Tensions between families and their own family offices are rife

We had the great pleasure to be interviewed by Michael Foster from Family Capital. Please enjoy his article: Tensions between families and their own family offices are rife – could a chief learning & development office help?

By Michael Foster
3rd June 2021

Nearly two thousand years ago, Juvenal, the Roman satirist, queried the governance of a
household guard: Quis custodiet ipsos custodes? Who will guard the guards
themselves?

He said guards could not be trusted to stop acts of depravity if they were also corrupt.
He added: Crimen commune tacetur. The common crime keeps its silence.
The suspicion, and silences, which can lead to tensions between families and their own
family offices continue to this day.

You get branches of a family who can’t agree on return targets, sparking resignations
from the family office. Disputes over succession are legendary. Around 92% of families
are likely to impair their wealth and wellness after they reach the third generation,
according to Crysalia.

More recently we have seen workplace misconduct allegations against Michael Larson,
Bill Gates’ legendary investment chief, as reported in The New York Times.
It doesn’t need to be that way. Mark Auger, an expert in dynastic advice, believes
enterprising family principals can reset relationships by sharing the governance burden
with their successors.

Former operations chief to the Savoie real estate family, Auger is chief executive of
Crysalia, a Montreal-based consultant which started up in May. He has joined forces
with Patricia Saputo, finance director of family office Italcan, a 10% shareholder in the
Saputo, a multi-billion dollar Canadian dairy firm. Auger’s other partner is organisational
psychologist Jean Phaneuf, founder of Analys Leadership.

They want Crysalia to bridge the generations, through the creation of a Chief Learning
and Development Officer which Saputo compares to a new member of the corporate
C-Suite.

Crysalia acts as an adviser, or fiduciary, using its third-party experience to shape the
new governance structure. Its debut reflects a changing of the guard at family offices
which, for better or worse, will lead to the increasing use of consultants by a new
generation desperate to avoid being part of the 92%.

The Development Office is core to Crysalia advice package, recognising that the
relationship between principals, family offices and the Next Gen needs a new narrative.
It believes it should work with the heads of family legal and accounting services along
with the family office. The principals, and their successors, need to be involved – the
extent of their involvement would be subject to negotiation.

Saputo is confident of finding members of a Development Office: “There’s always
somebody in the family who is ready to begin and once you have that one person, that
gets a snowball effect.”

Auger argues the attempt to drive returns from financial capital has come at the
expense of human capital. The next generation needs to harness it: “They need insight,
and foresight, to recognise the value of social capital and extract opportunities out of
their network of relationships.”

Auger recalls advising on a situation where one branch of a family wanted a high
dividend from a family business for their lifestyle, while another was happy with a low
one. The dispute was so serious that a financial institution threatened to pull the plug on
their funding.

A Chief Learning & Development Officer could broker an honest compromise in
situations like that, rather than leaving it to others to knock heads together.
To replace a blocking pattern between principals and Next Gen, Auger says new
narratives are needed: “If the family as individuals, or a unit, can close the information
gap between themselves, they will be better enablers.”
A new generation particularly needs to know how to get the most out of their family
office.

Saputo says: “Sometimes a family office tries to put in estate-planning techniques that
might not necessarily meet the needs of the family. They say that’s what’s done. They
don’t ask the family: What do you want? There’s great people out there that can manage
a family office, but they don’t always have the same skill in using social capital.”
But a family office can also find it daunting to deal with a time-poor principal.
Negotiations with a Development Office should be more effective, as long as the
principal is kept completely in the loop.

Families need to agree on financial targets. But Crysalia would not want to undermine
family office professionals. Auger stresses: “Our focus is not KPI outputs, it’s the
behaviour and processes that create them.”

Saputo points out a family office can buy, and own, a jet: “But you will want to retain the
right professional mechanic to service it and the right pilot to fly it.”
Auger favours “stakeholder mapping” to make sure the behaviour of executives and
investors comply with best practice. He says Crystalia looks out for “tension points” as
part of its risk management role.

He can’t comment on Bill Gates and the Larson affair but he said Crysalia works with
enterprising families to mitigate such events. For the record, Larson has denied much of
his alleged wrongdoing. But the damage has been done.

Auger warned events which damage a brand had several consequences, including
problems in recruiting quality talent: “It’s best to nip problems in the bud.”
Auger points out families “have an incredibly high impact, socially.” They need to live up
to that status. A Development Office should ensure any family business reflects its
values, even if the two have grown apart.

Saputo is aware of this. Her own family is multi-generational, and divided between 100
family members, not all of whom are involved in the Saputo dairy business. She is
currently assisting with decision making at Italcan.

“We’re now in our third and fourth generations. That’s why we brought Crysalia in to
advise us on the best decisions we could make.”

She liked Auger’s advice so much, she agreed to back Crysalia, as well as his ideas. She
sees her involvement as long term: “A learning journey will always be in progress
because the life of an individual never ends until the final date.”

©2021 Family Capital.