Starting or creating a family office
What Governance Arrangements Can Protect the Office From One Person's Unilateral Decisions?
Short answer. Put decision rights, approval limits, and review duties in writing. Divide sensitive responsibilities so one person cannot authorize and execute every major action alone. Use appropriate family oversight and financial controls, and document conflict procedures. Prepare contingency plans. Keep the rules practical and apply them consistently across family members and staff.
Written governance rules and financial controls can reduce the risk of one person making major decisions and carrying them out without review. Before the office begins operating, set authority for spending, hiring, and investments, along with other material actions. Explain the rules to staff and family members.
Define Decision Rights
List the decisions the office handles and assign responsibility for each, including who approves and reviews it. Set limits for routine spending and identify matters that need additional approval. The family may reserve certain matters for a principal, board, or committee, while delegating daily operations to an executive. Record who can approve exceptions and how to document those approvals.
Governance should cover investment decisions as well as other areas. Include hiring and firing, provider selection, donations, family services, cash disbursements, and account and record access. Address potential conflicts of interest and personal use of family resources. Approval processes discussed only in conversation can be difficult to apply consistently when circumstances become tense.
Separate Sensitive Duties
For important financial actions, avoid giving one person unchecked authority over the full transaction, from request and approval through execution and reconciliation. Divide those steps among people where the office's size allows. Use dual authorization for significant transfers and define signing authority. Review bank activity and reconciliations regularly. Keep investment mandates and portfolio changes subject to documented review.
Size controls to the office. A small team may not be able to assign every task to a different employee, so the family can add an independent review by an executive, family member, or adviser. A committee can also provide that review. Record it and follow up on exceptions. The process should be sustainable in ordinary work.
Use Oversight and Written Records
A board or advisory group can provide an additional place to review major decisions and address conflicts or risks. Define its role clearly. It may offer counsel or review certain matters, while formal approval authority remains with the people identified in the governing documents. Keep minutes or decision records for significant actions, including the information considered and any conditions attached to approval.
Apply the same rules across family branches and generations, and record agreed exceptions. Consistent application can help manage expectations and limit perceptions of favoritism. A governance framework can establish the family's operating rules. Related topics include committees and advisory boards, separation of duties for a small office, and setting approval limits.
Plan for Absence and Change
Decide who can act if the principal or a key executive is unavailable, and how authority transfers if someone leaves or becomes incapacitated. Document access to essential records and backup responsibilities. Set out the process for changing decision rights. Legal and tax implications depend on the family's circumstances, so talk with your attorney and CPA when formal documents or entity rules need review.
Governance procedures are put in place to ensure long-term stability, accountability, transparency, and fairness among family members.
Sources: How to Start a Family Office, The Single Family Office. Informational only, not financial, legal or tax advice.