Intergenerational Governance

The hardest problem in family office management isn't portfolio construction—it's governance that survives beyond the founder.

Most wealth doesn't make it past the third generation. The usual explanation: bad investments, lifestyle creep, dilution through inheritance.

But the deeper problem is governance failure. Decision systems that worked for one generation fail for the next.

Why Governance Breaks

The founder's genius becomes the successor's constraint. The first generation built wealth through judgment, risk-taking, and often luck. They operated on intuition, adapted quickly, and didn't need formal systems.

The second generation inherits the wealth but not the judgment. They try to codify what the founder did—but you can't codify intuition. So they either defer to the founder (creating dependency) or rebel (creating conflict).

Knowledge transfer doesn't happen. The founder assumes their experience is common sense. "Just invest in good businesses at reasonable prices." But what makes a business good? What's reasonable? The tacit knowledge never transfers.

Incentives diverge. The founder had skin in the game—they built the wealth and would feel any loss viscerally. The second generation has skin in the game but didn't build it. The third generation often just has inheritance expectations.

This changes risk tolerance, time horizons, and engagement with decisions.

Size creates complexity. $10M can be managed informally. $100M requires structure. $1B+ requires institutions. But moving from informal to institutional often kills the agility that created the wealth.

What Successful Families Do Differently

They don't try to preserve the founder's approach—they preserve decision quality across changing contexts.

They document decision frameworks, not decisions. Instead of "invest in real estate," they document: "What questions do we ask before investing? What are our deal-breakers? How do we evaluate risk?"

This preserves decision quality without being prescriptive about outcomes.

They separate governance from investment. Governance is about who decides, how decisions get made, and what the constraints are. Investment is about what to buy.

Mixing these creates conflict—family members who shouldn't be making investment decisions feel excluded, or those with investment skill feel constrained by committee dynamics.

They design for evolution. The governance structure that works when the founder is 60 won't work when the founder is 80 and the next generation is 50. Build in mechanisms for transition—timelines, authority shifts, role changes.

They make the implicit explicit. Values, priorities, risk tolerance—these need to be articulated, not assumed. "We're conservative" means different things to different people. "We don't invest in sectors that conflict with our values" requires defining those values.

The Governance Structure

Decision hierarchy matters:

Strategic decisions (overall allocation, risk budget, values alignment) belong to family governance—typically family council or board.

Investment decisions (specific opportunities within the strategy) belong to investment committee—can include family and professionals.

Operational decisions (execution of approved investments) belong to management—usually professionals.

Mixing these creates dysfunction. Family members weighing in on individual investments slow everything down. Management making strategic decisions without family input creates misalignment.

The family constitution. Document:

• Who has decision authority on what
• How conflicts get resolved
• What the succession plan is
• What the family's shared values are
• How governance itself can be changed

This isn't bureaucracy—it's preventing the governance crises that destroy wealth.

The Capability Challenge

Not everyone in the next generation will have equal interest or capability for wealth management.

The fairness trap: Giving everyone equal authority feels fair but creates problems when capability varies. The engaged, knowledgeable family member has the same vote as the disengaged one.

Better approaches:

• Differentiate economic rights (everyone shares in returns) from governance rights (those actively engaged have more authority)
• Create pathways for family members to earn governance roles through demonstrated capability
• Allow opt-outs—some family members may prefer distributions over involvement

The Professional Manager Question

At scale, family offices need professional managers. But this creates principal-agent problems.

The failure modes:

• Managers optimize for fees, not returns
• Managers become risk-averse (protect their job over maximizing returns)
• Managers fill the governance vacuum when family is passive

The solutions:

• Align incentives (co-investment, long-term compensation tied to outcomes)
• Maintain family strategic oversight (managers execute, family governs)
• Build relationships early (next generation knows managers, understands roles)

The Education Imperative

You can't govern what you don't understand.

Successful families invest in financial education for the next generation—not just "how markets work," but:

• How our specific portfolio is structured and why
• What our investment philosophy is and what it optimizes for
• How governance decisions get made
• What our responsibilities are as stewards of this wealth

This isn't academic education—it's practical onboarding into the family's approach.

The Values Alignment

Different generations have different values. Pretending otherwise creates conflict.

Example: The founder built wealth through fossil fuel investments. The next generation cares about climate. Neither is wrong, but the conflict needs resolution.

Approaches that work:

• Set aside capital for each generation to invest according to their values
• Create a timeline for transitioning the portfolio
• Be explicit about trade-offs (values alignment may reduce returns)

Approaches that don't:

• Assuming everyone should defer to the founder
• Assuming the next generation will "come around"
• Avoiding the conversation

The Succession Timeline

Don't wait for the founder's death to transfer control. Design a gradual transition:

Years 1-5: Next generation observes, asks questions, learns the portfolio.

Years 5-10: Next generation takes on defined responsibilities with founder oversight.

Years 10-15: Shared governance—next generation leads some decisions, founder provides wisdom.

Years 15+: Founder moves to advisory role, next generation has full authority.

This allows course correction and builds confidence. Sudden transitions usually fail.

The Common Failures

Too rigid: Governance becomes bureaucratic. Every decision requires committee approval. Agility dies.

Too loose: No structure means conflict resolution happens through power dynamics rather than process. This creates resentment.

Too founder-dependent: All authority flows from the founder. When they're gone, there's no decision framework.

Too democratic: Everyone has equal say regardless of knowledge or engagement. This leads to lowest-common-denominator decisions.

The Test

Your governance structure should answer these questions clearly:

• Who decides on strategic allocation?
• Who decides on individual investments?
• Who manages day-to-day operations?
• How do we resolve disagreements?
• How do we onboard the next generation?
• How does authority transition over time?

If you can't answer these, you don't have governance—you have an informal arrangement that will break under stress.

The Long Game

Intergenerational governance isn't about preserving wealth—it's about preserving decision quality.

Wealth compounds when good decisions compound. Governance is the system that enables good decisions across time, people, and contexts.

Get it right, and wealth can grow for generations. Get it wrong, and it doesn't matter how good the founding generation's judgment was—the third generation won't have any wealth to manage.