Annamaria Koerling, Delfin’s Managing Partner spoke to Advisory Group member Nik von Eynern of Family Hippocampus about Family Governance, why family charters often gather dust on a shelf and discusses his practical tips on how to put in place a resilient system that works in practice not just in theory.

Why is it that many families struggle to make their governance work in practice?

It starts with the way family governance is introduced. Very often, families rely on the idea that once a family charter is created, it ticks a box for multigenerational wealth transition as it regulates and solves all matters family dynamic. From my own experience I know, that documents of this kind are very limited in guiding and regulating social behaviour.

Appointing a facilitator and getting the family, including the patriarch, in one room, even for 4 weekends may not be enough. The atmosphere of such a gathering is limited in terms of psychological safety, so not everyone is truly engaged on an emotional level and dares to speak their minds and feelings. The outcome is likely to be a political compromise that people agree on and sign with ink – not heart. Thus, the family charters are likely to contain rules and regulations which no one really owns. The family charter ends up being a beautifully bound book, which is shelved and only consulted as a reference frame, especially when there are major breaches.

What is the main issue with many family charters?

Apart from the importance of the creation process, the content of a family constitution does not come naturally to us humans. Rules and regulations are mostly processed in the cognitive control network of our brains, which is engaged when we are task-focused. We need to remember details and apply them to the current situation which is energy intensive. For evolutionary reasons, we are programmed to conserve energy and our brains are not made for accuracy but
for survival. As family members, we don’t tend to live every moment with the content of the Charter in our minds. The lack of mental ownership in combination with the inertia to process the information contained in family charters are the main issues why family charters are not very effective in guiding behaviours.

How can you achieve broad consensus in a multi-generational family group?

To my mind, it is all about getting the inclusive buy-in from all family members and create a shared reality, irrespective of the generation of family member. This starts with the individual as an important sub-system of the whole social system we call ‘business-family’. At the core lies the social process matrix defined by learnable, social skills: emotional intelligence (i.e. emotional regulation), social intelligence (e.g. empathy, compassion) and to some degree, intellectual intelligence (e.g. understanding what the business is about and how it works and what it entails).

With an efficient social process matrix, psychological safety can be created. Members of the social group feel safe to take socio-emotional risks because they do not fear judgements of others and know they are being heard, even if they have different opinions. In a socially safe environment, there is no need for self-protection and that is essential to create a shared reality for generative collaboration – the basis for the creation of family charters.

How can family governance be future-proofed?

We can future-proof systems in Newton mechanics, where we can rely on deterministic models to forecast outcomes based on clear cause and effect, but social systems are made of non-linear patterns of relationships with nested feed-back-loops and outcomes are neither predictable nor can they be controlled in a way we can control mechanical systems a la Newton. So it is all about ‘evolute or die’.

We can conclude that social systems that are rigid, i.e. have no degrees of freedom in terms of integrated diversity and mental wriggle room, are more likely to fail, and those with the optimal amount of freedom degrees are more resilient. The only thing that seems to future-proof a family is effective family governance that enhances system resilience.

In a nutshell, what is your top tip for a family looking for a practical and resilient solution to governance?

Effective family governance needs to be effortlessly and truly ‘owned’ to be effective, i.e. the information must become embodied cognitions of each family member. Therefore, family governance must address the whole of the human brain – not only one part in form of the cognitive control network.

It is time for new approaches to create system resilience because the old ways have limited effects. The genesis of a family charter is essential for mental ownership, but it is not enough! A charter is still is a document with principles, rules and regulations and less freedom degrees. To make family governance effective it needs a family narrative – the first step to creating a shared reality. Narratives have more freedom degrees but guide our meaning-making processes, our
decisions and behaviours from a superposition and have proven to synchronise brain activities of two or more individuals. They are the oldest way of cultural information-transmission, thus we are very susceptible to narratives. Well-constructed narratives evoke emotions and create rich imagery. Narrative are mostly processed in the default-mode network of our brains, which is active when we relax, reflect and daydream – a low energy activity. Thus, narratives are more
likely to be steady companies as we go through life than family charters.

I believe, good family governance is a continuous, iterative process and should start with creating a family narrative, which is rewarding to co-create and read, remember and to pass on. Family charters should be firmly embedded in the family narrative. The nested family-governance process continues by creating specific, internal institutions like family councils, based on the rules and regulations laid out in the family charter. This is what makes family governance work!

Categories: The Oracle