One Councillor, the Council or the Guardian? Designing Decision-Making in an ADGM Foundation

In Brief:

1. An ADGM foundation should distinguish clearly between who proposes a decision, who makes it, who gives any required consent or exercises a reserved power, and who executes and implements it.
2. Defined delegation can allow an individual Councillor to act efficiently within agreed parameters without requiring a fresh Council decision for every matter, provided any mandatory collective steps are preserved.
3. The Guardian’s supervisory and constitutional role should be carefully designed so that meaningful oversight does not turn the Guardian into a second Council or displace the Council’s management responsibilities.

The governance question starts after incorporation

The Abu Dhabi Global Market Foundations Regulations 2017, as amended (“Regulations”), provide the statutory framework for ADGM foundations.

The Council is the governing body of the foundation. Its individual members are the Councillors. A Guardian, where appointed or required, performs a separate supervisory and constitutional role.

Those roles may appear straightforward in principle. In practice, the more difficult question is often not who holds a particular office, but who should make each category of decision.

Consider a simple hypothetical.

A family establishes an ADGM foundation to hold a substantial investment portfolio and interests in several family businesses. Three Councillors sit on the Council. The family wants routine investment and administrative decisions to be made efficiently, without convening the full Council every time. At the same time, it wants an independent Guardian to retain oversight over distributions, major structural decisions and changes affecting the family’s succession arrangements.

Should every transaction return to the Council? Can one Councillor act? When should the Guardian consent? And when does the Guardian exercise a substantive reserved power rather than merely approve somebody else’s decision?

These are questions of governance structure, not simply drafting.

Separate the stages of a decision

A common mistake is to focus only on who must “approve” a matter.

That can obscure whether the relevant person is:

1. initiating the proposal;
2. making the substantive decision;
3. giving consent to somebody else’s decision;
4. exercising a reserved power;
5. signing the relevant document; or
6. implementing the decision in practice.

Those are distinct legal and governance functions.

A well-designed foundation should therefore separate five stages: proposal, substantive decision-making, consent or reserved power, execution and implementation.

The constitutional documents should also distinguish those internal governance steps from any external requirement needed to make a decision effective, such as Court confirmation, filing, registration or third-party approval.

Internal governance validity should likewise be distinguished from questions of external authority and third-party effectiveness, which may have different consequences where an internal approval requirement has not been followed.

The same person does not need to perform every function.

For example, one Councillor might initiate a transaction, an authorised Councillor might determine it under a standing delegation, the Guardian might be required to give prior written consent, and a Councillor or other authorised representative might then sign and implement the approved transaction.

That separation can materially improve the operation of a foundation while preserving meaningful checks and balances.

When should the Council act collectively?

The Foundation Council remains responsible for the management and administration of the foundation.

That does not mean every decision needs to be made collectively.

Some matters must remain with the Council because applicable law requires collective action. Others may be retained at Council level by design.

These may include:

1. establishing a new delegation or governance framework;
2. materially enlarging authority previously delegated to an individual Councillor;
3. decisions for which applicable law expressly requires a Resolution of Councillors;
4. fundamental changes to investment or governance policy that the constitutional documents reserve to the Council; and
5. other matters deliberately retained at Council level because of their significance or risk.

The key distinction is between a decision that requires collective Council authority and one that falls within authority already validly delegated.

A structure can become unnecessarily cumbersome if the Council must repeatedly approve decisions that fall squarely within parameters it has already considered and authorised.

When can one Councillor act?

Delegation can provide an important middle ground between full Council control and overly broad individual discretion.

The constitutional documents can be designed so that the Council establishes the scope of a delegation and then authorises one or more Councillors to act within it.

A properly designed delegation might specify:

1. the Councillor or Councillors authorised to act;
2. the categories of decisions covered;
3. monetary or other quantitative limits;
4. relevant asset classes or beneficiary categories;
5. reporting requirements;
6. duration;
7. conflicts procedures;
8. excluded matters; and
9. the circumstances in which a matter must return to the Council.

Where the relevant responsibility has been validly delegated and no mandatory collective step applies, an authorised Councillor may make decisions within those boundaries without requiring a fresh Council resolution each time.

The Councillor is acting under delegated Council authority, not exercising an independent personal power.

Delegation must also preserve any Council, Court or other step that applicable law makes mandatory. It should not be used to transfer a non-delegable statutory responsibility or bypass a mandatory collective process.

The Guardian is not a second Council

The Guardian has a different role.

