Grooming New Leaders

As children mature into adults and show interest in helping oversee their family’s wealth, they need to be prepared to participate in family office governance.
There are many roles members of a rising generation may fill in a family office, as board members, investment committee members or trustees. Each role requires an in-depth understanding of the family office’s goals, structure and investments. Even if a young family member is a client without any governance responsibilities, he or she should have a clear understanding and appreciation of the family office.

A Case Study
Several years ago, I worked with a client who had not thought through the requirements for governing the family office. After selling his own company, he became an angel investor in a few small businesses and served on their boards of directors. His accountant served as his family office manager and the office’s sole employee other than the client.

When his children reached adulthood, he created a family office board so they could serve as members and contribute to investment decisions. He contacted me to help decide who should serve on the various investment boards and who should participate in the family office.

While discussing the plan with his children, I quickly discovered they neither shared their father’s risk profile nor his passion for angel investing. They also couldn’t give the time required to oversee the investments because they all had outside jobs and young children. There were also concerns that many of the investments had not yielded returns.

As I learned more about the rising generation’s interests, we agreed to start by re-evaluating the family office’s investment philosophy. Our goal was to reduce the risk profile and define board responsibilities that the children could fit into their busy lives.

The resulting governance structure was a family office board, including the father and two next-generation members representing the interests of the others. The siblings and their spouses all agreed that these two individuals were the most qualified.

The board developed a charter that specified its authority, giving it discretion over any investments made—a responsibility formerly reserved for their father. The board was responsible for evaluating investments and determining whether they should be kept or sold. It also oversaw an investment policy statement that defined the characteristics required in future investment opportunities and the portfolio allocation.