Cultural gardening

Even in two-season Calgary, spring is upon us! In the spirit of renewal, I’m excited to share a fresh perspective on family enterprise that I learned of last month in my Chief Learning Officer group. The presenter, Torsten Peiper, delivered his framework for family success by using a fantastic spring metaphor.

Control is more than governance

This was a fun one to write. I was in a brainstorm, I love brainstorms, and this Newsletter popped out revealing to myself more perspective on the topic of control within family enterprise.

Control in one obvious sense is specifically family governance. Meaning the systems of the family to make decisions and align actions in accordance with family goals. Yet in the brainstorm, my mind turned to the family wealth equation, and the topic of control became a lot broader and a lot more nuanced than a look at simply governance systems.

FW = R (HC + RC)

When thinking about how your family’s Resources (R) exist to amplify your human capital (HC) and relational capital (RC), it is helpful to think of long term family success (FW) as your family legacy. Strong family legacies require multiple generations of family members to look backwards, forwards and within themselves and say “yes, I’m doing good and our family is doing good.”

Control is much more difficult within a family enterprise when they aspire for seven generations of success. Within this larger time frame, it is easier to make the tradeoff of your personal time and comfort in exchange for greater stewardship. Families define success as something more meaningful than the superficial, hedonic, satisfaction readily available in exchange for money for any one family member. Meaningful family legacies happen when you are fulfilled by contributing to the greater family (and/or humanity’s) goals.

There is a really big tradeoff to make within the concept of control. When considering long term family legacy, when the goal includes building strong wealth stewards for generations, the easiest form of control (dictatorship) must be discarded and a harder form of control (democracy) must be adopted.

Professionals consider the topic of control from the lens of their subject-matter expertise. Within this framing, progress in control will typically focus on governance structures. These are critical topics; like our skeletons, but skeletons are not enough to make us humans.

I would contend that a controlling family member retains control until all aspects of control have been removed except control through influence. This would include all sorts of control mechanisms, a Chairman still retains significant control levers, even as one vote. A protector of a trust certainly has a big control lever. Experts even contend that they have witnessed withholding of love and financial support for a family member in an attempt to control their behaviour.

I haven’t witnessed this personally. Sounds very rough!

The point is that letting go is hard to do. Being left to only influence is certainly fearful. No advisor will recommend ceding this much control because truly only the controller of the family enterprise will be able to determine for themselves when that transition is appropriate.

Control is often something of an invisible system, an unwritten governance structure. Control of this sort is far more relevant to understanding how individuals develop and how the family’s relationships operate towards success or failure. How influence is more than powerful enough to impact legacy.

As one aspires to the role of Elder, the transition from control to influence is the key perspective. Giving up control does not mean checking out. Mining for ways to reduce control to just influence, that is the tricky journey.

Mine for those opportunities!

In the brainstorm, in thinking about what a book about control within family enterprise would look like, I was of course drawn towards the conventional family governance discussion. Building effective Boards, empowered wealth stewards, and effective trusts, are three of the topics that first came to mind.

The richness of the topic arrived by thinking broadly:

• when you consider that culture eats strategy for breakfast,
• when you realize that humans are HUMANS and we act with emotion as well as reason,
• when you consider control from a broader perspective,

you see control as just another topic that strong family cultures can tackle well and weak families cannot.

FAMILY LEGACIES PREVAIL FROM STRONG CULTURES

Control does not have to be an insurmountable topic with wealth creators.

“Succession” as a term is often replaced with a more continuous and less serial term like “transition” in family enterprise. Because regardless of the size of their wealth, strong family cultures seem to always leave meaningful family legacies. These families will not let our human frailties overwhelm our collective vision of leaving the world and those we care about in it a better place than we got it.

Once those in control recognize that the time after their control is more important to consider than their time “with the crown”, control simply cannot impede family success. Yes control is a difficult topic. But like family enterprise’s most difficult topic, death, our fears and discomforts around control should be tackled head-on.

Us Family Champions won’t stand for anything less 🙂

To the journey,

Adam

Considering starting a Family Office?

Every family should have a family office: X
Designing investment strategy is the first step: X
ChatGPT can design this for me: X… maybe?

