Family Office Governance Explained (Part 1)

Video transcript

The Family Office Association was founded in 2007 as a peer network for single family offices. Family office governance is a topic covered by whole courses and books; here we share a few observations from the perspective of the unique challenges faced by family offices. Some of these points may seem obvious, but you would be amazed how often they are overlooked. We usually think of constitutions as a document, but in the context of a family office it is both the documentation plus the people that make up the elements of family leadership. Effective governance is the most critical component of a successful family office. Without good governance, a family office is likely to waste countless hours in pursuit of non-strategic goals. To quote the Cheshire Cat in Lewis Carroll's Alice in Wonderland: if you don't know where you are going, any path will take you there. A well-functioning family governance structure focuses on two objectives: first, communicating the family's mission, vision, and values; and second, allowing the family to make collective decisions. Therefore, defining the family constitution is really the stepping-off point for everything else. The family constitution ties together the various entities that make up the governance structure. These entities typically include a family assembly, a family council, an advisory board, and various committees. Examples of the committees include the investment committee, philanthropy committee, estate planning committee, education committee, and next-generation planning committee, among others. Of course, the size and complexity of the family office will be an important factor in determining the design of the family constitution and how these various elements fit together.