One of an advisor's tasks should be to mentor young family members and help them grow and develop their skills. Yet, for a variety of reasons, many advisors fail to do this, to their detriment. They miss a chance to do what the father and mother often cannot-help prepare the next generation to take their place.
"While parents want to develop responsible and caring children, the actions they take to make that happen may be irrelevant or actually produce the opposite result," says Dennis T. Jaffe, author of Stewardship In Your Family Enterprise: Developing Responsible Family Leadership Across Generations. "Too often, they initiate a few well-intentioned, but very limited, actions that don't really respond to the deep challenge of raising children amid wealth."
Strategies For Success
The "freedom to fail" is what distinguishes the extraordinary success of American venture capital and entrepreneurial culture from all others. Family offices should expose young family members to fiduciary responsibilities before they take on the mantle of leadership. Advisors also need to realize that accountability is a two-way street. Just as the younger generation must be given greater responsibility and held to performance objectives, family advisors should welcome opportunities to objectively define their own performance standards.
Family offices and their advisors can be well served by focusing on establishing clearly defined programs for next generation leadership development in two areas: (1) the charitable foundation; and (2) investment management.
Many family offices have charitable foundations or organized giving programs, but they are underutilized as fiduciary development tools. Younger family members are usually given superficial roles with the important responsibilities handled by outside professionals. The younger generation should instead be more engaged in the giving process so they can develop the skills they will need when they become leaders. Creating such a program also gives a family foundation the opportunity to review its mission.
A similar opportunity exists in the investment arena. A portion of a family office's assets could be set aside for younger family members to manage, either directly or through the selection of outside managers. This gives children an environment for learning about risk versus reward, fiduciary duties, business analysis, due diligence and investment management. Most importantly, next generation leaders can directly experience winning, and losing, in business.
The Family Mission
Advisors may sometimes find that the core issues facing their client relate to leadership transition. Family leaders may assess the enterprise they've created and be unsure of its future. They may struggle to answer questions such as, "Is there anyone who wants to take my place, and are they going to be as committed as I have been? Do I have successors who are qualified to take over the reins?"
That's why advisors need to provide a process that examines the fundamental values and decision-making framework of the family and involves both the existing senior decision makers and the next generation. "Often the most fundamental questions have not been answered in an open and transparent way," says Dell Larcen, an organizational development professional who has coached family members in such businesses for many years. "Thus, family members do not become aligned around the basic questions of who are we; what are we here to accomplish; and what guiding principles must we embrace in order to succeed in achieving our goals?"
Answering these questions is only the beginning. The process should make family members and their advisors mutually accountable. The next generation should be part of the process and their views should be actively solicited. Explicit, mutually agreed upon performance expectations should be established that are supported by objective benchmarks. Family office professionals and principals can both benefit from a leadership development program driven by independent advisors.
Pascal Levensohn is the managing director of Presidio Strategic Services, a division of San Francisco-based wealth management advisory firm Presidio Financial Partners, and an internationally published author on board governance best practices.