Rupert Phelps (pictured), partner, family office services at Smith & Williamson discusses how families can encourage a spirit of entrepreneurialism in their next generation.
The richly descriptive American phrase “toxicity of wealth”, points to a looming danger for children of the rich. Surely a sense of entitlement is one of the most ruinous human characteristics, not least since such an unattractive trait impedes the making of friends. These threats are real and sadly there are far too many examples to argue otherwise. Lavish lifestyles may be an obvious element, but even amongst UHNW families who live modestly, there may be tension arising from the competing considerations of preparing the next generation for responsibility. Whether this “work ethic” is guided towards a full education but not much further, or encourages meaningful employed work outside a family company it must be a crucial consideration for caring families and thoughtful advisers. Are there solutions?
Many families, across different cultures and sectors, have found that the starting point to being better prepared over the long term is to consider their governance, dynamics and strategy. This should be in the context of how these concepts apply to next generations. Evolving demographic patterns mean there may increasingly be something of an adult “queue” to inheriting primacy of decision making. The following framework might be considered a starting point for a family that wishes to embark on a deeper assessment of its purpose, values and strategy:
- Early preparation for future benefit and responsibility
- Family governance in the broadest sense
- Experience outside the family business
- Practical initiatives with demonstrable benefit
- Appreciation that this is an ongoing process
There is a challenge with family governance and dynamics, where some advisers in this area stumble: it is failing to bring such subjects “down” from the theoretical, if intellectually interesting, and so not root them in practical exercises with assessable outcomes. Without doing that, genuine engagement of family members (especially those who are younger) will be elusive. Specific initiatives include:
- Determining a family mission statement and expanding to a written family constitution
- Agreeing terms of reference to form a family council (and if the family is large enough, a wider family assembly)
- If there is not a family office, and if the cost of one may be justifiable and able to be borne, going through a detailed examination of the pros and cons for setting up such an advice entity
- Updating high level governance relationships and strategy, and how they connect to a family operating company
- Ongoing programme for the next generation including: education; retreats, work experience, business planning coaching and philanthropy
No set of solutions are perfect and each family will need a varying blend. The threats are unavoidable; doubters need only look to both history and today for far too many examples of family members who succumb to the danger of being spoilt as people by substantial wealth. Evelyn Waugh when once challenged as to why his Christian faith didn’t seem to make him less objectionable, responded that he would be “worse without it”. Much might be said of these techniques.