Secrets of Succession
There are some simple steps parents can take to ensure their children grow up as responsible wealth owners. Here five entrepreneurial heirs relate the lessons they learnt.
When Warren Buffett said he didn’t believe in dynastic wealth and that rich kids were “members of the lucky sperm club” he struck a chord with many parents asking themselves how best to transfer wealth to their children.
Should they start passing on their wealth before they die, or follow Buff ett’s advice and donate all their money to charity? If they’re business owners, should they bring their children into the firm and how can they best pass on the entrepreneurial spirit?
Getting the answers wrong can lead to disturbing consequences, well documented in the society pages of magazines and newspapers.
Juliette Johnson, senior family business adviser at Coutts, says parents need to adjust their children gradually to the idea of inheriting signifi cant sums and start at a young age.
“The worst thing to do is to tell them suddenly about their wealth, particularly after their children might have possibly struggled financially through university, or during their early career,” says Johnson. “Money isn’t something dirty: parents should be willing to talk about it to their children.”
She suggests “Being Rich”, a documentary by Jamie Johnson about growing up as heir to the Johnson & Johnson pharmaceutical fortune, should be compulsory viewing for wealthy parents and their children. It gives an insider’s view of the potential pitfalls and opportunities presented by wealth transfer.
While there is a growing list of well-known entrepreneurs who have followed Buffett’s advice and decided to give the bulk of their wealth to good causes, research suggests most millionaires have no qualms about leaving their money to the next generation.
A study by US wealth research specialist Prince & Associates found that most wealthy parents plan to leave at least 75% of their estates to their children, with the proportion increasing according to the size of the fortune.
The manner in which this wealth transfer is managed and the values that parents instil into their children is therefore likely to determine whether or not the next generation squanders the hard work of their parents.
The media generally revels in tales of rich kids going off the rails, be it thenyouthful excesses of Paris Hilton or the alleged drug problems of fortysomethings Eva and Hans Rausing.
But the successes are as numerous as the failures and there are plenty of high-profile examples of second or third generation wealth owners who have surpassed the achievements, and the wealth, of their parents.
Bernard Arnault inherited a large construction company from his father largest luxury group, LVMH, and in the process lay claim to being the richest man in France.
Rupert Murdoch took the Australian newspaper he inherited from his father and turned it into a global media empire. Swiss entrepreneur Ernesto Bertarelli forged a multi-billion biotech business from his father’s paramedical company.
All three inherited not only wealth but drive and ambition from their parents. Entrepreneurs who have made their own money often want to see their children work hard for financial success – a common theme running through the five profiles of successful heirs to follow.
Arguably the bigger challenge is not the transfer of wealth from the first to the second generation but trying to retain and build a family fortune subsequently. Old proverbs from China to Scotland attest to the fact that serious money seldom survives beyond three generations.
There are, of course, notable exceptions among family-run businesses such as pen company Faber-Castell and Swiss bankers Pictet & Cie, which have fl ourished over multiple generations.
Arabella Saker, a partner specialising in estate planning and succession issues at law fi rm Allen & Overy, says that putting a succession plan in place as soon as possible can help to alleviate many of the problems associated with wealth transfer.
“Many succession issues are obviously emotional, but it becomes considerably harder to deal with if a plan is not put in place at a very early stage – this is my number one recommendation to wealthy families.”
Amanda Waterstone Chairman Gilda’s Tryst AGE: 32 PARENT: Tim Waterstone, founder of Waterstone’s book chain. Amanda’s accessories business, Gilda’s Tryst, launches next month
"The ultimate aim in business is to make as much money as possible, to get where you can’t be scared of losing it. The most useful thing my folks taught me about money was that it comes and goes.
My father has imbued me with the idea that by creating a brand that stands out in the market you can create enormous value in a business. My parents drove home to me the power of branding which in retail is the key to a successful business, whatever you are selling.
My parents believe we should make our own way in the world, and that making us fend for ourselves was the best way to shape us into productive people. For example, I was told that I had to support myself fi nancially as soon as I left university.
However, I think this can limit your options if you’re more inclined towards a career in the arts which would diminish your productivity and creativity.
A formal education in business and finance should be compulsory. These disciplines are the very basis of our economy and society, yet so many educated people do not even have a very basic understanding of the fi nancial markets. I had no formal education, but my father started explaining the basics of fi nance and business to me when I was at university.
