The Importance Of Financial Governance For Family Businesses, The existence of a comprehensive system of financial governance is a necessary tool for family businesses to manage its resources effectively. It can be seen as one of the elements of the linkage between family governance and corporate governance which includes procedures for each of the fortunes of companies and private wealth into account the multi-layered required by such a 100K Factory system structure, it would not be surprising how difficult it is to establish an effective financial governance in the family business. Both Gregor shows, top manager relationships in Pictet & C Family Office, regional administrator and vice president of Pictet Wealth Management, how can the financial governance of the family help wealth management and what are the considerations for family businesses in the Middle East.
Usually they represent enormous levels of wealth in the family businesses in difficulty managed to the satisfaction of all family members equally. That is why it is imperative to wealthy families equation financial objectives and a proper system.
Representing financial affairs and business affairs of two of the most important components of wealth in families. While wealth creation begins in most cases from the business assets, the wealth preservation is achieved in general through a financial asset management. However, both types of assets works in a different way, each with special features that distinguish it. As a result of this, it must be different for each system of governance.
It is necessary to include family governance system for the governance of family councils and / or boards of directors, this will work to address both financial governance and corporate governance. While dealing with corporate governance is often a priority, financial governance remains overlooked by many. In this regard, often she hears comments advisers corporate leaders that they are busy largely prevents them from following up on all of their investment and financial decisions. Often issued this comment of entrepreneurs are still heavily involved in the processes and procedures for the daily management of their companies. This shows that successful family businesses find themselves in front of the wealth management task but with time constraints and sometimes little attention devoted to this aspect and care.
The development of a successful financial governance system requires that there be a family governance system already exists and works effectively. It is important to develop a strategy detailed family defines the values and objectives associated with the plan, the family company, where the necessary information which must be met before setting investment policy, which must be turned to the goals of family financial goals are available. Family goals based on the position of the family and its place in the cycle of wealth, in the sense that if they are in the process of wealth creation or preservation. One of the main advantages of wealthy families is the possibility of setting financial goals through several generations. In this way we can deal with the financial turmoil and periods of increasing instability in the market and afford better. Such a hallmark to determine the asset class options. Figure 1 illustrates how the family and corporate governance and financial governance are linked to each other in order to perform the functions of wealth preservation, management and development.
Financial governance architecture that enables development of guidance and formal guidelines will guide the investment committee. The formation of the Investment Committee to oversee the financial governance of the family is one of the important tools for the system of financial governance. And it provides moreover the opportunity to absorb the culture and family dynamics to allow time for further interaction among family members. More importantly, they must unite the family regarding financial expectations and thus should result in the most appropriate solution that is placed specifically for the family to work for a long time.
Have families in general more than asset manager or private banker, and is different from the role of the Investment Committee are among followers of the company’s way to follow the way of the private bank. The company’s way will depend on the principle of subsidiarity, which requires therefore a strong investment committee, while offering a way your bank more flexibility and customization with the more dominant of the family responsibility.
After setting investment policy and agreed upon, you can then proceed to implementation, the beginning of the request for tenders leading to the development of reporting tools. Once you start investments under the supervision of financial governance system has been developed carefully, becomes the primary activity of the investment committees follow different managers regarding the risks and Alacharadat investment, supervision and market assessments. Presumably of the financial system of governance precise mastery of financial portfolios for the family effectively and transparent management.
With the development of wealth cycle, increasing the importance of financial wealth and reliable. The development of appropriate financial governance system is a necessity for success in achieving financial objectives and ensure a smooth and happy transition to the next generation of the family. This system puts equip young people to do the family’s future roles and assume increased responsibilities in the world of financial asset management. This system provides in addition to the above, the opportunity to establish a strong relationship of trust over the long term with external advisers.
Private financial governance in the Middle East family businesses considerations
The family companies must recognize the importance of financial governance and its core functions. However, it must at the same time the institutional context of social and economic conditions in mind for family businesses that you specify financial goals. Thus, when talking about the establishment of such systems in the Middle East families, it may take a closer look at the implications and considerations for their own center-aligned.
