Old MacDonald Had Family Governance (E-I-E-I-O)

Old MacDonald Had Family Governance (E-I-E-I-O)

Over the past two weeks I’ve been at the cottage trying to unwind and unplug a bit.

I woke up early one morning, and by the time I got up to start the coffee-maker, the bare bones of this blog post were already complete.

If you’ve ever wondered, “what kind of person wakes up thinking about family governance, while on vacation?” you now have your answer.

Because of the happy coincidence of the first letter of the adjectives I’d been dreaming about, this “Old MacDonald” blog was born.

Without further ado, here are my “E-I-E-I-O” of family governance.

 

Egalitarian

Family governance should be egalitarian in nature.

Family goverance is not the same as business governance. A business should be a meritocracy, where everyone’s rights and obligations stem from their place in the hierarchy.

In a family, simply being born into the family gives you a place at the table, and everyone’s place is more or less equal to everyone else’s.

So in the “family circle” governance needs to be much more “egalitarian”.

 

Intentional

Family governance needs to be intentional.

When I use the word “intentional”, I’m getting at the idea it doesn’t just happen by itself. You need to work at it.

Most families don’t “do governance” because they don’t need to.

If, however, your family has sufficient assets that are expected to survive the current leading generation, and continue to be owned by a group of family members in the next generation, then you absolutely NEED family governance

And you must also realize that it needs to be intentional, so you will need to work at it.

Evolving

Family governance needs to evolve.

This may not be the best time in history to reference US politics, but I’ll do it anyway.

The “founding fathers” came up with their constitution, which has served as the base of their governance for over two centuries.

But in the meantime, those who have been governing the country have amended it a couple of dozen times.

My point is that governance must naturally evolve over time. Don’t expect to be able to figure it all out in the first go around.

“Start where you are, use what you’ve got, do what you can”. And then keep moving forward.

 

Incremental

Family governance should be incremental.

It usually shouldn’t evolve in big spurts. A little bit at a time will almost always be better.

A family is made up of various different members (with a “quack quack” here and a “moo moo” there), and you can only go as fast as the slowest member.

Those who want to go faster will often lament the others who slow everything down, but they’ll also help the family from acting too quickly.

 

“Our Own”

The family needs to OWN their governance.

The governance that any family puts in place will be unique to that family.

It needs to be created “by the family, for the family” if it is to be useful.

Only by creating their own governance, will the family “own” their governance.

They cannot buy it, “off the shelf”, anywhere.

 

And On That Farm He Had Some…

Because there are so many creatures on the farm, Old MacDonald needs to proceed very thoughtfully and carefully.

He would be wise to bring in an outsider, preferably one who has some experience and training, to facilitate the development of the family’s governance.

When I said “By the family, for the family”, note that I never said “by themselves”, in fact most will not get very far without an outside perspective.

 

Intentionality of the “Project”

In fact, the outside person who is brought in also should also act as the “project manager”, and a large part of their role is to keep things on track and moving forward.

Family governance is not a natural thing, and it needs to be nurtured along the way.

If your family intends to successfully continue to own assets together into the following generation(s), you cannot ignore family governance.

There are all sorts of different animals in a family, and if you want them all to sing together, you’ll need to work at it.

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Combining Strategy and Structure for Families

Combining Strategy and Structure for Families

I got an email a few weeks ago, inviting me to an upcoming Family Office conference, and the wording of the subject line caught my eye.

Now that my thinking on the issue has gelled in my head, I’ll try to turn it into a useful blog post. Here goes.

 

Strategy AND Structure

Let’s begin with the email subject line, so that you’ll get the context:

“Essential structures & strategies from leading families”

The event itself was billed as a “Family Office and Investment Conference”, but the tease in the subject line had succeeded in intriguing me to believe that they might be talking about topics that are much more up my alley (i.e. family issues)

When it comes time to plan the transition of a family’s wealth from one generation to the next, a lot of effort is usually put into finding the best way to structure things.

There are many different ways to accomplish the goal of transitioning the ownership of assets from the current owners to the future ones, and the choice of which way to go will often be driven by the family’s advisors, who each have their particular favourite techniques and structures.

The family client relies on advice from these trusted experts, who are believed to know what they are doing, and strictly speaking, they usually do.

So what’s my issue with this? I’m glad you asked.

 

The “What” Shouldn’t Come First

A family faced with this scenario is really only going to do this once per generation, and few families are experts in knowing exactly what they want, or even knowing what’s possible.

