FEB. 8, 2023: What the Agnelli drama can teach you about running a family office
The headline-making scandals involving the Agnelli family—a dynasty built on the chassis of the Fiat automobile empire—serves as a cautionary tale for family offices. Some important steps can be taken to avoid letting disputes such as those fracture a family, Alec Foege reports.
Also in this issue, we talked with Cynda Collins Arsenault — who, with her husband, Marcel, leads two foundations and is a signatory of The Giving Pledge. She discusses how to do philanthropy with impact, why she’s advocating for more taxes on the wealthy, and what led her and her husband to decide to not leave money to their son.
As we begin February, if you have any insights into what family offices can expect in the year ahead, please pass them along. We’d love to use them to guide our reporting and are open to running op-eds or commentaries submitted by readers.
Crain Currency is always looking to invite new members into our exclusive network of family-office professionals and family members being served by them. If you know someone who would benefit from being part of our network, please take a moment to invite him or her into the fold by clicking here.
And as always, we’d appreciate any comments, ideas and insights that would make this newsletter more useful. Please forward these to Executive Editor Frederick Gabriel at [email protected] or me at [email protected].
Share the Crain Currency experience today.
Know someone who works in a family office or is served by one? Invite them to become a charter member of the Crain Currency community by clicking here.
Giovanni Agnelli, shown with his family in 1986, passed on oversight of the family business to his grandson, John Elkann.
HANDPICKED: What the Agnelli drama can teach you about running a family office
By ALEC FOEGE
Recent scandals within Italy’s legendary Agnelli family are making headlines and causing ripples within the family-office world, where such disputes rarely spill into the public domain. But it’s also serving as a cautionary tale, with lessons on how wealthy families can avoid the same fate, say family-office experts and advisers.
AVOIDING FAMILY FEUDS
Here are some key ways to prevent family-office drama like that consuming the Agnellis, according to experts and consultants:
- Stay flexible. Hugo King-Oakley of Global Partnership Family Offices said governance structures must be flexible enough to adapt to changing family dynamics. Misaligned expectations are one of the most common sources of dispute — with one example being Margherita Agnelli’s lawsuit against her own son. “Often the only winners from lawsuits are the lawyers,” King-Oakley said.
- Take immediate action when problems arise. While the culture and loyalty of familial ties can make family offices more successful than other corporate structures, the lack of transparency is an ongoing risk. When a problem emerges, King-Oakley suggests taking immediate action to investigate, as one would expect from any corporate entity. “Depending on the severity of the issue, the family office should take appropriate steps to address the situation, including suspending all financial transactions, alerting law enforcement and/or consulting legal counsel,” he said.
- Implement strong internal controls and oversight to prevent financial improprieties. One key lesson to take away from the Juventus accounting irregularities scandal: Establish “internal policies and procedures for financial transactions and properly training staff on how to comply with them,” King-Oakley said. “Additionally, family offices should regularly review financial records and transactions to detect any discrepancies. Finally, family offices should require all staff members to be bonded to protect against any potential losses.”
- Bring in outside professionals to mediate disputes. Based on his own experiences working at family offices, former consultant Frederik Gieschen thinks that even the best-run organizations can get consumed by squabbles and financial misdealings. Ideally, outside professionals act as mediators and communicators, keeping family members on the same page — even within the fractious Agnelli clan. “But the reality is often messy,” Gieschen said, “and that’s just because it’s very personal, and you’re just not in control of how these issues play out.
The Agnellis have one of the world’s largest family-controlled automobile empires — with shares in Stellantis (featuring brands such as Fiat, Chrysler and Jeep) and Ferrari — as well as the Juventus soccer team, through their 52% ownership of Exor. The publicly traded holding company, run by family scion John Elkann, has made unwanted headlines in recent months because of some public scandals.
In November, Elkann’s mother, Margherita Agnelli, filed to sue him in Turin, Italy, adding to a previous lawsuit filed in Switzerland as part of a decades-long inheritance feud.
