Succession Planning & Preparing the Rising Generation Q&A with Jane Flanagan
Insights and perspective from the GFO client community
As part of our GFO Pulse Q & A series, Amy Szostak, Director of Family Education & Governance, sat down with Jane Flanagan, Director of Family Office Consulting, to discuss some common family governance practices.
Amy: So Jane, you were recently involved with a governance research project* with Dennis Jaffe. Dennis is widely known for his work with 100-year families. Can you please give us some background on these projects and how they came to fruition?
Jane: I’ve worked with Dennis for years on a number of research projects. This survey was launched following a Transitions Conference in 2019, in response to questions about family governance. Families are always interested in knowing what other families are doing, and there isn’t much data on the prevalence of different governance structures in families. We were delighted to receive responses from 316 readers of Family Business Magazine and to see so much interest in this important topic.
Amy: Family governance is a term to describe how families make decisions together, particularly over shared assets. How do you describe family governance, and why is it important?
Jane: As you know well, Amy, every family experiences governance whether they realize it or not. Governance is a fancy word for decision-making and the ways that families work together to manage shared assets and projects in alignment with their collective values. It’s important to note, too, that there is no one, right way – just what’s right for your family. Governance is important for families who want to stay together for the long-term because it provides a means for everyone to have a voice in and ways to contribute to the future of the family.
“It is never too early to begin investing in being a great family. The first investment in family governance is often a commitment to spending time together at a family meeting or retreat.”
Amy: The survey was a survey of business-owning families. In your experience, is family governance only for families with a family business, or do the survey themes apply more broadly?
Jane: Thanks for asking this question. I think this misconception stems from the fact that families that own operating companies are used to working with a governing board, which is true. In my experience, family governance is critical for any family that wants to stay together for the long-term - business or no business. Building a framework for communicating and making decisions about your shared future; being thoughtful about what it means to be a member of your family; and clarifying the rules of engagement or “how we do things” is a worthwhile investment for every family.
Amy: To your earlier point, governance can look different for every family and may even look different for the same family over time. What did the study show as best practice as families evolve from first, to second, and then third generation and beyond?
Jane: Governance evolves with the family. In the first generation, decision-making typically happens around the dinner table, where mom and dad make decisions about the future of the family business, their wealth, and their philanthropy. As families grow to the second and third generations, governance structures such as family councils, committees and family meetings become increasingly important as a means of keeping a tribe of cousins, who are often geographically dispersed, feeling connected to the family and providing a way for everyone to have a voice and an opportunity to participate.
Families in the third generation or beyond may have family councils or governing boards with committees (e.g. investments, family learning, philanthropy, family unity) and a family constitution that outlines the family values, policies and practices that define how they work together for the good of the entire family.
Amy: In a recent poll, we asked 300 clients what was the biggest threat to successful wealth transfer; 84% chose family dynamics over investment and economic concerns. What did the survey have to say about the time and dollars being allocated to family governance?
Jane: I agree with the 84% and believe that it is never too early to begin investing in being a great family. The first investment in family governance is often a commitment to spending time together as a family at a family meeting or retreat where family members experience a mix of fun, education, family time and updates on the family office and/or family business. The majority (56%) of those surveyed have an annual budget for family council and governance costs ranging from $20,000 to more than $100,000.
Amy: How do families incentivize busy family members, especially those with children in school, to attend an annual family meeting and participate in family governance?
Jane: Most of the families surveyed pay for the cost of the annual family meeting; 56% also cover travel expenses. For those families with young children, 48% of those surveyed provide complimentary babysitting services. These families recognize the cost in time required to attend the meeting and budget for these costs to make it feasible for all to attend.
Amy: A common question we get is whether spouses and non-family advisors should be included in family meetings. What did the survey results show about spouses and non-family advisors being included in governance?
Jane: We were delighted to see that 62% of those surveyed invite spouses/partners to serve on the family council. Family councils and committees also provide a fertile training ground for younger family members. Many families require council service as a non-voting member as training prior to joining the council. Over time, many families invite independent directors to serve on the family council to bring fresh perspective and experience to the table.
Amy: Jane, thank you very much for your time and your perspective. For our readers, we invite you to review the following resources to learn more.
*Subscribers to Family Business Magazine were asked to complete an online survey in December 2019 and January 2020. Source: Family Business Magazine, May/June 2020, A Survey of Enterprising Families' Governance Practices.
To Learn More, Contact:
Amy Szostak, Director of Family Education & Governance, 312-444-3509 or AEW2@ntrs.com
Jane Flanagan, Director of Family Office Consulting, 312-557-2025 or JPF7@ntrs.com