The secrets for building multi-generational businesses (2)
In the conclusion, Idowu Thompson, Group Head of Private Banking for FirstBank of Nigeria, and Esiri Agbeyi, Partner, Head private clients and family business unit, PwC Nigeria, suggested next-gen education, building a structure, and having a family constitution as ways to address the concerns of passing on family businesses successfully.
54 percent of next-geners are worried they would lose the wealth of their family, 62 percent feel it is their responsibility not only to preserve but also to grow the family wealth, according to a 2020 report by the Camden wealth survey.
What do you think the role of family offices should be in curbing stewardship anxiety?
Are there specific steps in your experience, any case studies you can share, maybe deliberate strategies to try and curb stewardship anxiety?
Agbeyi: I think the very easy answer to that is around next gen education. I remember the first time when we’re trying to define what family offices are, they can be everything and anything.
And one of the key things or key needs really is around making sure that we’re generating or helping develop responsible stewards.
The anxiety sometimes may be formed out of bias or stereotypes that need to be diminished and the education of the next generation members definitely plays a very important role in diluting that.
It’s also the networking that it affords. And so where you have a family office that’s built for purpose to say, we definitely have next-geners coming on board, at what age do we want to start, to re-orientate their minds so that they don’t get into that box of I’m not fit enough; it then starts to make sense.
Just as an example, we recently had our family business conference in Africa, we do that globally as well and we did it in South Africa, Cape town actually, where we have all the orchards and the wineries.
A NextGen shared about how the mere fact that every time Dad came home, even while she was still 10 or 11, he sometimes shared or asked questions around decisions he had to make and that just started to get her trained. Her mind became more attuned with what the corporate world was like and just that confidence that it builds, was sufficient for her to start to also apply that in the third party company that she’s working in.
She made a decision not to work in the family business because she’s more digitally inclined and wanted to be out of the family business for a bit based on the family constitution also that they had developed in the family.
So you could see there that the dad by himself actually educates the child but we don’t have that replicated across families because dads are too busy, moms are also too busy, and they probably don’t have sufficient time.
So once you have that dedicated office that can pay attention to all those needs, they map out what the growth and trajections might be like for this specific next-gen.
It’s more tailored, it starts to also reduce whatever anxiety may be had in terms of handling the business. we’re seeing that already with some of the next-geners as well in Nigeria, where we’ve been involved in some of the next gen education.
They’re also deliberately saying apart from just doing financing, you have to be skilled in different other areas including how you also lead and relate with people.
That I think is a useful way for doing that.
Thompson: Esiri hit the nail on the head. Looking at the extent of the numbers, 54 percent clearly have anxieties about the wealth being preserved, 62 percent feel it’s their responsibility to ensure the preservation and growth and I think it’s not out of order.
What I want to say, to add to what Esiri had said, is that there’s also a role of apprenticeship in ensuring that there’s that continuity.
Often where you find out that families of wealth have broken up, or where there’s been a lack of continuity has usually been in cases where there’s been fragmentation amongst the peers or where people who were meant to take decisions within the family have very divergent views and our unable to come to a single landing point.
One of the ways I’ve seen families of wealth handle this in the different walks of my life, whether in Africa in North America or other places I have been is also that role of apprenticeship.
Look at small businesses in Europe and the US, what do you see? Often Next gens in University who work part time with the family business manage both the merchandising and cash on the Till.
What are the parents trying to achieve with them? They are actually showing them where the source of wealth comes from and to build skills in commerce, so it really doesn’t matter what interests they end up pursuing later they would have built up transferable skills to properly run such businesses.
Read also: The secrets for building multi-generational businesses (1)
Extending this as an analogy to the very wealthy families you could also have children out of university travel around with the patrons for a defined period while understudying them to learn the ropes of the business, observing how the founder takes decisions, get acquainted with some of the founders key contacts, get a bigger hand hold on the values that the founder has adopted to successfully build the business and more.
The other thing I also wanted to say is that often enough, you find out the families tend to embed the next-gen into the businesses right away. Sometimes it may be prudent having the next gen also start from the shop floor so that they see the realities of the family business at the most basic but most important levels.
Some of the value we add as private wealth managers is to bring together the children; the next-gen of some of these families and we find out that even bringing them together and being able to school them on things such as the basics of saving, investments, or even taxation, bringing in specialists to speak with them; speaking to them around the need for continuity, management, finances and all of that have often been quite profound on the next-gen.
I think it’s important because the anxiety is driven out of the lack of assurance of what’s next and once there’s a proper hand holding and the proper training, you find out that a lot of that changes.
