Discover our Smarter Succession content series which uncovers some of the tensions surrounding wealth and business transfer, and how to overcome them.
Passing on a family business can sometimes seem a daunting process. At Barclays Private Bank we have a long history of working with clients as they navigate both the emotional and practical challenges of moving a family business from one generation to the next.
While every family is unique, we have come to recognise many scenarios that can lead to frustration, confusion or tension. Our panel of experts discuss these potential pitfalls but also offer advice to protect your wealth and support your succession planning.
You may be undergoing the transition now. Or you might still feel that you are many years away from transferring the family business. Either way, our wealth advisory experts are always on hand to make sure everything runs smoothly.
“This is a common scenario,” says Antonio Risorto. “A business is created in the founder’s image, and although sometimes children are a chip off the old block, often they show no interest in the family business. What’s important is that families are open and discuss the options that are available to them.”
As Mark Tucker points out, a common misconception is that there’s a binary choice between ‘sell’ and ‘pass on’, but that’s overly simplistic. “There are multiple other choices,” he says, “such as seeking outside investment, splitting the business into distinct business lines, and transfer of shares to family members over a staggered period of time, to name a few.”
Sometimes there can be an unrealistic expectation placed on children to take control of the business when a founder retires or passes away, says Risorto. This could be a significant source of stress, so it’s important that families are open and discuss the options that are available to them as early as possible. An independent arbitrator, who has wide experience of helping families to assess what skills each member can bring to the business, can be invaluable here, he adds.
If no family member has the desire or is capable of taking the helm, then a potential sale can be considered. And this could end up being the best option for everyone, according to Clare Stirzaker. “A liquidity event may enable the family to get involved in other projects, such as a new business, management of an investment portfolio, philanthropy or impact investing, to which they are more committed but that still creates a legacy worth protecting for generations,” she says.
“This is a common concern”, says Nike Anani, referencing the research Barclays Private Bank commissioned on the emotional aspects of wealth and business transfer. It highlighted that business owners have difficulty in letting go and tend to think their children are never ready to take over. It means handing over a business can be as emotionally charged as letting go of your baby, as Anani puts it. But facts must be faced.
“If there is a desire to pass the business down to the next generation, then it will be the job of their children, either as managers or owners, to carry on the business and ensure its success, so it’s better to help them get ready instead of keeping them from making mistakes,” says Stirzaker. “A development and involvement plan is crucial to enable them to carry out their roles effectively. Defining what roles are available for them, the skills they need to develop and what success looks like, are key elements to help them prepare gradually and effectively.”
Encouraging the next generation to work outside the family business and build up additional experience can be a helpful strategy, adds Stirzaker. As can establishing mentoring relationships with non-family members who can help with their development.
According to Anani, one commonly neglected area here is the preparation of the next generation to manage relationships with their siblings. “The family business will transition from a founder-led business in generation one, to one that is led by a siblings partnership in generation two,” she says. “Becoming productive and collaborative partners is not automatic. It takes practice and time.”
“No matter what we may wish, the reality is that our children are not always like us and their priorities, values and capabilities may be very different – not only because of their nature, but also because they may have had significantly different life experiences,” states Effie Datson. These experiences may include periods of education and travel abroad, which can in turn bring new capabilities, expertise and interests. “As our research showed, this can lead to a lack of trust between generations,” she adds.
But new thoughts and ideas can be crucial for a business to succeed, says Risorto. “The evolution of a family business is reliant on fresh perspective and approaches. Just because something has been done one way for the last hundred years, it does not follow that it should be done so for the next hundred years.”
“We hope to help families navigate these tensions by setting out a purpose for the family office and family business, and helping entrepreneurial families plan for business succession,” says Datson. “That means identifying the right role and set of assets for each family member and the best ownership and management plan for the family’s core business across a wide range of options.”
Tucker argues that entrepreneurial skills may be over-rated in this context. “Contrary to popular belief, many entrepreneurs are not always focused solely on profit,” he says. “Whether a next generation family member is more entrepreneurial than managerial in approach is neither here nor there. It’s the adoption of a work ethic by the next generation that is seen as key. Successful entrepreneurs recognise that hard work drives opportunities.”
