Three key considerations for family offices during testing times

Does “business as usual” (BAU) ever exist for complex families with substantial assets? Whatever one’s view on that question, current challenges might suggest a renewed look at the basic principles of effective family governance (EFG).

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Rupert Phelps
Published: 24 Mar 2020 Updated: 13 Jun 2022

Does “business as usual” (BAU) ever exist for complex families with substantial assets? Whatever one’s view on that question, current challenges might suggest a renewed look at the basic principles of effective family governance (EFG).

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Many families may have completed thoughtful and engaged governance initiatives such as forming a family council and establishing a strategic framework between family and business interests. This subsequent implementation may be viewed as valuable and active, even as their new “governance BAU”.

The current environment shows the immutable value of EFG as the bedrock of a family’s deliberations, particularly when it has become established as BAU. However, it must be sharpened with an acknowledgement that it is an evolutionary and unending process, where the seeking of such effectiveness is truly beneficial in itself.

While families may already have embarked upon this path, three foundational truths occur which are worth re-emphasising. Their active acknowledgement and integration into strategy, will enhance both long-term planning and addressing nearer term issues.

  1. Forms of Capital (FoC): this is to consider the family capital more broadly than just its financial assets. Consideration within a family’s governance process of human, intellectual, social, and spiritual (values) capital should come before financial capital, since that has no intrinsic value. EFG includes establishing values and purpose and is enhanced greatly by studying different FOC (Pierre Bourdieu’s 1986 essay ‘Forms of Capital’ is a seminal piece).

  2. Community: social capital includes the interaction of individuals within a family, then to their friends and colleagues, and collectively to their community and wider society. Today, the enduringly positive aspects of community spirit are being stressed, and within the confines of social distancing, the support that can be offered by the secure to the vulnerable. Business owning families have a venerable tradition of this and, once again, are responding to address this need.

  3. Governance: this is used in the broadest possible sense, more widely than just ‘communication’, rather the whole ecosystem of connection between all family and business elements. Embedding the seeking of EFG in calm, BAU times is demonstrably the surest way to protect the family by anticipation and preparation for periods of stress. This might be termed the “primacy of governance”, the explanation being that without EFG, a family might be set for disaster. The biggest destroyer of family capital is unpreparedness and family conflict, regardless of the quality of their professional advisers, jurisdictional (eg taxation) and market conditions.

Describing times as “uncertain” ranges from the curse to the platitude: when is there ever certainty? In a similar vein it currently seems difficult to imagine when any vestige of BAU might return.

While these conditions continue, the overriding concern is invariably capital preservation. Suitable governance will enhance such a safeguarding strategy and additionally protect the philanthropic undertakings of such families as well as their own financial interests.

The function and responsibility of private capital, exerted through a family business or family investment, remains pivotal to our nation. Enhanced by these three key EFG considerations, it forms a vital component of the business and community of this country.

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By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Please remember investment involves risk. The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

Notes to editors
Smith & Williamson is a leading financial and professional services firm providing a comprehensive range of investment management, tax, financial advisory and accountancy services to private clients and their business interests. The firm’s c1,800 people operate from a network of 11 offices: London, Belfast, Birmingham, Bristol, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton. Smith & Williamson is part of The Tilney Smith & Williamson Group.

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Authorised and regulated by the Financial Conduct Authority.
Registered in England No. OC 369632. FRN: 580531
Smith & Williamson Investment Management LLP is part of the Tilney Smith & Williamson group.
© Tilney Smith & Williamson Limited 2021


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.