I like to hunt down good advisers for myself and make my own decisions, to simply use the same advisers and contacts as my father would seem a bit of a cop-out to me. For me it’s important that I am making my own way in business and have my own identity."
Joss Kent President Abercrombie & Kent AGE: 39 PARENT: Geoffrey Kent founded luxury travel operator Abercrombie & Kent
"The best lesson in business was being fired by my father from Abercrombie & Kent in 2002. We had a disagreement over where the travel industry was going after 9/11. His hunch proved correct, whereas I was probably guilty of youthful hubris. I was rehired in 2006.
Doing a Harvard MBA at the age of 23 was scary, but it was the best way of proving I had the wherewithal to succeed in business regardless of working for the family firm or not.
Paying those enormous fees sharpens your ambition as well. I don’t use the same fi nancial adviser as my father, not least because he’s much richer than me but also because I have different financial needs and believe they are best served by someone not connected to my parents.
Studies often point to businesses failing when the third generation gets involved, although I wouldn’t discourage my children to enter the family business.
The second generation is still close enough to the founder to appreciate the business, whereas the third generation is disconnected – but not to the money.
What you received you earned was the mantra in the Kent household. Money was never given to me. Most sons and daughters of wealthy family business dynasties might say this also, but in my case it was very much a guiding principle enforced by my parents.
I probably have a stronger sense of giving through philanthropy than my parents. This is as much a generational diff erence than anything to do with personal preferences.
You can’t exactly hide when you are a cast of one. Being an only child means that there is no fighting between siblings that often complicates the boardrooms of family businesses or leads to ugly succession disputes. But expectations are far greater."
James Sellar CEO Sellar Developments AGE: 35 PARENT: Property developer, Irvine Sellar, who is behind London’s 1,000ft Shard of Glass development
"Respect money and never take it for granted. Growing up I was aware of the ebb and flow of the family’s wealth as the property market rose and fell, so I was always keenly aware of how easy it is to lose money.
You only sell as well as you buy is a favourite phrase of my father – so it is important to do plenty of research and make careful choices. Never rush into a situation without a thorough examination. Also, it’s crucial to take into account the downside of a purchase, and look at the worst-case scenario.
My father made his money from scratch and I’ve always had to work for mine. I had jobs around the house to earn my pocket money from the age of 10.
We’ve been approached by family offices but we’ve always turned them down, as we prefer to manage our money ourselves.
My dad and I use the same bank. I would advise my children to work for someone else or do something different before entering the family business, just to get a different perspective. I went straight from getting my chartered surveyor’s qualification at Richard Ellis to starting work with Irvine aged 24."
Rebecca Mone Founder Miss Ultimo AGE: 16 PARENT: Michelle Mone is founder of the Ultimo underwear brand for which Rebecca has launched a range targeted at teenagers
"I have never taken our family money for granted. My parents made sure I got a parttime job aged 13, working in a tearoom, and I still have to earn my way helping with housework and looking after my brother and sister.
My parents have shown me that if you get your head down and work hard, it pays off in the end. They’ve also taught me not to become complacent; you always need to keep your eye on the ball.
I haven’t had a formal education on business and finance – but I think it would be really valuable. At school I’m taking business studies but we don’t have any sort of formal lessons on money or investing – certainly not from a personal or practical point of view.
I intend to pass on to my children what my parents have taught me: nothing comes for free and you have to earn your own way. Also, I’d probably teach them the importance of saving, because I’m not very good at that. "
Lucian Tarnowski CEO Brave New Talent AGE: 25 PARENTS: Count Arthur Tarnowski, a Polish aristocrat who fled to the UK during the Second World War, and Bridget Mary Astor. Lucian has launched graduate recruitment website Brave New Talent.
"Don’t get too attached to money was the most important lesson my parents taught me about wealth. Money’s great if you’ve got it, but as my father learnt after the Second World War, when a lot of the family fortune in Poland was lost, it’s not the most important thing in life.
My mother was always unconditionally supportive of my business ventures. From the age of four, when I used to collect a wheelbarrow full of apples from our orchard and sell them to passers-by for 50p, she knew I’d be a businessman.
In launching any venture you need support and faith, in yourself and from others. My father was brought up in an era where he had hundreds of servants, a huge house, and never knew any different, but I see money as a by-product of entrepreneurship.
I don’t work to make money. If I made enough money to live comfortably for the rest of my life, I would still continue coming up with new ideas and new ventures.
With money, inevitably comes wolves. Don’t be naïve.
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