Gutmann Bank Workshop
Family Business Owners
Budapest
Mark Haynes Daniell
May 2017
Learning from the past…
“Lend me the stone strength of the past
and I will give you
the wings of the future…”
- Robinson Jeffers
 Raffles Family Wealth Trust
1
Key points
 True wealth is about far more than money
 There is a unique nature to – and great value in preserving –
true family wealth, including financial assets
 Family legacy is as much about the future as the past
 Family leadership is often more about leading from the heart
of the family than from the head of the table
 Great leaders of legacy families think about future
generations in their decisions today – taking into account
unborn generations and even “seventh generation thinking”
 Putting in place a legacy strategy – inc wealth management –
can provide a great return in all areas of true family wealth
 Raffles Family Wealth Trust
2
Definition of True Family Wealth
The origins of the word wealth in English – weal and
wela – have a meaning beyond pure financial wealth,
and are defined more like ‘well-being’ and ‘welfare’…
 Financial wealth
 Integrity and responsibility
 Accomplishment
 Physical security, health, and fitness
 Knowledge, wisdom, and spiritual growth
 Family harmony
 Individual happiness
 Raffles Family Wealth Trust
3
Individual Happiness
From the 1960s onward, psychologists have defined the
PERMA elements of ‘positive psychology’ that lead to a
happy life for an individual: all of which can be addressed
in a family’s approach to legacy and the pursuit of true
family wealth
 Positive emotions
 Engagement
 Relationships
 Meaning
 Achievements
 Raffles Family Wealth Trust
4
Responsibilities of Wealth
Fulfilling responsibilities can support family legacy,
contribute to true family wealth and reinforce all
elements of the PERMA concept

More than philanthropy (although that can be important…)

To the family – and future family

To stakeholders in the business – owners, employees, suppliers, customers,
communities, state

As a good corporate citizen: CSR standards

To the business: clear vision, capable team, effective leadership, efficient
processes, positive culture, sustainable results

Bill of rights vs Bill of Responsibilities

To the self: living values, realizing potential, finding happiness, and fulfilling
personal destiny
5
Statement of Family Purpose
Statement of Family Purpose captures the ‘why’ we do what we are doing
 To work together as a united and harmonious family to contribute to the
 enduring success of a shared family enterprise which is greater than our
 individual selves.
 This will require all members of our amily to commit to
 Aspire to create something significant together for our family, our businesses,
and the communities we serve, which is greater than anything we could
accomplish alone
 Be effective and engaged owners of our business interests
 Seek constantly to protect and strengthen the trust and bonds between members
of the Family
 Carry forward the traditions and values of a name worthy of respect
What is your own Statement of Family Purpose? Does it depend upon ownership of
an operating business(es)?
Philosophy of Wealth
Family
Philosophy of
Wealth
“Owners”
Can do what they like
with their moneyspend, invest, gift
“Stewards”
Hold the family’s
wealth for future
generations
“Hybrid Approach”
Some personal use
and some held in trust
for the future
 Raffles Family Wealth Trust
7
Key Points
 True wealth is about far more than money
 There is a unique nature to – and great value in preserving –
true family wealth, including financial assets
 Family legacy is as much about the future as the past
 Family leadership is often more about leading from the heart
of the family than from the head of the table
 Great leaders of legacy families think about future
generations in their decisions today – taking into account
unborn generations and even “seventh generation thinking”
 Putting in place a legacy strategy – inc wealth management –
can provide a great return in all areas of true family wealth
 Raffles Family Wealth Trust
8
US “Rich List” 1918 vs 2008
Name
Oil
Coke, Steel
Steel
Banking
2008
Not on list
Not on list
Not on list
Not on list
150,000,000
125,000,000
Oil, Railroads
Oil
Not on list
Not on list
J. Ogden Armour
Henry Ford
William K. Vanderbilt
125,000,000
100,000,000
100,000,000
Packing
Automobiles
Railroads
Not on list
Not on list
Not on list
10
11
12
13
14
15
Edward Howland Robinson Green
Mrs. Edward H. Harriman
Vincent Astor
James Stillman
Thomas F. Ryan
Daniel Guggenheim
100,000,000
80,000,000
75,000,000
70,000,000
70,000,000
70,000,000
Banking
Railroads
Real Estate
Cotton, Banking
Traction, Tobacco
Mining, Smelting
Not on list
Not on list
Not on list
Not on list
Not on list
Not on list
16
17
18
19
20
Charles M. Schwab
J.P. Morgan
Mrs. Russell Sage
Cyrus H. McCormick
Joseph Widener
70,000,000
70,000,000
60,000,000
60,000,000
60,000,000
Steel
Banking
Banking
Farm Machinery
Traction
Not on list
Not on list
Not on list
Not on list
Not on list
1
2
3
4
John D. Rockefeller
Henry Clay Frick
Andrew Carnegie
George F. Baker
5
6
William Rockefeller
Edward S. Harkness
7
8
9
 Raffles Family Wealth Trust
Estimated Fortune
$1,200,000,000
225,000,000
200,000,000
150,000,000
Chief Source
9
1
0
The Data
• Riches to rags in three generations exits as an
axiom in almost every major civilization around the
world
• 93% of family businesses do not last 3 generations
• 70% of wealth transfers fail to meet objectives
• 70% of wealthy families lack a strategy
“Hope is not a strategy” - Chris Zook
Why do families lose their fortunes?
There are many reasons why families lose their financial wealth and
attendant stature, but one of the biggest reasons for success was a family’s
focus on values and soft issues beyond pure finance.
Ironically, families that focus solely on money are more likely to lose it than
those with a broader view.
Avoiding conflict, building a shared foundation of purpose, values, trust and
a common appreciation of the value of a united family and shared legacy, for
example, are all small financial costs that can have very high financial
returns…
According to a study by PWC, the biggest reason for failure of wealth
thransfer across generations was insufficient preparation of the Next
Generation.
 Raffles Family Wealth Trust
11
Phasing Transitions
70% of wealth transfers across generations fail to
meet the full objectives of the transferring generation

