Here in the United States, in 2021, there’s a lot of speculation about whether democracy has been challenged and even weakened. I’ve always enjoyed comparing country-level governance to family-level governance, and now may be the time that family governance is displaying an increase in democratic principles. Instead of families learning from country governance, perhaps countries could benefit from seeing the work that’s going on at the family level.
Change in Perspective
My early years of practice in Minnesota were as a traditional private client lawyer. With one exception, the families were ruled by patriarchs. I was hired to prepare legal documents that would force the patriarch’s plan on the rest of the family, with no input by them. Indeed, in most cases, the other family members were totally in the dark as to those plans. It wasn’t uncommon for the wife not to have that information.
We made heavy use of trusts. The family might be told at some point that there were trusts for tax purposes, but in my experience, the trusts were more for the opportunity to require how and when distributions would be made. We did enable the patriarch to “rule from the grave.” Popular wisdom endorsed this approach, with a somewhat humorous paraphrase of the Bible’s “Golden Rule” (“Do unto others as you would have them do unto you”) as “He who has the gold, makes the rules.” I did notice, eventually, that on the death of the patriarch, the surviving family members weren’t always happy about the plans set in place for them. Indeed litigation was quite predictable.
When I had become a senior partner, a headhunter convinced me to leave the firm and give 100% of my time to helping one billionaire with his estate planning.
One of his long-term advisors cautioned me that my main job was to keep the families off the front page after his eventual death. This 4-year experience taught me how complex very wealthy families can be and how endemic the causes of conflict are. After that experience, I decided to work with families as a group instead of resuming the lawyer role of representing only the wealthiest member.
During that time, a wealthy inheritor in the South, whose father’s death erupted into front page news, complete with claims by mistresses, hired me to “do better” and stay off the front page. I spent the next several years thinking about the causes of family conflict, especially in inheritance cases. I finally decided that the conflict started much earlier than when estate-planning documents were written. The families needed better “governance” and to learn how to work through issues as a group. I started calling myself a consultant to the whole family, not a lawyer for the patriarch. I even wrote a book—International Family Governance: A Guide for Families and Their Advisors.1
Next, my work took me to a number of countries. When I first began working with very patriarchal families in several countries in the Gulf Region, some of my colleagues had questions for me, which sounded like accusations: Was I just another imperialist, imposing “Western democracy” on other cultures? After more than 10 years of that work, I can answer that in my opinion “Western democracy” represents a universal human need.
Rule of Law
We could begin with the rule of law, so often in the news these days. There are several definitions of “rule of law” and several books just on that subject. One definition is that everyone is subject to the law. The Magna Carta, in 1215, was famous for having the King agree that yes, even he would be subject to the law. Another definition is that the country has a developed set of laws, and they can be relied on. I’ve argued that predictability—although essential—isn’t sufficient: The laws must also be seen as just and fair. The English common law system has built into it a concept of fairness when it promises that like cases will be decided in a like manner—the justification for the principle of stare decisis.
What are the elements of democracy? One crucial element is that people have a voice in how and by whom they’re governed. It’s a government for the people, by the people. In a family setting, this approach might be a radical change. I’ve seen it work, though, and then I’ve seen the family making decisions in a different way. What are the ways in which they change their decision making? One case from the Gulf Region (without identifying characteristics) had a son explain to a group of his peers when I was with him:
As the oldest son, I have been accustomed to making all of the decisions. I did not ask anyone for their opinion or other input. I was happy with how this worked. Then as our family worked with a consultant to improve our family governance—with the hope of avoiding public litigation, we began to share information with the other family members, and to ask each family member for input. If we agreed on a particular issue we all committed to honoring that decision. I no longer make all the decisions. I have learned that other family members often have good points to raise, and everyone now participates in the decision making. I am much happier now.
Note the elements of democracy that the family has adopted.
OECD Principles
The Gulf Region family also follows the Organisation for Economic Co-operation and Development (OECD) principles of good corporate governance. The first of those is to share all relevant information. The principle of transparency is extremely important: The lack of transparency causes substantial mistrust and conflict among family members. The OECD is written for listed companies, but the principles apply equally well to families. As stated by the OECD in its Principle V on Disclosure and Transparency:
The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.2
In my experience, sharing information has been an excellent way to overcome distrust and jealousy. Sometimes, this is a very difficult culture to change. Control over information is just another form of control over others in the family.
The second principle the OECD stresses is to be accountable. A simple way of understanding the principle of accountability is “keep your promises.” Children have this elemental sense of fairness at a young age, quick to protest “but you promised!” Keeping one’s promises leads to stability and the individual confidence that the others can be trusted. Keeping one’s word is essential in the social compact.
Sharing Information
In my writing, and in my work as an advisor, I’ve added a third principle that’s especially important in family groups including family businesses: participation.
Think of the different outcome King Lear could have had if he shared his information and suspicions and was accountable to his daughters. And imagine the outcome if he had allowed them to participate in his decision making.
