Mutual TrustMay 7 2021

Mutual Trust: Seven key questions for a positive succession plan

4 mins read

Written by Brad Simmons, Partner, Family Office - Mutual Trust

One of the most challenging aspects for matriarchs and patriarchs is the confronting issue of succession planning.  It involves the complex juggling of the needs and wants of the retiring generation, their children and partners.  In addition to this there is generally a long multi-generational family history, family members at different ages and stages, a mixture of assets, and a ‘spoonful of emotional baggage’ just to increase the complexity.  Brad Simmons, Partner, Family Office shares his answers to seven key questions for a positive succession plan.

Positive succession planning requires good communication and ideally a long lead time to maximise the chance of a successful transition.  The emotional nature of family connections and the perceived difficulty in starting conversations when handing over the reins to other family members, means they are often delayed or disregarded.  It is a dangerous strategy that defers the inevitable and puts family harmony and wealth at risk.

1.    Should we work and invest together?
The question of whether to stick together or split, ultimately comes down to whether there is a common vision for the family’s assets, as well as alignment around values and goals. Families must weigh up the benefits of strength in numbers versus issues such as having divergent investment preferences and risk appetites.  It is okay to go it alone, but avoiding this question is a recipe for disaster.  Are you better together or alone?

2.    Who will lead the family when the patriarchs and matriarchs step down?
As the parent generation contemplates handing over the running of the family portfolio or the family business to the next generation, the matriarchs and patriarchs worry that they will be sidelined and lose their influence, while the children may be concerned about failure or having their decisions vetoed by their parents.  It is highly unlikely the transition will work if parties are entering the process in a climate of fear.  The parent and children’s generations must discuss suitable roles they can assume (and commit to) for the sake of the family’s long-term success.  This discussion is generally both awkward and confronting, which is why the use of an independent advisor is so helpful.

3.    How do we avoid picking favourites?
After determining broad roles for parents and children in the new era, one of the more difficult decisions is agreeing on which members of the younger generation will take on the key leadership roles. “I don’t want to have to choose a favourite child,” is a common refrain from elders.  Procrastination can often result in talented, natural leaders walking away to pursue other personal interests, to the detriment of the family as a whole.  Invariably, an independent, external advisor is required to help the parents discuss and systematically work through the assignation of roles.  We work with families through our tailored Vision and Values program, which feature one-on-one meetings with each of the family members to discuss their aspirations, followed by group workshops where all family members come together in a facilitated environment to discuss roles as part of a long-term governance structure.

4.    How will we make decisions together?
Autonomy is a common feature of the decision-making approach of most matriarchs and patriarchs who have built a successful wealth portfolio – they make all the decisions. The transition to a democracy necessitates a more structured and formal decision-making framework.  This may include establishing and enforcing ground rules, or a code of conduct, which is circulated to all family members.  Does this feel a little cumbersome and bureaucratic initially?  Of course it does.  But it is a critical first step towards creating a more inclusive and sustainable decision-making structure for the long term benefit of the family.

5.    How will we educate and engage the next generation?
In appointing a family member to a significant new role, we must ensure they are well prepared for the position.  Early and ongoing age-appropriate education of family members is important, so make sure your family has an education plan which engages and prepares the next generation to be good inheritors.  This could encompass any number of fields, ranging from family business essentials to financial literacy through to directorship skills and philanthropic qualifications.

6.    What is the purpose of our family’s wealth?
Over 70% of families fail to successfully transfer wealth across generations.  Three chief reasons are to blame.  A breakdown in communication and trust between family members, failing to prepare wealth inheritors and neglecting to define the purpose of wealth.  Whether it is entrepreneurial, philanthropic or personal initiatives, families must clearly define their collective vision, legacy and set of values.  Without a strong sense of purpose, families drift aimlessly and ultimately, drift apart. 

7.    How do I treat all family members equitably?
There is a big distinction between treating family members equally (they all get an even slice of the pie) and equitably (where the split is determined by values-based principles).  All family members should be given equal opportunities and access to information, but more philosophical questions exist around family employment policies.  Is it jobs for mates and family members, or do they need a university degree or proven experience to fill a certain role?  How will remuneration and dividends be determined?  What if one family member is working within the family business or family office, while another pursues other professional interests?  The ‘home’ for such rules is a family constitution and it can go a long way to ensuring a successful transfer of wealth across generations.

Our relationship managers are in regular contact with clients but please contact us if your family is avoiding any of these questions.  We can help put your succession planning on a path to success.