A conflicts of interest policy for a family office
Built on Chapter 4 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Conflicts of interest are a normal part of family life. A family member runs a company that wants family capital. An executive has a friend raising a fund. An advisor earns more if the family buys a certain product. None of these is wrong on its own. Trouble starts when conflicts are hidden or handled differently for different people. A written conflicts policy keeps decisions fair and keeps the family's trust intact.
Common conflicts in family offices
Family deals. A family member asks the office to invest in their own business or a friend's project.
Staff side interests. An executive invests personally in deals the office is also reviewing, or receives fees from a sponsor.
Advisor incentives. A bank or advisor is paid more for recommending its own products.
Board seats. A family member or executive sits on the board of a company the office invests in.
Related services. The office hires a company owned by a family member or staff member.
Gifts and hospitality. Sponsors offer trips, gifts or event tickets to staff.
What the policy should say
Disclosure. Everyone covered must disclose any personal interest in a decision, in writing, before it is made.
Recusal. A person with a conflict steps out of the discussion and vote.
Approval. Certain conflicts need sign-off from the board, an independent director or a family committee.
Fair terms. Family deals must be reviewed on the same basis as outside deals, with the same diligence.
Personal investing. Staff must pre-clear personal investments in areas the office covers.
Gifts. Set a limit on gifts and require disclosure of anything above it.
Records. Keep a log of every disclosed conflict and how it was handled.
Who it covers
The policy should cover family members on boards or committees, every office employee, and outside advisors with decision influence. Each should sign the policy each year.
Handling family deals
Family deals are the most sensitive. A sibling's startup may deserve support, but it should not bypass the process. Many families set aside a separate pool for family ventures, with its own size limit and rules, so these deals do not crowd out the main portfolio or create resentment between branches.
Vetting sponsors and partners
Conflicts also hide in outside relationships. When I talk about vetting sponsors and partners, I stress background checks and paying attention to how people communicate before a deal closes. Those same checks help uncover conflicts, such as a sponsor with undisclosed ties to an advisor recommending the deal. (Vetting sponsors and partners.)
Making it work in practice
A policy only works if people use it. Raise conflicts as a standing item at every investment committee meeting. Make disclosure easy and judgment-free. Praise people who disclose early. Treat a hidden conflict, once found, as a serious breach.
A simple disclosure form
Keep the form short so people actually use it. It can ask four things: the decision involved, the person's interest, whether money or a relationship is at stake, and what the person proposes, such as stepping out of the vote. The form goes to the chair or the lead executive, who records it in the conflicts log.
Reviewing the policy
Review the policy at each governance review, and whenever a significant conflict exposes a gap. As the office grows into direct investing and club deals, new types of conflicts appear, and the policy should keep up.
What to take from this
- Conflicts are normal; hiding them is the problem.
- Require written disclosure and recusal for every conflict.
- Review family deals with the same rigor as outside deals.
- Have everyone covered sign the policy every year, and log each disclosure with how it was resolved.
This page is general information, not legal advice. A conflicts of interest policy should be drafted or reviewed by a qualified attorney.
Questions and answers
What is a conflict of interest in a family office? Any situation where a person's own interest could affect a decision they influence.
Should family deals be allowed? Yes, with disclosure and normal diligence, often from a separate pool.
Who should sign the policy? Family decision makers and staff, plus influential advisors, every year.
What happens if someone hides a conflict? It should be treated as a serious breach of policy.