Do I Let My Company CFO Into My Family Office?

“Badges; we don’t need no stinkin’ badges.” – quote from “Blazing Saddles” by Mel Brooks. (Believe it or not, this is a “misquote” from a 1948 movie.)

There is no doubt that in any business a CFO can be a very valuable asset. The ability to translate the vast array of data into understandable, user-friendly and actionable information for both internal and external stakeholders is truly a highly-valued capability. In most cases, there is an unwavering trust in the CFO and having him or her in the Family Office just seems like an extension of their fiduciary responsibility. In addition, in many cases the CFO believes they have earned the right to take on this responsibility – that in fact they “don’t need no stinkin’ badge” to assume this role.

However, the position specification for a financial/operating leader in a Family Office is much broader than what is normally found for a CFO of an operating family business. When there is an operating entity, the focus is on the mechanics of that business – pricing, people, profitability and cash flow. This is a playing field where most CFOs are very comfortable and where they have gained the bulk of their life experience. But in the Family Office, the CFO has to deal at a much more personal level with individual family members. The CFO may be seen as the older generations’ “person” and may find themselves catering more to the needs of that older generation when the real needs may be those of the next generation. The CFO may have little patience for those with limited financial experience and may not be able to provide the guidance required to all family members. The requisite tasks also become much more “treasurer” based, investment performance, dividend yields, capital markets, etc., versus operating profits. This experience may not be in their “bailiwick,” and while they may be able to provide some guidance, they actually may be somewhat lost in that environment. The need to understand taxes; estate planning and wealth management may be foreign to them and simple tasks such as paying family members’ bills or providing appropriate financial education can become a bit of a challenge.

So, if you are going to consider allowing your company CFO into your Family Office, you or an advisor should assess the overall skillset, including the interpersonal capabilities and the trust and confidence that various family members have in that individual. It is not a standard “rite of passage” that you allow your Company CFO into your Family Office. I had the honor of working with several CFOs as the NY Managing Partner of Tatum and I can tell you not all would fit in with what I envision as the CFO in a Family Office. Make sure you consider the real DNA of your CFO before making this decision. In the end, if there is a match, he or she does not need a “stinkin’ badge” to be a valuable and integral part of your Family Office.

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Family Office- An Alternative Path

“Yes, there are two paths but in the long run, there’s still time to change the road you’re on” – lyrics from Stairway to Heaven by Led Zeppelin

While they have been around for years, family offices are gaining in popularity as a new generation of entrepreneurs that are coming into wealth are finding this vehicle an excellent way to carry on their legacy. There are now a number of family office organizations and education sessions as well as a growing group of service providers dedicated to this industry.  But, what is a family office, why form one and how can it work for me?

I have had the chance to talk with many clients and contacts that have formed or work at a family office.  Many are founded by a patriarch or matriarch who has a successful exit from a business but still wants the family business team to work together. They pool resources to share the costs of administration of their activities but also find that longer term goals are more easily accomplished working from a larger asset base.  The old strength in numbers adage seems to ring true here.  So, just some notes on my observations about family offices:

  1. The successful ones do have structure and in many cases, that structure resembles what the previously owned family business had in place
  2. A family office requires a discipline regarding decisions such as investment vehicles, seeking another operating company opportunity or perhaps a more structured approach to philanthropic endeavors
  3. This vehicle can provide opportunities to enhance the lives of the next generation. The atmosphere is usually less hectic than the day to day crisis environment of a family run operating company so there is more time for educating and exploring alternatives.
  4. Some have told me their family office provides the opportunity to do it right. Whether it is investment strategy or philanthropy, having some resources and time allow them to develop a more successful and effective approach to their goals.

Please keep in mind, a family office is not for everyone.  Many family run businesses are full of discord, are somewhat dysfunctional and a family office will not solve those issues.  If that is the reality of your situation, everyone going their separate way may be the best solution.  There is also the concept of multi-family offices.  Some families and groups are just more organized than others and they have used these skills to offer family office services to other families.  So, if you believe you could deliver this type of service to others or you want to consider your own family office, the best place to start is to talk to some of the professionals who work in this space.  Many entrepreneurs have seller’s remorse brought on in part, I believe, by not having something to go to.  After a long career usually at one place, they have a certain emptiness when they exit a business.  Many seek a meaningful place as the next phase in their journey and while not a “be all and end all,” a family office may be an alternative to fill that void.  You might just find it is not too late to “change the road you are on.”