Five things enterprising families are quietly doing right

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When it comes to family enterprise, “there are a million ways to do it wrong,” says Daniel Trimarchi, the Toronto-based director of family business advisory services with KPMG in Canada. And when something goes wrong, everyone hears about it.

But family advisors also see plenty of families getting things right with just a few simple guidelines.

Here’s a short list of strategies that successful families are using to stay that way.

Matching reward with responsibility

This bit of wisdom “can lead to a lot of conflict if it is not done well, or lead to clarity if it is,” Trimarchi says.

Today’s family members have a wider choice of roles than in the past, and while merely being an owner of wealth doesn’t require you to exert any effort, a lot of responsibility is required in a family office, Trimarchi says. Those involved in day-to-day management, quarterly board meetings or annual shareholders’ meetings have different responsibilities and should be compensated accordingly.

Thus, “if you’re interacting with that wealth as an employee, then you should have a market salary tied to that role,” he says. In one real-life example, among three siblings, only one was working in the family business. Instead of paying him, the parents were planning to make a disproportionate arrangement in their estate. In this case, the child himself made the wise choice to address the situation and ask for a different arrangement to avoid potential conflict with siblings later on.

Another family engaged an outside consultant to determine appropriate market-based salaries for its members who were employed in the business, to ensure fairness – and the perception of fairness – for all.

Paying attention to the needs of the business as well as the family

“Parallel planning: that’s the terminology we use at EY,” says Tina Di Vito, partner and Canadian family enterprise leader with EY in Waterloo, Ont. “Those families who are quite successful have mastered this approach.”

She points out that both families and businesses grow and evolve over time, and the practice of involving every member as he or she would prefer may not be compatible with building the business. The solution is to find ways to foster ambition and innovation in a way that meshes with the needs of the business.

The families that have done well are the families who are very deliberate about what they do instead of just allowing things to happen.

Daniel Trimarchi, KPMG in Canada

“We saw this during the pandemic,” she says. “The ones that were really successful were able to adapt.”

She describes one firm that wanted to introduce a different online platform: “Their adult children were able to step in and say, ‘These are the platforms we might use; here are how secure transactions can happen; here’s how online sales can take place,’ and they were able to catapult their business to a new level.”

Ensuring cross-generational collaboration

Successful families share the same traits, says Toronto-based Eric Gilboord, chief executive officer with Warren Business Development Center Inc. “Communication is on a regular, scheduled basis versus a casual, offhand type of thing,” he says. “It’s a combination of ongoing conversations coupled with regularly scheduled, more formal quarterly or monthly meetings.”

The winning formula includes ways for the next generation to formally pitch something, Gilboord says. “It’s a hybrid of what happens in a family dynamic and what happens in a business environment; I don’t think you’re going to be successful if you keep everything too business or too family.”

Elderly family members can’t be left out, either, Trimarchi says. “For all the same reasons we want to engage the next generation, you want to have an idea of how the senior generation is going to be involved. We’re seeing the 100-year life and advances in medicine; in order for a governance plan to be effective, you have to take this into account and support the older generation in processing this.”

Rather than being a “forgotten part of the equation,” he says experienced business leaders can be of incalculable value, noting in particular the rise of powerful peer advisory groups.

Starting early with financial literacy for the next generation

Succession is not a one-time event. “It takes time, and you have to strategize and be intentional about it,” says Chris Gandhu, partner and family office leader, Calgary, with KPMG in Canada.

Gandhu says an early start is critical. For family members in their teens, he sees families beginning with what he calls “Financial Literacy 101.” Then, when the next generation comes to the age of maturity, families are leading their children through the process of estate planning.

He knows of families who have engaged their professional advisors to assist in this. “Those kids are already filing tax returns because of the complexity of the family,” he says. Now that the parent or guardian is no longer filing on behalf of the child, the advisor is charged with sitting down with the children to explain tax returns and estate-planning documents.

In another case, a family facing a significant liquidity event held a meeting with their advisors, late-teen and young-adult children. “The family very intentionally had the foresight to bring them in, and the intention is to bring them into other meetings, even as passive observers, once or twice a year.”

Communicating

As business-owning families grow, communication becomes even more important, “because the family can be dispersed across countries, even continents,” says Tina Di Vito. “As the business grows, successful families really preserve cohesion.”

Families should keep in mind that the transfer of knowledge and insight does not flow only from the top down. “A family-business leader has a responsibility to continue to learn from successive generations and the management team,” she says. “I’ve talked to a number of families who’ve been doing things well, but they also know when to bring someone in to guide the family discussions. It could even be another family member who may not be involved in the business.”

Overall, if successful families share one single secret, it is “doing things with intent,” says Daniel Trimarchi. “The families that have done well are the families who are very deliberate about what they do instead of just allowing things to happen.”

More from Canadian Family Offices:

• Paying the absolute lowest in tax no longer top priority for today’s families
• Ten operational risks to keep an eye on at the family office
• How your business’s transfer pricing set-up can trigger CRA audits
• Family office software: ‘Time is right for Canadian families to get onboard now’
• Why UHNW and family office investors are delving into private debt

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