And again, this is totally agnostic to culture. It is the same everywhere in Asia, Africa. It’s the same DNA, the same concerns the millennials, Gen X, the thoughts, the worries, the needs to be heard, the need to also differentiate between freedom and permissiveness, we can go on and on, b but like I said, it’s very crucial that families ensure that there’s that level of apprenticeship and there’s that level of socialization to also bring up the next gen.
What are the trends in Private Wealth Management?
Also, in the past, we saw fathers typically bequeath less of their wealth to their daughters but more to sons. In your experience is this changing? And if so, why or why not?
Thompson: Clearly, that has changed but before jumping and saying that it has changed or changing, I think it’s also important to recognize that in Africa we operate within a deeply cultural environment and even for the most educated of who’ve gone to the best Ivy league schools, there’s still that essence of culture that’s sits within the Nigerian and the African DNA.
But I think that is changing, the initial view in some African cultures was to see the male child as one who’s able to take on more demanding tasks or take the lead on certain important decisions.
What I’ve seen in the last two decades or thereabout is that a lot of that has really changed. It’s more about the capability of the child than the sex of the child.
In terms of trends, there’s a lot going on with technology now. Like I said at the beginning of the conversations we had, we spoke about the unicorns, we spoke about some of the young highly creative and intelligent Nigerians and Africans that are doing so much across that, raising money, moving into technology, adding value to lives and whatnot.
So, you find out that one area that has really taken a great deal of attention is the realm of technology.
Virtually everyone you meet within – if I can use the word, the next gen – is speaking about one form of technology application or the other.
Some have been able to drive this to be more commercially viable while others may not have succeeded as much in what they’ve done but clearly, technology has a role to play for the future.
The other part that is also important in the realm of technology is that a lot of family businesses have been set up the traditional way.
What you find out often is that the next gen are the ones who come in and begin to look at it and say ”look, how better can we improve what we do leveraging on technology’ and you’ll see a lot of that happening whether it’s in the manufacturing enterprise or in the service enterprise.
Using the banking industry as an example we would recall ‘New Generation bank’ and ‘Old Generation Banks’. What was considered innovative and the key differentiation or ‘play’ for the the new generation banks then – inter branch connectivity, enhanced service, improved segmentation etc has become base standard today. .
Covid-19 itself was a disruption or rather disruptor for the world and that has also challenged the way things are done . Often, you find out that there are organization now that do the alternative or hybrid work arrangements and have elevated their productivities; it really wasn’t like that before covid
So technology has naturally shifted the direction of so many events.
I think the last trend which we’ve also noticed a lot is the ESG focused on by a lot of private wealth managers and indeed a lot of families.
But again, like I said, pursuing ESG goals does not mean you choose to be charitable, it’s just saying that you choose to be responsible in how you run your business.
You’ll find out that there’s a lot of interest so that’s another trend we’ve also seen.
Lastly, global mobility has changed so much. This is a trend something that actually has an impact on continuity in many situations where families are dispersed. This elevates the risk of a generational gap where family assets may remain unmanaged or title to assets lost simply because there is no one individual that is responsible for managing such assets.
If you take a sample of 10 affluent or even emerging affluent Nigerian families, you would discover that a significant percentage of the next gen are either schooling abroad and have very minimal contact with their origins outside of the ‘Dirty December’ , and we’re not speaking about children of just the wealthy, we’re talking about people from middle class families or emerging middle class families.
What happens in those instances were wealth has been built up by the first or the second generation here, in most cases you find out that the children who are either in North America or in Europe, it’s very rare that you have them come back home and take on the mantle of what the founders have set up for them unless where guided which if involuntary also would have its challenges.
So again, that’s another trend that we’ve seen and which I feel that the structure of the family office is also able to address.
We need to be able to deal with the concept of global mobility and the fact that even the children that are out there in many cases may end up in multiracial relationships. 20-30 years ago, that wasn’t quite the case. Families must grow their multicultural awareness and for those with significant personal wealth consider the tax implications of bequeathals to their children who are often second passport holders and properly plan around this.
The world is definitely a smaller place and I think a lot of those developments are for the better. I think the most important thing for private wealth managers and the family office practitioners is to look at all those variables and help the families that they work with leverage on those variables so that the outcomes are very positive to them rather than such outcomes being destructive.
Legacy building has nothing to do with gender, whether you are male or whether you’re female; whether you are the son or the daughter but it requires a collaborative effort.
So how do family offices help to create an environment of collaboration that supports co-creation?
