Your Family's Most Important Goals

What comes to mind when you hear, "Your family's most important goals"?

Since this is a multi-family office newsletter, you might be thinking along the lines of:

"We want to grow and preserve our wealth for future generations."

This is a desire shared by many, if not all, families like yours. And it is a perfectly acceptable, if somewhat vague, answer.

When we dig deeper, we hear things like: "We want to ensure family harmony," or, "We want to continue the strong family legacy of innovation that our grandfather started."

One of my favorites is the quote from Warren Buffet:

"I want to give my children enough that they feel they can do anything, but not enough to do nothing."

Sometimes it's as simple as, "We just want our children to be happy."

When it comes down to it, most families don't define their goals based on the growth of their investable assets. Their goals are often far more qualitative than quantitative.

Intergenerational Planning: It's Not Only About the Numbers

Even something like, "I want to grow and preserve our wealth for future generations" – could be defined qualitatively.

Preserving wealth can mean ensuring you have a well-diversified portfolio of assets. It can also mean that you have prepared your family to inherit the wealth or set a framework for stewardship and good governance so that family harmony is preserved along with the wealth.

So, how do you dissect a big goal like wealth preservation into smaller, more concrete objectives?

Here are four best practices:

1. ‍Set the family vision and values – Make sure everyone involved in shaping and contributing to key goals shares your family's vision and values.‍
2. ‍Set specific, measurable, attainable, relevant, and time-based goals (and, yes, most of us know this as the SMART acronym) – The more specific the goal, the more likely you are to achieve it.‍
3. Analyze and plan – Set specific deadlines, decide how you will track progress, and plan out exactly how this goal fits into the larger picture. This may seem tedious, but it is an essential step towards setting the best objectives for your family. ‍
4. Communicate, communicate, communicate – The importance of communication cannot be overstated in any family wealth planning. You need to communicate to understand each other's expectations and values.

Let's look at a family we'll call the Smiths to show you what we mean.

Case Study: Intergenerational Planning

The Smiths came to Prime Quadrant for help clarifying their goals – and defining a plan to achieve them.

The Smith family consists of two siblings who run a business their father started many years ago. Two sons of one of the siblings work in the company. On a steady growth trajectory, the company was operating well with most of the decisions discussed and agreed upon by all four family business members. The two siblings were very pleased with the growth and development of the two younger family members.

As the business continued to grow and the two siblings started to think about stepping back, the group identified the need to begin their intergenerational planning.

The two siblings also knew that they needed to update their shareholders' agreement, and, as they coordinated with their lawyer, several issues came up that they needed to address:

• The Smiths still had questions about what each of their roles, responsibilities, and compensation would be going forward.
• With the rapid growth of the business, it was no longer feasible for them to make decisions in an informal, brother-to-brother manner.
• The family agreed it was time to pass the business on to the next generation but couldn't decide exactly how to do so.

The siblings realized they needed a formalized governance structure. And they asked us to help them achieve their goal.

Qualitative Goal: Formalizing a Governance Structure

A formal governance structure facilitates:

• Clarity on roles & responsibilities and associated compensation;
• A more disciplined decision-making process;
• Accountability for strategy and ultimate decisions; and
• Clear provisions for succession and intergenerational transitions.

While developing the governance structure, it was essential for the siblings to adhere to their shared family values of honesty, respect, and, most importantly, no drama!  

The four family members in the business first identified the company's strengths and gaps. They then prioritized the gaps and addressed each one.

By clearly articulating who had responsibility for specific areas of the business and formally defining the roles and decision-making process, they were able to define a compensation structure that worked for all of them.

They determined how to deal with conflict – both informally, and more formally in their shareholders' agreement.

Additionally, they have a defined methodology for valuing the business and determining exit rules should there be a need.

Best Practices for Defining Your Family's Most Important Goals

In looking back at how this family zeroed in on their most important goal – a formalized governance structure – and worked through the deliverables: roles and responsibilities, compensation structure, decision-making process, conflict resolution process, and intergenerational planning – it is clear that they followed the four best practices outlined earlier:

1. ‍Set the family vision and values – This family was well-aligned in their vision and values. They set out to formalize their governance structure to avoid drama!‍
2. Set specific, measurable, attainable, relevant, and time-based goals – This family built its governance structure by defining specific deliverables. The structure will be complete when the Shareholders' Agreement and Family Business Constitution are finalized.‍
3. Analyze and Plan – The review of strengths and prioritization of gaps in their current structure allowed the family to design a framework that addressed all of their needs in a manner suited to their family business. This work has also given them a framework for more effective intergenerational planning.‍
4. Communicate, communicate, communicate – In this family, not everyone had a vote at the shareholder level. However, the voting sibling shareholders ensured that the younger family members in the business had a voice at the table. And, when there was a challenging decision regarding the company, the family was able to revert to their decision-making process to determine their next steps. They talked through the issue using their framework, and all were satisfied with the eventual outcome.

While this case study describes the specific design and execution of a governance structure for a family business, you can utilize the same best practices in any discussion related to your family's most important goals.

If this story resonates and you would like to learn more about how we can help empower your family for the future, contact us today.

Wishing you and your family continued success, clarity, and alignment

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