WEBVTT NOTE This file was generated by Descript 00:00:10.206 --> 00:00:12.457 Adam Hatcher: Welcome to the 21 Clear Podcast where we talk about. 00:00:13.131 --> 00:00:16.671 Anything to help you chaos, proof your family business. 00:00:16.881 --> 00:00:20.751 I'm your host, Adam Hatcher, drawing from a lifetime of experience 00:00:20.751 --> 00:00:25.071 with my own family company and 13 years scaling as an executive. 00:00:25.281 --> 00:00:30.261 And today I am joined by the director of the Family Enterprise Center 00:00:30.261 --> 00:00:32.651 at Kennesaw State University, Dr. 00:00:32.651 --> 00:00:33.411 Sarah Davis. 00:00:33.411 --> 00:00:35.991 Sarah, how are things in Atlanta, Georgia? 00:00:37.011 --> 00:00:38.241 Sara Davis: Things are great. 00:00:38.241 --> 00:00:39.951 Thank you for having me today, Adam. 00:00:40.626 --> 00:00:44.796 Adam Hatcher: Sarah, uh, it is a privilege and we're gonna cover today. 00:00:45.156 --> 00:00:47.886 You and I had a couple of phone calls and we were looking for 00:00:47.886 --> 00:00:52.656 trends in family companies, and this idea of a family office came up. 00:00:52.866 --> 00:00:57.936 What are changes you're seeing in families deciding to start a family office? 00:00:57.996 --> 00:00:59.766 So that's what we're gonna talk about today. 00:00:59.946 --> 00:01:05.226 But before we do that, Sarah, you could have been the director of. 00:01:06.081 --> 00:01:11.901 Any academic program you could have written your PhD on anything 00:01:11.961 --> 00:01:15.111 and you chose family businesses. 00:01:15.771 --> 00:01:19.041 Can you explain what got you interested in people like us? 00:01:20.061 --> 00:01:20.541 Sara Davis: Yes. 00:01:20.691 --> 00:01:25.881 So this would've started, uh, when I was very involved in my local community. 00:01:25.881 --> 00:01:30.171 I'm originally from Huntington, West Virginia, and I was working in sales. 00:01:30.171 --> 00:01:34.626 And one way that you get new clients in, in, in sales is that you have to. 00:01:35.171 --> 00:01:40.001 Have a strong network and I chose to get very involved in our 00:01:40.001 --> 00:01:42.101 downtown community and I loved it. 00:01:42.191 --> 00:01:45.401 We got to work with some excellent business owners, but they were a little 00:01:45.401 --> 00:01:49.571 strange compared to what I learned in my MBA program and they were doing 00:01:49.571 --> 00:01:54.311 things that seemed counterintuitive to that all important lesson 00:01:54.311 --> 00:01:56.381 that we learned in MBA, which is. 00:01:56.751 --> 00:02:00.471 Maximize shareholder value and that wasn't what was happening. 00:02:00.501 --> 00:02:04.461 And so I sat with that for a while because it was intriguing and I 00:02:04.461 --> 00:02:10.941 quickly realized that you cannot judge a business and their strategy until 00:02:10.941 --> 00:02:13.011 you understand what their goals are. 00:02:13.041 --> 00:02:16.101 And so like so many family businesses. 00:02:16.316 --> 00:02:20.036 Their goals were not simply to maximize shareholder value, 00:02:20.276 --> 00:02:22.196 but it was to develop a legacy. 00:02:22.196 --> 00:02:27.566 It was to give back to the community, have an opportunity for their, their 00:02:27.566 --> 00:02:29.516 children to come and work in the business. 00:02:29.846 --> 00:02:30.716 And I thought. 00:02:31.161 --> 00:02:34.971 This is a beautiful thing and you know, we're all humans and we all have free will 00:02:34.971 --> 00:02:38.391 and we can do what we want and we can do what we want with our business, but we 00:02:38.391 --> 00:02:40.521 don't learn about that in the MBA program. 00:02:40.971 --> 00:02:45.381 And I chose to study family businesses and work with family businesses 00:02:45.861 --> 00:02:49.251 because I think that we need to shine light on, there are other options. 00:02:50.071 --> 00:02:52.141 Adam Hatcher: And when you say other options, explain a 00:02:52.141 --> 00:02:53.221 little bit about what you mean. 00:02:53.976 --> 00:02:57.366 Sara Davis: Yeah, so if you are constantly working towards maximizing 00:02:57.366 --> 00:03:01.296 your shareholder value, you're typically looking at things in 90 day increments. 00:03:01.566 --> 00:03:08.046 You're trying to Q1 beats Q4 of last year and Q1 of the year prior, and 00:03:08.076 --> 00:03:10.266 you have this short term horizon. 00:03:10.540 --> 00:03:13.206 But when you are thinking about other things, you're. 00:03:13.581 --> 00:03:16.431 You're often gonna develop this long-term time horizon. 00:03:16.611 --> 00:03:20.961 So it's not just, I want to maximize what I'm doing in the next 90 days, but I want 00:03:20.961 --> 00:03:27.351 to build something that is sustainable for the next 2, 3, 4 generations. 00:03:27.411 --> 00:03:32.568 And so when we see this shift, you start seeing businesses like Patagonia 00:03:32.631 --> 00:03:36.771 where they chose to, instead of sell the business they have now given 00:03:36.771 --> 00:03:39.321 it back to the earth, if you will. 00:03:39.561 --> 00:03:42.171 Um, and so there's beauty in this. 00:03:42.921 --> 00:03:44.841 But there's a distinct strategy. 00:03:44.871 --> 00:03:48.771 So if your strategy is not to maximize the next 90 days, you need to be 00:03:48.771 --> 00:03:51.021 thinking long-term and differently. 00:03:51.539 --> 00:03:54.779 Adam Hatcher: It may not look like a publicly traded company strategy, 00:03:55.139 --> 00:03:58.229 for example, giving back to the Earth in the Patagonia example. 