Should I Work In The Family Business... Or The Family Office?

Strong governance standards are a key feature of nearly all well-run organizations. While they are typically well defined in family businesses, they are often less so in family offices. Consider building corporate governance best practices into your family office, perhaps mirroring some of the same practices that you may have already implemented in your family business.

These standards should clearly outline the roles and responsibilities of working in the family office and family business, including qualifications and job descriptions for specific roles, as well as compensation expectations, which may include a combination of cash and equity in the family business or other family assets such as real estate and private investments.

The decision whether to join the family office or the family business is not always black and white. To this end, consider providing clarity regarding the various ways that the next generation can engage in the family enterprise — not just through full-time employment, but also in governance roles (for example, chair of the “family summit planning committee”), short-term projects and internships. These can provide meaningful opportunities to learn about various areas of the business and family office before a commitment is made to a career in one or the other.

Finally, offer guidance on what a career trajectory might look like within the family office and the family business – is working in one a step to working in the other? – and a well-defined path for family members to exit their role in the family business and family office so that they do not feel compelled to remain in their position based on their perception of the older generation’s unspoken expectations.

Most successful private businesses have a clear mission statement, and this mission often becomes the de facto purpose that unites the broader family. While the long-term vision of a family office is typically harder to define, it is equally important and may be distinct from that of the family business. Addressing the following questions can help a family define its mission:

• For what long-term purpose will the family’s wealth be deployed? This may guide the choice of asset classes and industries the family will (or will not) invest in and may help identify philanthropic causes that the family would like to support in the future.
• What structure would best support the family in achieving this purpose? This can help determine whether a formal, hybrid or outsourced family office is optimal as well as what roles family members will play within the structure.
• What are the older generation’s long-term plans for the family business? For instance, if the plan is to sell the business within the next ten years, knowing this can help younger family members understand the impact on their career prospects within either the business or the family office.
• Are there periodic “touch points” where the family will review and reevaluate its long-term goals and how the family office is organized? These touch points can open the door for members of the next generation to contribute new ideas and explore new technologies.

Having well-defined roles is critical for those who choose to work in the family business or family office. In the same vein, it is equally important to define clear guidelines for how the costs for related family services will be allocated between the two.

As a business grows, it is not uncommon for the business owner to expense certain family services (for example, cars, phone plans, etc.) to the business. However, without specific policies as to which services the family will provide or pay for, family members may assume that the family office or family business is a “general store” that they can always turn to whenever some need — related or otherwise — arises.

Consider building a plan and budget that separates non-business services from the family business and specifies what services and benefits family members — from those working in the family office or family business to those who are not — are entitled to, and who will pay for those services. Doing so can save younger family members who might be stepping into leadership roles the headache of navigating family conflicts that arise from a misunderstanding of who benefits from those services and who ultimately pays for them.

On-the-job training is typically easier to come by in a family business than in a family office. It is therefore all the more important to be intentional in providing next-generation family members in the family office with educational opportunities specific to their role and the family’s assets they will oversee. These opportunities may include access to peer groups and non-family consultants, asset-specific training (e.g., real estate, private equity, etc.) and leadership courses for serving on a board or as a trustee.

Developing these skills early in a younger family member’s career serves a dual purpose — it makes them better at their jobs within the family office, and it makes them more marketable to future employers should they decide to pursue another career at some point down the road.