Next Gen: Upholding family values

Family businesses each possess unique cultures and values. When considering succession of a family business, it's crucial to involve, educate, and inspire the next generation without exerting undue pressure. Family offices can assist with this process.

Establishing a family office can streamline business investment management as the business grows. Beyond administration, an effective family office supports succession planning, ownership education, and implementing family charter decisions. It may also fund new ventures proposed by the next generation.

A family office can assist with the delicate transition to the next generation and ensure that family values are maintained across the generations.  

The founder of the business may have had strong views as to how the business should be continued by future generations. Having good governance structures, in particular an effective family office function, can assist in the stewardship of these long-term goals and values. In addition, family office key personnel can help to provide insight to those taking over the helm into the founder’s thought processes and hopefully clarity on the direction of travel. Deciding when and how to involve the next generation in this process needs careful planning.

Key questions for the family office when considering maintaining family values during a family business transition to the next generation include:

• When should we introduce the next generation to the business and prepare them to be effective owners?
• What structures can sustain our culture and values as the family expands?
• Should we establish a family fund for educating our young members?

Being part of a legacy family is both a privilege and a responsibility, sometimes even a burden. Successive generations face the challenge of carving out their own identities amidst the influential legacy of the founders. There's often a tension between staying true to oneself and the desire to be significant within the family. If the family's identity is closely tied to the business, choosing a different path can raise issues of identity and belonging. Family offices should bear in mind the following key factors when involving the next generation.

Starting early

It is vital to involve the next generation early enough to give them the opportunity to embrace the family’s values but also for the founder to be open to incorporating the next generation’s goals and ideals so as to foster and retain their interest in a changing landscape. For example, different generations may look at new approaches to the business with completely different perspectives and there may be conflict as well as new challenges to face here.

Upskilling: timing and approach

Ensuring the next generation is equipped with the necessary skills and knowledge is vital for the business's continued success. Some families encourage gaining external experience before joining the family firm, while others involve young members in the business from an early age to learn at the grassroots level, helping dispel nepotism concerns. Including these principles in a family charter can prevent disputes and disappointments, outlining criteria for employment and promotion based on merit. A family office can assist with bespoke education programmes.

Purpose and values

Families should agree on the purpose of their wealth and the values underpinning their lives. Writing these down can be beneficial, but it must be a collaborative process. Imposed values are ineffective unless the family is committed and engaged. The family office can manage this codification process.

Bespoke governance

The specific additional issues that family businesses face mean they can benefit from a layer of governance in addition to the usual board and shareholder structure. A family charter and a family council are a useful addition to the more formal corporate set up.

A family charter outlines the guiding principles for a family business, typically addressing:

• A clear business vision.
• Ownership strategy, including shareholder criteria and whether shares are restricted to bloodline family members.
• Educational programmes for shareholders to become effective owners.
• Criteria for family involvement in management and membership of the family council.
• Plans for preparing future generations for ownership.
• A defined succession plan.
• Policies on appointing attorneys for incapacitated owners and managers.
• Requirements for up-to-date Wills and assessments of inheritance tax liabilities.
• Tax and succession planning.
• Communication strategies for sharing business information with the family.

Like a business plan, the charter should be regularly reviewed and updated, and a family office will generally take ownership of this process.

Family council

A family council, including members not directly involved in business management, facilitates discussions on long-term business plans. It provides a forum for debating future management and ownership outside formal shareholder meetings. Family shareholders can stay informed about business challenges and management strategies, discussing topics like dividend returns and manager remuneration.

Philanthropy and ESG

Family businesses often engage in philanthropy, strengthening family bonds and values, which in turn benefits the business. Philanthropy can involve profit distributions to charitable causes or community project involvement. If the business is sold, setting up a charitable foundation may continue the family's philanthropic goals, uniting the family post-sale.

Traditionally, businesses focused on profit-making before supporting philanthropic initiatives. The next generation is merging these concepts, considering the broader impact of employment practices, supplier relationships, environmental footprint, community contributions and ESG investing. Younger generations often view these areas as interconnected, focusing on responsible business ownership and sustainability.

Round up - key considerations

Five practical tips for integrating the next generation:

• Lead by example from a young age; the family office can find ways to involve them in the family business early.
• Put in place bespoke educational courses to develop leadership and entrepreneurial skills.
• Listen to their passions and explore ways to integrate them into the business and consider how these passions interact with the family charter/ constitution.
• Consider involving the next generation on the family council and have a clear succession plan for key family roles.
• Avoid ultimatums if they initially decline joining the business and consider alternative options for early involvement (e.g. philanthropy) as well as separate structures and exit plans; support their journey and remain open to future involvement.