00:03:58.829 --> 00:04:02.969 But there is an intentional family decision that's made 00:04:02.969 --> 00:04:04.139 behind it in driving it. 00:04:04.919 --> 00:04:09.659 And one of the organizations or maybe institutions that families 00:04:09.659 --> 00:04:15.209 can create that can make those decisions is a family office. 00:04:15.299 --> 00:04:15.899 And I'm gonna. 00:04:16.244 --> 00:04:18.194 Be candid with you when you first said that. 00:04:18.194 --> 00:04:24.464 When I think of family offices, I think of massive family wealth. 00:04:24.734 --> 00:04:28.604 I think of families with a hundred million dollars in assets or more, uh, 00:04:28.604 --> 00:04:31.064 not in company valuation, but in assets. 00:04:31.064 --> 00:04:34.274 I think of even Rockefellers and Vanderbilts. 00:04:34.754 --> 00:04:39.434 But I'm curious, Sarah, well first will you explain what a family 00:04:39.434 --> 00:04:42.434 office is and then we'll talk about some trends you're seeing in it. 00:04:42.494 --> 00:04:43.934 So a family office is. 00:04:44.834 --> 00:04:48.134 Sara Davis: So a family office is a way to manage assets, to 00:04:48.134 --> 00:04:49.724 manage wealth, if you will. 00:04:49.724 --> 00:04:54.974 It's a way to chaos proof the, uh, financial aspects of a family. 00:04:55.004 --> 00:04:59.444 And so I think understanding where this comes from. 00:04:59.819 --> 00:05:03.689 Will help us understand the changes and the trends and why they are important. 00:05:03.929 --> 00:05:06.629 So you gave the examples of the Vanderbilts and the Rockefellers, and 00:05:06.629 --> 00:05:11.169 I think that's a great place to start these ultra high net worth families. 00:05:12.189 --> 00:05:12.959 They have a lot of money. 00:05:13.079 --> 00:05:14.129 What do they do with it? 00:05:14.219 --> 00:05:17.939 And if you just hire out a bunch of different people to handle the 00:05:17.939 --> 00:05:22.199 different aspects of what you need as a family, it starts to get expensive. 00:05:22.319 --> 00:05:27.029 And you don't become rich by spending money frivolously like you. 00:05:27.029 --> 00:05:28.229 You need to be smart about it. 00:05:28.229 --> 00:05:28.919 So what do you do? 00:05:29.309 --> 00:05:32.189 You hire a couple of people and you develop what's called a single 00:05:32.189 --> 00:05:35.039 family office, and you have. 00:05:35.229 --> 00:05:37.899 A crew that comes in and they know how to do these things. 00:05:38.169 --> 00:05:42.969 And so with, uh, the Rockefellers, you'll often see this idea of not 00:05:42.969 --> 00:05:46.269 just managing the wealth, but also helping the family in other things. 00:05:46.509 --> 00:05:49.689 Um, so that could be making financial decisions. 00:05:49.719 --> 00:05:53.469 It could be something as simple as helping purchase a car so you don't 00:05:53.499 --> 00:05:54.489 have to, 'cause that takes time. 00:05:55.254 --> 00:06:00.684 Adam Hatcher: So it in the broadest sense, it can range all the way into not just 00:06:00.684 --> 00:06:02.514 financial management or tax planning. 00:06:02.514 --> 00:06:05.064 It can range into concierge services as well. 00:06:05.064 --> 00:06:07.764 It depends on, it depends on the family. 00:06:07.764 --> 00:06:11.089 Who do you see setting I. 00:06:11.824 --> 00:06:15.664 Before we even talk about who we see setting them up, can you differentiate 00:06:15.694 --> 00:06:21.394 for us a family office between having a trusted CFO inside your family company? 00:06:21.424 --> 00:06:23.524 What's the difference between those two? 00:06:24.169 --> 00:06:28.849 Sara Davis: So the CFO plays an incredibly important role in the business. 00:06:29.029 --> 00:06:32.599 They make sure that the business is, is doing what needs to happen. 00:06:34.324 --> 00:06:39.004 Hopefully the family's wealth is not solely tied up in one business. 00:06:39.064 --> 00:06:41.884 And so who is managing all of that? 00:06:41.914 --> 00:06:43.534 And that's where the family office comes in. 00:06:43.774 --> 00:06:47.554 So you may be managing one business, you may be managing multiple 00:06:47.554 --> 00:06:49.594 businesses, multiple investments. 00:06:49.834 --> 00:06:50.524 It could. 00:06:50.584 --> 00:06:50.914 It could. 00:06:51.064 --> 00:06:51.454 Um. 00:06:51.784 --> 00:06:53.764 Also have a philanthropic arm. 00:06:53.764 --> 00:06:57.274 So who gets to benefit from this wealth? 00:06:57.454 --> 00:07:02.374 There's a lot that goes into these decisions, and that's why we see these 00:07:02.464 --> 00:07:07.474 ultra high net worth individuals that have these single family offices. 00:07:08.224 --> 00:07:12.604 But I wanna introduce you to this idea of multi-family offices. 00:07:12.814 --> 00:07:15.274 And so this is something we're seeing more in the last couple of 00:07:15.274 --> 00:07:17.914 decades, this idea that it's not just. 00:07:18.259 --> 00:07:23.509 Ultra high net worth individuals that need these services, but it could also 00:07:23.509 --> 00:07:27.739 be those that have maybe a hundred million dollars in liquid assets. 00:07:27.739 --> 00:07:30.409 So maybe we're not looking at 500, but just 100. 00:07:31.174 --> 00:07:37.684 And what we see with multifamily offices is a similar service, but instead 00:07:37.684 --> 00:07:43.174 of only working for one family, they get to work for multiple families. 00:07:43.294 --> 00:07:49.474 Economies of scale shows us that if you can batch, um, these together and work 00:07:49.474 --> 00:07:51.754 for say, maybe four or five families. 