The private lives of family offices
Giles Graves has 20 years’ experience working for some of the most prominent family offices in the world, both historic multi-generational families with 1,000 years of history and hugely successful first-generation entrepreneurs.
In the first of a series of articles for CampdenFB, he explores the important subject of privacy...
There are many luxuries that come with wealth but one that is often lost pro rata is privacy.
Very simply, it could be said that the greater number and value of assets a person gains is directly proportional to the amount of privacy they lose. Every asset tells a story, includes interaction with another party or parties, has a record of purchase, maintenance and sale, and attracts attention.
The average person will have a handful of assets such as a house, a car, bank accounts, maybe a small business with a few employees and in each case they will have given a little of their privacy away. Their government will know a certain amount about them, their bank will have a record, their employees might know a fair amount and maybe there might be an article about them somewhere for some good or bad deed they did, but in general no one is really that interested as long as the person is generally ‘normal’ and ‘average’.
If this average person buys a house that is a little extraordinary or maybe applies for planning that is unusual, or they buy a car that is a different colour to everyone else’s or more expensive, or maybe they buy a boat on a whim, any little stray away from average will increase the attention, compliments and criticism they receive and impact their privacy. For most of us, even wearing a slightly different shirt or Christmas jumper will have the crowd attack like antibodies.
With family offices and businesses, the spotlights turn on proportionately with wealth. Multiple banks and governments and investment firms and professional advisors will have scrutinised every detail of their every transaction. Employees of the family business will know and discuss every detail of the family’s personal lives, often in a good way but equally in some cases, in criticism.
Family business senior management will see the shares being sold or the expenses being claimed, PAs in the office will know the holidays being booked or the treats being enjoyed, the accounts team will know the budget for the 21st birthday or the wedding, human resources will be dealing with complaints from the household staff that may include the most private of details about a family member’s vice. Things can be exacerbated when the economy is bad and employees are being made redundant or the family business is contracting but the family members’ luxurious living continues. If employees are suffering with the cost of living while the family they work for are spending more than ever before, tensions can rise and the potential for breaches of confidentiality as gossip spreads, is higher.
Readers may be wondering how it would be possible for someone like me, who has had access to so many family offices, to write articles about my experience while maintaining the privacy of my clients and employers. The answer is that I don’t think it is right to breach confidentiality. I don’t want to be that kind of person. I can give examples of all kinds of interesting and pertinent issues that have arisen during my career, but I would never give the name or the place or the exact details. I believe in trust and privacy. Also, importantly, I am reasonably open-minded when it comes to how people live and their personal preferences, and that helps. I do see incredibly bad, immoral and disgraceful behaviour every day, liars and cheats, but that is from governments and in the corporate world.
As a lawyer, it has often been my duty to draft confidentiality clauses or agreements with family employees and service providers. Not many lawyers will admit how limited these confidentiality agreements are in practical terms. In the commercial world, such agreements protect commercial interests which have a monetary value. The parties to important confidentiality agreements between businesses will both have something significant to lose and therefore the agreements become a valuable deterrent. Also in business, in general, we are not really dealing with private matters and relationships.
In family offices and family businesses, the scales are tipped against the family members, who have everything to lose. A family employee can sign the finest worded confidentiality agreement but it is practically worthless in some situations. For example, if the employee has little or no sense of duty to protect the family privacy, if the family member’s behaviour is bad enough, if the employee is sufficiently aggrieved and most importantly if the employee has little or nothing to lose. That is a very powerful chip, and if an unscrupulous family employee or any person they might come into contact with, realises this, things can get expensive and worse still reputations, businesses and lives can be ruined.
Professional privacy is an interesting area. I won’t go into it in too much detail as it can open a can of worms but in short you can imagine that tax efficiency is pretty high on most wealthy families’ wish list. Many have assets spread all over the world and their wish for tax efficiency can increase the further away from home they are. Any even moral obligation to contribute unnecessarily, dissipates. It is important to use professionals who know what they are doing but who are also understanding of the need to be efficient. An anecdote that can be extrapolated to the family office sector is where my friend explained how cross his business-owning father was when the family accountant rang to say there was a child’s meal on the receipt for the business dinner. Professionals who are loyal, clever and know the rules, are essential. Naive, fearful sticklers should be shown the door.
Privacy is therefore not just about the public lives of the family members or their relationship with the media or governments. Consider the confidentiality needed even between different parts of the family office. Between a housekeeper who is privy to a family argument or an affair or a particular vice, and the rest of the family office. Who needs to know? In some cases, there may be a risk that the vice will have an impact of the family reputation or business. If the PA for a certain family member were to find out about the affair, there could be a very uncomfortable scenario. If word spreads around the family office of a certain vice it could easily spread out of the office and into the public domain.
It annoys me when a politician or high-profile individual lies about their behaviour, partying or taking drugs or having an affair. Watching them snivel and scrape is often worse than the story itself. Despite the media’s efforts to craft the concept that public opinion is puritanical, nothing could be further from the truth. All adults have vices and most people don’t really care if someone has been found to be doing naughty things that the majority of people do or have done. What the public does care about is when people hold themselves out to be perfect and then lie when they are caught red handed.
There are stories of family offices where the employed leadership is so bad that on a daily basis accountants could be found sobbing at their desks. Situations where the principal has impregnated the PA, who no longer has to work but comes in occasionally, wearing a catsuit, and lounging about at the biggest desk in the building. Families where the kids are drug addicts, where tens of millions are spent on a wedding, where the family members are having affairs and hiring escorts, where a family member has spent many millions on ‘art’ on a whim in week one, and then in week two wants to get rid of it because they sobered up and found it ‘offensive’.
There are also stories of family offices where the family members are constantly talked about, and that their every comment and action is dissected, their personal, social and political views discussed, and criticised, their every payment and personal interaction known about. Family offices where the household staff will routinely come in to the office to gossip and where the PA will frequently gossip with human resources regarding the family member they are employed to deal with.
All of these scenarios were tinder boxes waiting to explode into the public domain, but thankfully very few of them have. There are nuances to every scenario but there are some key practical pieces of advice that will protect privacy.
Being a good judge of character. Where family offices fail most commonly is in not hiring the right people. My next article will be on recruitment but here I want to simply say that due diligence and being a good judge of character are essential. First-generation family offices are particularly bad at this. Confidentiality agreements should always be in place, of course, firstly, with the hope that the person signing is of good moral standing fundamentally. This is ground zero. Identify before hiring them whether someone is fundamentally trustworthy and whether their exposure to a wealthy luxurious environment will affect them in a negative way.
Creating a professional environment. From the interviews, through onboarding, all the employee paperwork, the way the office interacts with each other, the way the family interact with the office, the understanding of privacy between employees, all needs to be professional.
Separating the family office from the family business. Absolutely essential. Separate employees. Separate areas within head office, or preferably completely separate office locations.
Good behaviour. It cannot be understated how important this is. Both good behaviour from the family members and the employees. Everyone has their vices but recognising bad behaviour and separating it from daily operations is essential. As soon as professional boundaries are crossed or respect is lost, very serious events can unfold.
When it goes wrong, deal with it well and quickly. Sometimes the best thing to do is nip a situation in the bud, shutting it down immediately. Early on, that may mean making arrangements to cater for a particular family member’s or employee’s behaviour. Over time that means good management and monitoring of the situation. Later on that may mean some kind of rearrangement, payment or compromise agreement.
