Family Governance is not a buzzword. It has global economic relevance.
Stellenbosch Institute for Family Governance, by SFO, partners with Stellenbosch Business School to pilot AffinityLab; a family focused research incubator to nurture and stimulate familial cooperation in Ultra-High-Net-Worth (UHNW) families.
Featured in June/July 2022 issue of Forbes Africa
Data from research providers in financial services and academia support the relevance of thinking in familial terms. Forbes projects the greatest wealth transfer in history from baby-boomers to next generation custodians, estimated at over 30 trillion dollars over the next 20 years, with significant inherent risk of failure. According to the Oxford Ownership Project, an estimated 70% of global businesses are owned by families.
Everyday interactions with family enterprises are closer to home for people buying products from big brands such as Louis Vuitton, Samsung and LEGO. Family governance is relevant, and it is in the interest of the world economy for family enterprises to grow, whereas the families which own them are likely to grow apart.
Family governance, especially familial cooperation, remains a challenging topic due to the complexity of relations in these organisations, compounded by the newly realised knowledge gap. Industry-wide, financial services professionals understand the need for sound governance but run the risk of putting the cart in front of the horse by relying on so-called best practices of what worked elsewhere. Rather, we as financial services professionals, should be working with families to develop the best familial cooperation practices that are relevant for them and their context.
A deeper understanding of cooperation within families is key to gain traction with family governance. But, if a family is unable to work together as a family of affinity foremost, one cannot reasonably expect wealth transfers to be sustainably successful.
AffinityLab intends to address latent familial cooperation needs. UHNW families typically consist of multi-generational branches with members located in various jurisdictions, pushing global families to rethink wealth management strategies beyond investment performance. In times of geopolitical crises questions around goal-based investing are extending to goal-based living, reaffirming the need for a consolidated strategic approach to family governance. Starting with the need to establish Affinity as a primary goal of family and puts familial cooperation squarely in the research focus of AffinityLab.
“Cooperation needs to be at the heart of family strategy for families to realise goal-based living together. Family Governance starts with Affinity.” – Gerrit Schmidt III (Chief Commercial Officer at SFO).
Entitlement and perceived inequitability frame familiar problems in UHNW families. These problems negatively influence family organisations and do not typically allow for cooperation or a sense of interrelated affinity. Furthermore, these problems intensify alienation and place unique strain on family branches, driving at best, superficial cooperation for short-term gains. Once this occurs, it is a question of time before the family implodes, dividing their assets at the cost of cooperating as a family.
The family is stronger by design if able to meaningfully engage members, at varying levels of involvement, in their enterprise. The purpose of an enterprising family should not be limited to a specific industry or specialism. Family purpose should, however, be specific to the ideals of working together as a purpose-led organisation with established collaboration from members who share the common vision and lived purpose. Stellenbosch Institute for Family Governance by SFO specialises in family-management consulting by helping businesses and business families to realise these ideals. We design family structures conducive to nurturing inclusivity and developing proficient Ultimate Beneficial Owners.
Coming back to the idea of putting the cart in front of the horse, financial services providers should primarily be thinking in terms of succession development and designing purposeful family structures conducive to more than tax efficiency and return maximisation.
The qualitative aspects of wealth management matter and the disruptive work of Africa’s first Institute for Family Governance has the potential to shift family enterprise futures, stimulating the global economy.