00:07:52.424 --> 00:07:56.294 The price point's gonna be lower, making it more accessible, and 00:07:56.294 --> 00:08:01.034 the services are still going to be that top notch level of service. 00:08:01.899 --> 00:08:06.179 Adam Hatcher: Because you're blending the support together, and I'm curious as. 00:08:06.994 --> 00:08:07.414 Mm. 00:08:07.534 --> 00:08:10.264 As multi-family offices have risen. 00:08:10.744 --> 00:08:17.644 Um, what trends are you noticing in how families are setting up structuring 00:08:17.644 --> 00:08:19.264 and supporting family offices? 00:08:19.264 --> 00:08:23.554 And I guess, uh, has someone asked me recently is the starting 00:08:23.554 --> 00:08:27.109 point for these conversations sooner now than it used to be? 00:08:27.949 --> 00:08:29.329 Sara Davis: I feel like it's so much sooner. 00:08:29.359 --> 00:08:32.569 Even in the past couple of years, I feel like I'm seeing this 00:08:32.569 --> 00:08:34.819 conversation happen way sooner. 00:08:34.909 --> 00:08:37.459 We're not talking a hundred million dollars in assets. 00:08:37.669 --> 00:08:40.309 We're talking $5 million, and they're starting to have these 00:08:40.309 --> 00:08:45.949 conversations, and I think that's such an interesting trend because. 00:08:46.834 --> 00:08:48.304 It has two parts. 00:08:48.304 --> 00:08:53.134 On one hand, the services have become more available and when you're aware of 00:08:53.134 --> 00:08:55.024 something, you can have a desire for it. 00:08:55.234 --> 00:08:58.264 If you know that there is something out there that will make your life 00:08:58.264 --> 00:09:01.804 easier, all of a sudden now that is something you're working towards. 00:09:02.044 --> 00:09:05.884 But on the, on the flip side, we're not just looking at family 00:09:05.884 --> 00:09:10.294 offices as something I need, but rather something I want. 00:09:10.749 --> 00:09:16.869 It has become the symbol for generational wealth, and who doesn't want to leave 00:09:16.869 --> 00:09:19.419 generational wealth for their grandkids? 00:09:19.599 --> 00:09:23.319 There are some people, but the majority are in business, and 00:09:23.319 --> 00:09:26.649 they don't want to squander that money in the next couple of years. 00:09:26.649 --> 00:09:28.449 They want it to last beyond them. 00:09:28.509 --> 00:09:29.739 It's that legacy aspect. 00:09:30.145 --> 00:09:33.775 Adam Hatcher: And it sounds good to say we would like to set up something 00:09:33.775 --> 00:09:37.705 more formal, either that we run or we have some independent advisors, or we 00:09:37.705 --> 00:09:41.875 share advisors 'cause we're putting out a sign of a generational commitment. 00:09:42.135 --> 00:09:43.695 But starting these is not that easy. 00:09:44.055 --> 00:09:48.255 Uh, so I'm curious if someone's listening to this or if even they've come across 00:09:48.255 --> 00:09:50.955 recently, the idea of a family office. 00:09:50.955 --> 00:09:53.475 Let's, let's talk about some questions they should ask. 00:09:53.855 --> 00:09:55.325 As they tiptoe into it. 00:09:55.955 --> 00:09:59.045 I believe one of the mistakes you can make in a family company, in a family 00:09:59.045 --> 00:10:01.835 business is drifting Sarah into anything. 00:10:02.225 --> 00:10:07.145 If you drift into working there, if you drift through your time there versus 00:10:07.145 --> 00:10:10.715 developing and looking for what's next, if you drift through managing the 00:10:10.715 --> 00:10:16.925 business, it sounds like just kind of moving into a family office, 'cause other 00:10:16.925 --> 00:10:18.695 people have 'em, would be a mistake. 00:10:18.725 --> 00:10:21.335 So I'm curious when people are beginning and. 00:10:21.860 --> 00:10:25.130 Families with, let's just say 5 million, 10 million in assets, 00:10:25.340 --> 00:10:27.380 are talking about a family office. 00:10:27.536 --> 00:10:30.401 What are the goals that they're hoping to accomplish in setting this up? 00:10:30.721 --> 00:10:34.501 Sara Davis: So I love the idea of sitting down and thinking through 00:10:34.501 --> 00:10:38.881 this, uh, the way you said it, don't drift into anything that's powerful. 00:10:39.091 --> 00:10:42.961 It's very easy to think, oh, I've seen other people that want it. 00:10:42.961 --> 00:10:43.951 Maybe I want it too. 00:10:43.951 --> 00:10:45.661 But it's kind of like starting a business. 00:10:45.691 --> 00:10:48.414 It's really easy until you do it like. 00:10:48.444 --> 00:10:52.194 If anyone can talk about starting a business, but the amount of work that 00:10:52.194 --> 00:10:55.254 goes into it is difficult, and it's the same thing with the family office. 00:10:55.374 --> 00:11:00.024 Yeah, I would love to have generational wealth, but we really need to sit down 00:11:00.024 --> 00:11:01.164 and think about what that looks like. 00:11:01.164 --> 00:11:03.144 So your first point, what are your goals? 00:11:03.490 --> 00:11:06.460 Likely generational wealth, but there should be some other things going on. 00:11:06.700 --> 00:11:08.800 Um, is it tax planning? 00:11:08.860 --> 00:11:12.640 Is it to develop a structure for your philanthropy? 00:11:12.970 --> 00:11:21.610 Is it a way to, um, hold assets that best aligns with your personal belief? 00:11:22.360 --> 00:11:25.360 There can be a lot of goals and kind of like the family 00:11:25.360 --> 00:11:29.920 businesses that I, I worked with back when I was in Huntington, I. 00:11:30.370 --> 00:11:32.890 I know that you have different goals, and I think that's a beautiful thing. 