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The Data Confirms It – Family Governance Actually Works

The world of family enterprise, family offices and family business is a highly dynamic and changing field.  In many ways, because of the field’s newness, there have been lots of ideas, theories, old wives tales, rules of thumb, and tropes used to analyze, explain, and advise families who are navigating the complex waters of transgenerational ownership.  

Rightfully, Jim Grubman, Dennis Jaffe, and Kristin Keffeler in their recent article Wealth 3.0: From Fear to Engagement For Families and Advisors have issued a clarion call for increasing professionalization in the field.  Part and parcel of this maturation is a move towards more data driven conclusions regarding best practices for families.

So, in that vein, I want to highlight what I think will be an important academic paper that was published late last week.   The paper entitled “Enhancing Enterprise Family Social Capital Through Family Governance: An Identity Perspective” by Maarten de Groot, Oli Mihalache, and Tom Elfring draws upon a proprietary data set of 175 enterprise families (with an avg. net worth over $250MM).

The primary conclusion that they draw is that family governance practices actually support the growth of the social capital of a family.  So for families that may be wondering if it is worth the hassle of family councils, family constitutions, and regular get togethers – the answer is a clear yes.   These activities have been quantitatively shown to support the growth of the relationships of the family.

A few other interesting conclusions:

  • Family identity is identified and shown to be how family governance builds social capital
  • This family governance work is effective regardless of how many generations are active in the family 
  • Most interestingly, a core business is not required to build identity and social capital.  Legacy families find other entities that become important to the family.  

The paper is an interesting read and well worth your time.

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