The Guardian has statutory supervisory and compliance functions, while the Charter or By-laws may define additional powers and the manner in which those functions operate, subject always to mandatory law.

The Guardian’s role should therefore be structured so that oversight does not unintentionally become day-to-day management merely because the Guardian’s approval is required for certain decisions.

There is an important distinction between the Guardian:

1. exercising a reserved power;
2. giving prior consent to a decision made by somebody else; and
3. making or implementing the underlying commercial decision.

Those concepts should not be blurred.

Where the Guardian’s role is intended to be protective, the constitutional documents can provide that the Guardian may approve or reject the proposal presented but should not originate a different commercial proposal or materially rewrite the terms selected by the Council or authorised Councillor.

That preserves meaningful oversight without creating a shadow management structure.

Consent is not the same as a reserved power

Where a matter is subject to Guardian consent, the underlying substantive authority may remain with the Council or an authorised Councillor. The Guardian’s consent operates as a constitutional condition before implementation.

A reserved power is conceptually different. Where a particular power has been expressly reserved to the Guardian, the Guardian may itself be exercising the substantive constitutional power in relation to the proposal submitted.

The distinction matters because a consent right conditions another decision-maker’s authority, whereas a reserved power may itself constitute the substantive exercise of the relevant constitutional power.

For each important category of decision, the constitutional documents should therefore identify:

1. who initiates the proposal;
2. who makes the substantive decision;
3. whether the Guardian acts by consent or reserved power;
4. whether a Council resolution is separately required;
5. who must execute the relevant instrument; and
6. who is responsible for implementation.

This is particularly important for constitutional amendments, changes to objects, appointments and removals of office-holders, and changes concerning Beneficiaries.

Frameworks can make governance more efficient

Once the roles of the Council, authorised Councillor and Guardian are clearly distinguished, a framework can combine them in a practical way.

Where permitted by the constitutional documents and applicable law, the Council may adopt a framework setting the boundaries within which a Councillor can act.

A Distribution Framework might identify:

1. the Beneficiaries who may be considered;
2. permitted forms of distribution;
3. financial, liquidity or reserve limits;
4. compliance conditions;
5. the Councillor authorised to determine individual proposals; and
6. circumstances in which the matter must return to the Council.

An authorised Councillor may then, where validly delegated, determine a particular proposal within those parameters.

The same principle can apply to investment or asset transactions.

This creates a layered model:

Council → establishes the delegation and its limits.

Authorised Councillor → makes decisions within those limits.

Guardian → exercises any separate consent or reserved-power function applicable to the matter.

That can be significantly more workable than requiring the full Council to revisit every individual decision.

Distributions show why the distinction matters

Distributions provide a useful example because they bring together the Council’s responsibility for the Foundation’s Assets, the scope of any valid delegation and any additional Guardian control prescribed by the constitutional documents.

A family may want the Guardian to retain meaningful oversight over actual transfers of wealth without requiring the Guardian to participate in everyday administration.

Subject to the Charter, By-laws and any mandatory requirements of applicable law, one possible model is:

1. the Council establishes the Distribution Framework;
2. an authorised Councillor acting under validly delegated Council authority determines a proposed distribution within the permitted parameters;
3. the Guardian gives any fresh consent required by the constitutional documents to the particular distribution; and
4. an authorised person implements it.

Approval of the framework should not necessarily be treated as advance approval of every distribution subsequently made under it.

The framework determines the scope of delegated authority. The actual distribution is a separate decision.

The drafting should make clear that the authorised Councillor is exercising delegated Council authority, rather than a separate personal distribution power.

What happens when the framework itself changes?

Not every amendment to a framework needs to be treated in the same way.

There is an important distinction between enlarging delegated authority and making a change within authority that the Council has already delegated.

If an amendment creates a new category of authority or expands the existing delegation, the matter would ordinarily need to return to the Council.

By contrast, the Council may expressly provide at the outset that an authorised Councillor can make specified changes within defined outer parameters.

For example, a Distribution Framework could permit an authorised Councillor to adjust certain operational parameters within pre-agreed financial, beneficiary or liquidity limits, subject to any Guardian consent prescribed by the constitutional documents.

This depends on the original delegation expressly and sufficiently defining the authority to make those changes.

The safeguard is simple: the delegate should not be able to enlarge the limits of his or her own authority.

The Council establishes the outer perimeter. The delegate acts within it.

