Family Offices are sophisticated entities that handle investment management and wealth management for ultra-high-net-worth families. Due to the lack of regulations, laws and codes of practice that identify the appropriate corporate governance in the industry, Family Offices are particularly vulnerable to weak governance. As Family Offices have become increasingly professionalised in recent years, the scale of Family Offices expands subsequently. The tremendous growth in the sector has prompted Family Offices worldwide to revisit the need for effective human resource management and internal governance structure. This article offers insights into the best practices of human resource management and governance for Family Offices.
People are the biggest asset of a Family Office. Good human resource management practices allow Family Offices to effectively recruit and retain critical talent, as well as maintain a healthy workplace culture. The very first step to effective human resource management and governance practices is to ensure proper documentation and legal compliance. One of the interesting pieces of data we discovered in the process of creating our Global Family Office Compensation Benchmark Report with KPMG Private Enterprise, is that over 30% of the Family Offices have more than one Family Office location. It is crucial to understand all the mandatory legal requirements of the jurisdictions in which your Family Offices operate. This includes pension requirements, employee compensation and medical insurance, or any other region-specific requirement. Mishandling these matters can result in legal ramifications, therefore it is important for Family Offices to be mindful of these requirements.
Family Offices are small entities with an average of 5 to 10 employees and Family Offices professionals often share very intimate and close ties with the principals. Consequently, Family Offices tend to adopt a trust-based governance approach when it comes to internal governance. This led to an over-simplified and loose governance structure that is harmful to the longevity of a Family Office. We believe that it is important to have a written employment contract in place, allowing both employers and employees to establish a clear understanding of the expectation during the term of employment. To ensure effective internal governance, Family Offices shall also have written disciplinary procedures in place. Another important document not to be overlooked is the Non-Disclosure Agreement (NDA). Family Offices manage the enormous wealth and personal matters of ultra-high-net-worth families, hence maintaining the confidentiality of private information is vital. Family Office professionals often have access to the most intimate details about the family, ranging from the scale of wealth to personal relationships and disputes between family members. Therefore, it is of the utmost importance for all Family Office professionals to sign NDAs at the beginning of their careers.
Family Offices should clearly define the reporting lines for every employee. This will allow the employees to establish a better understanding of their position within the Family Office. From our surveys, we found that 40% of Family Offices worldwide do not have a formalised governance structure or an Investment Committee. Family Offices tend to have flat organisational structures and highly centralised decision-making processes. However, as the wealth grows and the scale expands, informal governance frameworks will not be able to support the operation of the Family Offices. As investment is one of the core functions of a Family Office, we highly recommend Family Offices set up an Investment Committee to add an extra layer of checks and balances. As our co-founder Paul Westall discussed on Forbes before, the presence of an Investment Committee will help to eliminate centralised power and decision-making in the hands of one person and will effectively reduce the risk for the family. Families should also consider setting up a Family Office board to help with major strategic decisions. These practices will allow the Family Office to have well-developed risk management processes in place and promote efficiency in the long run.
Given the scale of wealth involved, Family Offices need to actively assess the adequacy of their governance frameworks and adjust accordingly. To supplement the enhanced governance and management frameworks, we believe that Family Offices should seek specialist talent in human resources and governance, in addition to their dedicated team of investment and accounting professionals. Agreus is an established full-service resources and recruitment consultancy dedicated to working exclusively with Family Offices. We have successfully placed entry-level through to executive-level professionals within investments, legal, accountancy and finance and operational roles in Family Offices. For a more tailored conversation about hiring specialist talent for your Family Office, please do not hesitate to get in touch.