This article is part of the ongoing Next Generation series presented by PBY Capital.
When and how should we talk to our kids about family wealth? How can we become more intentional about the way we communicate to make decisions together? And how can we prepare the next generation to step in and take the baton? These are perennial concerns for Canada’s dynastic business families, but they are particularly critical today as 60 per cent of family enterprises are expected to transition ownership within the next decade.
Patricia Saputo and Caroline Phaneuf, cofounders of Crysalia, a Montreal-based consulting firm that works with enterprising families and family offices to manage the human side of wealth, are hearing more from families who want to learn how to communicate more and better.
“There has been a big shift from protectionism on the part of the owner generation and delaying transparency with the next generation, even when those children are in their 50s and 60s, to actively wanting to engage and prepare the next generation,” says Phaneuf, who, like Saputo, is from an enterprising family herself. “We’re also hearing from second and third generations who want to have conversations they never had with their own parents. Families are reaching out because they want to have more courageous conversations about challenging topics.”
Importance of communication
Younger generations want to know what they own, what their wealth entails, what the expectations and limitations are. They, along with their parents, want to know how to combine willingness to be part of decision making with readiness and ability, how to reconcile the individual with the collective, the short term with the long term.
“They also want to know the number. What are we worth? Family members are curious because the value is never spoken,” says Saputo.
When is the right time to talk to your kids about family wealth? “When kids start to ask questions,” says Saputo. “For example, if your 12-year-old comes home from school and asks, ‘Mom, dad, are we rich? Find out why they’re asking, and shape your answer based on the context of the question, the level of information you think your child is ready for, and what you’re comfortable divulging. As a parent, this means you have to be ready well before your child–at whatever age–asks.”
In her own family, Phaneuf says she and her sister benefited from “a lot of purposeful transparency growing up. We always knew everything we needed to know. This helped us get comfortable having these conversations.”
The important thing is to make sure the conversations happen–and keep happening and improving–in a safe learning environment, where the family understands each other’s winning conditions and where the lines are, says Saputo.
Governance when it works well
This is where governance comes in. “For us, governance is creating the conditions, so everyone feels they are at their best, individually and collectively,” says Phaneuf.
“We take the time needed to help families get to know who they are and how they are going to work most effectively. This will help shape governance in their image.”
Deciding on the right governance structure–family council, owners’ council, family office, advisory board, etc.–starts with defining who the family is, what their needs are, what needs to be decided on and the lifecycle stage the family is at. The complexity and maturity of the family in terms of the number of generations and family branches involved in its assets and needs will influence the level of sophistication of the governance structure.
“The key is to make sure everyone’s voice is heard, even if they don’t have the right to vote,” says Saputo. “Governance on paper is easy, but where we come in is to build a functioning, adaptable system that will work and can be learned from over time, one that allows family members to diverge in their different perspectives in order to converge and come to a decision that makes sense for everyone based on what the family’s objectives are.”
One key piece to effective governance, and one that is often overlooked, say Saputo and Phaneuf, is defining what success looks like for the family–even if that means selling the business–as well as the metrics to get there and ensuring the journey is a positive one as the family lives the governance.
“You might have success in terms of achieving the goal but getting there was a disaster, or it might be a very enjoyable journey to live the governance, but it does not deliver on the intended results,” says Phaneuf. “There are many types of failure that can happen. The ultimate failure is when families end up worse than they were in the beginning, and this usually happens because they were not looking at the early warning signs, or measuring their progress, to readjust and realign along the way.”
Governance at a standstill
Perhaps the most obvious warning sign that governance isn’t working is nonuse. The structure is spelled out on paper, but people aren’t showing up, and there is little execution. Another lies in how authority is distributed. Is it more performative than shared? Or has paralysis analysis set in because authority is perpetually being delegated to people not intended to have it? Conflicting individual and business goals and too much or too little conflict, making governance either a battle zone or avoidance zone are all warning signs that should be addressed early.
To do that, it’s important to get to the root cause of the problem–often easier said than done given the emotion that comes from being part of an enterprising family.
“We help families name what is happening in a constructive, respectful way; identify what needs to change and address it,” says Phaneuf. “When you name something, you can act on it, just like when you get a medical diagnosis, it can help you move forward.”
To help even more business families move forward, Saputo funded the endowment of The Patricia Saputo Distinguished Chair in Family Enterprise at the University of Ottawa’s Family Enterprise Legacy Institute (FELI). FELI, the first academic institute of its kind in Canada, will conduct research and provide foundational training to the next generation of Canada’s enterprising families.
Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of PBY Capital, a member and content provider of this publication.
PBY Capital Limited is registered as an exempt market dealer, portfolio manager and investment fund manager with Canadian provincial securities regulatory authorities, servicing family officesand their professionals. For more information, visit: www.pbycapital.com. The opinions and information provided in this article are solely those of the writer and are not to be construed as personal, legal, accounting, taxation, or investment advice, or as an endorsement of any entity.