The clashing of family views is a familiar theme for all our experts – particularly for Anani, who specialises in bridging the gap between the generations. As she points out, “It’s the ‘family’ part of family business that is often the hardest part.” However, conflict can be a positive force. Anani adds: “The truth is that not all conflict is bad. It can be constructive, and as families we should strive to have constructive conflict as opposed to destructive conflict.”
Anani believes that in the arena of “constructive conflict”, it’s important to let everyone participate, and to let them say everything that is in their hearts and minds without judgement. Often this can mean that family members bring up long-standing, unresolved issues, but it’s important to be empathetic and patient. Inviting an expert to mediate can be very helpful here.
According to Tucker, a regular review of the family’s shared purpose is critical for avoiding the build-up of internal tension. “It’s important to ask why they actually want to be in business together,” he says. “This provides the opportunity for individual aspirations and anxieties to be shared. Business for families is not exclusively about driving profit, as there are many non-financial, emotional aspects at stake that can only truly be understood by analysing the family’s past and present values, and its vision for the future. Dialogue across all impacted members within the entire family business system is essential.”
“Family businesses tend to start planning for succession as a consequence of a negative event: a death in the family, a struggling business, opposing shareholders’ priorities and so on,” says Stirzaker. “The result is typically a knee-jerk reaction that’s often emotional and not well thought out, and answers to a specific set of circumstances instead of providing a consistent and objective decision-making framework.”
Families need to start planning long before any negative event in order to create a long-term strategic alignment between family members, she adds. Otherwise, tension is likely to get in the way of reaching a consensus.
According to Tucker, failure to agree a succession plan well in advance can have disastrous consequences. “Too frequently, we encounter a principal founder or owner who is the most dominant family member and who not only leaves planning too late, but also fails to embrace the perspectives of the next generation. It’s as if the values of the family business are to be handed down with no room for change,” he says. “This often leads to resentment and can even accelerate the collapse of the family business.”
Values are the glue that can keep a family business together, says Anani. “But the challenge families face, as the family unit becomes larger and more complex, is creating a compelling case for the family to stay together in business,” she adds. That compelling case often comes down to shared values.
“I find that an open, honest conversation about shared values is a vital starting point for organising the family’s business, investment, and philanthropic initiatives for generations to come,” says Datson. “We help clients to have these conversations and document their values and beliefs in a family charter and statement of principles. This helps everyone to find key points of agreement and to create a framework for evaluating specific initiatives against their core values and beliefs.”
According to Stirzaker, it’s essential to acknowledge the fact that values and beliefs can evolve with each generation. “Families should never forget their origins and what made them successful, but they should adapt to new needs so that progress and innovation are not stifled,” she says.
Sustainability is one area in which the younger generation tends to show greater enthusiasm. This was a particularly prevalent theme in our research and something we explored in our article, Building Sustainable Family Legacies.
According to Damian Payiatakis, when children are inheriting a legacy, they’re also thinking about how to continue it in a way that is authentic to them and their generation. As he puts it: “Younger generations want to inherit not only good businesses, but also businesses that do good.” Experience has taught him that encouraging them to explore new investment ideas and new business initiatives around sustainability can be a good way to connect them to the family business through a lens of their existing interest.
“Appointing trustees can be difficult for business owners, as they fear that they’re giving up control over their business and family matters,” says Stirzaker. “But trustees can bring expertise and an independent, objective view that adds an extra layer of protection for both the family and the assets held in trust.”
The most important thing, according to Stirzaker, is to choose trustees who clearly understand the family’s values and objectives and can build a successful long-term relationship with them. “Families are often tempted to choose family members as trustees, but this should be handled very carefully as may result in a conflict of interests,” she says. “They should think about the valuable role that professional, independent trustees can play alongside families to build a sustainable structure.”
According to Risorto, families should do all they can to educate themselves on exactly what a trust is and the benefits it can bring. “There are different types of trusts and deciding on what is best for a family and their particular circumstances requires the input of professional advisors,” he cautions.