00:11:33.190 --> 00:11:36.430 As long as you know what your goals are, you can develop a strategy. 00:11:36.460 --> 00:11:40.510 And so knowing what you want for the family office before you sit down and 00:11:40.510 --> 00:11:46.960 talk with um advisors will provide you with a much stronger conversation. 00:11:47.200 --> 00:11:49.690 Couple other questions that you should think about before you sat 00:11:49.690 --> 00:11:51.910 down with advisors who benefits. 00:11:53.200 --> 00:11:56.170 Who is the benefit of a family office? 00:11:56.230 --> 00:12:00.460 Do you have to be one of the children of the founder? 00:12:00.970 --> 00:12:02.080 Where do cousins come in? 00:12:02.860 --> 00:12:04.930 If we keep it just to children? 00:12:05.110 --> 00:12:07.240 What happens when there's adopted children? 00:12:07.570 --> 00:12:12.790 What happens when there's a second marriage and, uh, there are children 00:12:12.790 --> 00:12:14.530 that come in with the, the new marriage. 00:12:15.625 --> 00:12:21.625 These are a lot of difficult questions that are much easier to think about 00:12:21.655 --> 00:12:23.425 when they're imaginary people. 00:12:23.995 --> 00:12:27.145 So if you don't have anyone in your family that's adopted, you 00:12:27.145 --> 00:12:28.645 can think about it right now. 00:12:28.915 --> 00:12:33.715 If you're adopted in, do you, do you get to benefit yes or no? 00:12:33.745 --> 00:12:35.035 That's a, that's a you choice. 00:12:35.650 --> 00:12:39.400 But if there is a child that is being adopted in, that's not the time to have 00:12:39.400 --> 00:12:42.940 that conversation because it becomes very personal and it becomes emotional. 00:12:43.210 --> 00:12:47.620 So having these discussions beforehand is important. 00:12:47.620 --> 00:12:49.060 So not only who benefits. 00:12:49.990 --> 00:12:51.850 But how do they benefit? 00:12:52.180 --> 00:12:54.340 So benefits can come in a lot of different ways. 00:12:54.520 --> 00:12:56.260 There's, there's cash distribution. 00:12:56.260 --> 00:12:57.880 Is it something that you get annually? 00:12:57.880 --> 00:13:00.520 Is it something that you get based on life events? 00:13:00.700 --> 00:13:04.540 So when you graduate from college, is there, um, a distribution? 00:13:04.810 --> 00:13:08.080 Is there a distribution when you start college to help pay for that? 00:13:08.350 --> 00:13:12.010 What about when you buy a house or when you start a business, um, 00:13:12.190 --> 00:13:15.040 do you have to request it or is it something that's automatic? 00:13:15.730 --> 00:13:20.920 That's a lot of nuance and that's a lot of future planning, but it will help 00:13:20.920 --> 00:13:25.960 to not only refine the conversations that we're having with professionals, 00:13:26.200 --> 00:13:29.170 but prevent chaos after you're gone. 00:13:29.442 --> 00:13:34.541 Adam Hatcher: I imagine that families also pretty early and hopefully before they set 00:13:34.541 --> 00:13:36.541 up a family office, have to talk about. 00:13:36.717 --> 00:13:39.797 Is it an opt-in or an opt-out family office? 00:13:39.797 --> 00:13:41.867 Is everybody in, as you were saying? 00:13:41.867 --> 00:13:45.767 Is everybody in because they're related or because they're in a bloodline? 00:13:46.217 --> 00:13:48.407 Or can you get in? 00:13:49.037 --> 00:13:50.357 Is anyone allowed to get out? 00:13:50.387 --> 00:13:52.607 'cause that can have consequences, not just for the person who 00:13:52.607 --> 00:13:54.317 exits, but for everyone in it. 00:13:55.817 --> 00:14:00.017 Just that basic, fundamental question of how people come in and out or if 00:14:00.017 --> 00:14:03.077 they can go out needs to happen upfront. 00:14:03.572 --> 00:14:05.907 Sara Davis: It is one of those things that it becomes too 00:14:05.907 --> 00:14:07.857 emotional when it's in the moment. 00:14:08.265 --> 00:14:12.465 Adam Hatcher: I think that's true for roughly anything in family office or in 00:14:12.465 --> 00:14:14.775 running a, in running a family company. 00:14:15.105 --> 00:14:16.845 Uh, these early conversations. 00:14:16.845 --> 00:14:21.290 Sarah, what are some of the pitfalls you have seen families 00:14:21.768 --> 00:14:24.543 fall into when they have. 00:14:25.428 --> 00:14:29.478 Done the work of trying to talk about it ahead of time, but something they left 00:14:29.478 --> 00:14:31.128 something out or something bad happened. 00:14:32.448 --> 00:14:35.478 Sara Davis: I think an easy one is a resistance to share. 00:14:35.898 --> 00:14:39.468 If you are one of those people who only want to keep your financials 00:14:39.468 --> 00:14:44.148 close to your chest, this is going to be a very difficult process for you. 00:14:44.508 --> 00:14:49.938 Are you having open conversations about financials, both good 00:14:49.938 --> 00:14:52.428 and bad with the family now? 00:14:53.703 --> 00:14:56.793 Are you willing to, to have those conversations or continue having 00:14:56.793 --> 00:14:58.353 those conversations in the future? 00:14:58.403 --> 00:15:01.313 Adam Hatcher: Sarah, transparency is something that runs through. 00:15:01.643 --> 00:15:05.063 Family companies such as how they do compensation systems or how 00:15:05.063 --> 00:15:08.783 they develop each other, or any family perks for working in the 00:15:08.783 --> 00:15:10.613 company addition to compensation. 