The tactical experts who advise them are just that, “tactical”, they specialize in the “what”, and when a client shows up looking for help, the expert will almost always go back to the “tried and true”.

But what if they’re pulling an old structure off the shelf that they used before for another client whose situation was completely different?

Too few advisors will take the time necessary to explore the “why” questions with their client families, and to think in terms of the overall family strategy, in order to make sure that “what” they are proposing actually makes the most sense.

 

“Why” Should Precede “What”

It’s really useful for the family to have the important planning discussions amongst themselves to plan strategy before engaging the outside structure experts.

As I wrote back in March, in “We Treat Them All Equally – (That’s Good, Right?)”, these discussions are not necessarily done quickly or easily, but they sure are important and worthwhile.

You may be curious as to my selection of the image I chose to accompany this post, perhaps wondering “what’s with all the different tents”? Each of them is a structure, and they are all different, some of them markedly so.

 

Are We All In This Together?

In “Going Far, Go Together” I wrote about families that are planning to stay together for the long term.

What I didn’t stress at the time was the actual question that the family needs to clarify beforehand, i.e. does the next generation of the family WANT to stay tied together, and continue to work together as a shared ownership group.

Too often there is a presumption that the answer to this question is YES, and when that happens you can end up with siblings who are forced into partnership with each other.

If such a scenario is going to turn into a disaster because of the family dynamics, wouldn’t it be better to figure that out in advance, and not go down that road?

 

Strategy Before Structure

At the risk of harping on this too much, I’ll say it again. Before you decide on the best structures to hold the family assets for the next generation, the family needs to sort out the questions of who is on board.

It can be very tempting to choose a complex solution proposed by a tax expert who shows you to the penny how much tax you can save by going with their suggested methods, but if that solution means the next generation will be stuck in the wrong kind of tent for their trip, what was the point?

A huge tent built for the desert may not be what most of the family needs. Work out the strategy first.

 

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Dealing with Spouses in a Business Family

Dealing with Spouses in a Business Family

This week’s post was inspired by an email I received from a colleague. She sent along a video blog she’d watched that spurred her questions.

Coincidentally, I’d just watched the video that morning. It was from Wayne Rivers of the Family Business Institute.

 

Your spouse is CRITICAL to your planning

The video talks about why it’s so important to involve the spouses of family business principals in all of the planning that gets done.

Rivers is speaking about the very early stages of planning, for the work business families face when transitioning a business from one generation to the next.

Not involving the spouses at this stage would clearly be a mistake.

 

All of the In-Laws ? 

The questions from my colleague, however, went much further than simple planning, to full blown governance questions, which take the issue to a whole new level.

When you’re talking about two or three generations, including many adult children with spouses and children, the question of involving spouses can get pretty tricky in a hurry.

 

Three-Circle Basics – Again

Here are some of the essentials that come to mind when dealing with these situations:

  • There are three circles, and each is its own “system”: Family, Business, and Ownership
  • Each system is made up of different groups of people, who then need to come up with ways to govern themselves, i.e. communicate and make decisions together
  • Some questions that business families face can become pretty ambiguous, so it’s paramount to think through which questions need to be addressed by which group. This is NOT a one-shot deal, it will come up over, and over, and over again.
  • Rules about who belongs in which group need to be clear, and they should be made by the members of each group
  • It’s easier to start with a small group when making the rules, and then to carefully enlarge the group afterwards
  • All rules that a group makes for itself should be logical and clearly defined

Multiple Governance Layers

There can also be more than one group in each circle.

In the business circle, at the most basic level, there are likely different groups or committees charged with certain day-to-day tasks.

At the other extreme, the business may have a board of directors or executive committee, charged with big-picture decisions.

(Yes, I realize that many founders act as their own self-contained, “one-man-show” board and executive committee.)

It’s possible to have a variety of people or groups who make decisions at different levels.

 

Family Assembly versus Family Council

For the family circle, when there are more than a dozen or so people involved, you may have a “family assembly” that brings together everyone with a stake in the family.

In order to translate their wishes and needs into a coherent forum for decision-making, they may elect to have a “family council” to represent them.

There would typically only be 5-10 family members on the council, whose role is to represent the views of the larger group.

 

Voice versus Vote

One of the most important concepts to always keep in mind here is the difference between having a voice and having a vote.

Everyone should have a voice, an opportunity to be heard. It helps when they’ve all been informed, so that when they do voice their points, they do so in an informed fashion.

