From managing the family business to engaging in succession planning and preparing for multigenerational wealth transfer, the next generation of wealthy families is kept awake at night by the many unique and multifaceted challenges they face, which include:
- Honesty in family communications
- Grappling with whether to put family or business first
- Involving spouses in intergenerational planning
- Agreeing on family values that underpin succession plans
- Incorporating changing next-gen priorities
- Creating – and living – a formal succession plan
- Assessing the value of independent advisers
A panel discussion with next-gen family members at Stonehage Fleming’s annual Family Conference highlighted these pressures, opportunities, and critical factors that could determine whether families and family businesses thrive or falter across generations.
Honestly communicating between family members and across generations
The most consistent theme across successful multi-generational families and businesses is the paramount importance of clear, honest communication. Without clear communication, family members could develop different assumptions about roles, responsibilities, and the future direction of the family or family business, creating expectation mismatches that can derail succession planning. Rather than waiting passively for information, next-generation members need to proactively ask questions and seek clarity on matters affecting their future, while the first generation should be prepared to pass on that information as early as possible.
The delicate balance: Family first or business first?
One of the most challenging aspects of a family business is determining whether family considerations or business needs should take precedence. Many successful family businesses find ways to separate business and family life, such as establishing boundaries around when and where business discussions can take place. This helps maintain healthy family relationships while preserving business focus when appropriate.
The challenge of involving spouses in intergenerational family planning
The involvement of spouses in the family business often becomes a contentious issue, yet thoughtful integration of spouses can strengthen both family and business ties. Communication and clarity regarding spousal roles are crucial, outlining ways they can benefit from building the family’s wealth and how they are compensated for their contributions to the business. Even if spouses aren’t beneficiaries or directly involved in the operations of the businesses, they need to have a seat at the table and be included as partners in the family’s wealth creation. This approach ensures spouses feel valued, there is transparency and that they can build their own wealth within the family framework if the opportunity exists.
Agreeing on family values is central to successful wealth transfer
Underpinning successful multi-generational wealth transfer is a foundation of shared values, such as integrity, that transcends generations. A legacy of integrity creates not just moral capital but is an actual business advantage, demonstrating how values translate into sustainable business success.
From getting rich to staying rich while incorporating changing next-gen priorities
Investment strategies often evolve as families transition from wealth creation to wealth preservation across generations. A key difference in approach between generations is evident in how the previous generation prioritised tax efficiency, which influenced their decisions to a large extent, rather than the next-gen acceptance that there will be tax consequences to the decisions they make.
Next-generation family members on the panel also recognised the value in adopting a structured approach to evaluating investment opportunities, by establishing a family constitution and implementing an investment committee and process to guide their consideration of investment ideas.
Formalising succession planning in a living document
Formal succession planning is another challenge that keeps the next generation awake at night because of the time involved in documenting the plan and ensuring that it doesn’t just sit on a shelf gathering dust. The value of a formal succession plan and conversations around it is that the family can address issues that haven’t been resolved or issues that family members thought were resolved, but during these conversations, they find that family members aren’t on the same page.
Assessing the value of independent advisers
Finally, the role of independent advisers in mediating family business decisions emerged as an important safeguard against emotional decision-making. This approach is particularly valuable when determining successors, as independent capability assessments can help identify who is best positioned to lead, and neutral third parties can facilitate difficult conversations when siblings or cousins disagree about succession decisions.
The challenges the next generation faces in managing multi-generational family wealth or family business issues are undoubtedly complex, requiring them to balance personal relationships with business or wealth management responsibilities.
By prioritising open communication, clarifying roles (including those of spouses), maintaining shared values, taking a strategic approach to wealth management, implementing formal succession planning, and seeking independent advice when necessary, families can increase their chances of successfully sustaining wealth and their family businesses across generations.