00:15:11.080 --> 00:15:15.580 It goes even deeper if you decide to start a family office because there's 00:15:15.580 --> 00:15:17.200 an intermingled financial component. 00:15:17.742 --> 00:15:18.132 Sara Davis: Yes. 00:15:18.132 --> 00:15:22.782 So that's an interesting aspect because if it's, if it's the business 00:15:22.782 --> 00:15:27.342 and you're compensating employees, there's an exchange there and you 00:15:27.342 --> 00:15:32.742 know that the labor is worth a certain dollar amount, and so it makes sense. 00:15:32.982 --> 00:15:37.182 But when we're looking at a family office, those are dollars that in. 00:15:37.367 --> 00:15:42.347 Instead of being distributed to family members could be reinvested and that 00:15:42.347 --> 00:15:44.357 wealth distributed amongst the whole. 00:15:44.507 --> 00:15:49.787 And so understanding who gets what and when is incredibly important 00:15:49.787 --> 00:15:52.307 because there's not that same exchange. 00:15:52.801 --> 00:15:53.826 Adam Hatcher: If someone. 00:15:54.756 --> 00:15:58.056 Understands the risk that they're gonna have to be more transparent 00:15:58.056 --> 00:16:01.416 if they've asked some of these questions ahead of starting a family 00:16:01.416 --> 00:16:06.366 office and they understand generally the concept and how it differ, 00:16:06.996 --> 00:16:08.946 differentiates from the company. 00:16:09.279 --> 00:16:12.524 Let's talk for a few minutes about what you actually do when you start one. 00:16:12.904 --> 00:16:19.293 So say a family is ready, what does it take to build a sustainable family office? 00:16:20.150 --> 00:16:23.000 Sara Davis: I think first and foremost, you have to look at governance. 00:16:23.335 --> 00:16:25.135 What kind of structure exists? 00:16:25.375 --> 00:16:27.085 Um, do you have a family constitution? 00:16:27.445 --> 00:16:31.345 I know a lot of people will look at that before they start a family office, 00:16:31.345 --> 00:16:32.815 and I think that's the right time. 00:16:33.235 --> 00:16:37.825 What are the rules that the family follows and how does that then apply to 00:16:37.825 --> 00:16:39.805 the family office once it's developed? 00:16:40.345 --> 00:16:44.005 Are there protocols in place if there's a conflict? 00:16:44.845 --> 00:16:48.115 Again, we don't wanna wait until we're in the moment and emotions 00:16:48.115 --> 00:16:53.065 are high and people are, are trying to prove their point. 00:16:53.095 --> 00:16:57.625 But rather we have a structure in place that when you disagree, here's 00:16:57.625 --> 00:16:59.515 how you, how you go about that. 00:17:00.085 --> 00:17:03.475 Um, I'd say the next thing is, is really being clear. 00:17:03.895 --> 00:17:05.515 This need for clarity. 00:17:05.815 --> 00:17:08.845 Um, who is making these decisions? 00:17:08.845 --> 00:17:12.625 Is there a board of family members that oversees the family office? 00:17:12.625 --> 00:17:14.335 That's a very common structure. 00:17:14.395 --> 00:17:17.275 And if so, who serves on the board for how long? 00:17:17.905 --> 00:17:23.665 And who gets a say at these meetings when we're talking about family office 00:17:23.665 --> 00:17:26.515 decisions, if you just turned 18. 00:17:26.820 --> 00:17:30.330 Do you have as much say as someone who has worked in the business for 18 00:17:30.330 --> 00:17:32.640 years and then somewhere in the middle? 00:17:32.790 --> 00:17:35.250 What if you've never worked in the business and you are a family 00:17:35.250 --> 00:17:37.380 member benefiting from the office? 00:17:38.190 --> 00:17:40.050 Do you still have say, 00:17:40.740 --> 00:17:42.660 Adam Hatcher: And it doesn't matter if you've worked. 00:17:43.280 --> 00:17:47.840 In the family company, been in the family office, or if you do both at 00:17:47.840 --> 00:17:51.920 the same time, you touch something that it will always be true. 00:17:51.920 --> 00:17:55.490 There will be tension because you're mixing the unconditional nature 00:17:55.490 --> 00:17:59.870 of family with the conditional nature of money and business. 00:17:59.960 --> 00:18:03.830 So in managing disagreements that are inevitably gonna come up over time. 00:18:04.541 --> 00:18:05.111 There. 00:18:05.231 --> 00:18:07.331 These typically come up around inflection points. 00:18:07.331 --> 00:18:12.461 There's a major change or an event that happens either in the company, in 00:18:12.461 --> 00:18:14.171 the family office, or in the family. 00:18:14.681 --> 00:18:16.001 What are a few of those? 00:18:16.001 --> 00:18:19.211 That in setting up a family office, if someone's chosen to do it, that 00:18:19.211 --> 00:18:20.831 they can just go ahead and plan for? 00:18:20.921 --> 00:18:24.011 These are probably gonna happen and you should plan for them as you start. 00:18:25.056 --> 00:18:27.971 Sara Davis: Birth, marriage, divorce, death. 00:18:28.316 --> 00:18:29.036 That simple. 00:18:29.636 --> 00:18:32.726 When someone is born, what happens when they get married? 00:18:33.086 --> 00:18:35.756 What happens with the in-laws when there's a divorce? 00:18:35.756 --> 00:18:37.106 Are the in-laws kicked out? 00:18:38.096 --> 00:18:40.286 And if there's death, then what? 00:18:42.101 --> 00:18:46.061 So not to boil it down to really simple, but those are the major 00:18:46.061 --> 00:18:48.581 points that you need to think about and there will be more. 00:18:48.641 --> 00:18:51.611 What happens if one branch of the family decides to stop talking 00:18:51.611 --> 00:18:53.141 to another branch of the family? 