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The Family Office Navigator

Let’s Talk Family Enterprise Podcast Episode #57

Host: Steve Legler
Guest: Peter Vogel

In this episode, host Steve Legler speaks with Professor Peter Vogel of IMD Business School to discuss Vogel’s recent book, Family Office Navigator. Together, they highlight the critical role advisors should play when business families consider setting up a family office or want to take a fresh look at what they currently have in place.

Let’s talk family enterprise explores global ideas, concepts and models that help family enterprise advisors better serve their family clients, brought to you by family enterprise Canada.

All views Information and opinions expressed during this podcast are solely those of the individuals involved and do not necessarily represent those of family enterprise Canada.

Hello, and welcome to another episode of The let’s talk family enterprise podcast. My name is Steve Legler. And it’s great being your host once again. This month we’ll be discussing a very popular topic, the family office world and the challenges that many families face when they decide that a family office might be a good thing for them to set up. Our guest this month is Peter Vogel, a professor at IMD. Business School in Switzerland, whose most recent book speaks directly to that challenge. The family office Navigator is much more than a book though, as we’ll discuss, it’s actually a great tool and it can and should be used by advisors to families facing this challenge. I met Peter in New York last fall at the FFI conference. I knew instantly that I wanted to invite him to be my guest on this podcast. We’ve got a lot to discuss, as usual. So let’s get started by saying hello to our guests, intermodal. Welcome to the let’s talk family enterprise podcast. Thank you. Thank you, Steve for having me. I m d as a business school in Switzerland, and you do a lot of work in the family business space. Can you just give us a little bit of background on your school’s involvement with this community? Absolutely. So I m d is located at Lake Geneva in Switzerland. We’re foundation focused on executive education. Back in 1988, IMD launched the linear Family Business Program, which I believe at that point was probably one of the first if not the first program that was catered towards the specific needs and challenges of business owning families. And I joined IMD seven years ago, taking over the family business center. And in that capacity, run the different family business family office programs and having stepped into into the shoes of of my forefathers, so to say in the center, who have done tremendous work in shaping the field, many of which will be very known to most of you out here. Excellent. So I know I believe there’s an affiliation with Cambridge family enterprise group, which is out of Boston. They’re also in Brazil, you were just in India. So you’ve got a real global perspective on the whole family office world and that’s where this this book, I think, will be very useful to people who are facing that challenge that a family sort of has heard about family offices, or they think they should have won or someone they know has won, and so they want to learn more about it and they don’t really typically know where to begin. Is that a fair assessment of what you see? Yeah, absolutely. I mean, first of all, you’re right in saying that the work we do at IMD, but also of course, at through the affiliation in this project, but also me personally with the Cambridge family enterprise group. There’s definitely a very global perspective on this topic. We work with families from around the world in our programs in Lausanne, Switzerland are also on our campus in Singapore. We see families from from all around the world. And I think that’s one of the beauties of working in this space because you you get to work with families from different cultural contexts countries, whereby most of them share very much the same fundamental challenges and issues and when it comes to the topic of family offices, obviously you see a big trend worldwide of families thinking about should we should we not set up a family office? Well, what is it anyway? What do we want it to be with some regional specificities? Of course, it’s absolutely a fascinating topic. One that has more and more attention over the last couple of years. That’s also why why we decided to write the family office navigator to empower enterprising families in their reflection process or transition towards a family office. Okay, so just to repeat for regular rip listeners know that the main target of this podcast is the family enterprise advisor community in Canada, which there are over 500 people who’ve done this training so far. And we know also that the podcast gets out to people outside our network which is also great, but just wanted to so we’re talking about this from the perspective of how the advisors hopefully can help serve the families that they serve. But just for additional context on the title of the book, the family office navigator. This is actually the second navigator book and you recently did one a couple of years ago on philanthropy. Correct. So that the concept of the Navigator and so you you kind of worked out the kinks of what the form of the book could be on the on the on the philanthropy and then said, Hey, this is too good to keep it just for philanthropy. Let’s do something for family office as well. So the fundamental idea behind the navigator concept was to create something visual, fun, playful, engaging hands on for families. And indeed, four years ago, we published the family philanthropy navigator now last year end of last year at the family office navigator in about three years from now. We’re also planning to bring out another navigator which takes more of an angle on a business or enterprise. So it’s a series of books and forks and of course, while it is catering to the family itself, it is also very much used by the advisory community. And we’ve we’ve designed it in a way that it’s very practical, very much applicable and we actually encourage advisors to to use it in their work. There’s lots of exercises in their hands on case studies, examples, learnings, pitfalls. And actually what we’ve seen with the philanthropy Navigator is that it has been very widely adopted by the advisory space, also by financial institutions, service providers. Saying you know, this is this is a little bit our go to book our Bible in the philanthropy space when we work with our our family clients and you know, we hope that the family office navigator will will trigger kind of a similar reaction from from the advisory space as well in the service providers space. Because you know, if we if we look around and we see the vast amount of families that that are there enterprising families and increasing demand and requirements and wishes to explore the family office topic a bit more, you know, we as individuals or as a small center, you know, obviously we cannot work with all families around the world and our mission as a nonprofit foundation. And in the center is to is to have maximum impact and to help as many families as possible and I believe that one way to have maximum impact is also to empower people around me and advisors and other educators and experts to use what we have produced in their work with families. Okay, so there’s a nice fit here because, as you know, the family enterprise advisor program attracts people who want to work more in depth with the families that they have. And then they finish the program and they’re all excited. And then it’s kind of hard sometimes to figure out how to get started with a family so tools and usable tools that they can use to work with the family are always welcome. And that’s what what I found in what I what I mentioned off the top that it’s it’s more of a workbook, there’s a lot of exercises that advisors can use with family so I’m sure it’s going to be very popular. In fact, I was on a call just last week with a couple of peers and I had the book beside me on Zoom and I held it up and two other people on the call also held up their coffee, so it’s already being sold and people are starting to use it. The trick sometimes for advisors is if you’re let’s say a financial advisor and now you want to talk about a family office, the tendency is you know, you have a hammer so everything looks like a nail and for setting up a family office. It’s much more of a multidisciplinary exercise and working with the families up front with your first section of the book is called Get ready for your family office journey. Can you just take us through, you know how important it is to set the context with the family before they even start?

