Challenges mount for Canada’s business families as they add members

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Millennials see the world differently. So when a young member of an enterprising family travels the world doing relief work rather than taking the helm at the family company, it might not be a surprise, but it could be a problem. It’s just one of the challenges of steering an enterprising family into the future.

As a young country, Canada has relatively young dynastic families. Many are just two or three generations old. But as they grow, family and business management becomes exponentially trickier. Headcount increases and the challenges of steering all the members of an enterprising family into the future begin to multiply.

Canadian families are good at keeping an open mind about what roles the rising generation may play in the family business, says family enterprise advisor Gerry Meyer, CEO of Vancouver-based Meyer Advisory Group.

For instance, more families are starting to see that just because you are a member of the family, it does not automatically mean that you want to – or should – go into the business, says Meyer.

Meyer tells the story of a family with two daughters who are engineers themselves, neither of whom wanted to run the family engineering business.

“So we got to a recognition that the daughters wanted to continue to own the business and guide that business and the underlying asset, but they didn’t want to do the day-to-day operations because they have their own lives,” says Meyer.

“Cut to the solution: Put in a board of directors, dad became the chair, they promoted the CFO to become a non-family CEO, and the two daughters came onto the board as directors themselves. And that’s how things moved forward.”

Canadians cautious with investments

Martha Simmons, COO of Toronto-based multi-family office Forthlane Partners, says the Canadian families she works with take an active interest in education and good governance, which she thinks is reflective of other Canadian enterprising families, too.

“We work with some outstanding families who have set unbelievable governance standards for themselves going forward,” says Simmons. “I think there’s an openness and a generosity to learn that is really inspiring.”

A lot of families are going to burn through their capital very quickly. There are stories of kids dropping thousands of dollars every weekend using daddy's credit card.

Dan Riverso, Jesselton Capital Management

Do older, multi-generational, more experienced families abroad do things differently? Sometimes, says Dan Riverso, chief investment officer and chief compliance officer at Jesselton Capital Management, based in Thornhill, Ont.

For one thing, Canadians can be overly cautious, he says, and the deep experience of older families in Europe makes them confident, bolder investors.

“Europeans are much quicker to adapt their investment strategies compared with Canadians. We’re much more slow and conservative,” says Riverso, though he adds that the caution can pay off, as it did when Canada avoided the banking crash of 2008-09.

Governance grows with the family

When it comes to courting long-term success, Meyer says Canadian families need to continue to think of their family businesses as systems. He favours a popular three-circle model that puts the business in one circle, the family in another and the ownership team (which may include non-family members) in a third. The circles overlap.

“For successful families to go multi-generational, they need to understand the components of that system and how each component needs to stand by itself, but also work with each other component,” he says.

Simmons says good governance, including a family charter, excellent communications and a conflict resolution system, need to be put in place while a family is small. A well-designed system will grow with the family.

Education matters, too, and Meyer says schools and universities here and abroad need to step up to help next-generation directors and shareholders learn the communication, conflict resolution and negotiation skills they’ll need to be successful stewards of generational wealth.

“The vast majority of programs focus on developing the next generation as operators of the business, not necessarily future shareholders or owners of the business,” he says.

Among the challenges that may be unique to young Canadian dynasties are a fear factor that comes with the rapid acquisition of wealth.

“We are seeing some people who are having major exits now and are just coming into wealth, who are very afraid about leaving their kids too much money. It is this idea of ‘I want to leave my kids just enough, but I want to give everything else away to charity.’ This is a new thing in Canada for sure,” says Simmons, who sees this trend as a major up-and-coming issue for family governance.

To steward or sell?

By contrast, Riverso says a lack of experience stewarding capital may lead to some families simply blowing it. “A lot of families are going to burn through their capital very quickly. There are stories of kids dropping thousands of dollars every weekend using daddy’s credit card,” he says.

Sometimes families demonstrate their inability to steward capital, Riverso says, by thinking the best route forward is to sell. Riverso knows of Canadian families who routinely spend family meetings voting on whether to close the successful, generations-old company and simply pocket the cash.

To combat a desire to use the family business as a personal ATM and also teach members to steward the family wealth, education should start young, Simmons says: “We do educational sessions for family members as young as three and four years old, starting with the very basics of what is money and moving up from there. We really believe education is a core competency for all family members.”

Transparency is good, too, and Simmons says it’s helpful to be open about just how much money the family has. This can prevent the shock that may come when heirs realize just how much — or how little — money they may inherit and eventually need to manage.

Rules can help, Meyer says. Some families include clauses in the family charter that prohibit the use of family funds to prop up a lifestyle that would otherwise be unsustainable. (In other words, if you buy an island or a sports team, you need to be able to maintain it without a regular payout from the family business.)

All things considered, Simmons says, the future looks good for Canadian enterprising families.

“I do find that Canadians want to learn and want to grow and want to be best in class,” says Simmons. “So I think what we have going for us is that we’re young, and open, and there’s a very bright future for families here.”