00:18:53.471 --> 00:18:57.131 What happens if someone wants to take money out of the family 00:18:57.131 --> 00:19:00.311 office to support their startup? 00:19:00.311 --> 00:19:03.011 Does a percentage of that go back to the family office? 00:19:03.011 --> 00:19:04.841 Has everyone afforded that opportunity? 00:19:05.291 --> 00:19:08.801 Lots of little things that can come up, but the big ones. 00:19:09.671 --> 00:19:12.311 Birth, marriage, divorce, death. 00:19:12.762 --> 00:19:15.912 Adam Hatcher: understand how the family office differentiates from the company. 00:19:16.414 --> 00:19:19.774 Then set goals as a family, having a conversation. 00:19:19.774 --> 00:19:21.544 What is the whole purpose of this? 00:19:21.544 --> 00:19:26.840 It's more so than just investing money in portfolio management, tough 00:19:26.845 --> 00:19:30.230 conversations to put governance around it, particularly around major life 00:19:30.230 --> 00:19:32.060 events that will inevitably happen. 00:19:32.795 --> 00:19:37.445 And they will put stress on the family office and then decide the services 00:19:37.445 --> 00:19:38.885 that the office is gonna provide. 00:19:39.245 --> 00:19:44.345 Is it simply investment management with, is there concierge service, philanthropy? 00:19:44.345 --> 00:19:44.765 What? 00:19:45.005 --> 00:19:49.085 What specifically does it do to accomplish the goal that the family has set? 00:19:50.315 --> 00:19:51.455 It sounds easy. 00:19:51.695 --> 00:19:55.090 You and I both know how charged and emotional it can be. 00:19:56.271 --> 00:20:00.711 But for anyone who's thinking about this, I, I've talked to people who are 00:20:00.711 --> 00:20:04.251 curious about the family office and this kind of conversation with a relative of 00:20:04.251 --> 00:20:06.381 theirs would probably make them nervous. 00:20:06.741 --> 00:20:12.480 But Sarah, if family members before they go into a family office are not gonna 00:20:12.480 --> 00:20:14.957 have these conversations, what can happen? 00:20:15.300 --> 00:20:17.010 Sara Davis: Oh, so much bad. 00:20:17.610 --> 00:20:22.140 Open communication is probably the solution to 90% 00:20:22.140 --> 00:20:23.520 of family business problems. 00:20:23.550 --> 00:20:24.930 Have those conversations. 00:20:25.260 --> 00:20:30.990 Otherwise, we have an imbalance of knowledge that creates animosity. 00:20:30.990 --> 00:20:33.720 You start assuming what other people are doing. 00:20:34.020 --> 00:20:35.250 That's never a good sign. 00:20:36.270 --> 00:20:40.500 Open communication and the more structured open communication, the better 00:20:40.530 --> 00:20:42.990 force people into open communication. 00:20:42.990 --> 00:20:48.900 Have reoccurring family meetings where you're discussing what does this 00:20:48.900 --> 00:20:53.280 family support, what do they agree with, what are they investing in? 00:20:53.550 --> 00:20:55.230 Where do we want our money to go? 00:20:55.230 --> 00:20:59.610 How do we want our money to be used amongst ourselves and have 00:20:59.610 --> 00:21:01.500 those difficult conversations? 00:21:01.780 --> 00:21:05.050 Adam Hatcher: And how can you help a family see that they are 00:21:05.050 --> 00:21:08.050 not ready for a family office? 00:21:08.785 --> 00:21:10.015 What are some of the red flag? 00:21:10.105 --> 00:21:13.525 Someone just went to a conference with wealth managers and they heard this 00:21:13.525 --> 00:21:16.675 talked about, and they come back and they wanna talk with the family about it. 00:21:17.365 --> 00:21:20.875 What are some red flags that says Maybe not now. 00:21:21.226 --> 00:21:24.211 Sara Davis: Assuming you have the assets and you're ready to invest in that. 00:21:24.601 --> 00:21:28.831 Are you ready to share that financial information with everyone Who's 00:21:28.831 --> 00:21:30.181 going to be benefiting from it? 00:21:31.171 --> 00:21:34.861 If you're not already having those conversations, you need to practice having 00:21:34.861 --> 00:21:36.811 them before you set up a family office. 00:21:36.901 --> 00:21:39.571 The next is what does your governance look like? 00:21:39.601 --> 00:21:43.801 Do you have the structures in place that is going to allow the family to 00:21:43.801 --> 00:21:46.801 succeed in developing a family office? 00:21:47.041 --> 00:21:52.291 Are you having that open communication and are you having it regularly? 00:21:52.411 --> 00:21:53.911 And then the last one is. 00:21:54.196 --> 00:21:55.786 Do you have the time and energy to do it? 00:21:55.876 --> 00:21:57.826 Are you committed to doing it? 00:21:58.126 --> 00:22:00.466 Because it's easy on paper. 00:22:00.496 --> 00:22:03.736 It's really hard when you start, and so just doing it for a year 00:22:03.736 --> 00:22:08.116 or two is not going to create that generational wealth that so many 00:22:08.506 --> 00:22:10.426 family business leaders desire. 00:22:10.645 --> 00:22:12.145 Adam Hatcher: And the amount of the wealth. 00:22:12.805 --> 00:22:17.215 If families don't put that work in Sarah and lean into some of those uncomfortable 00:22:17.215 --> 00:22:23.695 conversations, it doesn't matter how much wealth is there, it can all evaporate. 00:22:23.695 --> 00:22:27.055 You told me a story about one or one of the wealthiest families 00:22:27.355 --> 00:22:30.564 in American history, and this was part of their downfall. 