“Families who don’t fully understand the importance of the role of trustees invariably encounter conflict,” says Tucker. “In many respects, they need to invest even more time developing relationships with the trustees than they would with fellow family members. Experienced trustees should have a deep understanding of the family’s shared purpose and their role in facilitating, rather than hindering, the maintenance of the family’s values and delivery of its vision.”
It’s crucial to get the right team in place, according to Tucker, who says the ever-increasing complexity of multi-jurisdictional investment has consigned the ‘one advisor’ model to history.
“The complexity of a family’s affairs will dictate the quantity and variety of professional skill sets required,” he says. “A team of banks, lawyers, trustees and other skilled advisors helps to ensure business succession plans can navigate any undesired pitfalls and evolve with the changing landscape whilst ensuring the family’s shared purpose is protected and maintained.”
Risorto agrees that good succession planning is a complex puzzle and says it‘s likely to require the input of professional advisors across multiple jurisdictions. They will need to liaise with one another to ensure that what is undertaken in one jurisdiction is not detrimental to any action undertaken in another.
At the very minimum, a family should map out where they operate, the ownership structure of the business and the different laws under which the business operates, he says. This will help identify potential conflicts. “It’s important that they determine who owns what, where and who they would want the asset to go to,” he adds. “Unfortunately, doing nothing is not really an option.”
Mark Tucker is Global Head of Wealth Advisory at Barclays Private Bank, leading a team of 16 wealth advisors based in London and India. He works alongside private bankers around the world to assist clients with complex multi-jurisdictional succession planning needs. Mark’s expertise is in trust and estate planning and family business advisory, with particular focus on emerging markets. He has spent 22 years at Barclays Private Bank and is a member of STEP (Society of Trust & Estate Practitioners).
Effie Datson is Global Head of Family Office at Barclays Private Bank. She brings more than 25 years’ experience in wealth management to help family offices to access the full suite of Barclays capabilities and its global network. Prior to joining Barclays, Effie held roles at Goldman Sachs and Deutsche Bank, and worked as a hedge fund professional. She is founder and former Board Chair of 100 Women in Finance in EMEA and holds both an MBA from Harvard Business School and A.B. magna cum laude from Harvard College.
Antonio Risorto is Head of Wealth Advisory for Key Clients at Barclays Private Bank. With more than 25 years’ advisory experience, he works holistically with the bank’s largest and most complex clients worldwide. Antonio is an expert in resident non-domiciled clients and has a deep understanding of tax requirements, having spent most of his career helping global clients to preserve wealth for future generations. Prior to joining Barclays in 2010, Antonio held roles at Grant Thornton and Deloitte. He is also a member of the Chartered Institute of Taxation and holds financial planning qualifications.
Damian Payiatakis is Head of Sustainable & Impact Investing at Barclays Private Bank, leading efforts to guide individuals, families and charities on investing to protect and grow wealth while making positive contributions to the world. His team’s work has been recognised by the UK Cabinet Office and he was part of the UK Government’s Taskforce on Impact Investing. Damian graduated from Brandeis University with Highest Honours. He holds both an M.A. in International Economics & Finance from Brandeis International Business School and an M.Sc. in Organisational & Social Psychology from the London School of Economics.
Clare Stirzaker is a partner and solicitor at PwC UK who advises international private clients and family offices on a wide range of personal tax and related legal matters. She is viewed as one of the leading private client advisors in the UK and has won numerous private client prizes with bodies such as STEP and Citywealth. Clare qualified as a lawyer in 2008 at Baker & McKenzie and has since worked exclusively with private clients, spending time within Barclays Wealth before joining PwC.
Nike Anani is a second generation family business owner and family business consultant, with over a decade of experience in Nigeria. She works with family business owners and next generation owners to bridge generational gaps, to enable their businesses to successfully transition to the next generation and leave a lasting legacy. She helps clients to communicate, collaborate and collectively gain clarity to increase profit and productivity.
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