When it comes to Family Ownership, there are certain beliefs that are echoed throughout this delicate ecosystem with little to no foundation, which we will breakdown in this article.
These myths are born from the inextricable emotional aspect that guides the decision-making rationale in families who own assets together. They are common and families should be aware that they exist and that they can have negative consequences if not thought through carefully.
When power is concentrated in one person or a very small group of people, decision-making is perceived as both efficient and streamlined. The thought of setting up discussion forums, committees or crystalising rules within a document fills them with horror as it equates to relinquishing control and the ability to be nimble.
Is it the case?
This view overlooks the crucial element of transfer in generational wealth:one day, sooner or later, there will someone else who will need to make exactly those same decisions. So in the long-term, is it better to ensure quick decision-making, or to take the time to teach others? Involving the next generation in decision-making can take years, so it’s better to start early.While larger families may require more complex governance, even in a two-person leadership structure, it’s essential to define shared goals and a vision for sustaining the assets. History is full of examples where disagreements between just two siblings led to significant conflict, such as:
Family governance benefits families of all sizes
Family governance ensures alignment in vision and goals, which is beneficial whether a family has two members or thirty. The complexity of the governance structure should be adapted to the circumstances, but the need for some form of governance remains relevant for all families aiming for long-term success.
It always makes the headlines when a family have to sell their business, especially when it’s due to familial or stakeholder conflict.
Is it the case?
There are many less publicised cases where the sale was a deliberate, conscientious andmature choice, made with the family’s long-term interests in mind. The family may have decided to explore other commercial activities, or that having a liquidation event served all family members’ best interests…
Selling the business can create a strategic advantage
A successful family understands when an asset no longer serves their collective goals. Choosing to sell can signify the strength of a family’s ability to make tough decisions together. Rather than clinging to the past, it allows them to redirect their focus and resources towards new opportunities that better align with their values.
Parents often expect their children to manage the family assets exactly “as it’s always been done”. An innovative approach, a greater risk appetite or a different managerial style are seen as a threat to the status quo and therefore something to be stifled.
Is it the case?
This belief can lead to a business incapable of change and innovation and it undermines the commitment of the next generation to get involved. While family values, long-term vision, and care for stakeholders should be part of the DNA that is passed down, management strategies and business models should be adapted by the next generation. Parents should support this transition and be ready to step back, rather than control every aspect.
Empowering the Next Generation to leave their mark strengthens the family’s legacy
Letting go and trusting the next generation is crucial for the family’s success. Without this trust, organisations can suffer from mixed messages, lack of accountability and frustration among the next generation. Parents who enable genuine leadership transitions help build a stronger, more resilient family business and empower their children to bring their own strengths to the table.
The belief is that legal structures such as trusts, shareholders agreement, post and pre-nups are the only way to enforce desirable behaviours and to ensure that the assets remain under family ownership.
Is it the case?
Well, these tools are indeed relevant and they serve an important purpose of protection and ring-fencing. However, if the legal structure is so airtight that it restricts freedom of choice or personal decisions to the group it regulates, this will create a disconnect between the owners and their assets and become a burden.
Use legal tools wisely, allowing flexibility
Protection should not be a synonym for control. Family ownership should be a gateway to enabling lifestyles and life choices to provide harmony within the family. Assuming that family members need legal constraints to make the right choices indicates an inability to have difficult conversations and decide together. If family members are shackled, they can feel trapped and frustrated – the perfect recipe for conflict..
A favourite statistic of family business owners is that only 13% of family businesses survive through the third generation, implying that decline is inevitable as later generations become entitled to wealth and lose the drive and discipline of their predecessors.
Is it the case ?
Few know where this statistic comes from and whether it is actually representative. The industry asserts that the first generation builds, the second enjoys, and the third destroys, without considering that all businesses have life cycles and the potential of the next generation to carry forward a vision if properly supported and educated. Being entrepreneurial can take many shapes and sizes.
The family legacy should not rest on the fear of loss
The perpetuation of these sayings has exacerbated the insecurities of first-generation wealth creators and led to a belief that loss is inevitable. But if the next generation is viewed as pre-destined to fail, and parents are focused on protecting them for themselves, the result can only be a self-fulfilling prophecy [1]. If parents raise their children with lack of transparency and excessive control rather than building mutual trust, openness and communication,lack of transparency and control, is it not their fault if and when the children are not up to task? Here, control is, once again, confused with protection.
All families need to deal with difference, it’s part of the make-up of any family with multiple personalities, generations, and priorities. Differences can lead to tension, but this does not have be a deal breaker – it can be resolved.
For further information about any of the insights shared above or to find out more about Bedrock’s Family Strategy and Governance services, please do reach out info@bedrockgroup.ch.
Author: Maria Villax, Head of Family Strategy and Governance at Bedrock
Sources: [1] “The future of family Wealth Advising – Wealth 3.0” by James Grubman, Dennis T. Jaffe, Kristin Keffeler
Family disputes and relationship breakdowns are among the most feared challenges for families, yet differing viewpoints and priorities are inevitable. In this article, we discuss effective conflict resolution strategies for families facing tough decisions while maintaining cohesion.
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It is common to see members of the next generation in their 30s occupy a seat on the board of directors. This is desirable as it’s a very important interaction point with the business or the family’s assets, where they learn about strategy and create the family’s vision for the future. But as with most things, there is a good and a bad way to go about it. In this article, Maria Villax, Head of Family Strategy & Governance at Bedrock explores how next gens can prepare for a seat on the board.