Business

The complexity of families running enterprises is creating more demand for advisers

The growing complexity of family businesses is creating disputes between their beneficiaries, according to a survey by Step, the association for family advisers. 

It warns: “Respondents are increasingly seeing disagreement, breakdown in family relationships and litigation as a result of the complexity of families.” 

Around 78% of respondents can detect a trend towards generational conflict with 79% noting a growing difference in philosophy. Succession planning continues to be a developing issue, say 74% of respondents. 

Evolving family structures would include blended families where parents are unmarried, ethically diverse; same-sex; LBGT and culturally diffuse

The very definition of the word “family” has become uncertain, as monogamy gives way to an exotic blend of partnerships and cross-border relationships. Legislation is failing to deal with related issues like non-biological children, according to Step technical counsel Emily Deane. She wants new laws to prevent “increasing conflict and litigation within modern blended families.”

The sheer wealth of today’s family enterprises, worth a total of $6 trillion, is starting to fuel battles between genders and generations.

SP Hinduja is supporting a legal battle by his daughters, Vinoo and Shanu, to claw back parts of the $18 billion Hinduja Group including a Swiss private bank. 

The bid is supported by their mother and grandchildren. It is opposed by SP’s three brothers who cite a family motto that “everything belongs to everyone and nothing belongs to anyone.” 

Whether this kind of motto can win support from the courts in an era of precisely-defined rights remains to be seen.

The Step survey is in no doubt: “Families are often facing distinctive challenges. These range from cross-border legal and tax conflicts between different revolutionary regimes to generational and cultural divisions within families.”

Evolving family structures would include blended families where parents are unmarried, ethically diverse; same-sex; LBGT and culturally diffuse.

Step’s survey took responses from 613 global advisers of which 40% were lawyers. It found a significant increase in advice required over ten years.

Just under 71% of respondents view the complexity of family dynamics as a growing challenge. Around 49% experienced greater demands for flexible estate planning.

Around 35% reported growing complexity in drafting trust documents. And 76% of respondents saw an increase in cross-border and tax conflicts as a result of differences in jurisdiction. A stunning 96% of advisers say demands for tax advice are rising, due to growing complexity, with the increasing demand for trust services not far behind.

According to the report: “A number of laws and legal definitions are out of touch.” Same-sex marriages, unmarried cohabitation and lasting powers of attorney caused specific complications – sometimes where a legal definition of a child is out of step with family realities.

The split in philosophical belief between family business/office principals and their next generation often relates to green issues and social inequality.

Younger individuals can be ashamed of how their family made their money, and keen to invest in sustainable fashion, where profits come second to the planet. Principals can find it really difficult to understand why the next generation should question their efforts to provide for the family over the years.

Wealthy principals like Rupert Murdoch and hedge fund manager Jim Simons are backing the launch of sustainable investment offices by their children.

Other principals have embraced part of the new philosophy by investing part of their capital in social impact or blockchain opportunities. Investor Howard Marks and private equity chief Frohman Anderson have openly admitted that the views of their children have influenced their investment philosophy.

But tension is still growing. According to Step, a majority of respondents now report growing conflict over governance and succession. Around 63% of respondents say issues relating to family governance have moved up the agenda. Around 61% of family enterprises are moving towards retaining more advisers and there has been a 20% increase in the use of family charters to secure the loyalty of beneficiaries through messaging. 

The mood has moved decisively away from a paternalistic approach and towards treating everyone as grown-ups. This approach could have saved the Gucchi family business when it ambushed itself in the 1980s through a stubborn refusal to delegate management control to its third generation.

But that was then. Step’s respondents now speak of the importance of nipping problems in the bud:  “Discuss matters when they arise, do not wait until the event has happened.” 

Another talked of the need to prevent nasty surprises: “Be open with how assets are to be distributed. Talk about it so there are no nasty shocks or challenges.”

The alternative, where family businesses crumble from the centre, is awful to contemplate. But it could happen if existing trends get out of control.

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