Few families have a formal plan for transfer

Phased approaches often work best, with separate challenges at each
phase:

Phase I: Current generation leads, NextGen learn and observe (but with
prior education and, preferably external, experience)

Phase II: Next Gen leads, but prior leaders provide oversight and mentoring

Phase III: NextGen lead, next NextGen begins learning process

Hard skills: Accounting, finance, strategy, HR, IT, tax, capital markets,
private business governance, investment, etc

Soft skills: teamwork, evaluating managers, leadership, family
engagement, negotiation, etc
12
Being a Good Wealth/Business Owner
Good business ownership is very different from
effective wealth management: need to address both


Business ownership/engagement: wealth creation, focused approach,
risk-on, team oriented, direct competitive strategies and tactics

Ownership: Vision, strategy, board, team, results, keep/sell, culture, long
term value

Governance: Board and committee role (strategy, results, executive team)

Management: Vision, strategy, organization, team, competitors, customers,
etc
Wealth management: wealth preservation, capital value vs income, etc

Diversified approach: direct, co-invest, private equity, liquid markets, etc

Asset allocation, financial markets, asset class strategies and tactics

Managing managers: (selection, negotiation, performance and cost mgt)
13
Wealth Management Framework
4.1
Family Wealth Management Framework
Key Points
 True wealth is about far more than money
 There is a unique nature to – and great value in preserving –
true family wealth, including financial assets
 Family legacy is as much about the future as the past
 Family leadership is often more about leading from the heart
of the family than from the head of the table
 Great leaders of legacy families think about future
generations in their decisions today – taking into account
unborn generations and even “seventh generation thinking”
 Putting in place a legacy strategy – inc wealth management –
can provide a great return in all areas of true family wealth
 Raffles Family Wealth Trust
15
1
6
Family Evolution Across Generations
1
7
Family Evolution Across Generations
1
8
Family Evolution Across Generations
1
9
Family Evolution Across Generations
A More Comprehensive Model
2
0
Family Evolution Across Generations
2
1
Family Evolution Across Generations
2
2
Key Questions
Is the family keeping the business together, or is the business
keeping the family together?
Is the right definition of family membership being an active
shareholder?
What happens when there is no main operating business
any more – do your family purpose and pursuit of your true
family wealth require a family business to optimise the
opportunities you have as a family?
What can be done ahead of a sale or distancing from operations
and management to prepare to continue to fulfill our higher
order family purpose after the business is gone – or in which
there is no active family management role?
Family Evolution Across Generations
Post Sale Generation(s)
FAMILY
FAMILY WEALTH
MANAGEMENT
FAMILY
PHILANTHROPY
Being a Good Wealth/Business Owner
Balancing roles for ‘active’ vs ‘passive’ family members


Multiple opportunities for active engagement by family membes with the
broader ‘family enterprise’: 1. business (ownership, governance,
management), 2. wealth management, 3. family governance, 4.
philanthropy, and 5. informal role(s); and within each opportunities to
participate full time, part time, or very little time

Ownership: voting rights and shareholder pooling arrangements?

