Preserving wealth across multiple generations is one of the most complex tasks for any family. While investment strategies and asset allocation are essential, the long-term sustainability of family wealth depends on something less tangible yet equally vital: governance.
Governance provides the structure and clarity that underpin continuity, unity, and strategic direction. Without it, even the most substantial wealth can quickly dissipate, often due to internal conflict, misaligned objectives or a lack of strategic direction. Effective governance supports long-term thinking, ensures smooth transitions between generations and safeguards legacies for generations to come.
Why Governance Matters in Wealth Preservation
Have you heard of the Third Generation curse? Research conducted over 20 years study by The Williams Group found that 7 in 10 families tend to lose their fortune by the second generation, and 9 in 10 lose it by the third generation. This sobering statistic underscores the critical need for robust governance.
Governance acts as a safeguard against the common pitfalls of family wealth, such as: disputes arising from unclear expectations, mismanagement due to a lack of oversight, and misalignment on core values and objectives. It is not just about policies and procedures, it is fundamentally about fostering healthy relationships and establishing clear decision-making processes within the family.
Components of Effective Family Office Governance
Building a resilient framework for multi-generational wealth preservation requires a multi-faceted approach. Several key governance tools and structures play a crucial role:
- Investment Policy Statement (IPS)
The IPS connects the Family Office’s investment strategy to the family’s goals, values, and risk appetite. It provides a clear framework for investment decisions, promoting accountability and preventing impulsive or misaligned actions. We have previously released an article discussing the importance of IPS, for further reading please visit our website [Link to IPS article].
- Succession Plans
Clear pathways for leadership transitions within the Family Office and the broader family enterprises are essential for continuity. These plans address talent development, identify potential successors, and ensure a smooth handover of responsibilities.
- Board or Family Council
These formal bodies offer governance oversight, promote accountability, and facilitate multi-generational participation in key decisions. They create space for shared decision-making, ensuring diverse perspectives are considered and fostering a sense of shared ownership.
- Decision-making frameworks
Defining who has the authority to make which decisions, and the processes for collective decision-making, minimises ambiguity and potential conflict. Clear frameworks ensure efficiency and transparency.
Importantly, these tools are most effective when introduced proactively, rather than as a reaction to conflict or crisis. Governance must be integrated into the fabric of the Family Office, not bolted on in times of trouble.
Governance in Action
One of the greatest challenges in preserving multi-generational wealth is aligning the different perspectives of different generations. Governance can bridge this gap by creating dedicated spaces for intergenerational dialogue. Through open communication, families can articulate their values, understand differing perspectives, and work towards a shared vision for the future.
Initiatives such as philanthropy, educational programs focused on the family's history and values, and mission-led investing can further reinforce unity and purpose across generations. Ultimately, effective governance in this context is not about imposing control, but about fostering clarity, understanding, and continuity of the family's core principles.
Consider a hypothetical family with significant business holdings and a Family Office. Without clear communication protocols and conflict resolution mechanisms, disagreements could easily escalate, potentially fracturing family relationships and jeopardising the Family Office. But with a well-defined governance structure in place, including a family council with a clear mandate and a carefully curated IPS, these disagreements can be navigated constructively, leading to more robust and unified decision-making.
Effective governance also supports sustainable investing and responsible ownership. By embedding environmental, social, and governance (ESG) principles into the IPS and aligning operations with a family charter, families can ensure their wealth contributes positively to society while also securing its longevity. Involving independent directors or trusted third-party advisors can further strengthen governance by bringing valuable objectivity and specialist knowledge to the table.
Work with Agreus
If you are looking to strengthen your Family Office through governance that supports long-term sustainability and succession, get in touch with the Agreus team today.
Agreus is a specialist consultancy that partners with Family Offices to build teams, optimise governance, and develop long-term strategies for sustainable, multi-generational success.
We have recently introduced a new service – Family Office Governance and Strategy consulting. On top of our usual Recruitment and Compensation Consulting services, this new service offers expert guidance in Governance and Strategy, Organisational design, Philanthropy, and Investment and Operational Governance, helping you to develop a clear governance framework to align your Family Office with long-term objectives.
Unlock the full potential of your Family Office, contact us for a tailored conversation.