The Financierge


Family Governance – A Key to Successful Multigenerational Wealth Transfer

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Dear Valued Clients and Friends,

In a study by the Family Office Exchange, families were asked about their view of the greatest risk to their wealth. The top three answers were bad investment decisions (37%), poor economic and market conditions (26%), and tax and political risk (16%). One of the lowest areas of perceived risk was family dynamics, communications, and relationships (7%). Alternatively, research by Williams and Pressier shows that the top risk to family wealth is poor communications and trust within the family around decision-making, and lack of education and governance (60%). Unprepared heirs (25%) was next highest and and failure due to financial planning, taxes, and investments (3%) was last. The lesson here is that families need to focus on relationships, communications, and education as much as they do on financial planning, taxes, and investments. Family Governance provides this framework and is a key to successful multigenerational wealth transfer.

In this issue of the Financierge, we discuss Family Governance and some of its components. In our podcast, we are joined by Dr. John Townsend, a N.Y. Times best-selling author, psychologist, and leadership coach to ultra high net worth families. Dr. Townsend provides us with some of his insights on leadership, communications, and relationships – all critical components of successful family governance and wealth stewardship.

The Financierge AUDIO Podcast
with Dr. John Townsend

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“Culture eats strategy for breakfast!” – Peter Drucker

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Family Governance Overview

Family governance provides a cultural framework across family, wealth, business, and philanthropic legacy planning. Without it, your planning is at risk.The three-circle, family governance diagram above was developed by the Harvard Business School in 1982. The diagram represents three interdependent and overlapping groups: family, ownership and family business. For a family business to function effectively over time, each group must understand how to interact with and support the other groups. In addition, those within each group need to appreciate which decisions are theirs to make. This interaction, support and decision-making is governance. Family governance is a process to educate and facilitate communication between family members. It also provides a forum for constructive discussion, problem-solving and decisions about the family as it relates to the business, and how the business relates to the family.

Components of Family Governance

There are three components of family governance: family charter, family meetings and family council.

  1. Family Charter – The Family Charter describes the family’s vision, mission, values, roles and responsibilities. It also includes who has the power to make which type of decision, why the Charter was written, and how to change the Charter for future generations. Family values are an important part of the Charter and should include accountability, participation, and transparency in the sharing of information. In fact, the lack of sharing of information in the family is the single biggest cause for distrust among family members and in the buildup of conflict. It’s important to note that the process of creating the Charter is as valuable as the actual document.
  2. Family Meetings – A Family Meeting is intended for the entire family (age 16 and up) and typically meets annually. Meetings include learning about the family business, discussing (not deciding) the direction of the business, or reviewing financial statements, changes in ownership, and tax law changes.
  3. Family Council – Once a family grows beyond a certain size (about 14-15 adults), families generally add a Family Council. A Family Council is comprised of select family members that represent the entire family and interact with business and/or trust.

Stages of Family Governance

Families often find that the way they make decisions together evolves with the size and complexity of the family over time. In the early years of the business and the family, communication and decision-making are more casual. As children become young adults, it becomes increasingly important to make communication and decision-making processes a priority. As the family and the business grow, the need for more formal governance also evolves. Also, just because your family doesn’t have multiply generations or a business, doesn’t mean you shouldn’t think about family governance. For many, family governance starts with a well-planned family meeting.

Family Meeting Planning

Here are a few simple tips to consider when planning your family meeting:

  1. Set Your Direction – Define your vision and purpose. You mission on how you are going achieve your vision and you values. Your values define you family culture.
  2. Get a Facilitator – Make sure you have a competent facilitator that has experience in leadership, coaching, communications, teamwork and therapy. A good facilitator will level the playing field, allow members to feel they are being treated fairly, and incorporate education into the process so the family can grow together.  A good facilitator will also manage the flow of the meeting, ensure healthy participation, and accomplish goals.
  3. Be Vulnerable – The more you are open and transparent, the more you create openness and buy-in.
  4. Be Engage All Stakeholders – It is important to engage all stakeholders (spouse, children, grandchildren, etc. ) in the process. They will become more open, willing to voice their opinions, and able to accept decisions.
  5. Use an Accountability Structure – The use of an accountability structure allows the family to make progress both together and individually. It is much like a project plan that describes who is doing what by when.
  6. Have Fun – In order to help energize the experience and create cohesiveness, balance your time together with fun activities, work, and education.
  7. Grow in Community – It is important for each family member to be in community with like-minded peers, mentors, and competent advisors. Their experience will help you discuss your circumstances, grow in understanding, and process through your emotions.

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Bottom Line

Not only is it important to make sure your family has a financial plan, but also sound family governance. Both combine to help you steward your family, wealth, business and philanthropy. We are here to help you with family governance and creating a multigenerational legacy of success and significance.

Warm and best regards,

Don B. Saulic, CFP® CPA

Partner, Private Wealth Management | Family Office Services

dsaulic@thebahnsengroup.com

The Financierge Library (by Publish Date)

Business Planning
Business Entity Structures and New Tax Law Considerations (Aug 20, 2018)
Five Charitable Planning Perspectives to Know Before You Sell Your Business (Aug 20, 2018)
Two Estate Planning Tips for Your Businesses (Aug 20, 2018)
Four Strategies to Preserve Your Business’ Future (Aug 20, 2018)

College Planning
Five Ideas about 529 College Savings Plans (Nov 2, 2017)

Charitable Planning
Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018 (Feb 14, 2018)
Five Charitable Planning Ideas (Nov 20, 2018)

Estate Planning
Five Annual Estate Planning Tasks (Nov 2, 2017)
Four Components of a Wealth Legacy Plan (Nov 20, 2018)
Live and Leave a Strategy (Feb 4, 2019)

Investment Planning
Dividend Stock Investing (Feb 14, 2018)

Lifestyle Planning
Six Items to Keep in Your Vault (Nov 16, 2017)
Twelve Proactive Tips to Fight Identity Theft (Nov 16, 2017)
Twelve Ideas to Guard Your Family in a Digital World (Nov 16, 2017)
Is Your Lifestyle Balanced and in SHAPE? (Nov 20, 2018)
F
amily Governance – The Key to Multigenerational Wealth Transfer (Jun 19, 2019) 

Real Estate Planning
Four Points to Ponder Before Buying or Leasing a Home (Jun 22, 2018)
Six Considerations About Mortgages, Refinancing, and Taxes (Jun 22, 2018)
Five Elements of Reverse Mortgages (Jun 22, 2018)
Four Perspectives to Consider in Deciding to Move to a State with Lower Taxes (Jun 22, 2018)

Risk Management and Insurance Planning
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Nine Considerations to Maximize Social Security Benefits (Nov 2, 2017)
Lifestyles of the Affluent and Exposed (Nov 16, 2017)
Eight Benefits of Health Savings Accounts (Mar 16, 2018)
Seven Ideas for Life Insurance (Mar 16, 2018)
Six Considerations About Long-Term Care Insurance (Mar 16, 2018)
Who’s Your Wingman or Wingwoman
 (Apr 3, 2019)

Retirement Planning
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Ten Things to Know About IRAs and Saving for Retirement (Feb 14, 2018)
C
heers to Your Health, Wealth and Wisdom (Jan 15, 2019).

Tax Planning
Twenty New Tax Reform Bill Changes (Feb 14, 2018)
2018 Year-end Tax Planning Strategies (Dec 17, 2018)
2019 Tax Planning Strategies (Feb 24, 2019)

The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.