There is a growing body of research highlighting how important it is to get family governance right and a key element of this is what is known as the family assembly, or forum for hammering out issues and avoiding unnecessary divisions later on.

There is a growing body of research highlighting how important it is to get family governance right and a key element of this is what is known as the family assembly, or forum for hammering out issues and avoiding unnecessary divisions later on.

Two recent reports have highlighted the issues at stake. Consider one, called “Benchmarking the Single Family Office: Identifying the Performance Drivers” published in November 2009 by Wharton Global Family Alliance at the University of Pennsylvania in partnership with IESE Business School in Barcelona.

It states the following: “The more you invest in a governance structure for your [family office] the more you communicate and interact with the family members and the more you invest in the education of the next generation, the better the performance will be.  Moreover, we found these families to be happier than others as they were able to balance their personal wealth with entrepreneurial creativity, philanthropy and leadership in society, to serve as positive role models.”

In the related word of family business, The European Confederation of Directors’ Associations (ecoDA) has recently published, “Corporate Governance Guidance and Principles for Unlisted Companies.”

This contains 14 Principles that can be used to design a practical governance framework to suit the needs of any unlisted company. Principle 9 states: “Family-controlled companies should establish family governance mechanisms that promote coordination and mutual understanding amongst family members, as well as organise the relationships between family governance and corporate governance.”

Strategies that seek to optimise all forms of a family’s wealth – financial, intellectual and social – must integrate conventional wealth management services (that are in any case increasingly subject to commoditisation) with an understanding of how complex families are governed.  One of the key challenges is how to achieve a balance of interests between the family and their “enterprise”. They need to know whether the enterprise is an operating business, a family office or a diverse range of assets and other activities through which the family’s lives are connected. 

A forum

Part of the well-governed family enterprise is a forum where family interests and concerns can be addressed. Since it is impossible to separate a family from its enterprise and treat them as if they are entirely separate entities, the absence of this type of forum will not result in family interests disappearing; they will just flare up unexpectedly in less suitable forums, like a boardroom.  

Where there are a relatively small number of family members with an interest in the enterprise, important discussions concerning the family can usually take place spontaneously, whenever needed. But as a family grows this type of informal governance needs to be replaced by more thoughtful structures, like a family assembly.  

The family assembly is a forum where the interests and concerns of the family can be addressed. Because it is a flexible structure that can be adapted to suit the needs of different families, it is very important to define clear goals and tasks for the family assembly. Otherwise there will be ambiguity about its governance role and it will be virtually impossible to evaluate whether or not it has been successful. 

The goals could be social, formal and educational. As a family grows and the demographics become more complex, an assembly can generate social interaction that will help to create and sustain the “glue” that binds the family to each other and their shared investments. The importance of this tends to be better appreciated by families than advisors, or at least those with an entirely business-centric outlook who tend to dismiss the importance of establishing a social role for the family assembly.

However, it is essential to understand that if the glue that binds the family together is not maintained and instead is allowed to dilute, over generations there eventually will come a point where it is not strong enough to hold the enterprise together. Hence the social value of the Family Assembly should never be underestimated.

The formal role of a family assembly is often to formulate and comment on family policies. Sometimes the balance of power in a family enterprise acknowledges the importance of the family, and not just the current owners, having a voice in establishing policies that will govern aspects of the family’s activities.

This could apply to the family’s philanthropic activities or aspects of their relationship with the enterprise, for example, in relation to employment and remuneration of family members or the involvement of family, and their reputation and goodwill, in marketing and PR. Another policy may be an agreed procedure on how conflict among family members or between the family and the enterprise should be resolved.  The assembly's input to these polices can range from the right to be consulted through to having power to influence policy content and how the policy is administered in practice.

A family assembly can play an important role in educating and informing the wider family, including the next generation, about the structures that affect their lives. The importance of this can be undervalued, especially in relation to technical structures that outlive their creators, such as family trusts.

Should beneficiaries be consulted about becoming beneficiaries or at least be educated about how the trust operates and will affect their lives? On a broader educational front, the family assembly often helps to increase the family’s awareness of business practices, which can be useful to family members whether or not they pursue a career in the family enterprise.

The goals to be set for a family assembly and the power and influence it can wield, will be linked to the decision about who can attend.  In each case the answer to this question will be influenced by the family’s view on matters such as the age at which family members are felt to be mature enough to participate in a family assembly and whether or not spouses should be involved. 

The constitution of the family assembly will also need to specify how it will be administered, how often the assembly will meet, what formality is required to convene and run the meetings and how any formal decisions are to be taken.  

Sometimes it is helpful to appoint or elect a separate group with responsibility for running the assembly and being the main governance link between the wider family and other parts of the enterprise, such as a board of directors. This separate group is called the family council and an important part of creating these structures is deciding how the different roles in the structures will be populated. 

Family governance structures, like the family assembly and family council can create opportunities for family members to have a meaningful role in governing their enterprise without necessarily having to work in the enterprise itself.