Episode 15 – Foundations & Family Governance
In our fifteenth episode, Karim Ghandour, Founder & Family Succession Strategist at Legacy Line Family joins Yann Mrazek, Managing Partner at M/HQ to discuss the importance & benefits of Family Governance used in conjunction with Foundations.
Key Takeaways
[Yann Mrazek] Family Charter, family Constitution. What is it?
[Karim Ghandour]
Having different requirements and existing in different stages of life, each family has a diverse set of priorities and values that it wishes to sustain.
The big question is how the business progresses as the family dynamics change?
Family governance ensures the interrelation between the family and the business by establishing fairness and an open transparent culture of communication between family members. This provides a forum for constructive discussions, problem-solving and decision-making about the family and the business alike.
The Family Charter is a family agreement: written principles and rules that regulate the relationship of the family with its business. It is particularly designed to help make sense of those dynamics, to keep the group coordinated around common goals and to govern the relationships between the owners, family members and managers.
[YM] What are the Benefits?
[KG]
- Family Charters aim at:
- Maximizing the value of the company and developing its business.
- Balancing both the family members’ and the company’s interests.
- Family Charters help families define their purpose and can be effective tools for:
- Common Goal: It is particularly designed to help make sense of those dynamics, to keep the group coordinated around common goals and to govern the relationships between the owners, family members and managers.
- Governance:
- how the business will be run;
- Making the family members aware of their rights and obligations;
- Promoting transparency and clarity among the family members’ relationships
- Communication: Creating a platform for multiple voices and setting up a communication culture ensuring everyone in the family understands what is happening and why;
- Decision-making: developing an appropriate decision-making structure beyond the founder; how the family makes decisions.
- Teamwork: Making it possible for the family to continue to work together;
- Anticipating challenges: Proactively anticipating challenges and creating solutions as they arise;
- Succession: Ensuring the survival of the business by finding new leaders;
- Wealth: Separating family business and private wealth;
- Records: Setting approved decisions down in writing will help prevent objections as to what had or had not been decided.
[YM] Foundations and Family Charter – what impact?
[KG]
Until recently, we had limitations applying succession policy on ownership. e.g. while it is common among Middle Eastern families to opt, while drafting their Family Charter, to exclude in-laws from owning shares in the Family Business, this was unenforceable legally for Muslim individuals. Upon the demise of a Muslim Family Member, who is a shareholder, the spouse (in-law) would automatically inherit. Now that assets can be held legally by a Foundation and were transferred as life gift in line with Sharia Law, the beneficial ownership will go to the bloodline as intended originally by the Family.
A Foundation can assist in the power transitions, wherein legal ownership will be relinquished from the “Now Generation” to a neutral entity (ie. Foundation), to the benefit of the “Next Generational”. The Protector/Guardian can manage the outcome as additional security for the Now Generation, to relinquish his/her/their powers.
[YM] Can Foundations help avoid family feuds?
[KG]
Undoubtedly. Traditionally, all children and their married mothers were entitled to inherit among them all the assets within the estate of the demise Muslim patriarch, according to Sharia Law. Now, each branch can have its own Foundation, with clear ownership separation between branches, which will increase the family harmony by avoiding unnecessary friction among inherently rival parties (houses/branches).
Since the legal owner of the assets are the different Foundations, ownership will not be contaminated among branches.
[YM] Will having UAE Foundation as GCC entity count for something in other GCC?
[KG]
While there is now a clear track record in the UAE, Foundation regimes have yet to be tested in all GCC countries. In my opinion, it is only a matter of time before the tool becomes widely accepted across the GCC for all asset classes e.g. movable and immovable. Having the Foundation registered as a UAE legal entity (GCC entity) definitely gives it an advantage over Foreign Foundations or structures.
Another aspect that should evolve in time, is the use of Foundation for Charitable Planning.