Estate Living Digital Publication Issue 5 May 2015 | Page 57

However, it is also a fact that most family
businesses have a very short lifespan –
with almost 95% of family businesses not
surviving the third generation of ownership.
This high rate of failure is attributed to a
multitude of reasons, one of which is an
attitude of entitlement found largely in
subsequent generations.
Dubbed ‘affluenza’, this attitude of
entitlement can become a significant
challenge to multigenerational businesses.
Andrew Ratcliffe, director of Private Client
Holdings, a family office that specialises in
generational wealth management, explains
that an entitlement culture often emerges
and expands as a family business becomes
successful.
“Call it success breeds failure where family
members in subsequent generations
have usually experienced more personal
income than their parents. They may also
be in receipt of a guaranteed income from
a family trust fund and so naturally become
more interested in living the good life and
less motivated to be entrepreneurial, work
hard, lead, preserve, protect and grow the
family business,” explains Ratcliffe.

Avoiding
Affluenza
“The family members infected with what
we call affluenza tend to take more out
of the business each year to pay for their
lifestyle choices than what they put back in,”
says Ratcliffe. “Family members can waste
time arguing about things like who gets to
use which family asset next. Very often, key
decision-makers vital to the business may
not be family members, and this can be very
negative for them.”
According to Ratcliffe, affluenza within a
family business is often the consequence
of a lack of preparation of the subsequent
generations to handle the demands of
a growing business and a much larger
family structure. “Family businesses can
improve their odds of survival by putting
the right governance structures in place
and by starting the educational process
of the subsequent generations as soon as
possible,” says Ratcliffe.
This is where the inclusion and/or
introduction of a family governance role is
vital. Ratcliffe explains that family governance
is a system of joint decision-making, most
often by a board of directors, a family
council and top management, which helps

53
INVESTMENT SAVVY

Family businesses
constitute the
world’s oldest
and most dominant
form of business
organisations. In
fact, according to a
white paper produced
by Credit Suisse,
worldwide family
enterprises represent
anywhere from 80%
of all businesses in
developed economies to
98% of all businesses
in emerging economies.