You know, I think this is super important and this upfront phase is is critical.

I think while there is an increasing desire of many, many families to explore the topic of family offices, you know, in all our programs, family office programs, we we always start by saying you know if you walk out of this program, saying we need to set up a family office, we’re just as happy as if they walk out and say actually, we don’t need a family office or we don’t need a family office in the way we thought we needed it when we entered this program. So you know family offices are are looked at by different people in different ways and the way we’re trying to approach this also in the book and in our our work is is to take a more holistic view and look at family offices as a portfolio of services that help families manage what we call different complexities that they have in their family enterprise ecosystem. complexities could be on the family side were very large, global scattered family complexities could be on the asset base. We have multiple businesses and multiple industries in multiple jurisdictions. Complexity could be on the government side and so on, right so you can have multiple complexities or not, and as a result of that, families can leverage family offices to help them manage what we call total family wealth, which is not just the financial wealth but also human capital, social capital, reputational capital, intellectual capital, spiritual capital. So so we look at it in a much broader way. And and, of course, very often and mostly

A families are triggered to start thinking about a family office, either because there was a liquidity event through an IPO or dividends being accumulated and they are a trade sale. And they now need to think what to do with that, or because they wish to diversify as a as an enterprising family. But again, we invite families in these moments of transformation to sit back to reflect on what does our ecosystem look like today? Where do we want to take our ecosystem? In the future? And how can a family office help us deal with what we have today and design what we have in the future? And only then go into the nitty gritty details of either setting up or redesigning the family office strategy, and processes and governance and and service portfolio and all of the things that follow from a more operational point of view.

