The role of governance in sustaining family wealth
WHEN considering Family Wealth and Legacy, there is a key instrument that cannot be sidelined – governance. Governance is the guiding force that shapes decisions, resolves conflicts and upholds the family’s values. Just as corporate governance is instrumental in balancing the interest of all stakeholders in a company, governance in the family does the same and even more.
A family’s wealth is beyond just financial assets, it encompasses the non- financial assets too – values, culture, attributes that make their members unique and productive. It goes without saying that sustenance and transfer of this wealth involves much more than taking the right financial decisions.
What were the guiding principles of the Patriarchs? What were the values and standards upheld by these Patriarchs that started the wealth cycle? How can these attributes become part of decision making so that success in the family can be sustained?
Things do not just happen, good planning and order plays a vital role in reducing uncertainty, clearly stating expectations and providing the standards for evaluating same.
According to the Havard Business School, there are three components to family governance – periodic assemblies of the family, a family council taking decisions and a family constitution describing its values, principles and outlining how the family will make decisions.
Values such as ‘ Integrity’ or ‘ helping others’ may be very critical to the belief system of the Patriarchs and may form part of the things they intend to pass on to the other generations. Documenting details around this and building activities around it to ensure such values are imbibed by every member of the family is indeed critical.
Should the family own a family business? At what age will the business be introduced to the next generation? What methods will be used? Will holiday jobs within the company be part of the system to help the younger family members understand the functionalities of the business?
Depending on the complexities of the family or the presence of a family business, the governance framework may be more elaborate. This could look like a more formal structure for communication between the family, managers of the business and the shareholders, or more extensive methods of decision making implemented at established family meetings.
The lessons gleaned from global dynasties are not merely tales from distant lands; they hold relevance and applicability within Nigeria’s socio- economic landscape. Take the Rockefeller family’s commitment to a well- defined family constitution for example. This kept the family largely united and holding onto certain values and traditions that also led to the transfer of wealth through several generations. The success of such a prominent family mirrors the necessity for Nigerian families to establish clear values, missions, and principles as the bedrock of governance.
Similarly, succession planning cannot be overemphasised. It is the process of transitioning the leadership from persons to persons. This process is critical as it ensures continuity. Governance sets the tone for this process. In this case, the family constitution would set the guiding considerations, attributes, skills and character that the successor should possess, as well as the appointment process.
In Nigeria, the recognition of hiring skilled professionals to manage financial and legacy planning matters, ensures expertise in investment, tax planning, and risk management, safeguarding wealth against market uncertainties. Governance establishes the relationship and mode of communicating with these professionals.
When governance sets up structures that aid communication amongst family members and define the objectives and expectations from both young and old, this transparency often eradicates conflicts and rivalry. The role of governance is vital, shaping the destiny of family prosperity across generations. The essence of effective governance goes beyond borders and finds resonance within Nigeria’s rich cultural heritage.
Nigeria’s social and cultural framework reflects a distinctive array of values, traditions, and family structures. Incorporating effective governance within this framework requires acknowledging and aligning with these nuances. In Nigerian families, making decisions together and showing respect for elders is like having a family rulebook. Following and honoring our family values is a cultural tradition that helps us make decisions and resolve conflicts.
The increasing recognition of the power of education resonates with governance principles. Educating and preparing the next generation is not solely about financial literacy but also about instilling the values and responsibilities that accompany wealth stewardship.
Our family dynamics often extend beyond immediate relatives, encompassing extended family members and community ties. Effective governance, therefore, involves navigating intricate webs of relationships, encompassing a broader scope than merely financial management.
The governance framework should consider how to enforce what is important especially across generations and broader relationships like siblings, cousins and in- laws. The traditional Nigerian value system, steeped in respect for elders and communal decision- making, aligns with the principles of governance. In practice, this translates to incorporating the wisdom of older generations into decisionmaking processes, fostering cohesion and continuity within family structures.
Moreover, Nigeria’s rapidly evolving business landscape calls for adaptability within governance frameworks. It’s essential to balance traditional values with modern business practices, allowing for flexibility and innovation while preserving core family principles.
To apply these governance principles effectively in Nigeria, families must engage in:
Deliberate and open conversations- Conversations around the history of the family, what each family considers important, the family plans, health and wellness matters, educational, career and life goals. These conversations contribute to fostering understanding and healthier family dynamics.
Establishing a family constitution: This is a documented guideline for the family. It becomes imperative to define and articulate the values, missions, and succession plans for the family.
Next Generation Evaluation and Trainin: Nurturing financial literacy and grooming the next generation in the nuances of wealth management becomes a responsibility ingrained within the families. Education programmes, not just on academic grounds but also in family values and stewardship, play a vital role in shaping the future custodians of wealth. Professional Expertise: This is an area the families must embrace. Collaborating with skilled professionals ensures adept management of diverse investments, tax strategies, and risk mitigation— a critical aspect in safeguarding the family’s wealth.
Despite its significance, governance faces challenges. For example, adapting family governance to cater to the ideology and interests that come with generational changes and finding the right mix that respects culture while embracing contemporary approaches.
Like every other business, family businesses may encounter changes in government policies that can adversely affect the company. The governance framework must be adaptive for ease in decision making.
In conclusion, the essence of effective governance— outlined by family constitutions, succession planning, professional management, and transparent communication— resonates deeply within us. Adopting a good family governance framework can guide our families towards sustained wealth and legacy preservation across generations.