If some members are voicing things from a position of ignorance of the issues, often simply clarifying things will go a long way to diminish the volume of their voices.

Many “complaints” simply stem from a lack of information.

Everyone usually wants to be informed, and to be heard.

 

Rules for Inclusion

The rules for inclusion must be clear and also “clean”, i.e. easily explained and interpreted by anyone. For example, if my wife is in, so is my sister’s husband.

There’s no room here for picking and choosing without solid reasons.

All of this is easier said than done, of course, and easier in theory than in practice

The key is to go slowly, it’s not a race. Taking the time to get it right will be well worth it in the end. Building consensus takes time.

 

How Many Is Too Many?

The photo I chose to accompany this post is a bit of a trick.

There are 15 people at that meeting.

That’s NOT a good number to begin with.

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Fluency: The Key to Becoming a “Personne de Confiance”

Fluency: The Key to Becoming a “Personne de Confiance”

Regular readers of this blog know that I’m a huge fan of the Purposeful Planning Institute and all that they do. So you shouldn’t be surprised that this post has its roots in one of the sessions of the latest PPI Rendez-Vous.

It was on Friday morning, and as usual there were at least two or three other concurrent breakout sessions that I hated to miss, but I had my sights set on Dean Fowler’s talk.

Something in his title, “Interdisciplinary Fluency: The Role of the Personne de Confiance” just spoke to me.

 

Inspired by Jay Hughes

I hadn’t even realized it at the time I walked into the room, but the term “Personne de Confiance” had been written about over a decade ago by none other than James E. (Jay) Hughes.

Hughes is a revered thought leader in the family wealth space, and he’s been a regular at the PPI annual Rendez-Vous up until this year.

Maybe I chose this session subconsciously just to get my Jay Hughes fix.

 

Personne de Confiance? 

You don’t need to be anywhere near fluent in French to understand what Fowler and Hughes mean when they use the term “Personne de Confiance”, as it translates rather simply to “Person of Confidence”.

What you may not realize is that the word confiance in French actually translates to the word “trust” as well as the word “confidence”.

So more than just being a “confidence person” (which has some negative connotations) we’re actually back to that old standby, the “Trusted Advisor”.

 

Who’s the Quarterback?

The beauty of most of the PPI Rendez-Vous breakout sessions is their interactivity, and this one was no exception.

Someone threw out the term “The Quarterback” which is so often used amongst advisors who understand the importance of a coordinated approach to serving family clients.

Fowler’s attitude seemed to be that you don’t actually have to be the quarterback to be the “Personne de Confiance”, and I have to agree with him.

 

A Good Number 2

Reading Hughes’s piece on the subject yesterday as I prepared to write this, it struck me that one of the keys to being that “Personne de Confiance” was knowing your place and being comfortable being “a Number 2”.

Of course the Number 1 in this case should be the client/family.

If the client family is Number 1, and I can be their Number 2, should I care if one of the other advisors considers themselves to be the quarterback?

As long as the client ends up getting what they need, I think not.

 

Fluency: Interdisciplinary and Otherwise

Fowler began the session speaking German at the front of the room in order to make the point that it can be very frustrating when you don’t understand the language.

Thankfully there was someone in the audience who also spoke some basic German to engage with him (OK, it was me) to make his point.

I’m pretty sure he used to refer to it as “Multi-Disciplinary” fluency when I first heard him at Rendez-Vous back in 2014. Either way, we’re talking about the ability to understand and be understood.

 

Complexity in Spades

The fact is, family wealth is complex business, and families who have a great deal of it need professional help managing it, figuring out how to keep it, and finding the best way to pass it down to succeeding generations of their family.

They need legal advice, they need experienced CPA’s and tax advisors, and they need a whole bunch of other qualified specialists from other fields too. (See Sharing Some Rocky Mountain Kool-Aid).

 

Who Understands ALL of This?

Most people who specialize in one area don’t naturally have the ability to see the bigger picture and many don’t even really care about the other pieces of the puzzle.

I Googled the word “fluency” and here is the second definition, (the first one dealt with foreign language ability):

 

“The ability to express oneself easily and articulately.”

 

Trust, Clarity, and Coordination

If the client family is Number 1, they’ll most likely crave having a “Personne de Confiance” who can make and keep everything clear.

The multiple advisors whose work must be coordinated also benefit from clarity.

The family client will trust the person who can articulate everything clearly.

That person, or Personne, will need to be fluent in many areas.

Est-ce que c’est clair? Alles klar?

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