In the midst of an increasingly growing global environment, families, too, are becoming more international. Often these international families have multiple domiciles and family members in different jurisdictions. These differences can present a deeper challenge for the families in relation to their family governance. Many of these international families are also still tied together with a closely held family business. If that business is sold, the ties that bound them together disappear.
A family governance system is a key aspect of a comprehensive plan for managing wealth within families. Family governance can equip family members to navigate the challenges associated with wealth. A well-executed family governance strategy can help families by providing them with methods to enhance communication, systems to make collective decisions, a concrete way to resolve conflicts, best practices for succession planning and a way to develop and compensate family members. But instilling these practices for an international family is more challenging than one might think.
While family governance is a critical part of any sound wealth strategy in the United States, it is a relatively new concept for international families. Latin families, in particular, have a difficult time embracing family governance where all family members are a part of the planning and decision process. Many of these families have been led by a patriarch for generations. Financial decisions are often guided by emotions, and the patriarch often has a difficult time letting go of all the control.
For these international families who still own and operate a family business, it is even more important to establish a family governance strategy to anchor them with a common foundation in preparation for the ultimate sale of the business. Without a common tie, it can be catastrophic for these families.
So how should an adviser begin the process to establish governance for an international family? First, an adviser should get to know the family and all the current processes and practices that are in place.
Step 1: Begin the process early. When working with international families who have multiple domiciles and live in different jurisdictions, it is critical to thoroughly address all the planning considerations that apply. Any governance structure should address all those concerns first. This should be addressed before the sale of a family’s business and should cover the wealth planning for each generation, in each country where the family resides.
Step 2: Establish the decision-making protocol. Will the family have a board of directors? Who will lead the board? Typically a family’s board of directors will focus specifically on the family’s business. A family council will focus on the other financial decisions for the family. Will there be collective leadership or will there be one leader? Who will be accountable for the financial decisions? Identifying the leadership of the family and establishing how decisions will be made is very important. This strategy should be all-encompassing of each country’s culture and practice.
Step 3: Establish meeting and communication practices to promote family unity, inclusiveness and transparency. Regular communication will also reduce conflict. How often will the family meet? Where will they meet? If everyone is spread out in multiple countries, it can be a challenge to establish a meeting place that is practical for everyone, and yet meeting regularly can yield so many long-lasting benefits. Enhanced communication can help a family avoid numerous wealth transfer obstacles.
Step 4: Practice is the key. Once the governance structure and family leadership are established, the family should stick to these processes as closely and as frequently as possible. This will help to weave these best practices into the family culture, and into the subsequent generations of wealth owners.