Kelly Noel-Smith and James Brockhurst write for Campden FB and IFA magazine on the psychology of family governance
Private Client Partner, Kelly Noel-Smith, and Senior Associate, James Brockhurst's article on family dynamics has been published in Campden FB and IFA Magazine.
Now more so than ever, advisers must be sensitive to family dynamics. With meeting restrictions in place, family relationships are likely to be particularly strained at the moment and difficult conversations about succession planning and inheritance are being putting off. Wealthy families often have an annual meeting/family retreat to discuss business affairs but this can’t take place as normal. Kelly and James look at the issues involved especially in the context of a family business below.
Kelly and James's articles were published in Campden FB on 23 February 2021 and in IFA Magazine on 19 February 2021.
- Family dynamics, family succession and the trusted adviser
- Psychology of family governance: appreciating the importance of family dynamics in succession planning
A concerted effort to understand the complex dynamics which exist within each family, between spouses, siblings and the generations, is an essential first step for family advisers. Without this understanding, it is much more difficult to help a family deal with succession issues, especially in the context of a family business with members sitting on the board. Shared family history can often interfere with objectivity, with a succession exercise having the potential to be experienced as an overthrow of one generation by the next, rather than an exciting transfer of the family baton. In some families, reverence for G1 may make G2 or G3 reluctant to voice legitimate concerns; or G1 only sees the risk attached to G2’s ideas rather than the creativity which has the potential to transform the family business.
Where advisers work to understand the family, they can help shape the succession process, facilitating the production of a cohesive, familial plan for succession with agreed core values to which future generations of the family can aspire. The adviser will be taking two perspectives: from the macro level, in trying to establish the ethos of the entire family unit; and the micro level of each family member. An instructive case study is that of the late Mærsk Mc-Kinney Møller and his youngest daughter, Ane Mærsk Mc-Kinney Uggla. Since 2012, Ane Uggla has chaired the A.P. Møller Foundation which owns the controlling stake in the Maersk Group, the world’s largest container-ship and supply-vessel operator. Her father, with family input and a team of trusted advisors, formalised five core values: “constant care, humbleness, uprightness, our employees, our name“. Ane has said: “We have a fantastic company with a special character of its own. That needs to be preserved and I am happy to be an important part of it … When I became chair after my father’s death, I felt well prepared for the assignment. An assignment I have taken on gladly, not just as a duty” (in Berlingske, 23 March 2013).
Some families may have a number of boards: Private Trust Companies, Family Offices, Investment Committees, Protector Committees and operating company boards all have positions to fill. Where a family member has not been included on a board, this can lead to resentment and this is where trusted family advisers can help. We can act as a neutral sounding board and, with empathy and sensitivity, discuss the situation, ideally bringing to bear experience and a sense of when it is sensible to introduce a compromise. For example, if a family member is felt not yet ready to sit on a board for want of business experience, then exploring opportunities for him or her to gain that experience through an internship or secondment can help turn a sense of resentment into a sense of purpose.
A managed transition of power
Preparing both generations for the point at which succession takes place can permit a managed transition of power, where G1 continues to lend the benefit of his or her experience but gradually releases the control to a board which has shown itself capable of upholding family principles. Understanding the family can put the adviser in a position where she or he becomes trusted to deal sympathetically with family issues that can, if unchecked, damage the family business. If all goes well, and the adviser’s position is accepted as the privilege it is to get to know the family well, then potentially destructive dynamics can be reworked so that, for example, succession becomes an exercise in appreciation: by G2 of their forebears who built the family business and, by G1, of the skills and creativity of the next generation which will drive the family business forward.
The challenge of digital governance
Even the most carefully designed family governance structures are likely to have been disrupted by the Covid-19 pandemic. Family governance structures are invariably reliant on planned, face-to-face meetings in specified jurisdictions. Recently families and their professional advisers have been forced to embrace video conference technology and this has not been without legal, practical and tax consequences. However, the greatest challenge is how families and their advisers, spread across different cities and jurisdictions, can and should interact in the Digital Age.
It is not easy to make decisions on a video conference when you cannot “read a room” by observing body language, but this is a new skill which advisers are having to quickly learn. Advisers and family members have been forced to gauge the weight of opinion by observing (sometimes via an unreliable and blurry video link) facial expressions. When a family does not meet in person for a long period of time, there is also a danger that unresolved issues will start to fester. This can undermine family unity and present financial risk, especially when inaction poses a risk to the value of the family business.
With digital interactions, advisers must take extra responsibility to ensure that the concerns of individual family members are met. This may require advisers to convene one-on-one meetings with individual family members, to give them an avenue to air their concerns. This practice is prudent in normal times, but especially so when conducting governance digitally. It may also require advisers to ensure that, in board meetings, each family member is connected via their own device (with a clear resolution) to ensure that facial expressions are not overlooked.
The replacement of the boardroom with video calls may also impact upon the traditional dynamics of a family. The natural hierarchy of the boardroom – with the chairperson physically presiding at the end of the table – has been replaced by the non-hierarchical layout of Zoom, Teams or Blue Jeans. This may inadvertently ‘democratise’ discussions or make discussion disorderly in a way which can make the G1 principal or other attendees uncomfortable, and advisers ought to be sensitive to this and, where possible, facilitate the discussion with an upfront agreement to online etiquette.