Laura Pearson, a tax partner and U.S. family enterprise leader with Deloitte, explains the benefits of creating right governance structure for the family office:
How should families with different types of family offices think about governance?
Every family needs a structured governance framework to provide clarity on what the board’s oversight role is: How does the board’s role align with management’s operating role? This will look different for different family offices.
At the one end of the spectrum, we have family offices that are essentially embedded into a family business. Maybe you have a situation where the board chair was the founder of the business or previously served as the CEO. In that case, a structured governance framework can be really beneficial. It provides a little bit more granularity and clarity as to how the board operates — for example, that being a chair of the board does not mean micromanaging the CEO.
On other end of the spectrum, with a family office that is a lot more mature, there may be a lot of entities, a lot of family members, multiple generations. In that case, the governance framework helps provide clarity on who is actually making what decisions. That can be very beneficial when you have different points of view from family and management.
How can families lay a strong foundation for governance?
Many families spend time developing a mission statement, which is important. This helps them think through the values of the family, what their priorities are, what they want their legacy to be going forward, and how they want the family office to help them do that. Establishing the mission statement — and having that be family-led — is really important, because then that can serve as the framework or the foundation for what the board’s agenda is and what they’re looking to accomplish. Philanthropic intentions or community involvement can be built into the mission statement.
How can families ensure their governance structure helps with communication?
One best practice would be developing a forum for family members to have a voice to the board. This can help avoid a situation where the boardroom turns into a family discussion — which takes the board away from their role providing oversight on strategy and brings them into the trenches in a way that that isn’t productive.
One example is a family council, where you have an offline conversation. Maybe all of the family members are eligible to participate in the family council, or maybe each branch elects a member to participate. The family council can meet, and if there are questions or ideas that they want to raise to the board, someone from family council is appointed to have those conversations with the board.
This can be very successful, especially in the case where the family is starting to work through generational transitions in the family office. Let’s say you’re transitioning toward G3, which is always that tough period of time, and want greater stakeholder engagement from some of the younger family members as the generations start to multiply. Establishing a forum or family council can be a really effective way to allow the family members who want to engage with the board to do so without sidelining what the board is trying to accomplish.
When are committees helpful in family governance?
Especially in the case of a more formalized family office, the use of committees to help delegate tasks away from the broader board is a really effective way to ensure the board is focused on advancing the strategy of the family office and is not getting pulled into detailed conversations on particular topics.
Investment committees are maybe the most obvious in a family office with significant assets under management. But you could also have a regulatory committee, a digital transformation committee, a talent retention committee, a people committee — using the strengths of the board members to fill those committee seats.
