[Sponsored Article] If Vincent Lo Hong-sui could only give you one piece of advice about setting up a family office, he would tell you to establish a family governance system, right at the start. This advice results from his personal experiences. Lo, the Founder and Chairman of Shui On Group, was involved in a high-profile court case over his parents’ estate. “The earlier you start the process of establishing a family governance system that includes a constitution, the better,” he says. “That’s because it becomes almost impossible to agree on anything as the family gets bigger. If that situation occurs, someone will have to dictate what happens, and that’s never a good thing. If you start the process when the family is still small, everybody will hopefully be more committed to making it a success.” The Hong Kong-based businessman has first-hand experience of what happens when a family governance system is not properly established. In 2016, his mother filed a case in the High Court to dismiss HSBC as a trustee for its shares in Great Eagle Holdings, a company she had jointly built with Lo’s father, Lo Ying-shek, in 1963. Vincent Lo says that the lack of family governance is the reason that the family became embroiled in a courtroom drama. “If my father had established a more detailed family constitution, formed a family council, and had family assemblies to discuss the issues, the family might not have gone this way,” he says. That’s why Lo is so enthusiastic about family governance. He has established a family constitution for his own family branch who leads Shui On Group with businesses in property development, construction and contracting. A family constitution, according to Lo, defines the values of the family. It also clearly lays down ground rules for how the family business should be run, how family members should treat each other, and what should be done when a member breaks the rules. It must serve to mitigate any future disputes or disagreements regarding the family business, thereby preserving the wealth and integrity of the business throughout the generations, he says. “With regard to the family feud that we are experiencing, my parents wrote letters which contained wishes and instructions a long time ago. But they did not establish a vehicle to put such instructions into place. The assets were placed in a discretionary trust with a bank, but the trustees are not part of the family, so they are not well-placed to deal with family issues,” Lo says. Establish your values A family constitution not only governs the behavior of the family, it establishes what the family represents, Lo says. This constitution reflects the core values of a family such as integrity. Beyond these ground rules, a family governance system also sets out how the family should provide for its members in terms of education and professional training. It also covers future leadership roles. Once the document is put in place, it needs to be implemented. This is where the family office comes into play, says Lo. “I think there’s a lot that you need to do to keep the family together from a business and family point of view, and hopefully the family office can play a big part in that,” he says. Ensure a successful implementation The family office ensures that the constitution is followed and implemented. “But it’s no use spending months producing a piece of paper that nobody follows,” Lo says. Consequently, he says that families must make use of viable tools, such as a family council, which can execute decisions and mediate when necessary. For an effective set up, Lo advises that families invite one or two outsiders that the family members look up to and respect to join the council. Personal friends who know the family well are also good choices. Lo’s family council contains two outsiders. Both are close family friends. They give family advice when necessary. This also means there is a neutral way to counsel and mediate. Lo says it was straightforward to set his family office up, as his family is small. He has a son and a daughter. His daughter was appointed Executive Director of Shui On Land in 2018. But “you need to plan for when the family grows”, he says. Mindful of his own experiences, Lo does not shy away from explaining why he has gone to such great lengths to establish his family office. He has a deep desire, of course, to ensure his wealth is preserved through the generations, and that the Shui On businesses continue to grow. “It is also more investment focused,” he explains. “Because I have two public companies, and some private assets, there is Shui On Investments to help manage all that. But the family office will be there to back up the family members,” he says. Lead without managing With the business landscape changing at breakneck speed, doing business today is more complex than ever. So how do you make sure that you can effectively lead a company even if you’re not managing it? Lo’s solution: the family office. “In the early days, you just accepted what was handed down to you. It was all about estate planning to save on estate duty,” he says. “But today, succession needs to be planned carefully and diligently. Ownership and management can be separated. Professional management which can include family members is the key to preserving a family business. You want a balance between the needs of the family and the needs of the business, so you need to structure it efficiently and effectively,” Lo says.