Family offices often have a long-term view and are used to preserve and grow the family’s wealth. They often provide support to family businesses, such as offering financial advice and helping to raise capital. Additionally, they can assist family businesses with succession planning. Increasing focus on impact investing and climate change introduces new factors in helping to ensure the continuity of the family business and legacy. Family offices and family businesses can work together to ensure the long-term preservation of wealth and legacy.
In the context of climate change, some business successors are rejecting their families’ businesses to participate in the fight against climate change. Descendants choose to put money and time into projects that are focused on sustainability, carbon-free energy, and environmental protection. For some, this means sacrificing profits for a greater impact on the future of the planet. Some individuals chose to break away from their family’s traditional business model and pursue their own career paths; others challenge family business operations directly. Reasons for doing so vary from person to person, but the common denominator is a desire to find their own unique purpose in life and to create a life that is meaningful to them. Whether seeking new ventures and leaving the family business or confronting disapproval to transform the management of a legacy business, these individuals set examples for future generations of entrepreneurs.
I watched play out last year as I watched a father brim with pride while his son described the future envisioned for the family business. This unified front had been years in the making. The son’s description portrayed a dramatic rejection of the family legacy. As young adults, the executive’s children had united to challenge the company’s environmental record, threatening to reject decades of hard work. Yet, what emerged as a family conflict turned out to be a timely transformation.
The experience led me to want to find a pattern to their success. An ageing scion may have realistic and irrational reasons to decide that none of the family members is capable of filling top roles. But in this case, emerging notions of impact investing and moral capitalism reversed that dynamic. Young heirs rejected the custodial work of sustaining what they perceived to be a dirty business. Such a decision is difficult to disclose without creating a sense of betrayal among relatives.
Breathless coverage of the dramas within the Rockefeller and the Pritzker families drew attention to the moral obligations of money. Liesel Pritzker Simmons set the tone for generational wealth by directing her family wealth into impact investments after a 2005 settlement. The Rockefeller Brothers Fund followed suit in 2014 when they announced the direct descendants of oil baron John D. Rockefeller would divest from fossil fuels and commit to green energy solutions.
Facing up to the contradictions of entitlements and virtue signalling, next-generation owners can find positive ways to navigate transformational change.
Respect vulnerabilities
Rivalries among family members – parents and children, siblings, non-family executives and relatives – erode operations for many family businesses. Succession planning often taps into fundamental conflicts of jealousy and guilt. An elder leader who passes on power senses the threat that his or her influence will be forgotten. Meanwhile, young heirs navigate feelings of entitlement, resentment or insecurity. Without a designated successor, putting the business up for sale still cannot satisfy the desire to distribute the family wealth. When the business represents a medium for expressing family ties, rejection of the means of employment suggests there will also be dissatisfaction with the ill-gotten gains. Listening out for underlying motivations can assist negotiations by finding kind ways to tackle individual vulnerabilities.
Be future-focused
Business owners bring together an array of advisors, lawyers, accountants, financial advisors and wealth managers. The team helps inform the decisions that will shape their family’s future as well as the future of their business. But the transition of leadership to future generations now requires additional perspective. Environmental, social and governance (ESG) attributes increasingly shape whether sons and daughters are willing to associate with the family business. Active listening sets up meaningful deliberation by which family leadership teams can set out important priorities for the future of their companies.
Embrace internal conflict to understand bigger trends
Attention to ESG and impact investing provides new criteria for success and introduces fresh approaches for generational hand-offs of family businesses. The example of an industrial company that relied on coal-fired generation offers a useful case study. Its vertical integration helped the business meet its energy needs and grew it into an international conglomerate. Poised to continue this trajectory, the business embodied the friction between the industrial and information eras. In hindsight, the son spoke enthusiastically about the troublesome holiday dinners. He and his siblings gained insights at university and recognized climate change as an existential threat. After a contentious few years, external trends caught up to the kitchen table debate. Looming taxes on carbon emissions made the transition to a clean industrial strategy desirable to the whole management team.
Be open to outcomes
Shifting from retiring owners to non-family members need not be seen as a failure. For instance, the oldest daughter of the founder of a components manufacturing company grew up along the production lines. Familiar with the small, 50-person staff well, preserving their jobs became a priority. The 70-year-old business served the military, its single customer since the first supply of components shipped out. While she stayed apart from the business during her education, as her father aged, she began to support the company’s accounting and bookkeeping to ensure the company’s viability in a changing market. Yet, a lack of interest in military hardware and distaste for what she perceived as war profiteering would impede the business. The natural solution was to seek a non-family executive to take over as CEO. The hard decision preserved jobs and sustained the business, but removed the family from the company’s future.
Family owners are often given the false choice between sustaining a business or keeping it in the family. In part, that is because an entrepreneur cultivates an intense sense of proprietorship. A business often becomes an extension of oneself. The achievements of a lifetime become a succession concern. A founder seeks to transition to future leaders who can sustain the name or association in subsequent teams. After years of careful education and grooming, the expectation that children will finish college and return to growing responsibilities within the company may not be assumed. In the end, future management may take shape with a young relative, or it may require divestment to non-family managers. A study in Harvard Business Review found that from 25,000 publicly traded companies between 1950 to 2009, companies lasted on average less than 15 years. Families that sell their enterprises to start new ones are far from failing.
The righteous debate between doing good and doing business can open a multifront war within a family business. But conflict can also bring about competitive advantage. Family ownership typically prioritises longevity over quarterly returns – family offices have a role to play in cultivating this type of resiliency. While the interpersonal dynamics remain intense, reliance on active listening, the definition of shared values and focus on positive outcomes can help families navigate competing generational objectives.