There is a whole lot more to the role of family offices than just increasing your financial resources… that is, if you intend the family office to grow all of your family wealth:

FW = R (HC + RC)

Your Family Wealth is the sum of your human and relational capital pools, amplified by your resources (financial resources being the second most important resource to time).

This month, I tackle a popular family office topic, when and why to start a family office. Thank you for your time, Dear Reader, I hope in this short read you take away something valuable!

Families that start a family office strategy focusing on the investment strategy must have missed Simon Sinek’s famous Ted Talk Start With Why. Although instead of inspiring action with the business’ why (Simon’s point), in this case, your family’s why will inspire action towards building meaningful family legacies.

Family Champions: resist the urge to start your family office design from the investment strategy. That is the “how”. What is your “why”. What is your unique answer to the question “so what is all this money actually good for?”

Once you have a working answer to that question, please apply the answer to the overall question of how the family office design will effectively impact your goals for the resource.

Here are some subsidiary questions on your family office design that I like to ask:

• Is the Office a means to amplify the love and support you describe as part of your “why”? If so, how will it amplify?
• What important skills and behaviours are the Office role modelling for the family? Skills like financial literacy, critical thinking, due diligence, etc.
• What other ways can the Office be a role model?
• What matters to your family, in the way that your employees in the office behave? If a family member works within the office for a summer or for years, hypothetically, what are the key behaviours you expect that family member to observe as being “just like our family”?
• In what ways will the current and future stewards of your family wealth appreciate and value the actions of the Office?

Often, these are the types of questions that shape Mission, Vision and Values statements for an Office. It is integral to build these documents and especially critical to consistently check-in with management and determine how well understood and relatable those documents are to the family office team.

Now, some questions when starting to develop the Office’s Investment Policy Statement:

• What are your lifestyle goals and those of your known heirs?
• How would the Office support those lifestyle goals?
• What investment policies work to meet the family’s lifestyle?

With lifestyle goals, I do think the “how” of investment strategy is very important. Designing investment strategies to ensure a certain base level of lifestyle may PERHAPS tolerably ignore alignment of your investment strategies’ with your family culture.

Far better though to have all actions align with your why, but depending on the situation, I can see many scenarios where a family is more comfortable with their lifestyle needs being met with a different investment strategy than the strategies applied to the family’s legacy goals.

Legacy financial goals are where the family’s why is the rubber that hits the road.

It is the legacy goals of the family where the family culture’s influence on investment strategy really makes all the difference. The question is not “what investment policies work best to meet the family’s legacy goals?” but rather “how does the family culture dictate the investment strategy for the family’s legacy goals?”

The second question better frames the importance of the family’s why within building an effective family office culture.

There are a multitude of ways to do investment strategy effectively. Except that not all of those investment ideas fit within all family cultures. This is a key determinant in which Family Offices improve the family’s wealth and which detract from family culture by being singularly focused on financial objectives.

Care should be taken to think beyond the most common policy, which is determining which types of businesses the family does not want to support.

Consider other factors like:

1. Geographic goals (can interest in various regions improve the family’s worldly perspectives),
2. Industry goals (can showing investment interest in an industry stimulate one or more family members’ interest towards investment success), and
3. Do certain investments amplify the family’s culture by creating greater focus on the family’s values, goals and principles.

I believe that the families that can consistently identify their why and communicate alignment between their financial legacy goals and their values are the families that successfully apply their family offices to supporting flourishing family cultures.

So, to summarize, these steps are absolutely critical to starting a family office:

1. Establish your family’s why for the financial capital (revisit this answer regularly).
2. Determine your lifestyle needs for the financial capital.
3. Determine your legacy goals for the financial capital.
4. Identify investment policies that suit your lifestyle needs and legacy goals in alignment with your family’s why.
5. Then, deploy financial capital into the resources required to accomplish all of the above.

Family office design certainly does not end here Dear Reader! Although the above list is a lot of work on it’s own, further work remains. Not everything can be accomplished at the outset; Rome wasn’t built in a day, so to speak.

One last investment issue that I particularly relate to is: how does the family use financial resources to invest in their family members’ flourishing?

