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Family Office – Family Anchors and the Challenges of Wealth to Family Governance

Loss of family identity and values

Family values, family legacy and the renewed sense of purpose brought on by a multigenerational family vision are the anchors of an enterprising family’s continuity plan. But these often erode as families grow in number and wealth.
While some members of the family are busy leading successful family enterprises, others can serve the family well by stewarding its continued engagement with the original values of the founder and the founding family, and adapting them as needed. Spouses and in-laws of those actively managing the day-to-day activities in the enterprise or the family office can play a significant role in engaging the next generation in re-discovering the nonfinancial legacy of the family and facilitating its re-adoption for the future.
Family conflicts

Speed is one of the competitive advantages inherent in entrepreneurial firms resulting from the overlap of ownership and management. But in later generations, a family that is paralyzed because of conflicting views across generations or across branches of the extended family can become inward-looking and fertile ground for turf wars. In
the process, a family enterprise can forget its most basic comparative advantage in relation to often larger, more global, and bureaucratic corporations–its nimbleness.
As Sir Adrian Cadbury, former Chairman of Cadbury Schweppes, the large British chocolate and beverage maker, observed, perhaps reflecting on his own family’s experience, “Paradoxically, the less important some established
family benefits are, the more trouble they can cause. I was once involved in a dispute in a family firm over the produce from a vegetable garden.The family home, factory and garden were all on the same site and the garden was cultivated for the
benefit of those members of the family who lived on the spot. When this apparently modest benefit came to be costed out, it was clear that it was a totally uneconomic way of keeping some members of the family in fresh fruit and vegetables. Any change in the traditional arrangement was, however, seen by those who benefited from it as an attack on the established order and the beginning of the end of the family firm.”(1)
Current leader’s inability to let go

The critical and urgent need to build institutions of family governance is often lost on the family CEO. In a study conducted by the author, the most statistically significant finding was that CEOs of family businesses perceive both the enterprise and the family much more favorably than do the rest of the family and nonfamily managers. The findings further indicate that CEO/parents perceive the business in a significantly more positive light than do other family members along the dimensions of business planning, succession planning, communication, growth orientation,
career opportunities, and the effectiveness of their boards. In the absence of expressed dissatisfaction with the status quo, the CEO/parent may be the last to recognize the importance of engaging in still one final leadership responsibility—creating the institutions that will effectively govern the family–enterprise and family-wealth relationship in their absence.(2)

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Sources

(1) Cadbury, A. (2000). Family Firms and Their Governance: Creating
Tomorrow’s Company from Today’s. London: Egon Zehnder
International.
(2) Poza, E., Alfred, T. & Maheshwari, A. (1997). Stakeholder Perceptions
of Culture and Management Practices in Family and Family Firms.
Family Business Review, 10(2), pp.135-155.

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