I like the choice of the word ecosystem, because it really portrays something that is, is very large and interdependent and often complex and you talk about the complexities. You also reference the fact that things change over time before the liquidity event things are a certain way. Now there’s a liquidity event now other things different things become complex. And the way the family looks at their governance and how a family office might be part of that really necessarily has to evolve over time. From a G one two G two, two g three family. And so I think too often people look at a family office and they think of okay, let’s set up the family office we need today and don’t really recognize the fact that maybe in five or 10 years, it could be very, very different. Yeah, 100% agreed. The ecosystem and we very consciously chose that labeling and also in the book, you know, both our navigator books are very design driven. We work very strongly with visual metaphors. And the one we have chosen for the family office Navigator is in fact coral reefs a biological ecosystem because we said, we want to showcase that family enterprise ecosystems are in an abstracted way, in a playful way similar to biological ecosystems. These are living dynamic, evolving systems that constantly change. And adapt, that are exposed to external influences, whether it’s industries market dynamics, but also a lot of internal changes. Families are growing families are splitting up, businesses are coming and going, foundations are started trusts are started. People are moving into different parts of the world. So we very much believe in this in this metaphor. And we think that families need to very carefully think about what does good look like for us where do we want to go as a family? We look at our ecosystem as it is today. Are we a very compact ecosystem with two parents, three kids, we all live in the same city. We have one company which now we start to accumulate some dividends in the holding company and we want to diversify. That’s a relatively simple ecosystem or are we 678 generation global enterprising family with you know, five different branches, hundreds of shareholders, multiple business lines and industries family office philanthropy, spread all over the world speaking multiple languages where again, also the ecosystem is more complex.

And and the job of the family office will look very, very differently in both cases. And so that is very much how we want to get families to think about also the dynamic nature and the evolutionary nature of their individual ecosystem. And and to say, well, we need a family office, of course, to do a specific job today, but also to think about what are the jobs to be done in five years, 10 years down the road? What do we want our ecosystem to look like that and, and so, so absolutely, I mean, just like in good business practice, we use strategy reviews, we have midterm planning, we have three or five year rolling strategic plans. I mean, the same has to apply to family offices as well. I think what happens too often is that there will be one person somebody usually goes by the name of dad, who has a liquidity event and talks to one or two of his advisers and says, Okay, this is what I want, and they’ll set up a family office for the purpose of managing the wealth or managing some of the estate planning without involving the next generation for whom a lot of this stuff is ostensively being done. How can and this is where advisors can help a lot to introduce the concept of the importance of involving the rising generation. Is that something that in some parts of the world goes better than another’s? Are there somewhere where this is a bigger challenge and others where things go? Well? Yeah, I mean, I think first of all, it’s absolutely right. Very often there is one individual or a small group of individuals from the family. That would spearhead this initiative. Let’s say there’s the idea of setting up a family office from scratch and it could be dad could be mom could be one of my cousins or siblings that just happened to have attended some finance classes. Back then, and seems most naturally fit to think about that. And very often other family members, maybe that big, because family office very often especially the investment side of things is very technical, and not everybody feels comfortable to deal with that stuff. So So oftentimes, this wouldn’t be delegated. To, to one or a small group of family members that would take care of this on behalf of the family. And there is clearly a challenge associated with that because each individual irrespective of their level of education, or financial literacy, investment capabilities, I have investment preferences and ideas in mind and risk propensities and especially if a family ends up investing together in some sort of an orchestrated structure then I think it is absolutely mandatory that families get together across generations across branches to think about what do we want to do, how do we want to invest it? Now? It’s obviously different if they set up what we call a single multifamily office, which in which you you have a family office, which serves different parts of the family. As if they were separate client, then of course, you can then treat individual preferences differently, but I think it’s absolutely important. And that is where I think advisors play an immensely important role.