00:22:31.011 --> 00:22:32.451 Sara Davis: Yeah, that's the Vanderbilts. 00:22:32.541 --> 00:22:37.311 They were there in the beginning, created just an immense amount of wealth, a 00:22:37.311 --> 00:22:39.381 true, ultra high net worth family. 00:22:39.711 --> 00:22:44.541 I think we've probably all toured one of their houses at some point and, and. 00:22:45.606 --> 00:22:48.126 It's gone because it wasn't invested properly. 00:22:48.126 --> 00:22:52.086 They didn't have the right discussions and the right, um, parameters in 00:22:52.086 --> 00:22:54.156 place and that could happen to anyone. 00:22:54.186 --> 00:22:58.356 That's why we have the adage shirt sleeve to shirt sleeves in three generations. 00:22:59.166 --> 00:23:04.386 The idea that the first generation, they start the business, they, the 00:23:04.386 --> 00:23:07.446 second generation grows the business and then the third generation 00:23:07.446 --> 00:23:08.796 kind of destroys the business. 00:23:09.246 --> 00:23:12.756 And I'd love to say that's not the case, but I. 00:23:13.701 --> 00:23:17.121 You know when you only have 30% of family businesses making it to gen two 00:23:17.121 --> 00:23:19.731 and about 12% to making it to gen three. 00:23:20.211 --> 00:23:25.221 Maybe that adage, which there is a saying like that in almost every language, 00:23:25.281 --> 00:23:27.081 maybe it's come about for a reason. 00:23:28.341 --> 00:23:31.071 It's not to say that all gen threes are bad and sometimes 00:23:31.071 --> 00:23:35.541 closing the business is a way to then have further, further wealth. 00:23:35.601 --> 00:23:38.901 Say for example, you sell the business and then you convert those funds 00:23:38.901 --> 00:23:44.181 into a family office, that is a, a viable option for generational wealth. 00:23:44.181 --> 00:23:45.961 That's not tied to a business, but 00:23:47.091 --> 00:23:48.291 but you gotta be prepared for that. 00:23:49.176 --> 00:23:50.376 Adam Hatcher: What that does. 00:23:50.816 --> 00:23:54.686 Opting for the comp for the family office instead of the company is it 00:23:54.686 --> 00:23:59.156 takes one place off the table where people have to learn as a family how to 00:23:59.156 --> 00:24:01.166 work together in a for-profit setting. 00:24:01.496 --> 00:24:06.716 What's interesting to me with a family office, if someone choose, chooses to set 00:24:06.716 --> 00:24:10.476 it up and go through some of the formal recommendations that you've given, is 00:24:10.476 --> 00:24:13.176 that you've got to learn, particularly where there's a company involved as 00:24:13.176 --> 00:24:15.456 well, anyone in the company has to learn. 00:24:15.981 --> 00:24:18.501 How do we work on the family business inside the company? 00:24:19.251 --> 00:24:23.631 And then a family office actually is its own, has its own family business in it. 00:24:23.661 --> 00:24:27.831 It's an investment portfolio management device with some other 00:24:27.831 --> 00:24:30.981 services that's got a family business mixed in the middle of it. 00:24:30.981 --> 00:24:34.461 You're running two family businesses with two organizations 00:24:35.031 --> 00:24:36.711 and it takes a lot of effort. 00:24:36.771 --> 00:24:40.131 And I think you've done a good job here, Sarah, of talking through some red flags, 00:24:40.131 --> 00:24:42.021 some ways to have serious conversations. 00:24:42.591 --> 00:24:44.781 If someone is curious about this. 00:24:45.266 --> 00:24:46.916 And wants to explore more. 00:24:46.916 --> 00:24:50.546 I'm sure this is something that the, uh, that the Family Enterprise 00:24:50.546 --> 00:24:52.826 Center at Kennesaw State deals with. 00:24:52.826 --> 00:24:56.276 What, where are some places people can go to ask some more questions? 00:24:56.856 --> 00:24:59.256 Sara Davis: So a simple place would be to go to our website, 00:24:59.256 --> 00:25:01.056 family enterprise center.com, 00:25:01.296 --> 00:25:04.596 and we have some resources on there, people who you can talk 00:25:04.596 --> 00:25:07.446 to or you can reach out to me directly through that website and 00:25:07.446 --> 00:25:09.216 we can continue this conversation. 00:25:09.698 --> 00:25:14.858 Adam Hatcher: We will put Sarah's LinkedIn profile and we will put the 00:25:14.888 --> 00:25:18.698 Family Enterprise Center's website in the show notes, so you can just 00:25:18.698 --> 00:25:20.108 go there and click and see it. 00:25:21.068 --> 00:25:23.588 One thing about 'em, Sarah, if I can talk to you about the, 00:25:23.618 --> 00:25:24.758 the center for just a minute. 00:25:25.568 --> 00:25:30.098 You all are constantly putting on events and whether someone 00:25:30.098 --> 00:25:31.208 lives within an easy drive. 00:25:32.213 --> 00:25:33.563 Of Kennesaw State or not. 00:25:33.713 --> 00:25:36.653 Some of them are online as well as someone who's in Augusta. 00:25:37.043 --> 00:25:41.363 Uh, so can you talk about a couple things that are coming up in the next few months 00:25:41.753 --> 00:25:45.863 that could be interesting to people who are curious about family offices or 00:25:45.863 --> 00:25:48.383 just about family businesses in general? 00:25:48.983 --> 00:25:49.493 Sara Davis: Sure. 00:25:49.793 --> 00:25:52.523 A couple of events come to mind immediately. 00:25:52.583 --> 00:25:55.973 Um, here in June, we're doing an office hours. 00:25:55.973 --> 00:26:00.683 It's a one hour open discussion that you can come in and talk to 00:26:00.683 --> 00:26:04.373 us about anything, and we're gonna have a guest that is specifically 00:26:04.373 --> 00:26:05.903 talking about wealth management. 