The Role of the Family Office Board

How can a high-functioning board help a family office? Laura Pearson, tax partner and U.S. family enterprise leader with Deloitte, discusses the ways boards can drive family office strategy:

How many family offices have boards, and what do they do?

Most have some sort of board in place, but they vary in sophistication and vision — and in how involved they are in driving strategy, as opposed to just being a fiduciary. The board provides strategic direction to the family office so it can exist for years to come — looking at issues such as legacy planning, investment decisions, talent and sustainability, and creating committees to make sure they’re covered in these areas.

How large are family office boards, and who is on them?

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As part of Deloitte Private’s Family Office Insights Series, we surveyed more than 350 single-family offices from around the world and found that, on average, family office boards have four members — so they can be relatively small compared to a private company board.

In our experience in the U.S., those members are usually about 50% family members and 50% external — maybe a bit more than 50% external.

How do families decide when to bring non-family members onto the board?

This tipping point is a topic that comes up a lot: When do you start relying on external and non-family members? In cases where families are reluctant to include outside professionals, either because the family is very private or because they’re concerned about giving up control, we have seen situations where they bring in external board members that don’t have voting power. They are there to bring an external perspective or particular competency, help create chemistry among the board members and ensure that there is candor within the group — which in a family office context can be really critical. You’re trying to avoid a situation where family dynamics are becoming board dynamics.

How does having a board help a family office?

The idea behind a board in a family office context, when there are so many decisions to be made, is to make sure that there’s governance in place so it’s clear who is making the decisions — whether it’s about a particular investment or whether to start making distributions to family members. 

Having a board and structured governance framework really helps. Eventually there will be some form of disagreement within the family, and having a board in place, especially with some external members, can really help a family office navigate through those potential periods of discord or conflict within the family.

Another big area of focus is risk mitigation. In a family office context, that can mean cyber risk or reputational risk. Protecting the family’s assets and the family’s reputation is a strong advantage of building a strong board.

How should families think about the composition of the family office board?

The attitudes, behaviors and candor of board members are all critical to nurture the values of the family and to make sure that the family office is continuing to have strong operational performance.

It’s important to look at not only whether the board has the right number of people and the right balance of family and non-family members, but also the competency of the individuals on the board, and the chemistry between those individuals. All of those factors come into play in terms of the level of candor and conversation and trust that exists between the board and the family.

From a competency perspective, when Deloitte Private surveyed 100 C-level executives last year for its “Private Company Outlook”, respondents said the number one competency that they are looking for in board members is emerging tech or AI. I hear that a lot from my clients in the family office space: ‘How do we navigate generative AI?’

It’s important for the family offices to kind of take an inventory of the skill sets that they have and the skill sets that they don’t have, especially when they’re looking at a strategic, forward-looking plan. They need board members who align with their values but can also facilitate where they want the family office to be in the next five or 10 years.

How can a board become actively involved in family office strategy?

I think it’s critical that the board invest time in what we would call the board agenda: outlining how the board will spend time as stewards of the family rather than just as a fiduciary. This includes questions like: What is the family’s appetite for risk? How do they feel about sustainability? What is the culture of the family? The mission statement drives this, and then the board takes it and says, ‘Here is our agenda.’

It’s critical to get away from having a situation where the board is just an approval process, or maybe getting brought in only once a year. The board should be actively involved and meeting on a regular basis.

About the Author

Margaret Steen

Margaret Steen is the editor of FO Pro, The Family Office Professional. Based in Silicon Valley, she has written for Family Business Magazine for more than 15 years.


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