To say, hey, you know, I understand that maybe you are taking the lead on behalf of the family, but you know, I would really, really value sitting down with the whole family to talk this through at least educating them on what a family office is or could be, and and then to put a little bit of strategy around that around the investment governance around the investment policy statements, and then they can delegate to family or non family, that’s a different thing. But in the front end of discussions, I think everybody or most of the family members should be around the table. You mentioned what a family office is and what it could be. And I think that’s part of the whole how do you engage and align that the rising generation and the middle section of the book is the purpose of your family office? And I think that’s one of the most intriguing part about getting people interested in thinking about what the future might look like and whether or not as you were just talking about, are they investing together? Are they not investing together? And if they are investing together, how are they going to decide what kinds of investments they all agreed to pursued together. So this is all part of figuring out the purpose. And again, this is I think, a good place where advisors can play a role and help the generations talk to each other and have these important conversations. Yeah, again, I think yes, family office can be so many different things. And when we want to have families think about and advisors help them think about is, again, mapping out what their ecosystem looks like and what they want it to look like. And then from there to derive the implications for the family office, which we then call, you know, kind of the family office strategy house which includes the why the what and the how fundamentally in the wide being the purpose of what being the portfolio of services and activities and how being structure governance, monitoring assessment resources and all the technical stuff. And yeah, absolutely. You know, what, what, what should the family office be doing for us? What is the job to be done for the family office in order to help us manage the present and to design our aspirational future? I think it’s absolutely important. And again, I mean, the reason why we created this tool and the framework which by the way, anybody can download from from our website. We have a website, you can download the PDF, print it out as a poster and walk it through with families in a very playful way to have initiating structured conversations around some of the key questions that most likely many families will not have been discussing. Together. As a group, at least you talk about initiating discussions, and I talk about that all the time. It’s these families, they shouldn’t be having these discussions. They even know that they should be having them, but they’re not really sure how to get them started. So that’s why I love the fact that you have a tool that people can go and download and just put it on the table or put it up on a flip chart and start to to engage with the different members of the family. And I what I know what what typically happens is there’s sort of a realization that, hey, people actually care about this and they want to talk about it. And they do have some ideas. And we can actually talk about this stuff. So is that something you’ve seen now that these tools have been out there? Are you here? Are you getting feedback about the fact that this is in fact taking place? Absolutely. And that’s why it’s so fun. And that’s why I was encouraged to also move on with a family office book and move on to other tools and frameworks like that. I love to work that way with these very practical tools. In fact, you know, it has been very much inspired by Alex Osterwalder who had created the business model canvas many years ago, which has really transformed the startup space but also corporate strategies based to think about business models in a very simple hands on way. I’ve been using that in entrepreneurship classes in the past a lot. And I said this is this is what I wanted to create in the family enterprise space. So so that was really the hook. And you know, I’ve created tons of these frameworks also around you know, I’ve graded a family constitution canvas, for example, again, to have families have structured conversations on on questions that like you say they know they should be having, but nobody dares asking the question. So I’m giving them excuse to have those conversations because they use the tool and they just say go through question by question. So so they can say, Well, Peter said I should ask this question. So it’s not me the question is Peter asking the question, they blame you. Correct? Right. And like, I mean, for example, I mean, the most fascinating question I find now not in the family office space, but in this constitution candidates. Just to give an example is I have I have one question in there where they have to define who is family. I mean, that’s the most fascinating question. It’s such a seemingly trivial question, but it triggers the most intense emotional reactions by everybody who has family. You’re like, What do you mean like, well, we’re family. Yeah. Okay. But But what does that mean? In laws adopted children, different branches, different parts of the Whoa, okay. Now it’s interesting. So again, I just give these questions and then they can discuss it. And that’s where I think that the advisors plays such an important role because you don’t I mean, some families that are really close and have a good communication culture, they can deal with these questions on their own. But I think very often having somebody sitting with them and having acting as as a kind of a sounding board to to reflect on their discussions and to hold things together in case it’s getting getting a little bit heated. I think that’s a big opportunity for advisors. Absolutely. I think I’m just looking at your the Table of Contents here. And it ends with learning which I want to get to in a second, but organizing your family office is the second to last section of the book. And I think that will be shocking to some people who really, they say Oh, you want a family office. Let’s figure out how to organize it. They’re going to start at the end without having done all of the important work about why and for who and what is the purpose and what is the focus going to be but the learning part so we hear more about Chief Learning officers and maximizing the human capital and I think that’s the big opportunity that is being missed in many families. And I like to think that with the demographics and the younger people coming along, who who think more this way that this is something that more families will take advantage of and involving people and trying to structure things for the family in a way that helps everyone in the family, regardless of whether or not they’re involved. Too often. I think the family office gets set up, but it’s some administrative function. And the people who work in a family office won’t even know necessarily more than just the names of the people for whom they’re doing the work is that something that you’re seeing and is it changing? Yeah, I mean, maybe trends are also the first point that you made around organization of the family office and where it’s positioned. Indeed, that’s the how part structure resource governance, monitoring etc. So we very consciously say you need to first need to think about the much more fundamental questions before you go into nitty gritty or organizational things, which is in itself maybe a little bit transformative for the field because again, many, many would start the conversations and reflections there and go straight into Okay, where do I send it out? What how do I get going and where do I find somebody to work for me? Like, well, what do you want to do? Why do you want to do it in the first place? And what are the best ways of actually doing it and how, find the right structure to match the job to be done that don’t come with a structure and thrown on to things and then figure out the rest? So that’s one thing then the learning part is, in our view, absolutely crucial. Especially well, both for those who are starting off in the family office space, but also those that are established, I think, doing a regular kind of check in how are we doing? Are we all aligned? Are we all good with how things are going? Or could we be doing things better? Do we need to have things changed in our ecosystem over the last three, four years? And do we need to reassess a number of things? So in the learning chapter, we’ve put together a very simple questionnaire. I mean, none of this is rocket science, of course. But you know, what has changed? Are we all okay? Do we actually have a clearly defined scope of services and activities?

