FAMILY CHARTER — a Building Block for a Family’s Governance Structure
Due to the increase in Family Office Development and evolution of the personal nature of management, there is much interest about proven practices for Family Protocols or Family Constitutions. Upon scouring best practices for seamlessly integrating the family, business, and ownership, the literature revealed the necessity for a governing document to guide the interaction within the Family system. Family Offices are complex, and typically include a myriad of instruments, which requires appropriate methods to manage the system infrastructure.
Often the purpose of designing and implementing a Family Charter is to assist with managing the needs of the family. The article Single Family Offices: Private Wealth Management in the Family Context identified maintaining family unity and how family wealth will effect the lives of their family were priorities. Therefore, developing strategies to aid in creating and maintaining family unity is instrumental.
What is more, The family office: helping families preserve their wealth over generations asserts it is not necessary for family members to be directly involved in the management of the Family Office. However, it is recommended they are involved at the governance level. Crucial components of Family Office Governance include:
- Defining strategic direction
- Characterizing an investment risk profile
- Evaluating Family Office performance
- Verifying the Family Office is compliant with rules and regulations
- Clarifying family values and guiding principles.
The Managing ethical dilemmas in family business podcast provides some rationale for why a Family Charter is advantageous for Family Offices. It is inevitable conflict will occur at some point in time. Therefore, a proactive approach like designing language in the Family Charter to assist in navigating the conflict will assist with a more timely resolution.
Common dilemmas encountered by Family Offices are:
- Ambiguity about how to address ethical dilemmas
- Power abuse
- Responsibility for addressing unethical acts.
“Conflict is both inevitable and unavoidable. Having a method to navigate disagreements enables the family dynamic to be quickly repaired.”
— AlphaMille
