With the Fourth of July celebration just behind us, it’s a good time to reflect on governance, in this case—Family Governance. In our last email, we covered WHY it’s important to adopt a Family Governance System, and then shifted to HOW to do it. Critical to the process is for the family members to participate in the decision-making. The goal is for the family to have buy-in and feel they own the governance system they adopt.
However, the family shouldn’t go it alone. The family needs experienced advisors to guide the process, ask the right questions, facilitate the conversation, and mediate when necessary. The advisors can synthesize all the input and craft governing documents, starting with a Family Constitution, sometimes called a Family Charter. Just like our country’s constitution, the family’s is a framework of fundamental principles and ideals that determine how the family will make decisions, operate, and be governed.
Here are key provisions of a typical Family Constitution:
- Start with the Family Mission Statement, which guides all major decisions. The family may expand this section to cover the family’s core values and its vision for the future. By setting out these principles and training heirs to understand them from an early age, you improve the odds they won’t get lost with time.
- Create a governance structure, including some or all of the following:
- Family Council of selected family members to make management decisions, similar to a company’s board of directors
- Voting Family Members, similar to shareholders of a company, who elect the Family Council and must approve certain major decisions
- At-large Family Members, defining those who attend family meetings along with the Voting Family Members
- Family Advisory Board, consisting of the family’s “go-to” outside advisors (attorney, CPA, trust officer, financial advisors, other counselors)
- Identify who qualifies for each of these roles: determine the role of in-laws, step-kids, minors (at what age do they join?), former spouses after a family member dies or divorces, unmarried partners of a family member, etc.
- Set out voting procedures (quorum, decisions requiring a majority vs. super majority vs. unanimous vote)
- Procedure for resolving conflicts (a system for mediation and/or arbitration)
- Policies for educating heirs about family wealth and responsibilities (when and how)
- Process for onboarding in-laws
- Addressing behavior that leads to disqualification
- Guidelines for family meetings/retreats (how frequent, location, who plans them, etc.)
- Broad investment guidelines
- The structure and function of a Family Office
- Process for amending the Constitution
These items are merely a suggestion and not an exhaustive list. There’s no “one size fits all.” Some families will need all of these bells and whistles; some will need only part of them. The critical point is that each family should examine its needs and create a system that’s right for it. A final point: as the final bullet point above reveals, the Constitution is not set in stone. It is a living document that will evolve over time to meet the needs of an evolving family.
Marvin E. Blum
Marvin, Laurie, Adam, and Lizzy Blum 31 years ago atop the U.S. Capitol, looking out on Washington, D.C. and celebrating our system of government.