Advising Families with Owned Enterprises and Family OfficesBermuda STEP Conference

Presented byMary K DukeHead of Private Wealth Solutions – Americas

Presented on23 February 2012

Agenda

WHY FAMILY OWNED BUSINESSES?

WHAT ABOUT GOVERNANCE FOR THE BUSINESS OWNING FAMILY?

HOW ARE FAMILY OFFICES ADDRESSING TODAY’S CHALLENGES?

Family Business vs. Professional Management

Problems with Family Businesses

Unprepared, unqualified, unwilling next generation

Family Battles Inheritance disputes Lack of meritocracy

Lack of Accountability Quixotic Decision-making Secrecy

Strengths of Family Businesses

Fearless Decision-making Long Term View

Limited office politics Less Bureaucracy

Management Tenure Retention of expertise Innovative

A family is an inherently long-term institution and a well run family enterprise is run to endure for the future – and this is an advantage in navigating and surviving a changing world.

Carlock & WardWhen Family Businesses are Best, 2010

Some family businessesWalmart LVMH

AIG NY Times

Ford General Dynamics

Cargill Disney

Levi Fidelity

BMW Fiat

Bombardier Sainsbury

Motorola Viacom

FAMILY & BUSINESS GOVERNANCE

Owners

Management Family

The Three Circle Model

Senior Management

Family Council

Family Assembly

Board of

Directors

Nuclear Family

Multi-Generational

Family

Network of Families

The Developmental Stages of the Family System

Family E Family A

Family E

Family H

Family J

Family Enterprise

Family C

Family B

Family D Family X

Family Z

The Complex Family Network

The Family Governance Structure How to Organize Complexity

Provide system for coordinated member involvement

in decisions and activities that effect their lives

Provide possibilities for meaningful participation

Is essential for sustaining the family’s legacy and unity

Calls for a willing devolution, delegation and

decentralization of authority

Management

Shareholders’ Assembly

Family Council

Education Committee

Redemption FundFamily Foundation

Family Office

Governance

Career Planning Committee

CEO

Board of Directors

Family Assembly

Venture CapitalFund

Family Governance Business Governance

Family Reunions

Governance Structure for a Complex Family Enterprise

The Board of Directors in the family enterprise

Protect shareholder interests / Set Policy / Big Picture / CEO & Mgt performance

Guarding decisiveness

Overseeing family involvement in the business

TRENDS IN FAMILY OFFICES

Challenges for Family Offices

Regulatory & Legal Service Model Costs and Management

Registration – to be or not

Multiple national/residency

US Persons

Political risks

Licensing agreements / weak governance make IPOs challenging

Divorce

Confidentiality

Consensus on goals of family legacy

Generational preparedness

Generational shift

Mixed ownership and mgt

Need for number of specialist advisors

Strategic alliances

Compliance costs $$

Financial providers doing less / charging more

Access to funds (theoretical and actual)

Secrecy and communications

Advisors

Predicting and managing risk is key!

Latest trends in Family Investing New investment regions (Asia, Latin America, NAmerica) both directions

Direct ownership, private equity and real estate is back!

Co-investing (German families are sought after partners)

Investment management – rethinking: in-house, outsourcing, diversifying

Financing and other needs through alliances

Concluding thoughts

Family owned enterprise is an enduring and effective business model (stewardship trumps short-termism)

Family offices can help families transition to more professionalism in their owned businesses (inherent negatives can be managed out)

Advisors play an important role in helping families incorporate governance into family systems (STEP Business Families Special Interest Group)

Questions

DisclaimerHSBC Private Bank is the brand name for the principalprivate banking and trust business of the HSBC Group.HSBC Bank Bermuda Limited is licensed to conductBanking and Investment Business by the BermudaMonetary Authority.

Bermuda Trust Company Limited and HSBC InternationalTrustee Limited, Bermuda branch, are licensed to conductTrust business by the Bermuda Monetary Authority.