The company’s wealth and private wealth linked with each other closely in the family business. And we often find that successful families are those that have managed to separate the assets of the company for the assets. And it will be demonstrating the extent to which a family company from doing this separation process at the level of professionalism within the company. Major family businesses in the Middle East began several years ago to shift to more sophisticated companies regarding the organization of its assets in addition to own assets, manage risk and diversify their activities. However, there are considerations can not be ignored when families put their own financial governance systems, these considerations imposed by institutional, social and economic context in which they operate family businesses on one hand, and imposed special features of the family on the other hand:
Family entities: increasing complexity of family structure in the Middle East due to the number of family members of different age groups in a single family. Often the number of family members up to the barrier percent or more with the arrival of the third generation (Union cousins). It is easy to imagine a number of different opinions and trends that must be considered in the financial objectives in the light of such a combination. The willingness to receive a large number of members of the next generation is important and must be taken into account when developing financial governance system.
Legal frameworks must be compatible and taking into account the provisions of law applicable financial governance systems in the Middle East. In cases of inheritance, the legal system of the State may impose a way of distribution of wealth within the family different from the fair way from the standpoint of the family. Should the financial governance system of governance in cooperation with the family to determine from the outset how the distribution of wealth in the event of the death of a family member.
Combining assets: know about the families in the Middle East to diversify its investments and special related to the company at the regional and global levels alike. Such financial decisions are accompanied by certain additional challenges: must a lot of families into account the rules and regulations relating to the purchase, for example, fixed assets abroad (such as real estate in different countries). The challenge is to different legal and financial legislation. Are often dealing with this so well in the case of the company’s investment, however, the families must not ignore the need to show the same care and attention when it comes to private wealth.
Responsibilities: The debt can not be ignored when talking about the company’s fortune. Private investment has been transformed into a commitment when families buy fixed assets accompanied by financial commitments (such as mortgages). Families should not think about how to diversify their assets only and organization, but it must also take into account the extent to which these assets represent an obstacle for her.
Political and economic crises: Of course, you must take into account factors that are beyond the family’s control, such as political instability and economic crises in developing financial governance system. For example, the recent crisis in the banking sector caused a great crisis of confidence, and intensified the suffering of the companies that were not prepared for such a sudden shift in the surrounding institutions.
Institutional environment: Depending on the stage of its inception in the original habitat have witnessed recent growth, the families facing the Middle Eastern problem of limited institutional support for funding. When conditions worsen corporate and bank financing becomes a real problem, the families must be willing to rely on their own financial funds to finance its activities and its companies. Again apparent strength of the link between wealth and private wealth companies, family businesses and thus the importance of organizing each other through a system of financial governance and clear.
Risk Management: it does not often differs from the family’s position on the risk in the case of private wealth management and wealth of the company. Over the past few years there has been a lot of frustrations in respect of proceeds Guy investment both by the company and the private side alike. The existence of the position of the governor coupled with careful planning for each of the private wealth and the wealth of the company can be beneficial to the prosperity of the company and more importantly, the stability of the family.
Considering many of the family in the Middle East in these problems, companies and carefully examine the opportunities and consequences. There is also an awareness of the dimensions of the situation and feeling the urgency to confront it. Some companies have taken a complex planning procedures and through the development of a financial governance systems will be able to deal with the challenges that result from the medium in which they operate or from within their systems and structures. These companies also put in place policies and councils to invest. There are other family-owned businesses grow to become significantly make them establish a separate family offices to manage their wealth and distribution. There are also companies decide to work with a specific number of banks and their advisers. The choice of the right advisors on the family issue that must invest a lot of time to study because of the importance of their roles in the success of financial goals. Unfortunately, there is still a lot of family businesses that did not deal with the issue of financial governance at all.
In the current financial turmoil, many families prefer to get help to explore new financial opportunities. Financial assets may be a high degree of complexity, but sometimes looks more complicated than it is reality. However, there is a golden rule states simplify things as much as possible and go back down to basics. The advantages of financial governance and multi many, but the most important thing distinguishes it provides peace of mind for family businesses in the first place. And most importantly, as a result of the balance between corporate considerations and considerations it will always seem logical for the whole family. It must be considered to financial governance as one of the important components of the sustainability of the family business and continuity across the generations to come.