family’s bank accounts, investments, or real estate. It also includes the family’s relationships, skills, social network, and health. Wealth is really what makes us flourish as human beings.
Family Governance and Education develops the kind of wealth we call “Family Character”. Family Character defines who the family is. It includes the individual family members, their health (mental and physical), their habits, values, and vision.
Click here to read more information on the forms of wealth that the family has.
Implementing a Family Governance & Education Program
These four steps are foundational elements to implementing a family governance and education program in your family office. They can be adapted to fit the particular circumstances of the family.
1. Wealth Assessment & Metric
When families start on the task of building wealth for a multi-generational legacy, they first need to assess where they are and set goals for where they want to be. The Grupp Law Firm has developed a 33-question, qualitative assessment for clients to self-assess the current state of all their forms of wealth. The questions are qualitative rather than quantitative, in order to capture the family’s lived experience with their current state of wealth.
Based on this Wealth Assessment, the family’s advisors can assemble a metric to chart where the family is now in their wealth, and their ongoing progress towards their goals. Quarterly reports can serve as a holistic summary of the family’s wealth and place individual life events of the family or asset management updates into the context of the whole. The family can update their metric as they reach goals and as their situation changes.
2. Family Constitution
Successful transfers of wealth occur when there is continuity between generations. By drafting a family constitution, the family comes together to communicate its shared values to subsequent generations. The family constitution is a morally (rather than legally) binding document that defines the family’s vision and mission. It broadly explains the legal structure and asset or business operations of the family enterprise. It can also provide provisions laying out how family members can participate in the family enterprise. The family may also like to spell out the means through which the family will make shared decisions, including a Family Assembly, a Family Council, and a framework for conflict resolution.
Ideally the document is a living and collaborative document that family members actively participate in writing, reading, and updating. Read more here about the Family Constitution.
3. Ongoing Education
Constant learning is the key to consistent growth over time. The family should have a curriculum that provides learning opportunities to family members at every age and ability level. Topics could include financial literacy, entrepreneurism, and leadership. For example, provide families with a “scope and sequence” that maps out topics and resources for family members at different stages. A good time to kick off a family education program using fun, relational activities might be at a family retreat. Follow up content and communication could happen virtually for the rest of the year.
Even though not all family members may be active owners directly engaged in family governance, all family members are still owners in the family. It makes a great difference whether these members act in the best interests of the family. Fostering a robust sense of ownership among members not engaged in governance can come through identity-building relationships and activities.
For example, there may be a bi-annual family retreat to strengthen relationships among different generations and family branches; another common activity is an annual democratic Family Assembly that has some decision-making over education decisions and has the ability to ratify and alter the family constitution. At these Family Assemblies, family leaders can reiterate the family’s vision and apprise family members of the mission (actions) being taken to achieve this vision. By remaining informed, family members who are not active owners can still appreciate their shared purpose in the family enterprise. Ultimately, each family member needs to feel that they belong in the family, and that their actions have a direct impact on the wellbeing of other family members.
Many families donate money to charitable organizations reactively by addressing an immediate need or as a last-minute tax reduction strategy. When families create a giving mission around intentional philanthropy, they can decide their target areas of interest and then track the impact of their gifts. Not only does this have a greater positive effect for charitable organizations, but it will benefit the family as well. Philanthropy, especially if centered around a Private Foundation, is an excellent way for the family to come together to make decisions that are at the heart of who the family is. The rising generation can also become involved in philanthropy as a learning experience in administration of the family enterprise.
Family offices that dedicate resources to a governance and education program will build up the human wealth of the family. By training the rising generation in skills, promoting cohesion, and clarifying the family vision, a family governance and education program helps ensure a multi-generational legacy.