Family governance can be a key part of a comprehensive plan for managing wealth within families.
What is family governance? In general, it is the way you operate as a family — the structured set of agreed-upon principles, rules, and procedures for communication, education, transition planning, and decision-making.
“Good family governance can be a key to success for families of wealth and promotes effective leadership and accountability,” says Lorilee Mills, a senior family dynamics consultant with Wells Fargo Family Wealth and Culture Services. “Families who are intentional about their continued growth over multiple generations often know that they must shift their attention from a narrow wealth creation focus to one that includes building strong relationships, developing the rising generation, and investing time and effort in the community.”
The expansion of families into multiple households and geographies can bring increased diversity of goals, talents, and interests. Successful families often know that they must not only be intentional about educating and reaffirming core family values but also be willing to listen and learn from all family members.
Developing a governance structure with the input of multiple generations helps set clear expectations on what roles and responsibilities will be handled and by whom, draws a direct link back to the family values and mission, and helps ensures that the diversity of opinions and perspectives that exist within a family are included.
Effective family governance should never lose sight of the family’s core views and values but should allow for progression of the family’s evolving needs.
“I believe effective family governance should never lose sight of the family’s core views and values but should allow for progression of the family’s evolving needs,” says Mills.
When developing family governance structures, the definition of who is family can be broad. It may include, in addition to immediate family, extended family, in-laws, individuals separated by divorce, adopted children, domestic partners, and trusted advisors. In any case, governance can help answer:
- How will we make decisions together?
- How, what, and to whom will we communicate?
- How will we transition management of our wealth over multiple generations?
- How will we deal with disagreement or conflict?
- How will we hold family members accountable?
- How will we educate and prepare future generations for their roles and responsibilities?
“A third-generation family I worked with faced the dilemma that not only did they not know if there was an appropriate successor to lead the family business, but they also didn’t know whether anyone was even interested,” says Mills.
With family members on both coasts, they took the time to have deep-dive conversations with the third generation. Through these conversations, they identified a couple of potential successors. As they prepared for the transition of the business, they developed family governance structures, including creating a family council and a family employment policy, that were both flexible enough to reflect family traditions and also allow for new ideas coming from the rising generation.
A family office or advisors can help support the development of a governance system. A non-family facilitator can be very beneficial, especially at the early stages of developing a family governance structure. An objective, external advocate can ensure everyone in the family has a voice and can provide examples and guidance of governance structures based on experience with other families.
Family governance can be a key part of a comprehensive plan for managing wealth within families. A successful governance system can be instrumental in equipping your family to navigate the challenges of family, business, financial, and legacy continuity.
“Creating a structure that is inclusive enough to serve the current generation yet flexible enough to be embraced by future generations can be a crucial task for multigenerational families,” says Mills. “Such an approach can help sustain and preserve wealth for generations to come.”
Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
