THE MECHANICS OF

FAMILY GOVERNANCE

by Barbara Hauser

Family governance refers to the way in which families make decisions together. Whether it is informal or formal all families have a way in which they make decisions together. The challenge is to have a good process, so they make decisions that will remain honoured by all family members.

 

The global adage that wealthy families disintegrate by the third generation (“shirtsleeves to shirtsleeves in three generations”) results from internal family conflict. This destructive conflict results from poor systems of family governance. Most often the patriarch (or matriarch) has imposed their decisions on the rest of the family. When the patriarch (or matriarch) is no longer present the children are free to fight each other based on suppressed resentments. These fierce fights among wealthy families are played out on front pages of the newspapers. The result is the destruction of wealth and of family relations.

 

Motivated to break this cycle of predictable failure and conflict, many families are working to adopt the best practices of family governance. As I stress in my book, International Family Governance, the key is to encourage the participation of all relevant family members.

 

Family Council is often where families begin. A representative group of family members, usually working with an outside governance advisor, decides to form as a Family Council. The Family Council will be similar to the Board of a company: it will be responsible for the oversight of the family operations as a family. It will have formal meetings (agendas and written minutes) and meet on a regular basis.

 

Family Constitution preparation should be the first project for the Family Council. In the constitution the family council should agree upon key topics: who will be on the Family Council; will the members rotate or have fixed terms; will they be succeeded by branch representation; how will they vote; how often will they meet; etc. In addition, the family constitution should look very much like a country constitution: what are the subjects on which the Family Council can make decisions (and which areas are left to the individual family members); what is the process to challenge a decision, what if any are the penalties, and how can the constitution be amended. 

 

Additional topics that are often included in a family constitution are: what if any are the preconditions to work in the family business (education, outside experience, etc.); how are family shared properties (homes, yachts, planes) to be available to family members; there may be a family venture fund to support new entrepreneurial projects by family members; some families have a common educational fund, to support and oversee the education of every family member. They may also have a family philanthropic structure.

 

Family Assembly refers to a larger gathering of all of the family members (including spouses and young children) which may be once a year for a several-day celebration of the family. This often includes showcases of the family history. It is a time for sharing and celebrating. Some families even include a talent show.

 

The Family Dynamic changes visibly when a family goes through the process of creating their own participatory family governance system.  Studies of countries around the world measure the “subjective well-being” status reported by residents. The correlation is unrelated to incomes. The highest measures come from countries where the residents feel like they have choices and that they participate in the governance of the country.

 

Similarly, a family used to a “top-down” autocratic style will become energised, creative and much happier when they have the opportunity to participate in their own governance. The seeds of destructive conflicts will have dissipated, allowing the family to continue for an indefinite number of generations.

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