Many business families are facing a new reality from a wealth creation and capital allocation perspective as they seek to create sustainable businesses for the benefit of future generations. After a lifetime of having the family wealth almost entirely bound up in their business, the need to de-risk and diversify their wealth is becoming apparent. And it is a key driver for families that are seeking more independent wealth — especially tech savvy
next-generation family members who are eager to set out on their own entrepreneurial journeys.
Families in business are well known for their patient capital strategies with their focus on long-term value creation, not the continuous hunt for short-term results. The very concept of 'capital' and how it is allocated is evolving, and the idea of patient capital is becoming more expansive and inclusive. Not only does it embody the use of the tangible financial assets of the business, but it now also embraces the less tangible sources of social and human capital that are typically reflected in the family's purpose and values.
The 2021 STEP Project Global Consortium and KPMG Private Enterprise Report 'Mastering Comeback,' described how family businesses applied a long-term, patient capital approach to protect their businesses during the pandemic. They recognised that their financial assets alone could not address the full impact of the pandemic on their employees, customers and local communities, and so they deployed their social and human capital assets as well to support all of their important stakeholders. This was 'asset allocation' in its broadest possible sense.
This more inclusive financial + social + human capital asset allocation approach has become even more pertinent in today's environment. With high inflation and escalating interest rates, there are heightened concerns about the widening gap between the rich and the poor, the potential for social breakdowns and the importance of building links in communities to fortify the cohesiveness of society.
Many of these issues are also directly linked with the global sustainability agenda, and they have caused many family businesses to take a step back and consider what the definition of success may look like for their families and their businesses in the future.
Is It Time For A Wealth Refresh?
Communities are important stakeholders in the family business eco-system, and the impact of the pandemic on people and the planet have made the need for strong human and social capital even more pertinent. It has encouraged many business families to rethink how they are defining their wealth, and what it means to create wealth - as a business, a family and an individual - by looking at the growth and value of the family's human and social capital as well as its financial assets.
This process is referred to as a 'wealth refresh' and it underscores the importance of the family itself as one of the greatest and most differentiating assets of family businesses. Family cohesiveness, unity, loyalty and the development and deployment of next-generation talent are intangible, human and capital assets - all of which contribute to the socio-emotional wealth that results from being a family in business.
KPMG Private Enterprise wanted to hear directly from family business leaders about the meaning of wealth in their families and companies, and how they are growing and preserving it by strategically allocating all of their tangible and intangible business and family assets. Entrepreneurs and family business leaders across the world were invited - as well as academics and family business advisers - to join roundtable discussions and share their experiences.
KPMG Private Enterprise is pleased to have this opportunity to highlight their insights and guidance on asset allocation under a m ore inclusive, new era definition of business family capital and you can read the full report and findings below.
As Tom McGinness, Global Leader, Family Business at KPMG adds, "When we look back at previous generations, it could be argued that the primary focus was generally on creating wealth for wealth's sake. But current next generation family members are changing that, and dialling up the human and social elements. It's still about creating wealth, but now more questions are being asked about 'how can we use this wealth to improve society' and less about 'what we can do to just keep building it."
Read the full KPMG report here: