Planning for the future
The importance of making way for the next generation
The importance of making way for the next generation.
Having clarity around succession of the family office in the future emerged as a major concern for all the family office representatives we spoke to. Some have formal succession plans in place; others are comfortable allowing things to unfold organically. Recognizing that future generations might have different values, interests, communication styles and ways of going about the business of a family office was widely acknowledged—often from the perspective of first-person experience by a second, third or fourth generation family member, who themselves inherited a family business or office and set about evolving their legacy to be relevant to their own and their generation’s style, and to the investment landscape and global concerns of their time.
A seven-generation mindset and an awareness that she “might not be there tomorrow” is a large part of Placements Italcan Inc (the Saputo’s family office) CEO Patricia Saputo’s motivation for putting systems and structures in place.
“We're looking at our family and our business with the seven-generation mindset. If you know the three before you, and you know yourself and perhaps your children and grandchildren, then it's easier to envision those who will come after. Another helpful way of thinking about it is the generational wave, where the grandparent-parent-child become grandparent-parent-child, and so on, in waves,” says Patricia Saputo.
These are some of the founding concepts of Crysalia, a human capital-focused learning and development advisory for enterprising families that Saputo co-founded in 2021.
“If you must think of the future and the family office’s legacy for a hundred years, but you don't know the people, how do you identify with them? What will the work we’re doing now and the systems of governance we’re putting in place mean for the next generation? The decisions we’re making now are important; they’re going to affect future generations of our family. It’s a big responsibility.”
The generation below Saputo has nine members, aged from late teens through to late twenties. Part of evolving the family office from version 3.0 to 4.0 is formalizing how to bring in the next generation, and to professionalize that process – and protect the family wealth – for generations to come.
“We're trying to figure out the hat you wear, the room you wear it in, and who has the influence in their voice versus the decision-making capacity in their vote. That’s all part of what we're trying to instill in the next generation. What is it that they need to do for themselves if they want to have a vote in the future?”
Nurturing the growing fourth generation’s engagement in and understanding of the Vermeer family business is a major focus for Senior Family Office Manager Aaron Smith.
There are 30+ members in the incoming fourth generation. Of course, not everyone can be actively involved in the family office – but supporting younger family members to explore if they want to or should be involved is important.
“It’s about getting them to a base level of understanding about the business, and it’s about financial literacy. We want to get all family members to the point where they feel comfortable working with the amount of wealth they’re going to inherit,” says Smith.
One way the office does this is by facilitating a Junior Charitable Foundation Board for family members aged 14-18 at the annual family camp.
Smith says his role is “all about planting the seed in the heartland” and shares that he and other non-family leaders would like to see a family member take over as CEO from the current CEO, who is a third-generation family member.
“If one of those fourth-generation members is qualified and equipped to do that, then we’ll facilitate that transfer. But if none of them are, then we’ll be trying to figure out how people feel about moving to a non-family CEO. That'll be between the board and the Ownership Council.”
The Maldonado’s family office, Grupo Económico Maldonado (GEM, or Maldonado Economic Group’s) approach to succession took into account in three generations: the founders, the current one, and the upcoming one.
“Our generational transition took us through two generations, which is rather unusual. That was the vision of my uncles. At the time my uncles were already relatively older, and they needed to plan their own succession while they were trying to sort out the one with my grandfather. He was an 82-year-old traditional patriarch so none of my uncles and clearly none of us [third-generation family members] had any claim to family wealth,” says Family Council Chair, Alexander Degwitz.
The family anticipates that by creating and designing their family office as a platform that provides a structure and puts a plan into place, they will support the family wealth to grow over many generations.
The next generation was given considerable weight in the Family Council’s decision-making processes, with one chair for a member of the next generation, whose voting power is worth 2.5 votes, whereas a vote from each of the current generation’s five chairs is worth one vote.
“In our structure, a lot of weight was given to the next generation as a method of mitigating what is the most common of problems in family businesses, which is to keep the spark alive and involve future generations. It was a way that we could include the younger ones and get them involved and get them to understand our businesses, in essence an education platform.”
The Huillinco Family Office has just completed an in-depth, one-year consultation and review of its structure and systems, including succession planning.
The fourth generation is still too young to be involved, but the family, especially the second and third-generation members who have achieved significant growth and expansion, recognize the importance of having plans in place.
“Our father is a brilliant man; he is an engineer and has been very successful in growing and starting new businesses. He is the President of our family office and is still very active and involved,” says Andrés Del Río, Director and third-generation family member.
“It has been difficult for him to ‘pass the key’ to the next generation, but of course, he recognizes how important it is to have something in place and to do it right.”
A strengths, interests and philanthropy-based approach can help family members find their way into wealth stewardship, says Max Fortmuller of the Vesta Family Office.
Philanthropy was mandated for the Vesta Family Office by matriarch, Dagmar Fortmuller, with giving taking place in three focal areas: education, the less fortunate and children. Fortmuller has found it an excellent training ground for family members working towards becoming involved in the family office proper.
“We've involved our younger siblings in our family foundation by giving them projects to develop their accountability. We ask them to pick a charity that they think is worth allocating to, and then see how those funds were allocated the year after,” says Fortmuller, who is also President of Vesta Wealth Partners.
“A foundation is unique in that you can direct capital, but don't have ownership of it. It enables us to separate out stewardship while still teaching or learning other guidelines, and that’s quite valuable.”
Fortmuller reckons a question that's often overlooked in a family business environment is whether the next generation actually wants to take on the burden of family wealth stewardship.
“I believe in supporting the next generation to find their own passions. My kids are very young now. I plan to empower my kids to find their passions and one day, if they want to take it over, they're more than welcome to, but that's a decision for them to make. I won't thrust it on them.”