The Japanese style of decision making in a company setting can be carried over to a successful approach to family decision making. My own experiences with negotiations in Japan taught me how important the slow consensus process is. The Japanese men my U.S. client wanted to do business with were in no hurry. They wanted to get to know us first, even wanting to see pictures of my children and house. It was nearly two years until business was discussed. When we did begin, those discussions went very smoothly. I later wrote an article, “Working More Effectively With Wealthy Families,”3 to explain to advisors how crucial the relationship building time is and advising the fast-moving Americans to slow down and drink the green tea before doing business.
In one case in which I represented a U.S. product manufacturer in a complex distributorship contract in Japan, two points impressed me immensely. The first was when the minimum distribution amounts were discussed—usually treated as a negotiation in which each party makes claims that are exaggerated, knowing they’ll reduce those claims in one of the rounds of negotiation. I was ready for the negotiation, a skill we practiced in my law firm, but they had no interest. Instead they turned their notebooks around to face me so I could see their actual amounts. They were sharing information.
As for the second point, I’ll never forget their reaction when we turned to the dispute resolution section of the agreement. I was familiar with the usual five-to-10 pages of those provisions: Where would the court be? What sort of litigation? And so on. They proposed one sentence: “If there is a disagreement the parties agree to discuss it.” That one sentence went into the agreement. Those experiences convinced me that negotiations could be done in a truthful information-sharing manner. I then wrote another article, “Soften Up Hard-Ball Negotiations.”4
Another family in the Middle East caught my attention when I saw that a notebook in one of the living rooms showed separate sections of financial information for each family member. Everyone could look at it anytime. When the family began its governance work, they did so in an automatic manner of sharing information.
At the same time, the family unconsciously followed the dictates of the patriarch, which was ingrained in the family culture. As they developed a new process of formal family meetings, that culture visibly changed. When the issue was raised of whether the successor leader of the family should be the oldest son, as was assumed by all—they took advantage of their new tools of participation. They all participated in the discussion. They built their own consensus and divided the functions of the family leader to rotate among themselves. They all agreed to be accountable to each other. They enjoyed creating their own governance rules so much that they even prepared a family constitution.
Two Other Models
We’ve looked at the patriarch model of family governance. There are two other models, explained nicely by organizational psychologist Ivan Lansberg: the sibling partnership and the cousins consortium.5 Looking at democracy in a sibling partnership, we can also look at some of the work being done by Family Legacy Asia founder Christian Stewart in Hong Kong. He’s been “training” siblings in ethnic Chinese families to learn to practice democratic decision making. During the rule of the patriarch, those siblings had little opportunity to learn to work together. With training, the entire decision-making process became much stronger and more fair to everyone.
In the United States, we can look at the Pitcairn family office for an example of a cousins consortium, where many generations have developed representative democratic decision models. Indeed, the number of family councils created by large families in the United States also shows a commitment to peaceful decision making. Democratic ideals are built into the system: for example, voting rights, election of leaders and selection of strategies.
When countries are ranked high on the extent to which they follow the rule of law, there’s a clear overlap of those countries where the citizens feel a high sense of well-being.
It hasn’t been measured, but I would guess that families in which regular democratic meetings take place would also rank high in well-being—formerly referred to as actual “happiness.” The movement of positive psychology has encouraged peace and kindness in families.
Eight Benefits
Here are eight benefits of adopting democracy in family governance:
- There are no “secrets” that can cause family conflict. Correct information is communicated.
- Promises can be relied on. A key scholar on the theory of justice, John Rawls, wrote that the important principle of fidelity includes keeping one’s promises.6
- Those who make promises are accountable to keeping those promises.
- Promises are easy to understand—unlike the witches’ promise to Macbeth that he could only be killed by one who was “not by woman born.”
- The principle of promissory estoppel will enforce promises. This is a rule developed in the Court of Chancery, where strict legal rules could be set aside in the interest of justice. It applies when a person makes a promise, knowing that the other party will believe it and will proceed to act on it, when the promise maker has no intention of keeping that promise. Chancery courts ruled that the promise-maker is “estopped” from denying what had been promised.
- Each family member has the right to be heard and to participate in group discussions.
- Those in power positions are elected and are subject to regular elections.
- Basic human rights are respected.
So now, instead of advising families to look to countries for advice on good governance, maybe it’s time for countries to look at families.
Endnotes
1. Barbara R. Hauser, International Family Governance: A Guide for Families and Their Advisors (Mesatop Press 2009).
2. OECD Principles of Corporate Governance, OECDcorporategovernance-principles31557724.pdf.
3. Barbara R. Hauser, “Working More Effectively With Wealthy Families,” Trusts & Estates (November 1999).
4. Barbara R. Hauser, “Softening Up Hardball Negotiations,” Minnesota Ventures, at pp. 78-79 (May 1993).
5. Ivan Lansberg, Succeeding Generations: Realizing the Dream of Families in Business (1999).
6. John Rawls, A Theory of Justice (1971).