Worldwide: Wealth Structuring 20:20 (2015) Edition II Article: Family Governance

Last Updated: 12 May 2015
Article by Tan Li-Lee

For first-generation wealthy entrepreneurs with businesses they plan to pass on to their descendants, there can be some enormous challenges to be overcome. Succession planning and preparation is critical for a proper handover, as is keeping the enterprise growing at a sufficient rate to support a growing family, and wise long term wealth management.

Increasingly, smart families around the globe are realising more formalised frameworks, policies and processes are the key to successful inter-generational business and wealth planning. After all, only 30% of family-owned businesses survive to the second generation, less than 12% to the third, and only 3% to the fourth, according to the UK's Institute for Family Business.

Dr Steen Ehlern, managing partner of the private family office Ferguson Partners in London and Zurich, says that despite the numbers, still fewer than one in three family businesses worldwide has any formalised family governance in place: "It is really very important to have a formal family (business) governance structure, which is as strong on the corporate level as it is on the family level," he says.

Vision and objectives

Such a structure clarifies the roles, responsibilities and interests of the three interdependent groups in a family-owned business, namely the family, the ownership, and the business. Family governance, like corporate governance, typically starts off with a family constitution or charter, which documents a whole raft of protocols around the family's vision and objectives for the business.

"You have to have a family vision," says Dr Ehlern, "to basically set out what the business is there for. It is not simply a money machine, but a means to support the family and future generations financially, as well as a shared endeavour to keep the family together. This charter will also include key policies relating to family members' employment, management succession, and the ownership and transfer of shares."

The constitution, not normally legally binding but is instead a flexible, living framework outlining the rules of the game, which might also include a code of conduct on how different family members should treat each other, and it may empower family governance bodies and committees to make decisions.

These bodies should in turn include a family assembly, open to all family members, and a family council, formed of elected representatives of the family and tasked with making decisions on its behalf. The family council is effectively the board of directors of the family, reporting to the whole family and potentially creating committees to deal with things like education or philanthropy.

Dr Ehlern suggests all these governance structures should be put in place as early as possible in the life cycle of a family business, before any disputes have had an opportunity to arise (although conflict resolution guidelines are also a vital component of all the frameworks). He also recommends family meetings take place periodically - at least annually and preferably more frequently – to keep all interested parties fully up to speed on the finances, business and family matters.

Enduring family wealth

Li Lee Tan is counsel and the head of the private client and trusts practice at Appleby in Hong Kong. She says Chinese and Asian families have often focused far more on the growth of their businesses rather than the growth of their wealth, but are waking up to the idea of enduring family wealth and the business of managing a family.

She says: "In the first place, families, and especially the founders, need to recognise that while they are very good at setting up corporate structures for their business, with various companies and fund structures, running the business of the family itself also needs proper structuring in a way that allows the family to remain successful for future generations. That starts by setting out the vision, mission and values of the family, which perhaps stretches beyond the family to society and the wider community. Many Asian families have a tradition of supporting philanthropy – education or alleviating poverty in their poorer home towns, for example."

In Asia, family businesses are still very often in the hands of the first generation, in contrast to the often more sophisticated multi-generational family businesses in Europe and North America. A particular challenge arises when families look to involve the second generation in the business – individuals who may have studied and worked abroad, and have frequently returned with a mix of Asian and Western values.

Succession planning

Dr Ehlern does a lot of work with clients in the Middle East, where modern families can sometimes use offshore vehicles to hold or segregate assets in order to be more flexible with regard to forced heirship under Shari'ah law. But still he says many families in the region are conservative and pass the business on to the eldest son, which may or may not prove successful, or there is a delay in succession as a result of family feuds resulting in a possible disruption to the business. "Many family businesses in the Middle East face pressure to transition to the next generation within the next few years," he says. "So succession planning is a highly sensitive and very emotional issue in the region. More family businesses now seek advice and support from outside experts and consultants."

When family businesses fail, it is often because there is no qualified successor, or because transition is handled badly. Preventing that happening requires careful career planning for the next generation, as well as education, training and mentoring to raise their understanding and increase their interest. Often the answer to keeping the family and business together lies in creating shared visions and values, communicated openly, discussed frequently, and making use of clear dispute resolution procedures", Dr Ehlern says.

Li Lee Tan says: "The running of a family business often involves different branches of a family, with some active and some not, and there may be cultural differences between generations because of the opportunities the younger generations had over their parents. Each generation can have really quite different focuses, and the question is whether they are able to come up with common family visions and values that can be translated into effective succession plans. Typically that works best with the use of more formalised frameworks."

Originally published in Wealth Structuring 20:20, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.