This is the second half of a two-part article examining what wealthy families can do with good governance to protect and develop an art collection.

This is the second part of a two-part article by Randall Willette, founder of Fine Art Wealth Management, and a regular commenter in these pages on such issues. He goes into the details of what is at stake in creating a family governance structure for fine art. This publication is grateful for being able to republish this material. To see the first of the articles, click here.

The role of philanthropy
It is a fine gesture for a family to share their passion for art by enriching a museum's collection or to give them on loan to an exhibition in order to share their enjoyment with others. However, donating art works to a museum may involve more than one thinks. Making a donation, particularly when it comes to larger collections, can take considerable forethought and planning. Done properly however, donating art can benefit not only the institution, but also a family's status and future generations of art lovers and museum patrons.

The most important question the family art council should consider before donating to a museum revolves around whether the museum is ready for the donation. In most cases, partnering with a museum early on is crucial.

Ultimately, the family must strike an agreement which spells out the terms by which it will offer, and the museum will accept a gift. In the end, both parties are likely to be more comfortable with that if they've spent considerable time working out any issues that may arise.

The family art council may also be given responsibility for philanthropic initiatives by combining the family’s passion for art with wealth giving. Strategies can range from supporting artistic excellence by funding established arts organisations with a proven track record of artistic achievement; encouraging creative expression through stimulating greater artistic risk taking; or fostering greater cross-cultural understanding by supporting the active engagement from all socioeconomic and ethnic backgrounds with art and culture. Though still relatively rare, private museums opened by collecting families are also increasing in both size and number globally.

The curatorial board
Even for families stocked with talented and accomplished individuals, it is a mistake to attempt to develop and implement a family governance system for a collection without professional guidance and support. This process is a complex and nuanced one that calls for some independent vision.

Dealing professionally with art requires time and considerable knowledge. Obtaining recognition as an art expert generally requires intense study, whether theoretical, academic or practical.

Outsiders can often raise sensitive and important issues without the emotions and burdens of family baggage.

Usually composed of non-family representatives, the curatorial board is separate and distinct from the family art council and helps to identify and prioritise issues objectively and recommend resources to address them. The function of the board is to leverage the expertise of its various members including art experts and other art market professionals, and to tackle complex and sensitive challenges facing the collection.

Art governance documents
To govern the relationship between family members and the professionals who manage the collection, the family should create art governance documents including a mission statement, collection management policy, and bylaws. If a family can come together and engage in the collaborative process necessary to produce such documents, there is a good chance it will emerge with a set of principles that reflect what is important to the family, what it would like to accomplish and how it views the collection in the long term.

Because each family's needs are different there is no real standard or template to follow. However, the following components should be included in the collection governance documents:

- Collection mission statement;

- Family charter for succession planning;

- Collection management policy.
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Family collection mission statement
A family's mission statement sets out a road map in broad aspirational terms of what's important to the family. It is a family's articulation of how they view their collection, what they hope to achieve with the collection, and what kind of legacy they would like to pass on to future generations.

When done well, the process of creating a mission statement and revisiting it on a regular basis can be an intensely unifying experience for the family.

The families who ultimately succeed in weaving their mission statement into the fabric of what they want the collection to stand for are the ones that return to the statement periodically and ask themselves these questions:

-Do we still believe it and does it still accurately reflect our values?

-If not, what do we have to do to change it to make it accurate again?

-If it is still an accurate expression of our values, vision, and mission in life have we managed the collection in accordance with it?

-If not, what do we need to do to get back on track?

Family collection charter
Having created or inherited a collection, many families will wish to ensure it is preserved both during their lifetime and for future generations. Planning how to transfer a family collection to the next generation can be one of the most critical aspects of building and maintaining a collection. In light of potential tax and other financial liabilities, deciding on the best strategy early on can be critical.

Creating a family charter for the collection can be a useful control mechanism for the concerned older generation, as well as a "road map" for future ones. A charter which includes a well thought-out succession plan can play an important role and provide a business-minded approach.

While the family charter has no legal standing with regard to the issues covered, it does have a bearing on the legal documents for tax and estate planning that supports the family’s intentions and goodwill for the collection as set out in the charter.

Planning for succession of the collection is often a difficult subject, with the older generation struggling to decide when and how the younger generation should inherit. The best way to mitigate this potential pitfall is through long-term education and effective communication between the generations.

Collection management policy
The function of a family collection policy is to provide long-term guiding principles for the management of the collection. The policy should be written in broad enough terms to last for several years and should include the following components:

• Collection development;

• Collection documentation;

• Collection access;

• Collection care and conservation.

To achieve maximum benefit, while also ensuring long-term care of the collection, these four areas of policy should be developed by the family in collaboration with the curatorial team with close reference to each other, and in line with the overall family mission statement.

Just as established art institutions use collection management benchmarking as a tool to identify areas of need in the care of museum collections and to prioritise the use of resources for improvement, so should private family collections. Benchmarking a family collection involves looking outward to examine how other sophisticated collectors establish collection policy and to understand the processes they use. When the lessons learnt from a benchmarking exercise are applied appropriately, they can facilitate improved performance for family collections in critical functions performed among leading international collectors.

Monitoring the performance and measuring success of family art collections also requires explicit governance practices that hold art market professionals who are advising on the collection accountable. This should include pre-determined benchmarks, regular evaluations based on set criteria and clear reporting outcomes.

Accountability plus objectivity contribute to building trust, which is a key underlying factor in selecting the best team of art market professionals for the collection.

Conclusion
Creating a governance structure and documents for a family art collection should capture the family's vision for the collection and important family values. If you invest the time (it’s typically a multi-month process) and some careful thought (we recommend using an art succession planner to help guide this process), and include input from an array of voices (both family and non-family), there’s a good chance collecting families will end up with a reliable way to make decisions that are more likely to be respected over time. As more time passes, the moral legitimacy of this system will be cemented, providing a solid foundation for the family to build upon its successes and its legacy.

Equally important, it is impossible to design a process that helps families make better decisions when there is no way to determine—or effectively measure—what a good decision is for a particular family collection. We believe that eliminating family conflict is impossible, but that the principal goal of a collection governance system is to manage the potential for family conflict by making it more likely that decisions will not be challenged.

The family art council, bolstered by a well thought-out mission statement, collection management policy, and family charter, constitutes the best forum for achieving and maintaining an optimal balance of collection care, sound art due diligence, and family values - and one that fosters a positive family interaction with the collection.