Family Governance: From Filaments to LED’s
When it comes to “Family Governance”, there aren’t many bigger fans than me.
I’ve written several blog posts specifically on the subject on this site, and there’s even a chapter in my book, Shift your Family Business, titled “Governance, Ugh!”
That exclamation –ugh- makes it seem like I don’t like governance, but in the book’s context, it’s clear that I do.
For any family to have a realistic chance of their wealth surviving over generations, they’ll absolutely require some form of governance.
Family Constitution? Yes, but…
The form and structure of that governance, as well as how it evolves over time, is where all the many important questions and decisions come into play, of course.
My advice is to always start small and take it slowly.
You’re looking for a durable “solution” to last generations, so there should be no reason to rush something through in weeks or even months.
One place that I would almost never choose to
begin is with the writing of a family constitution.
And that’s especially true if it’s one dictated by the wealth creator and patriarch, by himself, without consulting any other family members.
One of the peer groups in which I participate with other family business and wealth advisors recently tackled such a case.
Here’s a bit of the background provided by a colleague I’ll call Nelly.
A family patriarch, “Jack”, who was also the wealth creator, was approaching his 80th birthday, and one of his financial advisors had spoken to him about succession and transition planning.
Somehow the idea of a “family constitution” came up and Jack loved it. He then sat down and began to draft it by himself.
How’s That Working Out For You?
As Jack shared his progress with family members, he began to become concerned with their lack of enthusiasm.
The financial advisor who initially mentioned the idea of the constitution was way out of his league to be of use to Jack now, but thankfully, he called in Nelly’s firm for help.
As Nelly shared with our peer group, she was slowly encouraging him to involve other family members in the creation of their constitution.
After several repeated suggestions, he actually started to warm up to the idea.
As Nelly shared with us, there was a light bulb going off from time to time, maybe with only “one or two filaments flashing”, but she was starting to get through to him.
Input from the Rising Generations
Of course, a couple of filaments do provide some light, which is better than complete darkness.
But it’s 2018, and those bulbs harken back to Thomas Edison and aren’t exactly “current” anymore.
I pointed out that perhaps what they needed here was some LED lighting, not more filaments.
Jack was preparing to leave his wealth to his children and grandchildren, but he was missing out on the opportunity to have them involved at this key stage of planning.
For the Family, By the Family
I’m not sure what became of Nelly’s work with Jack and his family, although I suspect it’s ongoing.
I’m not saying that involving the family is simple or easy, because it’s not.
But I am saying that it’s more than
worth the effort when done right.
Jack created the wealth, so he can technically do what he wants with it, and even give it all away to charity.
But he has expressed a desire to pass it on to his family. So what he’s actually trying to do is transform his personal wealth into family wealth.
The best way to do that, is to create some form of governance, for the family, by the family.
And What IF He Does It “His” Way?
If Jack rejects Nelly’s ideas and simply ploughs ahead with authoring the constitution himself, I predict one of two results will occur after Jack dies.
If the family gets along and the wealth is structured rather flexibly, the family will make whatever changes they see fit, using his constitution as a mere guideline, which will fade away over time.
Or, more likely, if the family does not get along well, or if the structures are very rigid, the family squabbles will begin right after Jack’s funeral.
Jack has a choice, but I sure hope he listens to Nelly.
Grandpa’s filaments won’t be quite as useful in his grandkids’ world of LED’s.