In December, Elkann’s uncle Andrea Agnelli stepped down as chairman of Juventus after Italian prosecutors and regulators found accounting improprieties.
Meanwhile, on Nov. 1, Elkann elevated three independent nonfamily managers within Exor’s ranks, further professionalizing an organization that traditionally was far less diversified.
“It’s a common situation but on a much bigger level than some others,” said Spencer Burke, who heads the Family Business Advisory practice at the St. Louis Trust Co. in Missouri and is the Family Business Executive in Residence at Washington University’s Olin School of Business.
For many family offices, intrafamily disputes and financial scandals are par for the course, Burke said. What stands out most to him in the case of the Agnellis is that these problems broke into the public domain — and that the family didn’t have governance structures in place to avoid such ugly disputes.
“Why is his mother able to go to court? Isn’t there an arbitration agreement in the family? How did it get to this stage?” Burke said. “And accounting irregularities are a pretty serious thing — the fact that his uncle was running it doesn’t help.”
Nor does the size of the Agnelli fortune, estimated at over $13.5 billion — Elkann alone is currently worth $2 billion, according to Forbes.
“Adding wealth to the equation can exacerbate these tensions,” said Hugo King-Oakley of Global Partnership Family Offices, a London-based independent advisory platform. “So it is best to acknowledge the potential for fractures before they turn into lawsuits through internal structures or frameworks for governance and succession.”
Despite the current scandals embroiling the family, Elkann could also prove to be the savior — exhibiting leadership qualities and the capacity to implement some of these lessons, said Burke and Frederik Gieschen, a former consultant.
Elkann, who was born in New York City and raised in Europe, was selected as head of the family business in 1997 by his grandfather, Gianni Agnelli, after Gianni’s intended heir, a nephew, died suddenly at age 33. Only 21 at the time, Elkann went on to prove himself — transforming a legacy family holding company heavily concentrated in old industrials into something completely different.
“It was a very messy ownership structure,” Gieschen said. “Over the years, he streamlined and restructured it and found a way to have what looks like a very modern and forward-looking kind of holding company that consolidates the family wealth and diversified it away from being a purely industrial thing.”
And Elkann hasn’t stopped: Last summer, Exor sold PartnerRe, a reinsurance company, for $9.3 billion in cash, reportedly to build reserves for new investments. Elkann also recently promoted Suzanne Heywood, a director of Exor, to the newly created position of COO. And Exor’s new CFO previously worked at Heineken.
“He’s obviously got good people,” Burke said of Elkann. “And other than his uncle, he has nonfamily people everywhere.”
Regardless of how things play out, Gieschen remains confident that Elkann will find his way through the latest Agnelli-related predicaments. “He’s done a good job of navigating all of these cross-currents and putting the family in a place where people can be comfortable that the company is going to be well-managed for the long term,” he said, “versus all the eggs in one basket.”
PEER-TO-PEER INSIGHTS: CYNDA COLLINS ARSENAULT
Colorado-based Cynda Collins Arsenault is one of hundreds who have called for higher taxes on the wealthy through the group Patriotic Millionaires. She and her husband, Marcel Arsenault, are signatories of The Giving Pledge who’ve announced they’ll be giving away 98% of their wealth, reportedly about $1.5 billion. They generated their fortune in several companies launched and run by Marcel — most significantly with Real Capital Solutions, a real estate financing firm founded in 1984. The couple have co-founded and lead two operating foundations, the Secure World Foundation and One Earth Future, and have a grant-making family foundation as well. The Arsenaults have a family office with one employee.
When you set out to do philanthropy, how did you identify your priorities?
Both my husband and I come out of the ’60s and the anti-war movement — the destruction of war, the senselessness of it, and how the budgets that go into it could be used for something else. So that has been our set of values for many years. As he made his money, eventually it was like, “OK, now we have enough to really do something.” And we started our foundations.
I spent a couple of years trying to understand philanthropy and how you can have an impact. Where are those points that you can make a change in the broader picture, and how do we get to a world beyond war?
