Most Important Part of Family Governance — Susan Schoenfeld
Susan R. Schoenfeld, CEO and Founder of Wealth Legacy Advisors LLC, serves as a ‘thought partner’ to families of wealth through personal attention and human spirit. Susan is an award-winning Thought Leader; she provides guidance on legacy, next-generation, stewardship, governance, leadership succession, and philanthropy. She recently spoke on Family Governance and The Family Office: Planning for the Next Generation at Opal Group’s Family Office Forum West in Napa, CA.
The most important piece of advice I can offer on the topic of involving the next generation in the family governance exercise is this: As your family embarks on developing its governance structure, whether using facilitated family meetings or creating a governance document or engaging in a values exercise, the most important aspect is to make sure there is a mechanism built-in for changing the structure in the future. Provide for a required review every so many years to allow the opportunity for future generations to amend the structure in a way that makes sense for them, that perhaps the founding generation didn’t, or couldn’t possibly, foresee.
It’s all about multi-directional communication; it’s not just about the senior generation dictating the family’s values, but rather having the entire family gather and talk. Every family member should have the opportunity to have input into: Who are we as a family? How are we going to make decisions as a family? What process will we use to make the difficult decisions when we are not all in agreement?
The notion of continual review and renewal does not mean that you necessarily have to make it easy to amend your governance structure, just like the U.S. Constitution is hardly easy to amend, but there should be a democratic process in place for the family to make changes going forward such as they decide are necessary and appropriate.
I worked with a family a number of years ago who had inherited a very large family business from their parents. At the time I was invited into the family system, the parents had already passed away and the siblings co-owned the company. The professional management of the business determined that there was a need for outside capital, but there was no mechanism for that. Ultimately, the family business asked that each shareholder commit to keep their capital invested in the business for a lengthy term of years, in order to assure the continuity of the family business.
One of the siblings was not willing to tie up substantially all of their assets in an illiquid investment for the foreseeable future. At the beginning of the process, I asked each of the family members what the ideal outcome might look like. They all responded that they were still a family, and so for them, the ideal outcome was still being able to get together for holiday dinners. With that goal in mind, we started a series of family meetings to find common ground and build consensus.
It turned out that the family had, after quite a number of extensively negotiated amendments, an existing shareholders’ agreement that was accepted and respected by the family. Together we developed a new mutually agreeable amendment containing a mechanism for the corporation to redeem any shareholder in a way that everyone felt was fair, or at least equitable. Ultimately, using that new redemption mechanism in the amendment, that sibling had their shares redeemed by the company, freeing them to be a family member without the stress of being a co-shareholder.
A governance framework is not a “set it and forget it” endeavor. The flexibility to change your family’s governance structure as circumstances change and evolve in the future is the most important and forward-thinking part of the entire process.
Susan Schoenfeld, a public speaker & thought partner to families of wealth and their advisors, is an award-winning thought leader. Susan’s switch from successful estate planning attorney and CPA to a trusted family advisor and thought partner was inspired by families of wealth asking her searching questions beyond estate tax planning. As a conflict-free advisor who provides no investment, tax, or legal advice and sells no product, Susan shares her insights directly with wealthy families and with financial services experts. She is active as a keynote speaker and a leader of break-out sessions and workshops at conferences throughout the US.
Connect with Susan Schoenfeld on LinkedIn.
