The days when family governance related solely to the running of businesses are behind us. Instead, there’s been a stark shift towards the management of wider wealth – including a focus on vision and values – and the recent crisis has fuelled profound thinking around intergenerational collective purpose
The Japanese word ‘Ikigai’, pronounced ick-ee-guy, roughly translates to ‘reason for being’. Essentially, it is what gets someone out of bed in the morning, their passion or calling.
Establishing individual Ikigai – understanding what it is that truly drives what we do – is taxing enough and can take years of gruelling self-examination. But that task is multiplied exponentially when it comes to a collective family purpose. Suddenly, stewardship becomes less about developing a modus operandi and more about rumination.
More and more high-net-worth families are being drawn to this idea of an agreed set of principles that guide their joint behaviour and shape the future of their dynasty and, while it’s growing in popularity, it’s not a new phenomenon.
Richard Joynt, Executive Director – Private Client, at Ocorian, believes its foundations can be traced back to the business world.
“In the 1980s and 90s, we saw almost a growing-up of corporates,” he explains. “Companies have always had governance; they’ve always organised themselves and decided who is in charge.
"But a few decades ago, a more commonplace model came into play – for example, around the separate roles of the chairman and the CEO, audit committees that report into these individuals, annual reports and so on.
“And then 10 years later, we started to see something similar in the wealth space. Again, they’ve always run themselves – it’s clear who’s in charge, it’s usually a matriarch or a patriarch – but suddenly there was a desire to write this down, to codify it.”
He continues: “They’re essentially saying: here’s a set of rules – we all need to not only abide by them but also understand why they are there.
“More and more families are buying into this idea, because they’ve witnessed what bad communication can do to their wealth. It can erode and ultimately destroy it.”
Meaning of wealth
The concept of wealth itself is a curious one, not least because it can mean different things to different people. “For some, wealth equates purely to financial assets,” says Matthew Fleming, Head of Family Governance and Succession at Stonehage Fleming.
“But for many multigenerational families – and this is something we’re all much more cognisant of given the recent crisis – wealth is much more than just monetary capital. It is impetus and intentions, legacy, even leadership style.
“It encompasses the way family members behave externally within their community, the networks they keep, the responsibilities they accept and even the way people communicate.
“All this combined,” Fleming continues, “provides a framework to achieve a successful intergenerational strategy.
“And that successful intergenerational strategy can be anything you want. It doesn’t have to be the transfer of financial capital. It can instead be focused on the transfer of a set of values or purpose.”
Russell Clark, Guernsey Managing Partner and Head of Trusts and Private Wealth at Carey Olsen, shares a similar outlook.
“I firmly believe in looking beyond the governance of wealth in isolation and that instead, people should consider how best to build a framework for the future of the family as a whole.
“The management of family wealth will be a key part of this, of course, but I encourage a much more holistic approach.”
Fleming explains that in his experience, the most successful strategies come from families who recognise this shift – away from an emphasis on pure financial capital towards the widest possible sense of wealth – early in their journey.
“Every lineage is of course subtly different, but that for me is the common denominator,” he says. “And this has been discussed more, in my experience, over the past 20 years or so.
“There is also a generational influence on the amount it is discussed. Leadership is one of the great threats to families, so having the right leadership at the right time is integral.
“A good example of this is if you have a set of values that you all live by. These will give younger people, the next generation, the confidence to open up and to know they’re going to be taken seriously.”
Value of values
When it comes to family governance, what exactly are we referring to when we talk about values?
Fleming explains: “‘Duty’ can seem like a very old-fashioned word, but for many members of multi-generational families with traditional assets or businesses, duty is actually a very positive, powerful influence on their lives. And for me, your duties dictate your values.
"That said, families like the idea that there’s a set of duties or values that underpin the way they live their lives. It’s just that for most, it’s implied. They don’t necessarily sit down and talk about them.”
So, what impact has the recent pandemic had on high-net-worth families and these discussions? Has it encouraged more frequent and transparent conversations?
“Although Covid-19 has been a destructive force of nature, it in fact facilitated important conversations within families around death and incapacity,” says Simon Lofthouse, Associate in the Jersey Private Wealth team at Ogier. “It also provided clients with time to reflect and consider their affairs.”
“What’s more, for many, it has brought home the fragility of life and has provided an opportunity to take stock and then take steps to ensure a robust estate plan is in place.”
This, however, hasn’t been the case for everyone. “Somewhat surprisingly, most of the families we deal with didn’t actually use the current crisis to reflect upon their wealth and its purpose,” Carey Olsen’s Russell Clark states.
“There was, admittedly, an initial flurry of activity at the start of the year with families focusing on revisiting out-of-date wills and powers of attorney – issues which for many languish at the bottom of to-do lists – but not much more than that.”
He adds: “I suspect many already have very clear views of what their wealth is for. Instead, they have been focusing on the impact of the crisis on their investments and businesses, as well as the tactical opportunities it has presented.
“Some of these families tend to take an extremely long-term view. One talks about investment horizons measured in centuries, so for them, the impact of Covid-19 is likely to be minimal.”
Like Lofthouse, Fleming has come across families who have used the lockdown period to regroup and reflect, albeit often unintentionally.
Families have made the most of what he calls “the privilege of time”. Several generations may have found themselves hunkered down together, spending unusually prolonged periods of time in each other’s company. Unable to travel or socialise, conversations would have organically turned to aspirations and personal goals.
In this more informal environment, unlike a forced retreat or family council session, individuals felt more inclined to articulate themselves openly and honestly, expressing their own wishes for the collective wealth.
Open forum
It’s worth remembering of course that these circumstances are exceptional and that families rarely experience this length of time in each other’s company. Encouraging an open and regular forum, and doing so early on, is therefore a preferable option.
Andréa Daley Taylor, Director of Trust Corporation International, espouses the importance of engaging the entire family, and not being afraid to raise difficult questions.
“Opening a discussion around developing a family charter to define wider aspirations can help highlight not only each individual’s sense of purpose, but perhaps the difference between the generational outlook and potential misalignments,” she says.
“Although it can sometimes be difficult to bring the next generation onboard within this process, recent events have served to inspire people of all ages.
“This should help trustees to engage those younger family members who may have previously struggled to personally relate to their family’s wealth.”
But what does this look like in practice, and how can families involve children in decision-making from a young age?
Joynt cites the example of a family’s holiday home and the question of whether the property would stay in the family.
So, when the children were still in their teens, they were asked to go into the kitchen, just the three of them, to have a mini board meeting about the future of the much-loved house.
The thinking was very much “You’re going to have to make this decision one day”, but they also had to figure out if they would accept a majority, or if they needed a unanimous resolution.
"The idea was to get them used to approaching large-scale decisions, and to think about how they would do so, especially while there was no pre-existing conflict.
Fleming echoes this school of thought around collaboration. “For me, the imposition of values or purpose slightly misses the point because something that is imposed has far less chance of being sustainable. It depends on obedience.
“Sitting down as a family and engaging all relevant parties means you get a shared outlook. You understand where each other is coming from, and everyone airs their views. That’s incredibly powerful.
“Governance is extremely important because every family will be tested by something unexpected and unplanned; they will at some point face challenges and crises. As we’ve seen this year, no one is immune.”
Fleming adds: “A framework that helps families make decisions and collectively face up to both responsibilities and challenges, as well as new opportunities, is critical to cohesion.
“Governance underpins that framework and it acts as a really sensible way for families to give themselves the best chance of success – both collectively and individually.
“I think the pandemic, and the chances it has presented to reboot and reprioritise, has really helped shine a light on this. It’s also made this way of thinking and acting more acceptable.”