On the Atlantic coast, across from the north Florida resort of Amelia Island, lies Georgia’s Cumberland Island. Unlike the other Sea Island resorts, Cumberland is largely undeveloped.
Cumberland, which is roughly the size of Manhattan, was once owned by Thomas Carnegie, brother of steel baron Andrew Carnegie, who envisioned a glorious family compound and almost made his dream come true. He built Dungeness, a 59-room mansion reminiscent of a castle in his native Scotland, complete with a pool house, golf course and acres of formal gardens and lawns. Carnegie died before Dungeness was completed; his widow eventually built separate mansions on the island for their progeny and their spouses.
Today, all that is left of Dungeness is an impressive ruin. The deserted house burned down in 1959, and the other mansions stand empty. One lone Carnegie heir still lives on the island, selling her handcrafted jewelry to tourists.
Cumberland is a monument to a failed family dream. It’s testament to what can happen within a generation to a clan with wealth and intelligence, but without the right kind of planning to keep the dream alive.
What makes the difference between families whose founders’ vision survives and those that fail? Most family office experts use the same word: governance.
Amelia Renkert-Thomas, a partner who co-chairs the Family Office Special Interest Group at Withers Bergman, observes, “Many families will form a family office and focus only on the nuts and bolts of investing – things they can quantify. They figure that governance will work itself out. But unless there’s a common understanding about the family’s vision for the future, it really is a free-for-all.”
It’s also hard on family office staff who, in the absence of a governance structure, are sometimes expected to deal with family disputes or figure out on their own how to handle sensitive issues such as succession. “Some families assume the family office staff will serve as a de facto governance structure, which is something they’re not equipped for and don’t want to do,” Renkert-Thomas points out.
One difficulty is simply getting successful people – whose success is often the result of hard-nosed business acumen – to focus on issues that are hard to quantify. It’s not an easy process, or a quick one. Renkert-Thomas notes that it’s similar to writing a constitution for each family. “Different family members will have different perspectives,” she says. Everyone needs a chance to be heard: “You can’t impose governance, any more than you can impose a government.”
Most families will need some help with this. While it’s a relatively new area, there is a growing body of professionals who are experienced in guiding a family through the process of articulating its own vision and its own form of governance. While each family is unique, most workable governance structures will include common elements:
A statement of the family’s vision and values
- Ground rules for discourse
- A system of representation
- Delegation of authority, with the consent of those being represented
- Succession provisions
- A dispute resolution mechanism
- A commitment to educating families about their wealth and their stewardship role
All of this should be in writing. “Families that take the time to write down their vision are much more successful at achieving it,” Renkert-Thomas advises. “Those coming behind are much more likely to buy in. Of course, like a constitution, it has to be flexible, so that it can evolve with the times.”
Preferably, the family office should be overseen by something like a corporate board, including non-family members, who can bring an objective perspective. It needs to be completely separate from the family business.
Governance is especially important, Renkert-Thomas notes, for families with unusual assets (like an island the size of Manhattan). But even those without such exotic legacies need to pay attention to governance. Most families with substantial assets want to extend their vision into the future. But without a mechanism in place, Renkert-Thomas cautions, they’re probably doomed to fail. Their vision, like Thomas Carnegie’s Dungeness, may end up simply as a monument, rather than a place where real people still live.