Governance: Time required, specific role(s), liabilities/risk,

Management: Clear and separate roles available and requirements/selection
process to fill them need to be defined: Role and performance vs milestones
and external benchmarks important (formal review process valuable)
Potential role for non-family members on Family Business Board, Family
Council, Advisory Board, or as mentors to family members
24
2
5
The Family Legacy Checklist
Contents:
1.
Is there a clear definition of family membership?
0
1
2
3
4
5
6
7
8
9
10
2.
Is your philosophy of wealth clear?
0
1
2
3
4
5
6
7
8
9
10
3.
Is the family history understood?
0
1
2
3
4
5
6
7
8
9
10
4.
Are the values clear and agreed?
0
1
2
3
4
5
6
7
8
9
10
5.
Is the future vision set out?
0
1
2
3
4
5
6
7
8
9
10
6.
Is there a shared sense of purpose and values ?
0
1
2
3
4
5
6
7
8
9
10
7.
Are the investment and distribution disciplines clear?
0
1
2
3
4
5
6
7
8
9
10
8.
Are the reasons for staying together clear?
0
1
2
3
4
5
6
7
8
9
10
9.
Do you have a multi-generational strategy?
0
1
2
3
4
5
6
7
8
9
10
10.
Does each member understand his or her future role(s)
0
1
2
3
4
5
6
7
8
- and have the skills and knowledge to be successful?
Actions required:
Total score: x/100
9
10
Leadership and Crises
“Great leaders are forged in times of crisis”
A family leader can expect to face
 A major external challenge every 10 years
- three per tenure
 A minor crisis every 3-4 years
 A range of internal (family and individual) challenges
- expected
- and unexpected
- on a constant basis…
 Raffles Family Wealth Trust
26
Next Generation Education
Development Imperatives for the Next Generation
 Build a foundation of values
 Build a foundation of knowledge and understanding
 Build a foundation of experience
 Communicate openly with family members
 Instill a sense of individual purpose and responsibility
 Provide love and discipline
 Build trust
 Create time for the family
Next Gen Skill Set/Legacy Framework
Each generation of the family – and as many members as possible –
need to understand the basic skills (accounting, finance, investment, tax, etc)
required to keep the family’s wealth intact
Organization and
Leadership
Individual Family
Members
The Family Ecosystem and Family
Office
Family Asset
Structuring
The Family:
Identity,
History,
Values and
Future
Strategy
Family
Philanthropy
Family Wealth
Management
Family
Business Strategy
Family
Risk Management
Learning and Values
Best practice says that children learn over time in age brackets, eg.:
Age
Key learning
0-10
Values, how/why we spend our money, role of business, giving back
11-20
Earning money, spend/save/share wealth, budgeting, borrowing,
philanthropy
21-30
Ownership of wealth, job and autonomy, budgeting/spending, making
major purchases (car, house), meaningful philanthropy, career
management, necessary financial and business, skills, values in action,
assessing people, working with the family eco-system
31-40
Raising a family with strong values, keeping relationships intact, balance
work and family, how to be part of a community, living within our means
and consistent with our values, how to provide leadership for financial
causes, creating and preserving wealth, managing a family eco-system
Source: Family Legacy and Leadership
The Family ‘Eco-System’
Share the family’s
vision
5. BROADER FAMILY NETWORK
Social
Clubs
Schools
4. TRANSACTIONAL ADVISORS
3. TRUSTED COMMUNITY/
RELATIONSHIP ADVISORS
Others
Business
Contacts
Community
Boards
 Raffles Family Wealth Trust
Social
Contacts
2. INNER CIRCLE
Lead
Trustees
Family
Office
Executives
Likeminded
Families
Formal
FO
Networks
Attorneys
Trustees
Others
Art
Family
Advisors Counselors
Sources of influence
and advice
Understand and support
the family’s vision
Tax
Advisors
1. FAMILY
MEMBERS
Strategic
Advisors
Family
Lawyers
Friends
Family
Business
Directors
Business ,
HR and IT
Consultants
Informal
FO
Groups
Bankers
Brokers
Conferences
Directors
and
Protectors
Others with
Relevant Perspectives
Philanthropy
Advisors
Selected
Events
Religious
Establishments
Provide transactional
services
30
Learning and Values
One survey of how children learned about money and
financial skills showed a startling difference between
parents and children:
