Family Governance and Mission Statements

What Family Governance Actually Means

Family governance refers to formal structures, processes, and documents that guide how a family makes collective financial decisions. These structures become increasingly important as family wealth grows, generations multiply, or family businesses enter the picture.

The data is clear on why this matters: 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third (Williams & Preisser, 2003). The primary causes are not investment performance or tax planning failures. They are communication breakdown (60% of failures) and unprepared heirs (25% of failures).

The practical antidote is not more financial planning. It's documented governance that establishes how decisions get made before specific decisions need to be made.

Components of Family Governance

Effective family governance includes four elements:

1. Family Mission Statement: A written declaration of shared values and purpose (covered in detail below)

2. Family Constitution or Charter: Detailed policies covering wealth management, business involvement, distributions, and conflict resolution

3. Family Council or Meeting Structure: Regular forums for communication, education, and collective decision-making

4. Decision-Making Protocols: Clear rules for who decides what, voting thresholds, and dispute resolution

The investment in creating these structures pays returns through reduced conflict, clearer expectations, and faster decisions when time-sensitive situations arise.

Why Informal Arrangements Fail

Most families operate with implicit rules and assumptions about money. This works until it doesn't:

Scenario: Parents give $50,000 to one adult child for a home down payment. Another child assumes they'll receive equivalent support for graduate school. A third child, more financially successful, resents what they perceive as favoritism. None of this is discussed openly.

The outcome: Resentment accumulates over years, surfacing during estate settlement when stakes are highest and emotions are raw.

The governance solution: A written policy stating "Parents may provide financial support for specific purposes (housing, education, emergencies) at their discretion. All support over $10,000 will be documented and disclosed to all adult children annually. Lifetime support will be equalized through estate planning adjustments if parents choose."

The durable lesson: Documented policies prevent misunderstandings from compounding over years. The time to establish rules is when emotions are neutral, not during a crisis.

Creating a Family Mission Statement

A family mission statement answers three questions:

1. What do we value as a family?
2. What is the purpose of our shared resources?
3. How do we want to treat each other around money?

The Development Process

Step 1: Individual Reflection (Week 1)

Each participating family member (typically adults and older teenagers) independently answers these prompts:

• What 3 values should guide our family's financial decisions?
• What is wealth for in our family?
• What financial behaviors do we want to encourage? Discourage?
• What does "fairness" mean in our family context?

Step 2: Facilitated Discussion (Week 2)

Gather responses and identify themes. A neutral facilitator (family advisor, trusted friend, or professional mediator) helps navigate disagreements. Expect 2-3 hours for a family of 4-6.

Step 3: Draft and Revise (Weeks 3-4)

One family member drafts a mission statement incorporating themes from the discussion. Circulate for feedback. Plan for 2-3 revision cycles before consensus.

Step 4: Formal Adoption

Schedule a family meeting for formal adoption. All participating members sign the document. Schedule annual review.

Sample Mission Statement Template

Use this structure as a starting point:

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The [Family Name] Family Mission Statement

Adopted: [Date] Next Review: [Date + 1 year]

Our Purpose

We believe family wealth exists to [primary purpose - e.g., "provide security, create opportunities, and support our community"]. Our resources are not solely for individual benefit but represent [family philosophy - e.g., "stewardship across generations"].

Our Values

We commit to these principles in our financial decisions:

1. [Value 1]: [Specific meaning in your family context] Example: "Transparency - We share financial information openly among adult family members and discuss major decisions before acting."

2. [Value 2]: [Specific meaning] Example: "Personal responsibility - Each family member is expected to develop financial competence and contribute to their own security before relying on family resources."

3. [Value 3]: [Specific meaning] Example: "Generosity - We allocate at least 5% of investment income annually to charitable purposes aligned with our shared values."

Our Commitments

• We will hold [frequency] family meetings to discuss financial matters
• We will [education commitment - e.g., "provide age-appropriate financial education to each generation"]
• We will [conflict resolution commitment - e.g., "seek mediation before litigation in any family financial dispute"]
• We will review this mission statement annually and revise by consensus

Signatures

[Space for signatures of all participating family members]

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Building Supporting Governance Structures

A mission statement alone is insufficient. Implement these supporting elements:

Family Council

Purpose: Forum for information sharing, education, and non-binding discussion of family financial matters

Composition: All adult family members (typically 18+), with optional attendance for teenagers 15-17

Meeting frequency: Quarterly is common; annually is minimum

Sample agenda for a 2-hour quarterly meeting:

• 15 minutes: Family investment portfolio review (performance, allocation, major changes)
• 30 minutes: Educational topic (estate planning, insurance, tax strategies, investment principles)
• 30 minutes: Open discussion of family financial questions or concerns
• 30 minutes: Review of any pending decisions or proposals
• 15 minutes: Scheduling and action items

Decision-Making Authority Matrix

Document who decides what to prevent confusion and conflict:

Conflict Resolution Protocol

Establish a process before conflicts arise:

1. Direct discussion: Parties attempt to resolve disagreement one-on-one (7-day window)
2. Family council mediation: Issue brought to family council for facilitated discussion (30-day window)
3. External mediation: Professional mediator engaged, cost shared by disputing parties (60-day window)
4. Binding arbitration: If mediation fails, matter submitted to binding arbitration (final)

Critical provision: All parties agree that family disputes involving less than $100,000 will never proceed to litigation. This prevents relationship destruction over amounts smaller than legal fees.

Implementation Timeline

Month 1: Distribute individual reflection questions; schedule facilitated family discussion

Month 2: Hold facilitated discussion; draft mission statement

Month 3: Circulate draft; collect feedback; revise

Month 4: Adopt mission statement; begin drafting supporting policies (decision matrix, conflict resolution)

Month 5: Finalize supporting documents; schedule first formal family council meeting

Month 6: Hold first family council meeting; begin quarterly cadence

Common Mistakes in Family Governance

Mistake 1: Over-engineering

A 50-page family constitution for a household with $500,000 in assets is unnecessary. Match governance complexity to family complexity.

Mistake 2: Excluding the next generation

Governance created by parents without input from adult children creates compliance without buy-in. Include all generations in the development process.

Mistake 3: No enforcement mechanism

Mission statements without consequences for violation become aspirational documents that don't influence behavior. Include specific consequences (loss of voting rights, trustee removal triggers, etc.).

Mistake 4: Infrequent review

Families change. Annual review with formal revision every 3-5 years keeps governance relevant.

Checklist: Family Governance Implementation

• Distribute individual reflection prompts to all adult family members with 2-week response deadline
• Schedule facilitated family discussion (2-3 hours) with neutral facilitator
• Draft mission statement incorporating themes from discussion; circulate for feedback
• Adopt mission statement with signatures from all participating members
• Create decision-making authority matrix documenting who decides what

Next Step

Begin with the individual reflection exercise this week. Send the four reflection questions (listed in "The Development Process") to all adult family members with a request for written responses within 14 days. This creates the foundation for productive facilitated discussion and ensures all voices are heard before the group meets.

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References

Williams, R., & Preisser, V. (2003). Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Robert D. Reed Publishers.

Hughes, J. E. (2004). Family Wealth: Keeping It in the Family. Bloomberg Press.