Getting to the Core of Family Businesses

While facing a multitude of internal and external pressures, family businesses often struggle with strategic dialogue and long-term planning across the entirety of family interests. A growing number of families are addressing this challenge through implementing a relatively new concept: the “family bank”.


With first-hand experience of running his own family’s operations and advising other families and entrepreneurs on theirs, Ed Lee talks to us about the rise of the family bank and how it can be used to broaden horizons and mitigate risks.


You have recently published an article on the increasing importance of the family bank. Firstly, what is a family bank?

It is a concept where family members are encouraged and funded to pursue investment interests outside of a core trading business, but within the parameters and long-term goals set by the family.

Structurally, a family bank can be a variety of things – such as an investment vehicle, trust or framework. Regardless of how comprehensive the actual structure is, I think it’s helpful for many families to have a family bank mindset as they look to protect and enhance wealth.


What exactly do you mean by a “family bank mindset”?

In short, it’s a mindset of innovation and entrepreneurial spirit, grounded in a clear purpose.

It’s really important to be able to think dispassionately about business and investment interests, and have a broader mindset than simply ‘the business’. People naturally find this a difficult thing to do – whether it’s a successful entrepreneur who has built ‘their baby’ from scratch, or it’s a business that’s been in the family for many generations with the tradition and history deeply ingrained in them from a young age. A key focus for me is helping wealth owners take a broader perspective so that they can strategically diversify, innovate and adapt to the benefit of current and future generations, and I suppose that’s really the essence of the mindset.


Getting to the Core of Family Businesses

What are the benefits of a family bank approach?

The great thing is that it benefits both human and financial capital, which I see as being really symbiotic. It supports family members to apply and enhance their own skills within a structure wider than the main trading company, whilst providing support, independence and accountability that fosters diversified growth.

It facilitates smooth succession planning by encouraging the participation of the next generation in a collaborative rather than prescriptive way. In essence, it provides all of the key ingredients to multi-generational success – diversification, innovation, purpose and wellbeing.


Speaking of diversification, when does it become too complex?

That’s a good question, and the answer will be different for each family. For example, some core trading businesses will be inherently more diverse than others. It’s also important to think about exposure to risk and disruption. At the highest level, it’s ultimately about balancing wealth across the active and passive interests, asset classes, ownership structures, regions, jurisdictions and currencies. The only blanket advice you can give is: have a structure that’s commensurate with your infrastructure.


What are your personal experiences of setting up family bank structures?

I’ve been fortunate enough to have been heavily involved in the establishment of family investment operations as both family member and as advisor. For my wife’s family, we reached the decision to sell the family business which, whilst it had global diversification, was exposed to the volatility of the premium art market. We felt it was important to diversify investment interests and reduce reliance on one large trading business.

My advice to anyone setting up a family bank would be to resist rushing into too many opportunities at the start; be disciplined, filter well and focus. My father often says “you can chase the butterfly all over the field and never catch it, but if you sit down in the grass it will come and land on your shoulder”, and that rings true here, particularly as there’s ever-more emphasis in the private investment world on sourcing, deal-flow and deployment of capital. A family bank should be able to benefit from having no external pressure to invest or divest.


"A family bank benefits both human and financial capital. "

Ed Lee, Business Strategist and Founder & Director of Bowbridge

You say in your article that “one of the key sources of problems and disputes is uncertainty and misinterpretation of the family constitution or framework” – how can families ensure that their family charter is as clear as possible?

The two key things for me are simplicity and communication. It’s important to involve all relevant family members in the process, and to discuss long-term strategy and shorter-term implementation. Simplicity is often overlooked in pursuit of comprehensiveness, but it is often the case that clarity is lost when the charter is too exhaustive, particularly through succession. Each family will have a different solution that works for them, but I think it’s more important to embed an ethos than try to foresee every conceivable eventuality; I know some lawyers may disagree with me on that front!


Is the process of creating a family charter itself a source of problems and disputes?

I don’t think so, actually. The process might highlight issues but is typically the diagnosis rather than the source of dispute. It’s important to identify potential future problems as early as possible, and to have the difficult conversations so that they can be addressed or at least mitigated. Time spent looking into the future is seldom wasted.


How can families ensure that this charter is “lived and breathed” by everyone involved?

Firstly, it’s imperative to have all relevant parties actually involved in the process of establishing or updating the family charter, and for the vision to be communicated effectively with them. If the approach and values are not innately known, then charters can all too often be prepared, filed and forgotten about. People don’t routinely consult the family charter unless an issue has arisen, at which point it can be too late to effectively address it. Having that clarity embedded in the minds of each stakeholder puts the family in the best position to pre-empt problems.

There’s risk with the family charter at succession, which presents many challenges and needs to be carefully planned. The next generation will inevitably have a lesser understanding of the strategic vision and family charter, and this is often exacerbated by a dilution of control. Again, with acknowledgement of this and with clarity and active development of the next generation, this risk can be minimised.


"Devoting significant time to plan B often exponentially helps in the delivery of plan A."

Ed Lee, Business Strategist and Founder & Director of Bowbridge

Are these issues of long-term planning and defining goals something a family has to find out for itself or with some external help and advice?

That depends. In many instances there are extremely capable advisors and delegates that cover their specific remits – such as lawyers, tax advisors, asset managers or management teams. But where families are often most under-advised is at the highest level, in developing and delivering a comprehensive strategy that works across the entirety of the family and their collective and respective interests, rather than managing and coordinating specific elements in isolation.


You mentioned earlier the sale of the main trading business. What advice would you give people contemplating the same?

Firstly, prepare well. Detailed planning needs to happen a minimum three years in advance. As many as 80% of sale processes fail and businesses easily get internally distracted and externally undermined during and as a result of sale processes, so time spent in getting the preparation right is crucial.  In our case, we spent several years in preparation before an intensive 12 months of delivery.

Secondly, you need to manage all family and non-family stakeholders very carefully – you cannot sell a business without the commitment and expertise of the management team, so you need to ensure they’re on the journey with you.

The other advice would be: in order to make an informed decision to sell the business, you need to have make sure you have thought through the plan for after the sale, including what the intention for the proceeds are and how they are going to be managed. Only then can you know for sure whether it’s the right course of action.

Lastly, don’t be too wedded to the preferred route. Things can and do change, and it is crucial to always have a plan B, whether that’s for succession or exit. In preparation for the sale of our business, I spent as much time planning my generation’s succession as I did planning for the sale. It’s worth noting that many of the business improvements I typically make in advance of a sale process – including refining the strategic vision, reducing reliance on key family members and focusing on efficiency measures – are simply good practice and will stand the business in better stead regardless of who the owner is. Because of that, and perhaps counter-intuitively, devoting significant time to plan B often exponentially helps in the delivery of plan A.


Read more on family banks from our Chief Executive Stefan Liniger, Member of Board Philip Marcovici and Business Strategist Ed Lee in collaboration with Ispahani Advisory:

Family Businesses and the increasing importance of the Family Bank


Find out more about how we can help you finding a holistic and comprehensive strategy for your family here.


Cornelia Kopf As editor of Perspectives, Cornelia Kopf is always looking out for unique insights into the challenging aspects of life and wealth. Unearthing and telling inspirational stories is her declared passion.


Living in a complex world or in a world full of opportunities? The answer depends on the standpoint. With our blog Perspectives and our Insights series, we present the topic of wealth from intriguing perspectives.

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