Ohio Family Trust Companies—The Governance Solution

CLS Consulting’s sixth installment of the Ohio Family Trust Company Act educational email series will delve deeper into the family’s ability to initiate a family governance structure under the family trust company (“FTC”) umbrella.  This series has previously mentioned that a key advantage of an FTC is the ability for a family to keep family members engaged in the family enterprise beyond working in the family business.  For those not interested in family business opportunities, involvement in the family trust company – on its board and committees – may be of interest.  One way an FTC can accomplish this is by establishing a family governance platform that can clearly define the process for developing the next generation of successors
through leadership roles in the FTC or educational programming sponsored by the FTC. 

Typical roles in an FTC include Directors, Officers and Committee membership.  FTC Board of Directors are frequently comprised of Family Branch Directors who are given the opportunity to demonstrate leadership skills outside of the family business.  In addition, two optional committees for an FTC – an Education Committee and a Family Engagement Committee – can help, respectfully, educate family members as well as plan ‘family glue’ activities to keep the family connecting beyond a shareholder meeting format.  With this broader breath of opportunities, more family members may find an opportunity of interest that matches their skills to provide them a platform to engage and ‘shine’ within the family enterprise.

When it comes to family governance, transparency and consistency of shared information can go a long way in creating family harmony.  Humans have a tendency to “fill in the gaps” when they don’t have complete information – frequently “filling in the gaps” with incorrect information.  When you reach the “cousin consortium” level, there are more family members that may have disparate information potentially leading to distrust.  The FTC’s reporting and family representation on the FTC’s Board of Directors can quell some of the passing of misinformation as the FTC provides consistent reporting. 

Under the FTC umbrella, a family governance plan can define the family’s mission, vision and values and set forth specific family by-laws or code of conduct.  Most importantly, the family governance plan can assist in setting forth family policies such as employment, education and conflict resolution policies that will govern the family’s continued involvement together.  The FTC can also play a role in answering critical family questions about shareholder transitions.   For example, is the future ownership of the family company clearly defined? How will shares pass through future generations?  Where will shareholder decision making be vested for current and future shareholders?

In addition to being involved in corporate governance, an FTC also provides a vehicle by which family members (usually the older generation) can guide other family members (typically the rising generation).  The FTC does this by engaging members through both social and educational opportunities.  For example, an FTC can plan regular gatherings of family members for both social and business interactions.  An FTC – frequently through a Family Engagement Committee – may also distribute a family newsletter, sponsor family trips and encourage philanthropic endeavors.  All of which create the opportunity for the “older generation” to pass along family values, traditions and heritage of the family to the rising generation.

For the next installment of the e-mail series, the focus will turn to the requirements to operate as a licensed Ohio family trust company.  Although Ohio is one of few states that offer an unlicensed family trust company option, many families decide to “act as if licensed” by implementing some of the licensed requirements to protect the family legacy.  A comprehensive list of requirements to consider will be shared in the next e-mail!       

^{Disclosures: The information provided is general in nature, is provided for informational purposes only, and should not be construed as financial or legal advice. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All financial decisions must be evaluated as to whether it is consistent with your objectives and financial situation. You should consult with a financial, tax, or legal professional before making any decisions.}