Posts Tagged ‘direct investment’

Uncommon Culture and Family Office Direct Investing

Monday, March 27th, 2017

 

I often ask CEOs in high growth investee businesses controlled by sizeable Family Offices,  a simple question: “Are you being treated as you would treat others in the business? Be honest, in reality, how often is that the case?” The single most common underlying issue, is conformity to the prevailing belief system.

CEOs have differing levels of propensity to conform to the beliefs that govern the behaviour of a Family and the key people in its’ Family Office (the culture). At one extreme, highly inflexible, and at the other end, highly flexible.

The most successful families in direct investing have adopted a belief system that is highly similar to outstanding for profit and not-for-profit organisations. Think of Weybourne Partners (James Dyson’s Family Office), MSD Capital, (Michael Dell’s Family Office) or Grosvenor (the Duke of Westminster’s family entity).

In contrast, where direct investing has historically been a very small part of a Family’s wealth but a decision is made to ramp up its’ activity, culture is a huge issue. The Family Office wants to increase control and involvement of the capital deployed in profitably growing the portfolio businesses. Yet, the operating beliefs that pervade the Family Office rarely change or not quick enough, to support the new or enhanced direct investing strategy.

Take a recent example, the newly installed CEO in a European luxury business, who arrived with a strong industry reputation but zero experience working within, distinct from consulting to Family Offices. The coterie of key people in the Family Office, what I term the “protectors” sought to immediately reinforce and immerse the CEO in the existing belief system. “This is how the Family has always done things….” “This is what Mrs X expects…” “This is how you communicate with her….”  Yet, if the luxury business was to achieve the shared vision of the Family Principal and the CEO, some quite radical changes needed to be made to the Family Office’s typical direct investment approach – changes to governance, speed, communication, rapid access to resources and so forth. The “house style”, wasn’t going to work in a fast moving, highly competitive sector.

Does the CEO conform or push back? If they do the latter, how do they do that without upsetting the apple cart? How do they accomplish that if the protectors, and the Family Principal, consciously create distance? How do they stop the protectors “playing” the Family Principal (self-interested feedback) and not projecting their biases?

There are three means of the Family Office getting the investee company’s CEO to conform: by coercion (threat), by peer pressure (“the in-crowd”) or by self-interest (personal benefit). Only one alternative works, self-interest.

Ultimately, it requires

  1. A CEO with a high level of self-worth and the skills to not only formulate strategy but implement it.
  2. A flexible and intellectually honest CEO. Not to the extreme of absolute conformity and equally never compromising where it is detrimental to the critical and highly important aspects of their strategy.
  3. A Family Principal and their key people with the volition to listen and act appropriately.
  4. A willingness to adapt the Family Office belief system to the needs of the new direct investment strategy and where appropriate, the performance, accountability, feedback and rewards systems.

There is a lot of talk about an inability to change family culture, most of it is rubbish. Of course, the Family Office can change but does it possess the will to do so? If it doesn’t that needs to at the top of its’ direct investing criteria in selecting portfolio businesses and the leadership traits it hires in.

© James Berkeley 2017. All Rights Reserved.

 

Interview With Me: Forbes

Wednesday, February 8th, 2017

Forbes contributor and former Reuters reporter, Ralph Jennings, interviewed James on the discrete “welcome mat” likely to be laid out by the Trump presidency for ultra high net worth Chinese entrepreneurs directly investing into the United States. Politics aside, expect pragmatism to prevail.

Why Trump Will Let China’s Smart Elite Invest In The U.S. 

http://www.forbes.com/sites/ralphjennings/2017/02/07/trump-is-open-to-investment-from-chinas-smart-elite/#4a7d1a135fcb

Interview With Me: Do’s and Don’ts of Investing in Private Comanies

Tuesday, September 27th, 2016

In an interview for U.S. News & World Report with the former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo, James talks about why many investors in private companies jump on the bandwagon of out-sized returns while overlooking the inherent risks.

http://money.usnews.com/investing/articles/2016-09-20/dos-and-donts-of-investing-in-private-companies