What is family governance?

What is family governance?

by Richard C. Wilson & Family Offices Group Association Team

Question: What is family governance?

Answer: The governance of family offices is growing in importance in parallel with fund manager governance. Every year, many clients in the wealth management and fund management industries are tricked or misled by someone with greedy intentions. Even more subtle are the hundreds if not thousands of firms which make decisions which are not illegal, but borderline un-ethical and not in line with their promises made to clients when they are brought on board.

The core role of governance is to establish an internal watchdog for the client, so that no actions are taken within the company that are not in the best interest of the client or at least that have strongly considered the interests of the client base. Governance procedures can also improve the operations of a family office by putting in place rules on how a new executive is hired, how someone may be fired, how the investment committee is formed, and what exactly must be done before a new fund manager can be selected.

These types of policies can prevent conflicts, such as a chief investment officer allocating capital to a hedge fund that is run by his cousin. Family office governance is not discussed enough in our industry, but it will be of growing importance and those family offices which can put in place strong corporate governance frameworks will reap operational, reputational, and business development benefits from doing so. I go into more detail on family governance in my upcoming book, including insights from family offices that I interviewed.

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Read more Frequently Asked Family Office Questions.

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