In summary,
- Family firms need to clearly define leadership and ownership.
- Many families want a clear separation of their personal and professional lives.
- Some families recognise these issues well in advance, but many do not. At Coutts, we’re often brought in once these challenges have become apparent.
- We were the first UK Private Bank to set up a Family Business team.
- We’re here to help with effective governance and avoiding doubt over whether there will be a place for the next generation in the family business.
It’s estimated that Millennials will hold five times as much wealth by 2030 as they do today, with significant wealth also passing to Generation Z.
For family business owners, this makes effective succession planning imperative. They need wealth advisors with significant knowledge, proven expertise and integrity.
Family succession planning and shifting priorities
There are several key challenges currently facing family businesses. In addition to increased exposure to external factors like geopolitics and ESG, the intersection between family and business, and the blurred lines between ownership and responsibility, are driving change in family business operations. Then there is also the issue of changing taxation policies.
Family businesses are uniquely structured (with limited shareholders and different profit structures) and, whether there’s an issue with the day-to-day running of the firm, or a question around succession planning, when you’re a business owner and a mum or dad, having robust business conversations with someone you’ve also raised can be a minefield.
Separating the personal and professional
Many families want a clear separation of their personal and professional lives. But effectively navigating the grey area between the two can be tricky.
In family businesses, structure and agreed processes can sometimes be limited; formal contracts and documentation may or may not be in place. Some families recognise these issues well in advance, but many do not. At Coutts, we’re often brought in once these challenges have become apparent – something will have happened that necessitates outside help to solve the problem.
It’s vital to have processes in place
Senior family members/business heads must ask themselves whether their children will have a clearly defined role in the family business. A prudent move for families could be to have a clear process in place. Many firms require family members to spend a period of time working ‘on the shop floor’ before they’re entitled to management roles, and potential family successors are often expected to go and get relevant experience elsewhere before they are brought back in and given management positions in the family firm.
Having these conditions in place helps to avoid any doubt over whether there will be a place for the next generation in the family business. For example, one company we worked with made it very clear there had to be a need that was addressed by the family member’s role; in this case, the individual’s external marketing experiencing with a multinational was invaluable to the family firm.
The alternative to this could be handing over responsibility to an inexperienced young adult before real-world skills have been learned and protocol and responsibility have been clearly established.
Securing and building legacy through the generations
We were the first UK Private Bank to set up a Family Business team. In addition to this, we also offer a banking service designed around entrepreneurs and business founders, helping them identify the right way to scale and pass on their business – or potentially exit and look for new ventures.
Often, our bespoke family services are requested directly by the client, but we also seek to pre-emptively unearth and address specific family needs. To do this, we’ll usually help draw up a family charter that can be instrumental in protecting a business and growing it in the right way.
A family charter establishes:
- Core principles around employment in the family business: Who is in? What qualifications do they need? Do they need to apply for their role?
- What does the board look like? Does it consist entirely of family or should they all be professionals? Is it a combination of the two and, if so, what’s the breakdown?
- Future proofing: for example, in the event of divorce or an untimely passing.
- How to keep value in the family as it grows: how and when to sell shares (if required).
- Who becomes a trustee of family structures and how are they chosen?