Reserved matters should not become a second management system

Reserved matters can provide important protection, but an overly extensive approval regime can make a foundation difficult to operate.

The better question is what risk the additional control is intended to address.

Some matters may justify a true reserved power because they affect the constitutional structure. Others may justify Guardian consent because of the particular risk, family sensitivity or governance objective they are intended to address. Routine operational and administrative matters may require neither.

Materiality alone should not determine the governance route. The nature of the decision and the purpose of the control are usually more important.

The allocation of powers should also be considered in light of the wider legal, tax, regulatory and succession consequences of concentrating significant control in a Founder, Guardian or other person.

Conflicts and unavailable decision-makers

A governance structure should work not only when everyone is available and aligned, but also when a decision-maker cannot act.

The constitutional documents should consider:

1. what happens if a Councillor is conflicted;
2. what happens if the Guardian has a personal interest in the matter;
3. what happens if the Council loses quorum;
4. whether a temporary or alternative decision-making mechanism is legally available;
5. what happens if a required decision-maker does not respond within the applicable period;
6. when Court directions may be appropriate; and
7. whether urgent preservatory action can be taken while an approval is outstanding.

These provisions may appear secondary during establishment. In practice, they can determine whether the foundation continues to function during precisely the circumstances when robust governance matters most.

Succession planning should include the decision-making structure

Succession planning should not relate only to the Assets held by the foundation or the identity of its Beneficiaries. It should also address succession of the foundation’s decision-making structure.

A structure should therefore be tested on the assumption that the Founder is no longer available.

The constitutional documents should consider:

1. who can initiate an amendment;
2. who substantively approves it;
3. who is required to execute it;
4. what Council or Court steps may apply;
5. how successor Councillors and Guardians are appointed; and
6. whether the structure can continue operating without a governance gap.

Where an office-holder is a corporate entity, the documents should also distinguish between changes in that entity’s internal ownership, board or management and an actual change of the constitutional office-holder.

These questions become particularly important where an amendment mechanism that works efficiently during the Founder’s lifetime depends on execution or authority that may no longer be available afterwards.

A structure that operates efficiently only while the Founder remains involved is not a complete succession solution.

Governance also needs an evidential layer

A decision-making structure should not only identify who has authority. It should also make it possible to demonstrate that the correct process was followed.

Council resolutions, delegated decisions, Guardian consents and reserved-power determinations should identify the authority relied upon and distinguish the substantive decision from later execution and implementation.

The records should also capture any mandatory additional step, such as Court confirmation, external approval, filing or registration.

This becomes particularly important when a foundation changes its Councillors, Guardian, Company Service Provider, advisers or administrators. A sophisticated governance structure that cannot be reconstructed from the records may be difficult to operate or defend in practice.

A practical decision matrix

The following is illustrative only. The applicable route will depend on the Charter, By-laws and mandatory requirements of applicable law.

Any governance matrix should operate only as an administrative guide. It should not itself create, expand or alter authority conferred by the Charter, By-laws or applicable law.

The value of the exercise is that it forces each stage of a decision to be identified deliberately rather than leaving the interaction between the Council, individual Councillors and Guardian to be resolved later.

Conclusion/Recommendation:

The challenge in foundation governance is not simply how much control to retain, but where that control should sit and when it should be exercised.

A structure can become cumbersome if too many matters require collective approval. However, it can be fragile if authority is delegated without defined limits or adequate oversight.

Effective ADGM foundation governance therefore separates proposal, substantive decision-making, consent or reserved power, execution and implementation, and carefully allocates each function to the appropriate person.

The objective is not maximum control. It is the right control, exercised by the right person, at the right stage of the decision.

There is no single governance model that will suit every family. The appropriate allocation should reflect the family’s objectives, asset profile, succession plan and the mandatory requirements of the Regulations.

Hadef & Partners regularly advises families, family offices and private clients on the establishment and governance of ADGM and other UAE wealth-holding structures, including bespoke delegation frameworks, reserved powers, decision matrices and succession mechanisms. Addressing these questions when the structure is designed can materially reduce the risk of deadlock, unintended control and operational difficulty later in the life of the foundation.

If you would like more information on this topic, or have any questions, please contact Ahmad Sergieh, Partner and Head of Corporate and Private Wealth (Dubai) at a.sergieh@hadefpartners.com.

Disclaimer: This article provides general information only and does not constitute legal advice. The appropriate governance structure will depend on the relevant Charter, By-laws, facts and applicable law.