00:26:06.263 --> 00:26:09.143 Um, and for some reason in our office hours. 00:26:09.353 --> 00:26:10.493 It never fails. 00:26:10.613 --> 00:26:13.073 Family offices always come up, so that's a great option. 00:26:13.103 --> 00:26:14.063 We do that monthly. 00:26:14.063 --> 00:26:17.543 So if this month doesn't work for you, come back in July. 00:26:17.813 --> 00:26:25.043 We also have a, um, virtual option in July where we're going to be talking about the 00:26:25.043 --> 00:26:27.713 intellectual property behind your legacy. 00:26:27.953 --> 00:26:31.283 So you want to create that family office and you want something that's 00:26:31.283 --> 00:26:32.993 going to last over generations. 00:26:33.473 --> 00:26:38.873 Let's talk about legal legally protecting your brand names and your trademarks. 00:26:39.139 --> 00:26:41.449 Adam Hatcher: And if I'm not mistaken, in August. 00:26:42.049 --> 00:26:46.729 You have maybe the most electric family business speaker 00:26:47.569 --> 00:26:48.614 currently on this podcast. 00:26:51.229 --> 00:26:52.699 Sara Davis: Do you wanna pitch right into that one? 00:26:52.969 --> 00:26:58.099 So then in August, if you are interested in possibly hearing from two people 00:26:58.099 --> 00:27:02.569 that are are you are already listening to, we will be talking about chaos 00:27:02.569 --> 00:27:03.919 proofing your family business. 00:27:03.919 --> 00:27:07.819 So while that's not necessarily family office related, it is 00:27:07.879 --> 00:27:11.029 helpful if you are starting to grow that family business, which. 00:27:11.294 --> 00:27:13.004 Hopefully will lead to a family office. 00:27:13.304 --> 00:27:16.634 And with that one we're looking at the things you need to do before 00:27:16.634 --> 00:27:19.904 you hire your first family member. 00:27:20.214 --> 00:27:20.964 Adam Hatcher: I am excited. 00:27:20.964 --> 00:27:24.054 Sarah and I have talked about this before and excited to talk with you about 00:27:24.054 --> 00:27:28.169 it again, for those of us in a family company, something I've learned over. 00:27:28.754 --> 00:27:33.432 A, a lifetime in and around ours, you need a lot of different people. 00:27:34.032 --> 00:27:42.102 There are wealth managers, attorneys, coaches, advisors, peer groups that 00:27:42.102 --> 00:27:46.120 are helpful and it is so important to have a few people in that group 00:27:46.120 --> 00:27:47.560 when you choose to work with family. 00:27:48.265 --> 00:27:51.925 Who are solely focused on the inner family business. 00:27:51.925 --> 00:27:56.755 And Sarah, one thing I appreciate about, uh, Kennesaw State and about 00:27:56.755 --> 00:28:02.875 your work is that you all laser in, particularly for small and mid-size 00:28:02.875 --> 00:28:07.705 family businesses, what are the issues that wake us up that bother us? 00:28:08.095 --> 00:28:09.985 What are those inner family business issues? 00:28:09.985 --> 00:28:11.395 And then what are some of the ones around it? 00:28:11.395 --> 00:28:12.175 Like how do you. 00:28:12.670 --> 00:28:16.390 Make your HR department and your family work with each other. 00:28:16.690 --> 00:28:18.700 You've touched some of those issues as well. 00:28:18.760 --> 00:28:22.930 And so I hope everybody will go click down in the show notes, go see what Sarah's got 00:28:22.930 --> 00:28:25.060 coming up and the center has coming up. 00:28:25.120 --> 00:28:26.710 Uh, it's, it's good. 00:28:26.740 --> 00:28:27.700 I've been a member. 00:28:28.210 --> 00:28:28.930 I've been a member. 00:28:29.110 --> 00:28:31.210 Uh, and I encourage other people to join it as well. 00:28:31.870 --> 00:28:33.040 Uh, Sarah Davis. 00:28:33.820 --> 00:28:37.720 What a pleasure it is, uh, to talk about this interesting trend you're seeing of 00:28:37.870 --> 00:28:42.010 family offices showing up earlier than we thought and helping people start to 00:28:42.010 --> 00:28:46.390 get their head around what those are, what questions they should ask, and then 00:28:46.390 --> 00:28:49.990 what are some ways they can avoid common pitfalls so they can have a great company, 00:28:49.990 --> 00:28:51.760 great office, and a strong family. 00:28:52.360 --> 00:28:54.160 I really appreciate you being here today. 00:28:54.250 --> 00:28:54.370 Thank. 00:28:55.000 --> 00:28:56.260 Sara Davis: Thank you for having me, Adam. 00:28:56.320 --> 00:28:59.200 This was, this was great fun and I hope that I can help 00:28:59.200 --> 00:29:00.520 you and others in the future. 00:29:00.874 --> 00:29:03.784 Adam Hatcher: We hope you enjoyed, uh, this episode of the 21 00:29:03.784 --> 00:29:05.734 Clear Podcast with Sarah Davis. 00:29:06.034 --> 00:29:10.384 Uh, please subscribe to the podcast, follow us on LinkedIn as well. 00:29:10.864 --> 00:29:11.284 Um. 00:29:11.614 --> 00:29:16.744 We will be producing more episodes like this, uh, with Sarah, uh, with 00:29:16.744 --> 00:29:18.754 me and with other people every time. 00:29:18.754 --> 00:29:22.534 What we hope is we can just give you about 25 minutes where all you 00:29:22.534 --> 00:29:26.644 have to do is think about that inner family business so you can take one 00:29:26.644 --> 00:29:31.684 step further to a chaos proof family company, as my grandfather would've said. 00:29:32.014 --> 00:29:34.684 Thank you so very, very much for listening. 00:29:35.164 --> 00:29:36.094 We'll talk to you soon.