Trends in the Overall Family Business Enterprise Market
by Linda C. Mack, Mack International
An intensely competitive market and increased access to information are requiring Family Business Enterprises to keep pace in the recruiting, compensation, and retention arenas. As the New Year approaches, the office of the future and its leaders are looking to benchmarks and best practices to take their respective firms to the next level.
A More Formalized Approach
Whether considering employment agreements, performance management or compensation packages, the trends all point to more formalized strategies and methodology. At the CEO and CIO level, the vast majority have employment agreements, with CFOs not far behind. Today, compensation agreements are increasingly being documented prior to candidates accepting an offer. Additionally, more formal, and sophisticated (qualitative and quantitative) performance-based plans are part of these arrangements. A well-defined, objective and results driven plan, with measurable metrics for success defined up front are helping Family Offices attract the talent they are seeking.
Most Family Business Enterprises are looking for executives to stay with them 10-15 years and the trend is to provide opportunities for those in leadership roles to accumulate wealth for their own futures. In the interest of retaining these key executives, formalized annual and long-term incentives are becoming more prevalent in the market. The types of incentives vary widely. The majority of Family Offices pay annual bonuses. The majority of firms still pay bonuses on a discretionary basis for overall staff, but the trend remains strong to develop more defined, performance based payments.
Long-term incentives (LTIs) are also a growing trend in the market. According to Trish Botoff, the acclaimed compensation consultant in the industry, the three most prevalent types of LTIs used in the market are supplemental deferred compensation, typically with a vesting requirement; co-investing opportunities, often with a line of credit provided at the AFR rate to help leverage the investment with a recourse loan; and carried interest. Interestingly, there is movement throughout the industry toward businesses using more than one type of LTI. For example, deferred supplemental compensation may be geared or targeted to retention and long term wealth accumulation while other LTIs might be tied to performance objectives. Incentives do drive behavior; therefore, it is critical to design a compensation package that is clearly aligned the with family’s philosophy, culture, and objectives.
Family Office of the Future—What will it look like?
The Family Business Enterprise of the future will be very different from the traditional business model of the past. Future enterprises will be more strategic and proactive, similar to other professional service organizations. They will provide a distinct value proposition that resonates with family members as clients who will choose to do business with the family enterprise vs. outside competitors. As a result of an increased movement of talent from institutional markets to Family Offices will benefit from a broader professional universe of talent that brings business, financial and investment acumen -as well as knowledge and experience of relevant technology systems and operating platforms.
Never before has technology been more leveraged. Successful businesses are embracing technology to spur the efficiency, accuracy, and productivity of their platforms. Family businesses will continue to provide advice and counsel to family members, though the bar is going up in terms of level of acumen expected.
The future will see increased competition to successfully recruit the best candidates as demand eclipses supply. Culture fit and personal attributes will be key criteria of the successful “new” leader of the future. While proper onboarding, resources commensurate with accountability and clear expectations and metric for success will be important, the post pandemic world of hybrid work arrangements will necessarily require a shift toward being more flexible and agile.
The Next Generation of Leaders
The profile of the most effective leaders is evolving both in skill level and personal characteristics. The premier candidates for the C-suite will have strong business and financial acumen, be technologically savvy, have the ability to think critically and bring a strategic and proactive mindset to their job. “Expert generalists” who have knowledge across the horizontal spectrum of all the wealth management fields and also understand the interconnectivity between all of these will trump “silo specialists.” Nothing happens in isolation and each decision has implications across multiple disciplines. These individuals will also be well-networked, bringing the benefits of best intellectual capital to the family office. They will be effective in engaging the next generation of family leaders through mentoring and education.
In terms of personal characteristics, future leaders must have both a high IQ and high EQ (emotional quotient). Leaders who are less hierarchical and more inclusive, collaborative, and inspiring will develop and empower high performing teams.
What we Preserve from the Past
The future is bright and exciting. It is worth emphasizing that despite the importance of recognizing trends, there are some constants that are best preserved by Family Business Enterprises. Family businesses are known for how highly they value their staff through all market cycles, their stability, their long-term focus, and their commitment to philanthropic activities in the communities in which they live and work. This profile, along with raising their respective bar, will continue to draw the best and brightest.
About Mack International
Mack International, LLC is the premier retained executive search and strategic human capital consulting firm focused on providing solutions to single family offices/family enterprises, multi-client family offices, and the full spectrum of wealth management advisory, investment management and financial services firms that serve the ultra-high net worth private wealth and family markets.