How wealthy dynasties govern their family offices

Built on Chapter 4 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.

Governance sounds dull until a family falls apart without it. In the book I defined it simply. Governance means the rules a family office follows for staffing and for moving money. Those rules protect the family from bad decisions by insiders and outside advisors alike.

Why first-generation families resist it

Many founders see governance as paperwork. When one person built the wealth and makes every call, rules can feel unnecessary.

That changes fast once a second generation joins. Children and in-laws bring their own views. Without agreed rules, favoritism creeps in. Rules that are applied unevenly do the most damage, because later generations stop trusting them.

How most families govern today

Most single family offices I work with run top down. The person who created the wealth sets the rules and makes the big calls on hiring and spending.

Some families add a family council or town hall meetings to gather input and votes. A small number of the largest families go further, with boards, audit committees, and outside directors much like a public company.

One executive I interviewed described the shift well. As a family office moves from monarchy to democracy, and from one family branch to several, it needs a stronger governance leader. He also tied his office's policies to the line items on its financial statements, which made the rules feel practical instead of abstract.

What happens without it

Here are four kinds of cases I have seen, with details left out.

One very wealthy family saw several children struggle badly, and by the third generation some were broke. The biggest single loss came when a family friend serving as attorney allowed the family's stake in its main company to be almost completely diluted. Clear rules on how advisors are chosen and checked might have prevented it.

In another family, a second-generation member quietly took a large sum from the business over several years without anyone noticing. The reason was sympathetic, a spouse's medical bills. But the same gap could have funded something far worse. An annual audit, monthly expense checks, or two signatures on wires would have caught it.

A third family gave an adult son an expensive home. He earned very little and spent heavily each month. Rules on when family members get money, and how they earn access to it, help avoid this.

The fourth pattern is common. Many families break up their shared office between the second and third generations. Without communication and rules, jealousy takes over. I have seen very large fortunes split into separate branches that rarely meet.

Ways families handle money for heirs

Families have found creative rules for heirs. Some match what each member earns, dollar for dollar. A child who picks a low-paying path can do so, but the match stays small.

Others set up a family bank that funds only certain things, such as one home mortgage up to a set limit, approved education, and approved business ventures. The goal is to support effort and new businesses without removing the need to work.

Many wealthy parents I meet want to leave children enough to do anything, but not so much that they can do nothing.

What a governance plan includes

At a minimum, I suggest families put these in writing:

An employee handbook that applies to family and non-family staff alike.
A short hiring policy covering family members and references. I like at least four reference calls and one in-person or video meeting, plus background checks.
Rules for choosing advisors and partners so friendship never replaces skill.
A formal ethics policy, separate from the handbook.

Check counterparties every time

The same executive said his team tells every partner up front that it will check past and present claims. Some people disappear once they hear that. He also walks away from any investment pitch that lacks a clear path from start to a defined exit.

What to take from this

Write down governance rules before the second generation joins.
Require two approvals on large payments and run an annual audit.
Set clear rules for how heirs access family money.
Choose advisors on skill and cost, not friendship.

This page is general information, not legal or tax advice. Speak with a qualified attorney about governance documents and trusts.

Questions and answers

What is family office governance? The rules a family office follows for staffing and for moving money.

When does governance become important? Usually when a second generation or more family branches get involved.

How do families control spending by heirs? Some match what heirs earn. Others fund only approved uses through a family bank.

What should a governance plan include? At least an employee handbook, a hiring policy, advisor selection rules, and an ethics policy.