Nothing is stronger than family ties, though there can be unique challenges to these connective bonds when operating family offices. Siblings, partners, emotional history, and other factors can impact the inner workings of businesses if not addressed proactively.
Since family offices offer a myriad of services (including investment management, estate planning, tax services, accounting services, business management, lifestyle management, succession planning, and more), it is critical to establish a structure to help with decision making, clear roles, and expectations in order to separate personal and professional dynamics.
Fortunately, family governance is a beneficial framework that offices can utilize to foster transparency, responsibility, and longevity. Below, explore three traits of family governance that can help leaders pave a clear path forward for their family office.
Defined Roles & Responsibilities
The first step in developing family governance is to define roles and responsibilities within the office. This requires setting guidelines around how family members in company roles will operate and communicate as a business entity.
A common thread in this framework is transparency, which is reflected in this initial characteristic. Roles and responsibilities must be clearly defined for all employees. Family relationships tend to blur lines, and in a sense, the dynamics that appear at the kitchen table during a family dinner are formalized when applied to family offices.
Clear role definition helps prevent confusion and conflict in family offices. In addition, it supports accountability and helps to maintain professionalism for the business.
When assigning roles, it is recommended to do so based on capability and experience, rather than hierarchy or birth order. Establishing role clarity is especially beneficial during leadership transitions: families can navigate change without the stress of an unestablished succession plan.
Accountability & Transparency
Once roles are set and explained, the next area to cover is accountability. A traditional professional setting differs from family offices – historical grudges, sibling disputes, and favoritism rarely surface (as opposed to the way they do for families).
Transparency (the golden word) and communication can help family offices avoid tense situations and provide defined liabilities for family office members. In addition, these principles can help family offices mitigate unresolved grievances and support a culture of open dialogue.
Memorializing roles and expectations in governance documents for the family office can help keep members focused on the appropriate responsibilities and a sense of corporate professionalism if other historical family dynamics may arise.
Risk Awareness & Management
A clearly defined, accountable, and transparent family office is not immune to risk. Consider that many family offices are formed in pieces (adding HR or counsel when growing, while other departments are still lacking support). This can lead to skipping a strategic review of operational risks when building teams, fragmented areas in the company, and potential exposure to additional internal, external, or regulatory risks.
A holistic risk assessment can help family offices identify exposures across liability and investment and help protect the family’s interests. Utilizing risk management policies and procedures can help the family safeguard the liabilities and protections of everything handled in the family office. Gauging potential risks to family members, employees, and the office’s financial activities can also be beneficial in aligning the office with its long-term goals.
Ongoing annual assessments of risks and opportunities serve as a good reminder to review and update management of the myriad of risks a family office faces, as well as best practices for addressing them.
Challenges for Family Offices to Consider
Too many cooks in the kitchen can complicate things – and this rings true for family offices. When applied to business, it can be difficult if too many individuals participate, and decision making can be impacted. This is why defining roles and responsibilities at the jump is essential for family offices: identifying a core group and an expanded group can help clarify who does what and streamline efforts.
In addition, there are potential issues with building an office in-house or enlisting external help. In-house teams may struggle with staffing due to the specialized needs of family office work. On the other hand, outsourcing has its own obstacles in finding trusted advisors that align with your office’s values and can handle business needs.
Service scope, whether it is investment-only or includes lifestyle support, e.g., technology setup or travel coordination, must be clearly defined for both in-house and outsourced approaches in order to reduce friction and support the business.
Family offices may create a “purpose statement” (rather than a mission statement) to serve as guidance when making these decisions.
How Forvis Mazars Can Help
At Forvis Mazars, our approach is designed to build your family office efficiently from the start. Our depth and experience in the field differentiates us, and we can provide a holistic overview with consulting and tax services pertaining to all aspects of the family office. We offer strategy work on ideal structures for your new family office, and we can also consult on how to adjust your current family office to better perform for you.
In addition, we offer support and guidance to help you develop clear and documented family office operational agreements. Once your office is established, our team can provide assistance with tax, assurance, and outsourced accounting services. For more details, please contact a professional at Forvis Mazars.
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