This is the role of the Family Bank, and various spending policies on health care, education, development, etc. An effective policy on deploying financial capital into your family members is actually much different than the lifestyle goals described above. The lifestyle goals are more predictable; this Family Bank focus is more uncertain in timing and amount. The more intentional ways to increase human and relational capital.

A clear set of policies on these unique, irregular, opportunities to spend financial capital on the family members is the type of dispassionate policy development that truly shows how much a family cares (how paradoxical does that sound? Bring in the lawyers to improve our loving and nurturing environment!)

With the Family Bank and similar policies in hand, the Office can determine, approximately, what these uncertain investment events might be which has a significant impact on the liquidity and the suitable risk/reward for that portion of the portfolio.

And with the above investment strategy planning complete, a family office is done the hard work…

No, not actually…

An effective family office design must address all of the other risks beyond investment risk! There are many more risks to consider and more tradeoffs to weigh in the family office design.

Here is a non-exhaustive list of other critical risks requiring attention in Family Office design:

• Reporting risks; consolidation, cash flow analysis, accounting, tax compliance
• Custodianship and cash risks; physical assets, marketable securities, currency, private banking, bill pay
• Financial risks; financial projections, debt management, liquidity, tax strategy, Office/active business financial integration
• Security risks; physical security, online security, Information Technology function
• Legal risks; creditor protection, general commercial, insurance, estate, physical assets, active business integration with Office,
• Communication risks; public relations, ownership relations, role of Office in family cohesiveness, family meeting and retreat,
• Governance risks; Boards, policies, ownership governance, overall accountability to family’s goals / plan
• Alignment with “why” specifics: social impact, philanthropy, Family Bank, leadership development, education/learning, mentorship

In the work that a family office can (and cannot) accomplish, not all of these risks can be the priority. Again, the family’s why and culture goals are extremely critical both firstly to the Office’ decisions and weighing tradeoffs and secondly to building effective accountability and performance monitoring and reporting once design decisions have been made.

The best family offices integrate their ecosystems well, calling on all of the various resources required at the right time and keeping them up-to-date on family affairs in between those critical moments. I believe advisor ecosystem preparedness is a critical and under-emphasized communication task (and something well-worth measuring and reporting on!)

A skilled Family Office can consistently bring the family’s why into whatever is the current task at hand with outside advisors.

Many aspects of the family office should never be in-sourced because the quality of professionals required for the task retain their skill by application to many fact patterns.

Conclusion

Simon Sinek caught the world’s attention with Start with Why. And the presentation played a critical role in my summary of how to start a Family Office. Once a family realizes it’s investment decisions do not exist separately and instead require alignment with the “why”, with the family purpose, with clear and intentional goals shaped by values, only then will the family create and sustain a meaningful Office.

And only then will the Family Office contribute more than financial resource strategy in growing the family’s wealth.

No family has a perfect “why” but we should all strive to have something to anchor our decisions to. Striving for that first answer to “what is all this money actually good for?” is that critical first step in building an intentional family culture and in developing a family office.

To the journey,

Adam

What is a Spripe? And other key terms you should know.

This month I hope we share this time together wisely by defining a few terms important to the language of family enterprise.

To the journey,

Adam

Trade-offs exist everywhere and always. What are you willing to sacrifice?

Let’s begin with a cheers:

Here’s to making 2023 fulfilling, fun and also… well… in reflecting on 2022 and how trade-offs exist everywhere and always, cheers to 2023 being enough for you however it unfolds. Some goals should be hard enough that they may not happen. Some trade-offs are properly sacrificed for other priorities and goals. Bring your contentment perspective to 2023 along with your ambition.

Last month I wrote:

“To get to a specific, clear and unique investment strategy, the family has to be able to articulate their purposes for investing. Far more specifically than their risk adjusted return tolerances. So investment policy statements are a fun and important governance tool to work on and get right.”

Let’s find perspective together on how IPSs can grow your family wealth.

FW = R (HC + RC)

Your family wealth grows fastest when you consider ways that your resources can amplify your human and relational capital pools. 

