Family Futures: Mitigating and Managing Risk When Succession Planning

Selma Jaber 26 Apr 2023

Waiting until the next generation is ready to take the reins is too late to begin succession planning.

Keen to avoid the generational cycle of wealth creation, management and ruin, principals and founders of family offices are now increasingly realising the need for a considered and comprehensive succession plan to ensure that future generations are set up for success. 

Collaborating with the next generation to develop a future-resilient wealth transition plan and will, supported by the right trusted advisors, is becoming a favoured – and best practice – approach.

However, whilst ensuring financial structures are in order is understandably a major focus of succession planning, it’s imperative that operational risks – such as reputation, security and privacy – are not ignored. With all the best wealth planning in the world, a reputation crisis, privacy threat or security breach could be the difference between the ongoing success or failure of a business.

Moving away from reactive models of managing reputational, privacy and security risks to proactive measures will ensure the future generations of your family – and businesses – are both prepared and protected.

Prioritising privacy

Being successful can bring with it the expectation that your personal matters are the world’s business. However, for family offices and individuals in the public eye, it’s important that privacy and discretion is preserved when the next generation takes over. A privacy breach may also be the precursor to reputational damage, or threats to security – so it’s vital that it forms a central focus of succession planning.

Transparency vs Privacy

Currently, there is an increased focus on transparency globally, with more demand for public information about company affairs and a heavier compliance burden on businesses. This transparency, though, should not come at a cost to an individual’s right to privacy: there is a balance to be struck.

The risk of over-sharing

Maintaining the privacy of your family and business needs to be supported by all generations and staff members. The next generation, especially, given their reliance on technology, could unknowingly be sharing sensitive information on social media that, once pieced together, could put you and your leadership team’s privacy at risk.

Similarly, employees, with their access to prominent members of the family and detailed insight into their private lives and businesses, can easily expose sensitive information. Therefore, regular training on privacy risks, including social media, NDAs and best practices, should be prioritised.

Protecting reputation

A business’s reputation can take decades to build, and minutes to ruin. Given the importance of reputation for long-term growth, reputational risks must be pre-emptively addressed when developing an effective succession plan.

Risk assessments

Developing resilience frameworks by conducting internal and external reputational risk assessments will help the business to withstand any reputational crises that may come its way. Looking ahead to future milestones, such as the transition of key roles in the business, it is vital to be aware of the emotional and business risks that may be encountered and determine how you would respond through an agreed internal and external communications plan.

The digital factor

Reputation today cannot be considered without reflecting on the online world, so focusing on your digital profile and online reputation – and ensuring this is resilient – should also be prioritised. Conducting an online reputational audit on the family office and family members in key positions regularly – to assess whether information about you and your business in the public sphere is accurate – will help improve the understanding of what the existing reputational risks are, and how to ultimately address them.

The people risk

Protecting your reputation is also dependent on the people in the mix. Consequently, choosing the right advisors, staff in leadership roles and partners is vital. It’s wise to conduct online reputation audits of future advisors and staff to assess whether they may cause your business any reputational harm, and include these people protocols in your risk management and succession plans.

Horizon scanning

Horizon scanning is a crucial part of risk management planning, and should form part of your succession plan: you and your advisors need to be aware of what future developments, such as changes in legislation or political trends, may impact your business, and develop plans around them.

Security considerations

The physical and digital security of both your business and your family can be easily threatened in line with your position of prominence and general visibility.

The cyber landscape

With the ever-evolving cybercrime landscape and changing risks, security policies need to be reviewed regularly to ensure improved resilience against digital threats. Annual network assessments and device checks to ensure protocols are relevant and effective should be incorporated into your day-to-day business as well as included in your succession plan.

A procedure to follow in case of a data breach should also be developed, covering communications, data capping and retrieval. Crucially, this plan should be tested by relevant parties under the guise of a real-time breach scenario, to ensure that team members are rigorously versed and confident in their responsibilities.

Younger generations are perhaps less privacy conscious than their elders, and, as a result, can be a target for online extortion/sophisticated extortions/blackmail/sextortion attempts, due to their unwitting displays of wealth. Begin discussions about attitudes to risk, and how you can all best protect the security of the family in a unified and consistent manner.

Thinking globally

The global economy and geopolitical landscape are in a state of perennial flux – so it’s no surprise that navigating residency and mobility is a concern for wealthy families.

With businesses often operating in multiple locations, children being educated abroad, and individuals spending time in several countries in any given year, there are a number of geopolitical issues that may come into play. For example, if there are plans to expand family offices to new geographical regions, it is necessary to assess the political and economic climate to determine whether the risks outweigh the benefits.

Operational risks are often overlooked when organising succession plans. But a succession plan will be all the more resilient and future-ready if reputation, privacy and security are front of mind for all involved.