You know, does the range of services actually reflect our needs and expectations today, or, or is something missing? And you know, it’s something where each individual fills it in? And then you compare notes and you say, okay, where where do we see things potentially differently? Where do we have similarities and differences in the family and let’s talk about those points, and see ultimately where we have some homework to do to become better. So that yeah, things can get stale after a while and people get comfortable in the way things are and then somebody in some branch will start to be uncomfortable and it’s sometimes hard for them to to raise their hand and it looks like they’re complaining but if the advisor can institute some kind of cadence of reviewing things, more matter of factly on an annual or biannual basis, to say, hey, let’s just review and let’s give people an opportunity to have a say or to raise concerns that can keep help keep things fresh and keep things evolving in a positive direction. Yeah, absolutely. I think again, embedding a learning culture in the family is always good.

Reviewing things and I mean, that doesn’t only apply to the family office. I think that applies to the family business. It applies to the ownership side to the family. governance side and applies to the philanthropic side, I think, creating a platform where it makes change communication, challenging due diligence becomes best practice, and learning and reflection. I think families should constantly learn and should try to constantly evolve and improve in some of the best families, you know, that I think are really role models. They have really institutionalized this constant challenging of their status quo in a very structured way where, you know, they kind of anticipate big issues and they say, well, one thing is for certain we know that our family and our ownership and our our portfolio of business activities will constantly change and evolve. We’ve made it here over the last 160 107 years we’re now at shareholders with an ecosystem that is very large and we know things will change and evolve. We know we will not be around forever and then the next gen will take over. So let’s let’s stress test our system. Let’s put out a few assumptions and say well, what if what if this were to happen what if that were to happen? What are the implications and are we are we fit? Are we fit for those scenarios? Do we do we have the right structures and processes and governance mechanisms in place for the different scenarios ultimately, and and I think this is this is in my view, absolute best practice and again, we’re advisors play a critical role. And by the way, I think from an advisory point of view, it’s a great way for for them to also have a long term advisory type of engagement with families to be the one that the family calls up for the annual health check. Let’s see their entire system.

