Interview with Larry Donckers
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This interview touches on the pluses and minuses of strong leadership from a legacy business, the challenges of getting buy-in on family (self)-governance, and strategies for involving later generations.
This interview was conducted by Peter Preller.
Were you involved with the family office from the beginning?
Larry Donckers: Yes. The family’s operating company, a stevedoring business, was founded in 1949. The family decided to sell a minority interest to an infrastructure fund in 2007 so that the business finally had shareholders with resources and so that the family had resources with which to diversify and further advance its long term estate and gift planning. That sale and its proceeds was the genesis to create the family office.
At that time, my primary role with the family was at the operating company in various financial functions. They gave me the opportunity to start the family office with the family leadership, or stay with the operating company. I obviously choose to start the family office with the family principals in 2007, and it’s been a learning experience from the get-go.
Was it a difficult process to shepherd the family along?
LD: I think one of the advantages I had is that the family had been managing the operating company business for three generations, so they understood the concepts of governance, leadership and what they hoped to achieve with the family office because of the experiences they gained in an operating company business.
I personally think of a family office as being a small business in many respects. You really have to plan in advance of the governance and consider the structures you want to have in place and need to establish. How involved will the family principals be? Do you want to develop in-house resources or outsource services?
There’s a myriad of questions you need to give thought to and then have very deliberate thinking in terms of what you want that office to become and the types of services you expect to offer—who you’re serving, how many generations, how many households, how you deliver the services. All those types of considerations and many more come into play. What I’ve learned is that it is an evolutionary process to an extent. Initially you plan for core services but over time, ancillary services and managing client relationships become equally important.
Were family governance regulations or a family charter discussed from the first moment or was it more of an evolution?
LD: It really was an evolutionary process with the president and CEO of the family office, a family member from the third generation providing the direction. He provided the vision for the family office and was also responsible for managing the family’s operating business as its CEO.
I worked together with him to implement the structure he had in mind along with other family leaders, which was very helpful in terms of what he saw as the vision for the family office and the governance the family wanted to establish. Early on, he understood what resources we wanted to have in-house. As an example, he realized the benefits of building an experienced and professional core group and eventually having an internal CIO investment team so that the family could better manage and control investment decisions.
It also worked in our favor that we were very deliberate and thoughtful about deploying the cash from the sale. We were very patient. You may recall that 2007 and 2008 were very challenging times for investments. It was fortuitous that we were slow to invest the family’s capital.
Was the slow pace intentional?
LD: Yes, in a way. We wanted to understand all the various types of investments that were pitched to us, even though he was well-versed given his background both as an attorney and a CPA, plus, he was experienced and savvy in terms of managing a global company. Nonetheless, it was a good decision to pace ourselves.
On the governance side, we’ve made good progress, but we didn’t have a family charter or a constitution at this time. The family initially developed a mission statement. And that was one of the first family office achievements that involved many other family members.
What discussion was held with the family members about involvement? The options range from totally involved to not involved at all. And what about the next generation?
LD: We knew it was important to get the family involved in the process, so in terms of governance, the mission statement was developed fairly early on. They also developed what I would call a set of “white papers” on a variety of topics. For example, family-related documents that captured the expectations of family members—participation, communication, how to become good stewards of their wealth—many elements that are pieces of a family charter or a family constitution, but less formal at this stage by design, to provide a narrative and context to describe the family’s values.
So, much of our progress has been an evolutionary process. This past year, just after our tenth anniversary of the family office, the family established a family council. It’s a pool of representatives that includes spouses, the next generation—many key elements that are so important and vital to the sustainability of the family office.
This broader participation of family members didn’t happen right away. Decision-making for the family within the operating company was long led by my boss (G3), who remains as the chairman of the operating company, together with his uncle (G2). They currently serve as trustees of the family trusts that represents majority ownership of the operating company, and provided the liquidity created from the partial sale. With the success of the family’s business and the confidence gained from family members to manage the company, it’s no surprise that they were leading the charge and direction of the family office. So that’s been an evolutionary process in terms of elements of the governance and family transition outside of managing the company.
The person driving the growth of a huge business can often have a dominant personality. Transitioning leadership to the rest of the family can sometimes be a problem. What is your experience in this area?
LD: Transition can certainly be a challenge. In our case, we have a family member who took over management of the business at a very young age from his uncle and grew it internationally. They have 250 locations throughout the world, so he really expanded the business and gained an enormous amount of experience in those circles and representing the family, which had ultimate confidence in him.
But at some point you have to transition. And they’ve done a very good job of planning as they have a succession plan in place for the trustees. And then there’s the family council, a concept I’ve been supporting for several years. It’s terrific to see it established because that will give them a broader base for family participation and developing relationships among the next generation, which is spread out, both in age and geographic location.
As the family continues to grow, relationships will change and it will become more difficult and challenging to build the same types of relationships among cousins than among the previous generation.
Is the family council one person or several persons?
LD: The family has set up a governance structure around the council. In the lead up to its formation, several outside advisors spoke about governance structures, levels of authority and decision making, and other family offices also shared their experiences. At the end of the day, the family decided that the council shall consist of seven members and be cross-generational. Currently, there’s members from G3 and G4 that comprise the council….
So the council consists of family members?
LD: Yes, including spouses.
