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November 28, 2018updated 29 Nov 2018 11:48am

Succession bought into 21st century with leadership and constitutions

By Oliver Williams

Ultra high net worth families are moving away from traditional succession practices and instead focusing on leadership, family constitutions and governance, according to a new report.

The Four Pillars of Capital report, by multi-family office Stonehage Fleming, builds upon a survey of 140 families and their advisors on the issue of succession. A quarter of responders came from members of the next generation.

While succession planning is the biggest issue for families preparing for the future, with 69% saying they were concerned about handing on to the next generation, there is evidence the practice itself is changing.

Leadership over primogeniture

Primogeniture – the traditional practice of handing the bulk of wealth, assets or business to the eldest son – is falling out of fashion. “The survey suggests that it will reduce from 28% to 10% of families within a generation.” the report says.

“This reflects the increasing emphasis on selecting leaders on merit, matching the skills of individuals to different leadership roles.”

Leadership is also adapting to the modern era. Families require more entrepreneurial leaders than in the past, the report says. However, currently 34% percent of families have no formal leadership structure and 34% have an unofficial leader.

Family governance and constitutions

That could all change if formal family governance and constitutions are bought into effect. Stonehage Fleming’s research suggests this is already in motion: “Families increasingly acknowledge the need for a well-documented decision-making process, formal communications and open debate of major issues,” the report says.

In the UK, just 14% of family-owned businesses have a written constitution in place according to a PwC report. In Finland that figure is 63%.

“There is much less likelihood of the dreaded family dispute if everyone knows how and why decisions are made, and how to ensure their views are properly considered,” said one respondent writing in the report.

 

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