- Parents said that children learned 90% of what they
needed to know in school
- Their children said that 90% of what they learned they
got at home
Query: How good are we at thinking through and
implementing a thoughtful plan of education for financial
and business knowledge at home for our children?
Godfrey, J. (2013). Raising Financially Fit Kids (Revised edizione.). New York: Ten Speed Pr.
Developing Money Skills (Godfrey, 2013)
1.
How to save
2.
How to get paid what you are worth
3.
How to spend wisely
4.
How to talk about money
5.
How to live within budget
6.
How to invest
7.
How to exercise the entrepreneurial spirit
8.
How to handle credit
9.
How to use money to change the world
10. How to be a citizen of the world
11. How to be grateful…
Ideas: 1/3 savings, 1/3 charity, 1/3 spending, jobs to make extra; accounts book
Godfrey, J. (2013). Raising Financially Fit Kids (Revised edizione.). New York: Ten Speed Pr.
Family Risk
 Raffles Family Wealth Trust
33
Risk Analysis – Shared Family Risks
Wealth Preservation &
Enhancement (#1 2009)
Business Ownership & Control
•
•
•
•
•
•
•
Family Control
Family Leadership of Business
Family Dynamics
Alignment of Interests
Business Strategy
Business Governance
Business Operations
Financial Reporting &
Compliance
•Legal Exposure
•Fiduciary Roles and Responsibilities
•Wealth Transfer Protection
•Physical Asset Protection
•Financial Leverage
•Financial Oversight
•Financial Reporting/Compliance
•Family Office Oversight
 Raffles Family Wealth Trust
• Investment Goals and Objectives
Shared
Risk
•
•
•
•
•
•
Asset Diversification
Manager Selection
Investment Performance
Public Equity Concentration
Private Equity Control
Private Equity Distressed Situations
Family Unity & Governance
(#1 2007)
•Family Legacy
•Philanthropic Legacy
•Family Governance & Decision-Making
•Family Relationships
•Family Reputation & Public Image
•Personal Security & Privacy
•Personal Health & Wellness
•Personal Ownership Responsibilities
Source: Family Office Exchange
34
Family Risk
Assessing Risk, Setting Priorities and Taking Action
 Audit and review-based identification of the full set of risks
- national and political (risk concentration – business and geographic)
- fiscal (tax and asset protection, nationality, domicile and residence)
- family (conflict, individual roles and issues, premises, travel, marital,
lifestyle, etc.)
- physical assets (gold, cash, art, residences, commodities, etc.)
- financial (asset allocation, currency, fat tail risk, concentration,
manager)
 Risk philosophy and parameters established
 Setting of priorities: short, medium and long term
 Roles and responsibilities for family members and advisors set
 Schedule of actions and target achievements set and monitored
Key Points
 True wealth is about far more than money
 There is a unique nature to – and great value in preserving –
true family wealth, including financial assets
 Family legacy is as much about the future as the past
 Family leadership is often more about leading from the heart
of the family than from the head of the table
 Great leaders of legacy families think about future
generations in their decisions today – taking into account
unborn generations and even “seventh generation thinking”
 Putting in place a legacy strategy – inc wealth management –
can provide a great return in all areas of true family wealth
 Raffles Family Wealth Trust
36
3
7
Insights From Past Studies Of Success
Best Practice 1: Understand true wealth is more than money
Best Practice 2:
Think about “next practice” - and your own family history
and culture - not just best practice of others
Best Practice 3: Address each element of strategy concurrently
Best Practice 4:
Act and invest for long-term wealth preservation and
enhancement of business and financial wealth
Best Practice 5:
Select and manage a world class family eco-system of
friends, advisors and suppliers
Best Practice 6:
Provide leadership and prepare the next generation to
manage risks, opportunities and crises
Best Practice 7: Develop an integrated multi-generational strategy
3
8
Legacy Strategy Checklist
Learning for the future…
“Lend me the stone strength of the past
and I will give you
the wings of the future…”
- Robinson Jeffers
 Raffles Family Wealth Trust
39