Agbeyi: l think in trying to define who’s the right heir for those businesses, what’s very important is everyone understands that the family is different from the business and the family heir is not necessarily your business heir.
The family office therefore is would I say the arbiter to help ensure that those rules are defined and also aligned with.
So, what you would find is if we’ve set up a family constitution within the family where we have understood initially that these are two different areas and whatever rules need to be adhered to, to determine who would lead the business. The family office uses that as well to interpret whatever actions that they would take within that family office.
So they definitely interpret the family constitution, they bring life to that family constitution, which is not a binding document. It’s only binding emotionally but not legally.
You have a family office that gives you a legal structure that can then implement some of those.
Now in terms of the role that that business heir will play or the family heir will play, it’s spelled out already in the family constitution and the family office who is caring out maybe the investment niche of the family knows who it is that they would be reporting to if there was anyone appointed to the board.
Normally, when the value of this is set up there would be a board. It’s just like any family business, there might be representation as well from the family side office or from the businesses that have been handled aside from the family office represented on that board.
And so because you have all those roles defined, there’s a natural inclination to doing what is best for the business and what is right, as opposed to being forced to do things from an emotional perspective because the founder feels this is my son in whom I’m well pleased and he’s the one to run the business.
Those checks and balances can reflect through the family office as well.
Finally, how do you think that private wealth managers can help founders get past transitional anxiety because that is something that a lot of family businesses grapple with?
Thompson: I like the word transitional anxiety and I think it’s very much the reality of many everyday families even for those who do not have the family office structure.
Using a personal example I remember one of the first most difficult tasks was speaking to my late father about generational transfers and the ways of achieving this .
But what I can say for the private wealth manager, your greatest currency is the currency of trust and the other is the currency of competence
Once you’re able to have both and are able to develop the right relationships with your clients, then you would find out that your conversations as a private wealth manager are less inhibited .
We’ll speak in practical terms here, this is Africa.
In certain instances, you find out that family relationships are not just limited to a monogamous structure . Quite often, you find out that those structures also have to be able to cater for the needs of all as designated by the founders . It really shouldn’t be about denial but more about planning for and addressing the practicalities of each unique situation.
The job of a private wealth manager like I said earlier is to build trust so that clients should be able to speak without any inhibition. This enhances the quality of the advice provided and helps remove the anxieties often associated.
The transitional concerns by most founders simply comes out of the fact that they have worked so to build up those structures and the last thing that would be desired is to have a single heir or generation squander the wealth built through the decades.
As a private wealth manager, some of the possible solutions we would consider within the context of the family structure would involve setting up Trust structures.
So you have things like Living trusts that the founder for example could work with.
So while even in life, certain assets could be warehoused and with certain benefits as well within the Trust structure.
You find out that once there’s an orderliness in terms of provision, you also help them take away much of the anxiety.
A lot of anxiety comes around where there’s uncertainty as to what’s going to happen next. As a private wealth manager, where both trust and competence are embedded in the relationship then it becomes significantly easier for the advice provided to be adopted.
Agbeyi: In terms of the transitional anxiety, Thompson touched on a structure about trust and trust structures definitely, living trust more importantly, have the advantage of helping founders grapple with the fact that they are not necessarily the legal owners and someone else can legally own it and this is how it would run.
It also helps that the beneficiaries respect the wishes of the founder while he’s still alive.
So it’s the same with the family office. When you have a family of a structure that’s up and running while the founder is still there and decisions are respected and made through that structure.
It’s a natural flow to then have the beneficiaries, when there is an exit event also respect that structure and continue to work with it.
And I think in terms of the fact that it pulls together different generations and has a long-term view for several generations.
You also would find that those anxieties are already kind of placed on the head of the family office to run with and once we can channel all these to the family office, then we should be fine.
So I think the beauty of that family office structure, the long-term goals, the long-term view and the fact that we’re looking multi-generational helps to somehow reduce on a scale, whatever anxiety levels might have existed before where you just had the founder alone thinking who do I want to transfer wealth to and how do I want to do it.
Are there anxieties around health?
Thompson: Part of our work as private wealth managers, believe it or not, is also ensuring that our clients stay in good health.
You can have all the best structures in the world, and all the best arrangements and all the best experts but where there’s a failing of health and where there’s no remediation on this, then the whole essence of everything becomes defeated.
So yes health is very important and there is a role for us as private wealth managers. This could mean ensuring that proper annual medical reviews, preventive procedures around DNA scanning to identify risks, emergency evacuation and much more are in place.