How do you educate the next, and later generations about why the SFO is a useful thing, from an economical point of view—sharing costs and teaming on investments and also non-financial aspects?
LD: That is clearly one of the challenges of communicating with the next generation and creating deeper relationships. As a family office, we currently have those types of relationships with the third generation. They were involved when the family office was created, that’s where the wealth lies, and in many ways, we’ve grown and evolved together.
This next generation is busy with their lives … starting families, going to college, or seeking and starting their first job. To be quite honest, we’ve got a lot of work to do in that area, in how we express and communicate our value proposition. We need to create and take advantage of opportunities to connect with the next generation. As an example, in 2016 we had a family gathering with all generations and everyone met over a weekend. It was one of the first times that we had an opportunity to share family office experiences, investment portfolio information, services provided and topics like that at a very high level with the next gens. It was an opportunity to make it interesting.
And that went off very well. It was also a first step that ultimately led to the development of the family council. I think with the council, there’s a lot of opportunity to deepen those relationships. But it’s going to take work, a collaborative effort on the part of the family and the family office.
Was it tough to convince the family of the need for a family council? After all, it involves time and effort.
LD: Yes, absolutely. There has been very strong leadership in the family over several generations. From the current CEO of the family office who started the family office with the vision and very strong patriarchal leadership along with his uncle, there was an unrecognized need to broaden participation. And I think part of the challenge was conveying how important it was … they always spoke with one voice in managing the operating company for generations, even though there were two family trusts set up, one for each family branch.
And here, the challenge was that the family really needed to think about having a broader voice if the family office was going to be sustainable over multiple generations.
So, while it was a process that took some time for family leadership to buy in to the concept of a family council, and then develop distinct lines of authority between family matters and those of the family’s operating business, the benefits that a family council could provide have been wholly supported. And that was critical, I think, to getting approval.
I’m very proud of the family members who stepped up to launch the family council. I participated as an ad-hoc member to support a family steering committee that spent close to a year developing the framework and criteria of their family council initiative and presented it to the second and third generations to get their buy-in prior to launch. It took considerable guidance from advisors, discussion and internal meetings to find answers and obtain a consensus to questions like: “What is a family?” “What are the documents that we want to have to govern this council?” … all the different situations that might come up and for those that haven’t been identified.
It’s been a long, but rewarding process. The family held their first family council meeting in December. We’re all very green to this and new to the process, but I think it’s going to have tremendous benefits in the years and generations to come.
What challenges have already emerged?
LD: For any family council to function, you need participation. And once you get started, you need to make sure that the members don’t lose interest. You’ve got to keep that momentum going. Perhaps the CEO realized that the family wasn’t ready in the beginning when the family office was first created. It does take time for the family to adjust to the idea … that’s another aspect that is equally important.
Now the challenge is to keep it moving forward. So that’s where we are now, making sure we keep the momentum. And it’s a lot of work.
Does the structure of the family office support this effort?
LD: Yes, it absolutely does. We’re very much an investment-centric office. It all starts with client relationships and the structure of the family’s investment vehicles. There are two primary family trusts, one for each family branch and those create the glue for us in terms of the beneficiaries and our investment policies.
There is also a third entity, an LLC, that consists of a number of clients, as individual family members of the LLC. These individual family members could take distributions from the LLC and reinvest with another advisor. Consequently, we’re at risk with those member accounts. This recognition relates directly to my earlier comments regarding communication of our value proposition and deepening client relationships.
What pressure does that put on you as the family officer to educate?
LD: We have to take proactive measures. We have to do things to put ourselves in front of that generation and demonstrate how the family office creates value, and to deepen those relationships. As an example, we publish an annual report each year. The report has evolved along with the office itself, and at this stage, I would say it’s equal to many public companies’ annual reports. The content reflects a collaboration among family leadership and office management. It’s a glossy, professionally bound report. And this past year we created two supplements to accompany the core report.
The first section is a family report. There are lots of photos, a higher level of reporting that’s intended for a broader family audience. Its content reflects on family gatherings throughout the year, how they participated, how philanthropy is progressing.
The second section is the core report. That’s more about the family office performance itself, in terms of our departmental reports, milestones, strategic office goals—although we all have individual goals as well. In this section we report on our progress toward the office’s strategic goals versus individual ones.
And the third section is the appendix, which consists of details about our individual employee goals and financial details on the operating company and the family office operating results.
These three supplements comprise our annual report to the family—perhaps 200 pages in the aggregate—each section is in-depth and has become something that we publish regularly and many use as a resource throughout the year. That’s just one example to demonstrate value, but one we are proud of and one that requires a significant number of hours from many employees and family members alike.
How do you manage the different risk adversity of the family members? The fifth generation’s shares will be smaller than for the third’s. How do you manage the fact that some persons could be more risk averse than others within your allocation or the investments you do?
LD: In terms of different investment risks and tolerances: that is something that we’ve needed to address. Due to the terms in the family trusts, they are considered pot trusts, not individual shares, and thus we had neither the ability nor the need to do that. And only in the last couple of years through the third entity (LLC) that I mentioned previously, where individual member shares exist, did we recently develop individual investment silos to relate to their individual risk tolerances and liquidity needs. And so that’s what we’ve been able to accomplish—provide different and individual asset allocations and investment risk options within that entity. This will be a model that we expect to carry forward to provide additional solutions for our family clients.