A concern about a family office's spending or conduct becomes harder to examine when it involves someone who controls its decisions. The person may be a family member, a long-serving executive, or an adviser whose relationship with the family predates the office itself.
The first task is to establish who can examine the concern without depending on that person's permission at every stage. A fair process needs a defined question, access to relevant information and an agreed recipient for the findings. These arrangements also protect the person concerned from conclusions based on rumor or unresolved family disagreements.
Our family office guide discusses the difficulty of combining family relationships with organizational responsibility. This article develops its guidance on reporting concerns, reviewing senior management and correcting mistakes into a practical approach to commissioning an investigation.
Define the concern before deciding what it means
A disputed payment might reflect an agreed family benefit, a mistake, an unclear policy or deliberate misconduct. Each possibility calls for different evidence about the conduct and the authority behind it.
Record the transaction or behavior being questioned, the information already available and the explanation that has been offered. Identify the relevant entity and the rule, approval or understanding against which the conduct will be assessed. Where the rule itself is ambiguous, that ambiguity belongs in the findings.
For example, a supplier payment may require examination of the contract, approval record and work delivered. A family relationship with the supplier is a relevant question to examine; it does not establish that the payment was improper.
Establish authority and a reporting route
The office should identify who can authorize the work, approve its scope and receive the report under its actual governance arrangements. Family ownership, management authority and control over an individual entity may sit with different people.
Where the concern involves the usual decision-maker, an alternative reporting route needs to be agreed with the appropriate governing body and advisers. The person overseeing the inquiry should disclose relationships or prior decisions that could affect their judgment. Bringing in an outside investigator can help, but independence also depends on who controls instructions, access and reporting.
The written mandate should explain the questions to be examined, the investigator's authority and the boundaries of the work. It should also set out how a request to expand the scope will be decided.
Protect information and manage immediate exposure
Relevant records may sit across the office, operating businesses, advisers and personal communications. Qualified legal and technical advisers should help determine what the office may access and how relevant material should be preserved.
Avoid circulating allegations across the family as a substitute for gathering evidence. Give information to people who need it for a defined role, while recognizing that confidentiality cannot always be guaranteed.
Any immediate protective measure should have a documented purpose and an authorized decision-maker. An additional approval requirement for a disputed payment, for example, should be distinguished from a conclusion that somebody has committed misconduct.
Give explanations a fair examination
The inquiry should test both the concern and plausible alternative explanations. Documents can be incomplete, recollections can differ and arrangements may have changed without being recorded clearly.
Plan interviews and requests for explanation around the available evidence, with advice on appropriate timing and procedure. Record contradictions and information that could not be obtained. A report should distinguish established facts, attributed allegations, unresolved questions and the investigator's assessment.
This distinction is especially important where a family dispute and an organizational concern overlap. The investigation's scope should make clear which questions it can address and which require a different process.
Turn findings into accountable decisions
The recipient of the report needs to decide what action follows and who owns it. Depending on the evidence, the outcome may involve correcting a payment, clarifying an approval rule, changing oversight or considering further investigation with advisers.
Set a date to check whether the agreed action happened and whether it addressed the identified weakness. Closing the report should not leave an unresolved control problem without an owner.
For an annual governance review, the family office can test its arrangements against one question: if a credible concern involved the most influential person in the organization, could it be examined fairly through an established process?
Falcone International's corporate investigations examine defined concerns and report the evidence and its limitations. Where the issue concerns transactions or missing funds, financial investigations can help establish the relevant facts for the office and its advisers.
Falcone International
Bring us a question like this one
We handle corporate investigations, due diligence, financial investigations and duty of care — usually for people who need something established quietly, and established properly, before it turns into a problem.