April 24, 2023: The dos and don’ts of succession planning from the world’s richest person

Bob.Allen
Apr 21, 2023
1 month ago
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Succession is in the air and on the air, from headlines about LVMH Chair Bernard Arnault’s rigorous succession strategy to Logan Roy’s sudden death (sorry for the spoiler!). Both illustrate what you should and shouldn’t do when handing over the reins to the next generation, succession planners and experts told us for this week's story. 

Also in this issue, we show how the dynamics of succession planning are changing as retirement ages stretch out further and further.

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The dos and don’ts of succession planning from the world’s richest person​

Succession_illustration
By MARCUS BARAM

The world’s richest man has a monthly lunch with his five children, all of whom have roles in the family business, during which he grills them with questions about how to run the empire. 

That detail was reported last week by The Wall Street Journal in a story about the personal life of Bernard Arnault, CEO of the LVMH luxury goods company, who has a net worth of $201 billion. The report sparked plenty of discussion in the family-office world, where succession planning is paramount.  

Only 58% of family offices have a succession plan in place – and 54% do not trust their next-generation leader to run the office, according to a recent survey of family-office professionals by the Agreus Group.

The Arnault approach is being praised – especially in contrast to that of other wealthy families, such as the Agnellis and the Murdochs, who have been divided by vicious infighting and poor decision-making.

THE HIGHLIGHTS:

  • LVMH CEO Bernard Arnault wins praise from succession planners for how he involves his five children in his business empire.
  • Mentoring children for leadership and giving them responsibility is key.
  • Instead of finding your heir, find a way for your kids to be the best version of who they are.
  • Leaders need to know when to step back – and should communicate that clearly.

At these lunches, Arnault is effectively auditioning his children to determine who will replace him by reading topics of discussion from his iPad and going around the table to ask them for advice on his various brands and for their opinions on the company’s managers. 

Since they were kids, Arnault has been grooming them to succeed him, taking them on business trips and eventually placing them in senior positions at his companies — such as Christian Dior, Tiffany & Co., Louis Vuitton and watch brand Tag Heuer. 

As a result, he has created highly skilled heirs, said Carol Pepper of Pepper International, an adviser to wealthy families. “He has created five chances to let his influence move into the future – any one of his highly talented five children should run the firm,” Pepper said. 

That focus on planning for the future — mentoring and preparing your children for leadership in business and eventually giving them responsibility by taking on important roles in the family business — is key to a smooth succession, family-office advisers say. It also helps reduce infighting and unhealthy competition between heirs, said Frank Paolini, a partner at the Chicago law firm Neal Gerber Eisenberg who works with many family offices. 

“Instead of trying to find your heir, you should find a way by which your kids become the best version of who they are,” Paolini said. Then, when you are ready to hand over the baton, “you have a spectrum of kids with different skill sets,” he said. 

Still, Paolini has seen many more generational transitions gone wrong than gone well, citing a workaholic client who rose from the mailroom of a Fortune 500 company to become chairman and CEO but ignored his two children, one of whom died of substance abuse and the other who was beset with family problems. 

"Growing up in dad’s shadow is a real issue,” Paolini said. “And many times, clients are blind to that issue when you’re the one casting the shadow.”

RETIREMENT RESENTMENT

The one aspect of Arnault’s succession planning that raised eyebrows is his vague hints about his own future, as he noted in January that the retirement age in France has been extended. 

Such an attitude can be frustrating, Pepper said, adding that it’s becoming a bigger problem for family offices as family leaders live longer and healthier lives.

“Every patriarch has read King Lear and can’t bear to be put out to pasture,” she said.

But that lack of clarity can be damaging to the family by breeding resentment, causing instability to the company and its shareholders, and prompting top executives to leave, Paolini said. “Everyone sees the CEO getting older and older every day,” he said. “And if there’s not a clear line or a sign that he’s ready to step back, then shareholders and employees start to wonder: How secure is all of this?” 

In such situations, it’s important for the leader to start taking steps to move aside or retire, said Rachel Gil, director of family governance at Cresset Capital. “When you’re beginning to make that transition, you have to start relinquishing some of that control and give the next gen a chance to step up.” 

When a family leader draws up a succession plan, it’s key to follow through with that plan even though there will be times when you don’t agree with what your heirs choose to do, Pepper said. “You can certainly, as the patriarch or matriarch, hold on to your ability to advise and influence,” she said. “But you must let them make decisions and learn by doing, as you did.”

Billionaire Weston hands outsider the reins of Loblaw supermarket chain

Weston
By BLOOMBERG NEWS

Loblaw Cos., the Canadian grocery chain controlled by the billionaire Weston family, named the head of a Danish retailer as its new CEO. 

Per Bank will join Loblaw in the first quarter of 2024, the Brampton, Ontario-based company said in a statement Tuesday. Since 2012, Bank has been the CEO of Salling Group AS, a closely held firm that owns supermarket brands and department stores, mostly in Denmark.

Galen Weston (above), the scion who controls Loblaw parent George Weston Ltd., will step aside as Loblaw’s president but remain chairman. The family has a fortune of about $16 billion, according to the Bloomberg Billionaires Index.

Food inflation has become an increasing source of concern among Canadians. Loblaw, under Weston’s leadership, has become a lightning rod for criticism. The company is Canada’s largest supermarket chain with C$56 billion ($41.9 billion) in revenue last year, operating under food and pharmacy banners including President’s Choice, Provigo and Shoppers Drug Mart.

“In Per we have found a world-class retail executive to help us build from that position of leadership and strength,” Weston said in a statement.

Loblaw said COO Robert Sawyer plans to retire at the end of the year.

LOOSE CHANGE

Family offices pull back from direct deals: In recent years, family offices have plowed more money into direct investments. But in the wake of recent losses, some are pulling back or ending the practice, Institutional Investor reports. Deal flow for growth-stage companies “fell off a cliff,” Steve Brotman, managing partner at the growth equity firm Alpha Partners, told the publication.

Rockefeller family office grabs $2.3 billion First Republic group: Liberty Wealth Partners, a former team at First Republic bank that managed $2.3 billion in client assets, was hired by the Rockefeller Global Family Office, Investment News reports. It’s just the latest team to leave the struggling bank. 

Are there too many luxury apartments being built in cities? Some critics are questioning the surge in development of luxury housing in cities like Austin, Texas, which remain empty because they’ve become unaffordable even for the city’s wealthier residents, Bloomberg News reports.

Help us with a story: We’re working on a story about the art market and how to make sure that families make smart decisions when handing down those assets to the next generation. If you have any comments on the topic, reach out to [email protected].