Putting People First and Behavioral Governance

Much has been written about the impending USD 85 trillion wealth transfer and what it could mean for the world economy and other stakeholders. However, this wealth is more than just numbers on a balance sheet. It is operating businesses, investment portfolios, philanthropic initiatives and tangible assets such as residences and art, as well as family offices. As these are transferred and become shared assets and resources, ownership and control will become increasingly fractionalized. This is the family enterprise. Shared implies a relationship — between grandparents, parents, children, siblings, aunts, uncles, nieces, nephews, and cousins.

Governance will become increasingly important for the multiple owners of these assets and resources and the relationships that are created through the transfer. Traditional governance is focused on structures. The thinking is: create the structures, create the governance. However, a singular focus on structures is insufficient for healthy family governance. What is necessary is a focus on people and their behaviors.

The traditional process 

In the typical family governance set-up process, attorneys are engaged and documents are drafted outlining councils, boards, committees, trusts, trustees, and beneficiaries. Rights, obligations, and voting thresholds are defined. Just as often, governance results from an estate plan designed to mitigate taxes and is dictated by people who won’t be around to help govern. In any event, the documents are drafted and the structures established.

Prioritizing people over structures

While structures are important, a process that recognizes relationships as fundamental will help ensure governance that can truly help sustain the family over time. Governance can be far more effective when it is informed by those it is intended to guide. For the governance architect, often an attorney, the focus should be on understanding the relationships that will be created by the structures and how those relationships will impact the family.

This entails going beyond the tax mitigation or asset protection strategy. It requires speaking to more than the grantor, founder, creator, or owner. It means understanding the family members and the family as a whole: how they function, their values, and their unique culture.

The same holds true for family members. For the founder, patriarch, matriarch or those establishing estate plans, it requires an understanding of how any structures will impact relationships and create new relationship dynamics in the family and across its shared assets and resources. In fact, they should collaborate with the broader family, namely, those who will be impacted by the estate plan, and structure design during the governance design phase.

From this foundation, a more informed governance design can be established. However, what occurs after the documents are drafted is of equal importance.

Behavioral governance

Family governance is nothing more than relationships involving a shared asset or resource. People drive behavior and behaviors drive relationships, highlighting the need for behavioral governance. But what behaviors are necessary to achieve good governance?

The most important behavior is being transparent. Transparency of information, motives, rationales, and goals — among all parties and stakeholders across each part of the enterprise. Transparency allows people to make informed decisions. Transparency fosters trust and promotes accountability. Transparency helps achieve alignment of both family and enterprise.

If something is not transparent, it means the behaviors that create transparency are lacking. Often one of these behaviors is communication. The governance exists on paper, but the boards, councils, and committees do not meet; they do not communicate or exchange information. It becomes nearly impossible for a family leader or a family owner to make informed decisions or for the family to be reflected in actions taken or not taken.

For many families, quarterly board meetings are necessary but woefully insufficient. Families need to spend time together outside of the formal governance settings. They need to connect and understand one another to create transparency. This can be a challenge for many wealthy families, especially today when people are more mobile and global. The more connection, the more transparency. Connection helps with understanding the motives and rationales of all parties and promotes informed decision-making. How a family creates transparency and connection will be unique to them. Transparency can overcome poor paper governance, but no amount of paper governance can overcome a lack of transparency or connection. 

Helping families flourish

Transparency alone, however, does not guarantee that the business will thrive or that relationships will flourish. However, without transparency, the probability of relationships not flourishing is heightened. This, in turn, can often cause the assets and resources to flounder. Remember that no matter how good it is on paper, family governance will only truly be as good as the relationships among family members and the behaviors they choose.

Mark Tepsich is the Family Office Design and Governance Strategist for UBS Family Office Solutions and a registered representative with UBS Financial Services Inc. a subsidiary of UBS Group AG. Member FINRA/SIPC. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. Neither UBS Financial Services Inc. nor its employees (including its Financial Advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement. 

IS2401172, 3/31/25