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Industry outlook: Daphne Engelke on family governance

By Daphne Engelke

Family governance is not a perfect science and its application is not particularly straightforward.  Some would say that the odds are stacked against success if you consider the number of issues that could potentially derail a project. Who the family entrusts with the responsibility of the project is a critical early choice that will impact the odds of success.

Recently, I had an interesting discussion with a third-generation family member from a prominent Middle Eastern business family, who was tasked by his family to facilitate the creation of their family constitution. The family, with over 60 family members across four generations and a dozen shareholders, has been talking for over a decade about formalising their family governance, but put the project on ice over and over again.

The family member I met was clearly flattered that the family put their trust in him to lead them through this process. However, when embarking on a family governance journey, there's much to do and many questions to consider. The area is specialised and requires a high level of facilitation or softer skills. If one family member is tasked with doing everything, the project could easily overwhelm them in terms of capacity and potentially competence. The result? The plan stalls.

Being a member of the family and a future shareholder with a vested interest, it is difficult – if not impossible - to keep the neutral role and objective stance required throughout the process. In situations where the interests of different members or branches of the family diverge, it is easy for the rest of the family to not only start questioning the objectivity, but also the competence of the “responsible” family member. Like Caesar's wife, even if he heroically puts the greater good of the family ahead of his interest, he may not be able overcome the perceptions of others. Potentially, this could be a source of conflict which is perhaps the most regrettable outcome for a governance project. 

Realising these pitfalls, the family member was clearly burdened with the responsibility and looked for some key lessons on how to increase his chance of success. Our advice was firstly to broaden the team within the family, co-opt and make various people in the family responsible for different aspects of delivering the project. Secondly, bring in knowledgeable and experienced parties to guide and facilitate the process in a truly neutral manner which is focussed on the greater good of the family.

Lastly, get concrete. Carefully define the scope of the project to ensure that you are addressing key governance issues (and not a host of short-term practical irritations), understand the current situation so that you are able to prioritise, set milestones and think through the implementation.     

By Daphne Engelke • Head Family Advisory, Global Ultra High Net Worth, UBS Wealth Management