Advising Families with Owned Enterprises
and Family Offices
Bermuda STEP Conference
Presented by
Mary K Duke
Head of Private
Wealth Solutions –
Americas
Presented on
23 February 2012
Agenda
WHY FAMILY OWNED BUSINESSES?
WHAT ABOUT GOVERNANCE FOR THE BUSINESS OWNING FAMILY?
HOW ARE FAMILY OFFICES ADDRESSING TODAY’S CHALLENGES?
Family Business vs.
Professional Management
Problems with Family Businesses
Unprepared, unqualified, unwilling next generation
Family Battles
Lack of Accountability
Inheritance disputes Lack of meritocracy
Quixotic Decision-making
Secrecy
Strengths of Family Businesses
Fearless Decision-making
Long Term View
Limited office politics
Less Bureaucracy
Management Tenure Retention of expertise Innovative
A family is an inherently long-term institution
and a well run family enterprise is run to endure
for the future – and this is an advantage in
navigating and surviving a changing world.
Carlock & Ward
When Family Businesses are Best, 2010
Some family businesses
Walmart
LVMH
AIG
NY Times
Ford
General Dynamics
Cargill
Disney
Levi
Fidelity
BMW
Fiat
Bombardier
Sainsbury
Motorola
Viacom
FAMILY & BUSINESS GOVERNANCE
The Three Circle Model
Board of
Directors
Owners
Family
Family Council
Family Assembly
Management
Senior
Management
The Developmental Stages of the Family System
Network
of Families
MultiGenerational
Family
Nuclear
Family
The Complex Family Network
Family Z
Family E
Family A
Family H
Family C
Family D
Family
Enterprise
Family X
Family B
Family J
Family E
The Family Governance Structure
How to Organize Complexity
 Provide system for coordinated member involvement
in decisions and activities that effect their lives
 Provide possibilities for meaningful participation
 Is essential for sustaining the family’s legacy and unity
 Calls for a willing devolution, delegation and
decentralization of authority
Governance Structure for a Complex Family Enterprise
Family Governance
Business Governance
Family
Assembly
Shareholders’
Assembly
Family Council
Board
of Directors
Family Office
Career Planning
Committee
Family Foundation
Redemption
Fund
Education
Committee
Venture Capital
Fund
Family Reunions
Governance
CEO
Management
The Board of Directors in the family enterprise
 Protect shareholder interests / Set Policy / Big Picture / CEO & Mgt performance
 Guarding decisiveness
 Overseeing family involvement in the business
TRENDS IN FAMILY OFFICES
Challenges for Family Offices
Regulatory & Legal
Service Model
Costs and Management
 Registration – to be or not
 Consensus on goals of family legacy
 Compliance costs $$
 Multiple national/residency
 Generational preparedness
 US Persons
 Generational shift
 Financial providers doing less /
charging more
 Political risks
 Mixed ownership and mgt
 Licensing agreements / weak
governance make IPOs challenging
 Need for number of specialist
advisors
 Divorce
 Strategic alliances
 Confidentiality
 Access to funds (theoretical and actual)
 Secrecy and communications
 Advisors
 Predicting and managing risk is key!
Latest trends in Family Investing
 New investment regions (Asia, Latin America, NAmerica) both directions
 Direct ownership, private equity and real estate is back!
 Co-investing (German families are sought after partners)
 Investment management – rethinking: in-house, outsourcing, diversifying
 Financing and other needs through alliances
Concluding thoughts
Family owned enterprise is an enduring and
effective business model
(stewardship trumps short-termism)
Family offices can help families transition to more
professionalism in their owned businesses
(inherent negatives can be managed out)
Advisors play an important role in helping families
incorporate governance into family systems
(STEP Business Families Special Interest Group)
Questions
Disclaimer
HSBC Private Bank is the brand name for the principal
private banking and trust business of the HSBC Group.
HSBC Bank Bermuda Limited is licensed to conduct
Banking and Investment Business by the Bermuda
Monetary Authority.
Bermuda Trust Company Limited and HSBC International
Trustee Limited, Bermuda branch, are licensed to conduct
Trust business by the Bermuda Monetary Authority.