Investment Policy Statements: Before running a wealth management firm, my interaction with these documents was limited to a quick review with an investment professional and the occasional deeper dive on behalf of a client.

I never considered at the time that families could create their own investment policy statements. I also was unaware that the document could strengthen family cultures and that unlike the documents produced by the wealth management industry to CYA, there was not any specific rules to follow or legal risks to mitigate.

RC – Families’ relational capital, it’s culture 

An IPS is a document that families can work on: This document is a living document, amended whenever your family sees fit to improve the terms and guiding principles under which financial resources are deployed.

There are many topics an IPS can discuss, but the most important lens in my opinion is how your family’s investment philosophy influences your family’s collective well-being.

A policy to align financial resource deployment with personal and collective well-being.

HC – human capital and personal development

How can your investment decisions positively influence your day-to-day lives?

As a document produced with the mindset that it can amplify a family’s fulfillment and success, a document that can meaningfully guide a family’s seven-generation journey, the focus of the IPS changes significantly from the IPS produced by conventional investment management.

One key policy requires prioritization of family investment interests. Identifying specific areas that family members find particularly interesting is a helpful initiative.

Have you considered for yourself: do you find any particular investments compelling and worthy of more of your time, attention and investment dollars?

Here’s a simple example of the type of policy you could include:

We value investing in industries that family members find particularly compelling for long-term value accretion.

A minimum of 10% and a maximum of 80% of the value of our financial capital should be classified by the family as being in “Well-Being Additive” industries (such industries agreed upon annually by voting family members. 

A policy like this requires that the family stay sharp on topics of interest. Your family will benefit in multiple ways from this focus:

Firstly is the potential for outsized financial returns. The investment in a specific thesis gaining concentration in the portfolio may outperform as Peter Thiel describes:

“You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.”

“The most common answer to the question of future value is a diversified portfolio: “Don’t put all your eggs in one basket,” everyone has been told. As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible.”

Secondly and more importantly, the focus will likely result in finding areas of potential vocation and personal fulfillment. Areas compelling enough that you will learn and grow, ultimately gaining expertise.

Role modeling the expertise and increased agency will also inspire other family members.  While improving your own well-being.

So be curious! Join new communities and bring your beginner’s mindset, and you just might find a fulfilling new focus.

R – resources, financial capital

An investment focus need not result in creating a startup or adding significant risk. For example, an interest in the future of energy could begin with an investment in a clean energy ETF and then possibly advance to allocating to a private equity team focused on a specific area (like power storage for a clean energy example) as you meet the top teams and get curious.

If the interest is so compelling that those risky startups enter the portfolio (like Katal Energy did for me!) then the Investment Policy Statement should consider how to manage those concentration risks while also identifying potential non-financial goals of the investment.

This topic would then become a cross-over policy between the IPS and my favourite policy tool, the Family Bank. You can read the third in my series on the topic at CanadianFamilyOffices.com.

Here’s to a 2023 where we continue to sharpen our unique answer to the tricky question “so what is all this money actually good for?”

To the journey,

Adam

I’m excited to learn about Japan’s 72 micro-seasons, lead through the eyes of a wonderful writer and the person that reintroduced me to nihilism (some very interesting wisdom to distill into family wealth dynamics from nihilism) Lucian James. If you want a philosophy that attunes your attention to valuing your day to day more, I expect this 72 season focus to be enjoyable and valuable!

Find out more here.

Capital Deployment + Risk Management = Family Office Ecosystems

In this month’s edition of Family Office Perspective, I’m distilling the surprisingly complex definition of “family office”.

In this month’s edition of FO Perspective, I’m glowing in the good fortune of mentorship.

The Wealth Equation attempts to simplify to merely 11 characters the critical idea that your family wealth increases when your resources are applied to growing stronger family members and family culture.

The Wealth Equation: FW = R (HC + RC)

HC – Human Capital

Of the ways I’ve worked on becoming a better person, be it coaching, learning (usually from podcasting and online videos), finding new challenges, etc. my greatest growth is due to great mentors in my life.

With the one year anniversary of Dennis’ passing on October 30th, and recently travelling to Aspen, Colorado to take my menteeship with James E. Hughes to the next level, I’m thinking a lot about mentorship these days.

