Family Businesses and Sustainability

Families and Family Businesses Need to be Sustainable and Regenerative in and of Themselves to Contribute to Society and Sustainability Initiatives – What Does this Involve?

Wealth and business owning families are uniquely placed to contribute to a better world. Able to take a long view, a well-functioning family is well positioned to take action that can have real impact. But unless the family and its own wealth and business interests are sustainable and regenerative, the longer-term ability of the family to contribute to society is at risk.

Many wealth and business owning families have sustainability on the agenda. Discussions are held about the focus of the family on stewardship versus ownership, the thought being that the family business or wealth will be stewarded by current generations for the benefit of further generations of the family. Among others, this leads to a focus on the we over the I. But how many families undertake regular holistic continuity audits designed to review how family assets are owned with a view to ensuring that continuity on all fronts can be achieved notwithstanding ongoing change in both the internal and external environment affecting the family? Has the family considered the importance of ensuring economic independence of family members, something that can be achieved in a number of ways, with a view to helping family members develop the confidence to truly take a helicopter view and focus on what is best for the we – the family as a whole and the wider circles of employees, community, society and beyond. Asking the right what-ifs on a regular basis is key, as is taking action to address areas of internal and external risk that could compromise the longer term objectives of the family.

How does one create alignment between the I and the we? There can be and often is tension between the personal agenda and the family agenda. It can be a significant issue for rising next generation members who wish to pursue causes or hold beliefs that are not consistent with those of their families or family foundations, which often provide the funding. In our view, there has to be mutual accommodation of the I and the we if families are to co-exist happily and flourish. Why should individuals in a family simply subscribe to collective responsibility because it is expected? Individuation is to be expected and respected as a source of identity. This definition of the common interest is vital and it being embedded during one’s childhood, adolescence and early adulthood is fundamental. What the common interest is will vary from family to family; but each family must manage its own context by asking two simple questions: “Where did we come from?” and “Where do we want to go?” As Alex Haley, the author of Roots, said: “In every conceivable manner, the family is link to our past, bridge to our future.”

At what point does the insistence on individualism threaten family unity? For example, if there is a family business, to achieve cohesion, everyone involved needs an understanding of the values that underpin the family business. For there to be mutual accommodation between the I and the we, these values have to be updated and redefined so that successive generations feel their relevance, or are at least reminded of them. You can base your strategic decisions on these values and use them to encourage the right behaviours. The grandparents’ and parents’ generations and their advisers must try to ensure that everyone is singing the same hymn even though they sing with different voices and parts. Even better if these differences are what make the hymn sound beautiful. Embedding circular thinking in a family’s mindset and modus operandi will encourage this cohesion. And more simply put, not having to choose between the individual and the family as a whole, but rather choosing both provides a refreshing approach to unity – a celebration of each individual and of the group.

Values may evolve and change: not so long ago, the world was very patriarchal and hierarchical; but today we have a flatter, more democratic structure which allows and encourages more questioning. This, of course, is more the case in some cultures than in others. The younger generations are not as easily accepting of the approach of previous generations and must buy into any planned transitions within a family enterprise. If they are not listened to and their needs accommodated appropriately they may vote with their feet and become detached from the family. Families that are clearer on their values, and whose governance frameworks embed and endorse these values together with true respect for the evolving values of the younger generation, will be more successful in holding their family and business together.

Disruption is likely to increase – geopolitically and also driven by technological advances in areas including artificial intelligence. Positive reputations for families and their businesses in this fast-evolving environment will likely be more difficult to maintain, but a shared sense of purpose can add much-needed cohesion and glue. Families with longevity inherently do have an adaptive mindset because they have lived through and survived system shocks. However the pace of change requires an element of a rethink and simply relying on thinking and behaviours that have served the family well in the past is not likely to be enough to thrive. But how is sharedness determined? Adopting a non-linear, circular approach that involves the family members across generations is likely to better prepare families to cope with future system shocks and underpin living the family purpose.

In many business and wealth owning families, discussion takes place on the development and maintenance of family constitutions and other means of documenting vision and governance. But all too often, what is in the family constitution does not find its way into the actual ownership vehicles that are put in place for the family. Complex trust and other arrangements, possibly designed for other purposes, such as tax minimization, may not actually reflect the better thought out governance approaches covered in a family constitution. In the event of a family dispute, will the non-binding constitution have any impact on litigation that relates to a particular trust deed or other arrangement? Does the family really understand and uniformly buy-in to the family constitution?

Real sustainability for families requires that there be consistency between the objectives of the family (such as we want to be a family in business for the next 100 years and more) and what the family actually does in terms of how assets are owned and structured and how family assets, including human capital, are developed and protected.

About the authors

Iraj Ispahani is the CEO of Ispahani Advisory Ltd. and is based in London. Ispahani Advisory advises family businesses on business strategy, governance, people, and education. The firm operates internationally across EMEA and APAC and specialises in working with family and private businesses, private foundations and wealth owners. Iraj also serves as a Group Director and Board Member of the Ispahani Group, a family business headquartered in Bangladesh which marked 200 years in 2020.

Philip Marcovici is retired from the practice of law and consults with governments, financial institutions and global families in relation to tax, wealth management and other matters.
Philip is on the boards of several entities within the wealth management industry, as well as of entities within family succession and philanthropic structures. Philip is actively involved in teaching in the areas of taxation, wealth management and family governance.

Dr. Kenneth Goh is Assistant Professor of Strategic Management at the Lee Kong Chian School of Business. He is also the Academic Director of the Business Families Institute and holds the V3 Group Fellow in Family Entrepreneurship.