Family succession planning and risk always go hand in hand, whatever the context. In this particular case, the story in one of the Sunday papers of Sir Terence Conran relinquishing the reins of his empire to his (second) son Jasper prompted me to consider succession planning generally, and the potential pitfalls in simply relying on the ‘heir and spare’ principle.
For centuries, families have realised the importance of generational planning and historically, the eldest/elder son has inherited the title, estate, and wealth (or debts) that go with primogeniture, while other offspring generally filled standard roles (army/navy/church/diplomatic service/philanthropist).
However, such allocations and occupations are no longer the norm, and children follow wildly different paths – the Conran siblings are each successful in their own right, but this is not true of all families – and an increasingly important part of the wealth adviser’s role is to help the paterfamilias (or materfamilias) consider family governance.
Families with complex affairs need modern best-practice risk management. Risks invariably arise due to human frailties – the seven deadly sins come to mind (no prizes for naming them but see the footnote at the bottom if you get stuck), but the seven virtues (see second footnote) should be wheeled in to counter them.
Each family member should be encouraged to play to his or her strengths and one way of achieving this, in a modern context, is to create a family governance structure, drawing on corporate governance principles to ensure that each child who can and is willing plays a part in management, oversight or consultation.
Such structure could, for example, comprise an executive board which deals with the day to day management issues – this may include family members or may be run entirely by others.
The board may be accountable to and/or consult with a supervisory board or family council, which could include both senior (‘retired’) and junior family members, and can provide a training ground for younger family members to prepare them for future roles in the business.
Some family governance plans might permit a child to run a business division, while other families encourage offspring to find their own path in life until they have developed their skills. (Jasper Conran seems to have done both of these things.)
The psychology behind all of this is to draw on the skills of each family member, without encouraging a sense of entitlement to run a business if they are not equipped or experienced enough.
Primogeniture is rarely relevant – the Conrans are one example, and the Murdochs another, that a younger child may be more suited to running the business than his or her elder siblings, who might have other careers within the business (or independently) or may take on the role of pursuing the family’s philanthropic aims, for example.
How each family member is to be rewarded and remunerated can, however, be a more difficult subject than encouraging them to recognise their own skill set.
A really good family governance structure can address problems of continuity, succession and conflict management with a shared vision for the future and agreed processes to meet the challenges it faces.
In Jasper’s case, having been running the furniture shop side of the business since 2012, he won’t be thrown in at the deep end when (according the press reports) his turn comes to oversee the other businesses. Family planning in practice.
*pride, envy, anger, sloth, avarice, gluttony and lust
** fortitude, patience, justice, temperance, faith, hope and charity
Sophie Mazzier is Counsel at boutique private wealth law firm Maurice Turnor Gardner LLP