RC – Relational Capital

Harnessing a close relationship into an effective mentorship relationship is fulfilling for both mentor and mentee. We enrich our lives greatly by finding the time to mentor and be mentored.

Mentorship is a critical skill in being an effective Elder. As the highest wisdom-holder within a family enterprise, but without the control, it is an Elder’s influence that defines her agency. The influence is the action and certainly there has been no greater influence in my life than my mentors.

R – Resources

One aspect of mentorship that I’m fascinated by, because I think understanding incentives is paramount in building strong family office ecosystems, is that mentors are (in my opinion) unpaid.

I don’t think you can pay for effective mentorship. That looks more like teaching or coaching to me – also valuable relationships for sure. But the resource to monitor expensing in mentorship is time, not money!

Time is our greatest resource.

How can we spend our time effectively as mentors and mentees?

Here are my favourite tips from perusing the internet for good advice on mentorship:

Practical:

• Frame the time. The mentee should have an agenda.
• Come prepared. The agenda should be delivered prior to meeting.
• Get to know each other. The agenda should always include time for getting to understand each other’s worlds.
• Use effective and increasingly curious questions to gain understanding of each other.

Emotional:

• Be genuine and direct.
• Be teachable / look to deliver advice in a teachable manner.
• Look to the future and action plan; mentorship is not therapy.

Accountability:

• Goal set effectively and complete accountability check ins.
• Follow through on the last session’s actions.

Dennis did far more for me than mentor. I saw how he acted constantly. I saw him invest in people every day. I saw him remain calm in adversity. I witnessed his high level of trust, which was was truly unparalleled and resulted in events to his detriment often.

But he always maintained that his trust in people was still worthwhile even though it occasionally burned him.

Dennis was far more than a mentor; he was also a role model.

Geez, I’m “spoiled ripe” in so many ways, and in ways that spoiled rotten people could never imagine.

To the journey,

Adam

post-script, a paragraph of a poem by Douglas Malloch:

Good timber does not grow with ease:
The stronger wind, the stronger trees;
The further sky, the greater length;
The more the storm, the more the strength.
By sun and cold, by rain and snow,
In trees and men good timbers grow.

Read the whole poem here.

In this month’s edition of FO Perspective, I’m hopeful you can help me answer for myself the question: what are the issues and opportunities facing families and how can I help with them?

We won’t use the Wealth Equation this month. Although I’m sure I could find a way to describe myself as a resource to amplify a family’s human and relational capital pools 🙂

The Wealth Equation: FW = R (HC + RC)

In 2017 I realized I wanted to help families harness the power of their wealth to build stronger family cultures. In June 2019, that journey led me to working with Max and building Vesta Wealth Partners together. Now, because it is time for Vesta to transition leadership, given Max and I believe deeply in leading fulfilling lives, the time has come for Max to succeed myself with Max in the role of CEO.

The platform is in a strong position and Max is ready to be the CEO after his significant support for the business as owner, director and investment management teammate.

Max and Jared’s vision was that families like the Fortmullers deserved institutional-quality portfolio construction. Much like our investment strategies, we sought out to build a diversified business in delivering on this vision.

It has been quite the journey! Lots of stories, lots of growth, incredible learning. It has been a great success.

Not-so-humble brag: I’ve loved acting as a fiduciary for the Fortmullers, in my case my fiduciary role came in management of their business and single family office (“SFO”). The opportunity to integrate directly into the Fortmullers’ journey is something I’m very grateful for.

It has been a remarkable way to launch my journey in family governance to a whole new level, and with the growth mindset I have and desire to make an impact, now is the time to find new ways to empower entrepreneurial families to thrive.

So this update reaches you at an interesting crossroads for me. I’m actively searching for the right problems to solve and the biggest opportunities in family governance to make an impact. Here is my question:

• What are the biggest problems (and therefore best opportunities) to help families harness the naturally destructive nature of money on human fulfillment and family culture?

I’m all ears, I have some ideas, and you are receiving this update as a dear friend that I’m certain has unique ideas of your own for me in supporting this mission. Thanks in advance for your comments.