Successful family offices must embrace effective governance best practices as part of their overall planning efforts. Governance typically refers to the management and oversight of practices, policies, and actions as well as accountability through effective stakeholder reporting. Like public and privately held businesses, governance must be proactively developed with the end in mind and is ultimately part of a family office’s risk management protocols.

Several best practices of family office governance include:

• Develop a family governance structure: The family should establish a governance structure that outlines the roles and responsibilities of family members, the family council (if any), and the family office
• Create a family constitution: This document serves as a code of conduct for the family, outlining its beliefs and values, as well as its vision for the family’s future
• Establish an effective communication system: Family members should communicate regularly with each other and the family office to keep everyone informed and involved in family matters
• Implement a succession plan: A well-designed succession plan will ensure the smooth transition of leadership within the family, family office, and external advisors
• Invest in professional development: The family should provide education and training for all family members, particularly those who will play a role in the family office

Many family offices have successfully developed governance systems that ensure the general transition of wealth and family values. Such systems often derive their methods from governance practices of large businesses and nonprofit organizations. For example, the Rockefeller family established a family council in the 1930’s, which has evolved into a sophisticated governance structure that includes a family office and various family committees. The ‘family council’ was akin to a board of directors with responsibility for functions such as strategy, talent management, and audit responsibilities. The Pritzker family also has an incredibly talented family office team that includes experts in real estate, private equity, and other fields. Their family office is responsible for managing the family’s investments and coordinating philanthropic endeavors, which collectively impact countless jobs and charities.

Of course, not every family office governance system is perfect. Best intentions sometimes give way to governance practices that family offices ignore or forget. Some examples of challenges or oversights faced by family offices include:

• Family members’ roles: Family members should be aware of their roles and responsibilities within the family office to prevent conflicts of interest and ensure that everyone is working towards a common goal. When issues arise, family leaders must proactively address issues rather than wait until such matters negativity impact in the family
• Documenting meetings: Minutes should be taken during important meetings to ensure that everyone is on the same page, actions are taken, and stakeholders are informed
• Independent oversight: The family office should have a system in place to ensure that its activities are transparent and accountable to all stakeholders, including family members, investors, lenders, trustees, etc.
• Ethical considerations: The family office should establish ethical guidelines for the family’s investments and contributions, and avoid conflicts of interest

In summary, successful family offices prioritize governance processes and reporting for the benefit of their stakeholders. The evolution of each family office is different and every one requires a customized platform to ensure it is meeting the needs of current and future family members. While investments and charitable impact are often the most visible part of family office functions, effective governance practices are the foundation that will ultimately support continued family office success.

Jeffrey Rosen, CPA, CGMA, MBA