Three Key Considerations for Business Owning Families
27th March 2020
The challenges of the current environment emphasise the immutable value of effective family governance (EFG) as the bedrock of a family’s deliberations. This must be sharpened with an acknowledgement that it is an evolutionary and unending process, where the seeking of such effectiveness is truly beneficial in itself.
While many business owning families may already have embarked upon this path, three foundational truths occur which are worth underlining. Their active acknowledgement and integration into strategy, will enhance both long-term planning and addressing nearer term issues.
- Forms of Capital (FoC): this is to consider the family capital more broadly than just its financial assets. Consideration within a family’s governance process of human, intellectual, social, and spiritual (values) capital should come before financial capital, since that has no intrinsic value. EFG includes establishing values and purpose and is enhanced greatly by studying different FOC (Pierre Bourdieu’s 1986 essay ‘Forms of Capital’ is a seminal piece).
- Community: social capital includes the interaction of individuals within a family, then to their friends and colleagues, and collectively to their community and wider society. Today, the enduringly positive aspects of community spirit are being stressed, and within the confines of social distancing, the support that can be offered by the secure to the vulnerable. Business owning families have a venerable tradition of this and, once again, are responding to address this need.
- Governance: this is used in the broadest possible sense, more widely than just ‘communication’, rather the whole ecosystem of connection between all family and business elements. Embedding the seeking of EFG in calm, BAU times is demonstrably the surest way to protect the family by anticipation and preparation for periods of stress. This might be termed the “primacy of governance”, the explanation being that without EFG, a family might be set for disaster. The biggest destroyer of family capital is unpreparedness and family conflict, regardless of the quality of their professional advisers, jurisdictional (eg taxation) and market conditions.
While these conditions continue, the overriding concern is invariably capital preservation. Suitable governance will enhance a safeguarding strategy additionally protecting the philanthropic undertakings of such families as well as their own financial interests.
Family businesses exert a vital function through their role and responsibilities, both commercially and socially, and in their local community and wider society. They remain pivotal to the prosperity and wellbeing of our nation.
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About Smith & williamson
Smith & Williamson is a leading financial and professional services group providing a comprehensive range of investment management, tax, financial advisory and accountancy services to private clients and their business interests. The Financial Conduct Authority does not regulate all of these services, including Tax, Assurance and Business Services. The firm’s c1,800 people operate from a network of 12 offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin (City and Sandyford), Glasgow, Guildford, Jersey, Salisbury and Southampton.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.