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Family wealth governance: the importance of the family mission statement

05 Jun 2023

The topics of family succession, value creation and generational wealth transfer have been at the forefront of the minds of many wealthy and business families for decades.

Whilst some families deal with frictions and issues in a well-structured and organised manner, there are a lot of well publicised examples of family disputes between siblings after the patriarch or matriarch has passed on.

The intricacies of relationships between members of super-rich families have even made for Emmy award-winning entertainment, with HBO’s Succession recently blessing us with a captivating fourth season of Roy family antics. However, it doesn’t always have to be so complicated and filled with TV-worthy drama.

The key ingredients of successful family wealth preservation, growth and transfer are communication, conflict resolution strategies and the right structure around the decision-making. But where to start?

Key to effective family wealth governance is agreeing on the family’s values, both individually and as a family unit – creating a family mission statement. This may be the most difficult exercise, as each family member’s values and priorities may differ. In particular, what is deemed important by one party is often starkly different between generations or branches of the family.

How do you achieve the creation of a meaningful family mission statement?

Usually, the first generation (G1) of the family are the wealth creators, and they perceive it to be their role and responsibility to act as the stewards of how their wealth should be managed. The key to overcoming this challenge is to work with an independent advisor who will be the “intermediary” between the family members. That intermediary’s task is to stay neutral and objective and as such it is important that he or she will be a person independent of the family.

The process of formulating the family mission statement can involve one or several family meetings whereby the family (G1 and G2) get together and discuss, in a collaborative and inclusive way, what core principles and values should bind them as a family.

The product of those meetings should be a document summarising the family’s vision, values and its mission statement, i.e. what is it that the family intends to achieve with its wealth (for themselves but also for others) and how is this going be done.

When this is done properly, this should be a live and dynamic document. Families’ circumstances naturally change over time, so the mission or key objectives may need to evolve to reflect those changes. It is also a good practice for the document to be reviewed on a regular basis by the family during a family governance meeting, allowing each family member to confirm that it continues to make sense for them.

Crucially, the core principles and values outlined in the family mission statement need to be elevated above any one person’s values, while also not going against the fundamental personal values of an individual family member. Harmony and compatibility between family and individual values is critical for the ongoing success of the family mission statement and its execution.

What should a family mission statement look like?

There are no hard and fast rules on the design and content of such document but there are some key areas that ideally should be included in a meaningful family mission statement:

  1. Identification of family members – Start by detailing who the family members are (G1, G2, G3 if any). This is a good practice to set the scene, especially for future generations who may later gain access to such document
  2. Brief summary statement – Outlining why this document is in place and why it is important to the family
  3. Key family values – Describe each of them to reflect the mutual understanding of the family, thus avoiding any ambiguity and potential frictions in future
  4. Key family goals – Describe each of the key goals that will emanate from the high-level overarching vision. Well-articulated goals will serve as a good benchmark to assess how the family is delivering on what was agreed

Goals can be divided in the following themes:

  • Ensuring that G1 continues to enjoy its current or desired lifestyle
  • Ensuring there are clear parameters on how the lifestyles of G2 and G3 will be supported (this will usually include education, business ventures, assistance with living, healthcare etc.)
  • Parameters for continued value, wealth preservation and creation (this will need to be carefully considered so as to manage expectations around anticipated levels of financial return)
  • How the wealth will serve the world (this will be underpinned by the family values and can range between philanthropy, personal activities and contributions from family members, impact investing etc.)
  • Where there is a family business – creation of an orderly transition or succession plan in relation to that business (this can include rules around accepting key executive roles in the business, decisions on divestment of the business, M&A activities etc.)

How does the family mission statement interact with the overall family governance structure?

Often, a key part of the overarching family mission is the creation of a more formal framework, which usually involves the establishment of asset-owning vehicles and sometimes a family office.

This area can be as complex as the personal situation of each of the family members. Modern wealthy families tend to have an increasingly international footprint, in terms of their own nationality versus that of their spouses and children, their places of work/business and situs of investments. This is then impacted by the different regulations and inheritance rules in each of these relevant jurisdictions – and so on.

Usually, with the assistance of tax and legal advisors, the starting point is the creation of a suitable structure that allows for efficient formal succession planning and asset transfer. This will usually take the form of a trust, foundation, limited partnership or a private trust company (PTC).  The choice of the right legal vehicle will be governed by factors such as familiarity with the trust/foundation/partnership concept, ability to influence investment decisions over the assets or the ability to retain certain decision-making powers.

The family mission statement should include considerations for the creation of suitable governance and asset ownership structures and link the key considerations back to the overarching family goals and objectives.

In addition to the above, families may choose to establish a family office. This can take many forms and it often depends on the size of the overall family wealth. It could just be a single-employee family office that takes care of family administrative and reporting matters while utilising external advisors (e.g. trustees, lawyers, investment advisors, tax advisors) for all other matters.

Some families will eventually create a sizeable family office that employs in-house professionals focused on areas such as law, tax, investing, compliance and M&A. In that scenario, there is usually a Head of Family Office appointed, who is the trusted family advisor and who interfaces with all other external providers on behalf of the family. In such cases, it is important that this person becomes a stakeholder in the creation and formulation of the family mission statement as someone who plays an integral role in achieving the key family objectives.

The role of the family office as a reporting vehicle for family wealth and the key agreed wealth and investment metrics is also very important. A family office usually consolidates the financial reporting of all family assets (with the help of dedicated and bespoke reporting platforms) to help the family assess their trajectory in accordance with their mission statement.

Sophisticated reporting platforms used by family offices not only include the ability to report on a diverse range of asset classes (including public assets, private and alternative assets as well as luxuries and passion investments) but, increasingly, cover ESG and impact metrics that can be considered against the overall family mission and objectives.

Although there is no ‘one size fits all’ solution when it comes to creation of a family mission statement, I have attempted to lay out some useful points that can help facilitate meaningful dialogue between family members and lead to the creation of long-term family governance and the upholding of the family’s core values and objectives for generations to come.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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