And that’s what I like about this is your book can be useful for a family office that’s been around for over a century. And it can be useful for people who are just trying to start in their first year and so there’s lots of tools to either start or review and refresh. A family office Peter, this has been wonderful, and unfortunately, we got to bring this in for a landing now. And so as usual, we always end with a couple of final requests with all our guests before we wrap up. So you’re going to need a book recommendation, something that you’ve read, that you’d like others to know about. And then one last thing is one piece of advice from one experience advisor who works with families to others who are also working with families.

Have you got a book recommendation for me? Yeah. So So I actually have to one from the family business space, in fact, and so it’s the family business handbook, that Josh Barrett and Rob Lafon, our wrote in Harvard Business Review, publishing, not too long ago, and the reason why I think is interesting is again, it’s also very insightful, very, very good thinking and structured thinking around a number of things around different rooms and like the owner room, the family room, the management room, the boardroom, but also around ownership strategy, which I find a key topic and I always work with families around the question of what does good look like for you? What are your KPIs as an owner, as a family member as a board member and I think they’ve done a tremendous job at structuring their thoughts around ownership strategy. So So I love this then from the nonfamily business world more an interesting book that I’m reading right now, which is around a region that I think we will be seeing a lot more of and the book is called Africa is not a country. And it’s absolutely fascinating to see how this continent is evolving, and why we see a lot of the challenges in that continent also as a result of the time when when colonialist countries were to simply divide the country and draw straight lines through tribal territories. And now how, of course, putting on my my philanthropy hat. How then the whole continent is looked at as as this impoverished continent and the white savior syndrome of philanthropy and how that has done so much harm actually to the content and it’s, I find it highly fascinating. So it’s also a really good read and it gives a very critical lens on the world of giving. Especially the white savior syndrome is of the Africa. Very interesting. Okay, so your first book is the family business handbook. I had Josh Baron as a guest on this a couple years ago. We’ll put a link to that book and to that podcast episode in the show notes, and then Africa is not a country. All right. So last thing, one piece of advice if you can distill all your experience into one well, I mean, I think for advisors, I think if if advisors get to work with families on the transition of family business to family office, or help set up a family office or redesign or rethink the strategy and positioning of a family office, I think, if the advisors can, can keep in mind that a family office, there is no office in that sense. There’s a constellation of services and jobs to be done. That a family office in an abstracted way. Need to take care of and that advisors really need to help families think through the why the what and the how, and and really start with the why before getting to the what and the how, and, and urging families to take adequate time to reflect on these key questions before jumping in or even making any investment decisions. Because especially if there has been a big liquidity event and a family is confronted with a lot of cash suddenly that they’re not used to maybe those can be quite critical moments. Families are vulnerable. In those moments. A lot of service providers are out there trying to sell them stuff. And if they don’t have the right investment governance in place, if they haven’t had those critical conversations amongst amongst themselves. I think a lot can be destroyed in those transition moments. So that would be my one piece of advice to advisors, working with families that are going through these moments of transition. Great. Yes, sometimes the biggest thing we can do for our clients is help them slow down and not be in too much of a hurry. Fantastic appear. This flew by quickly as it always does. Thanks again for joining us and sharing your expertise with our audience. Thank you very much. listeners. If you haven’t already subscribed, please do so make sure you never miss any of these monthly episodes. Thanks again for joining us. I’m Steve Legler. Until next time

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