The issue of outer space — what’s needed in order to have a beneficial and productive system for governance, for a resolution of problems in space — became our primary focus.
The secondary focus was an understanding that we live in what has been a primarily male-created world. We need to bring forward more feminine traits: the concepts of communication, diplomacy, cooperation, collaboration.
When it came to the Giving Pledge, how did you decide that you’ll give away exactly 98% of your money?
Our personal values are not to spend money but to live simply. I grew up an Air Force brat, and my husband comes from Canadian miners, a much poorer family. We have one house, which is fine, and we have two cars — they’re both electric, plug-in. We want to have as small a footprint as possible in this world. Since my husband’s been very successful in business, our thinking is more about what we can do with it to have a positive impact, rather than personal use. We don’t have those needs.
Where do you get that philosophy from?
My parents were raised in the Depression, so they were very frugal. We were raised to have a lifestyle of simplicity and saving money, not wasting money. And then, of course, the ’60s, the whole hippie movement — I was definitely a part of that and still am, hoping to have a simpler lifestyle.
As you now spend time with wealthy people, do you find that they agree or disagree with your approach?
It varies. Being a member of The Giving Pledge, there is a common goal that brings everyone together, this commitment to give away. I am a member of Women Moving Millions, who have more of that value of using their money for women and girls. Also the Women’s Donor Network is a network of progressive women philanthropists who have shared values and want to see a more equal and just world.
I just recently came back from a retreat with 12 women from Women Moving Millions, and it was a wonderful networking connection of the heart — sharing our stories and being there for each other. It’s wonderful to be able to find your people, who share values and can talk about what we’re each doing — what works and what doesn’t — and learn from each other.
How did you end up advocating for more taxes on the wealthy?
As my husband says, making the first million dollars was really hard. The millions after that became easier and easier, because people who have money have access and advantages. Bankers come to him, and they want to loan him money, whereas someone who’s struggling and needs a loan has a very difficult time getting it. The system is set up in such a way that those who have money have an easier time making more money, and that’s increasing our divide. So we’re looking at what things can we put in place, such as a wealth tax, that help even that out a little bit.
We need to invest in our future — the future of our country, the future of our world. That’s the role of government — in education, in our infrastructure, our health care system. All of that needs money, and the people who have more money benefit from all those systems — the transportation system, the education system for our employees and for our children. If we’re looking to the future, how we invest in that is going to benefit everybody, and we need tax dollars to do that.
In giving away so much of your money, how much do you decide to leave to your children?
We do not intend to pass money on to our son, which is a sore subject. But that’s our belief — that he can make his own way. We have a trust for him that provides medical payments, so as he needs medical care, he’s covered. But it’s limited to that. We want him to earn his own way to be able to have his own sense of achievement.
We had a daughter who had cerebral palsy and multiple disabilities, and she died 12 years ago. We put money into a trust for her care — she required 24-hour care. Now that’s been passed on through a donation.
All of our money goes to our foundations and some other donations upon our death.
You didn’t help your son out with a down payment for a home?
He’s renting. We do some things like, if it’s tight, to help out on groceries. And we will be generous in some ways, but he’s not in the will to inherit.
I know many people do not feel that way. And just before we had kids, we both knew people who were second, third, and fourth generations of wealth. And they were for the most part not very happy. The money had a negative place in their lives as they developed. We didn’t want to burden our kids with that.
Since then, I’ve had the opportunity to meet many well-adjusted, wonderful second-, third-, fourth-generation people of wealth. So I’m not saying that it’s for everyone. But it was based on earlier experiences where we formed our opinion about not wanting to create that kind of dynasty of wealth.
Interview conducted by Steven I. Weiss
Many millionaires worried about affording retirement: About 35% of millionaires surveyed by Natixis say “it would take a miracle to retire securely.” Those with more than $1 million in assets had average retirement savings of $625,000, only a few percentage points higher than the average investor surveyed.
Adani gets good news: Gautam Adani’s empire reported profits this week and pledged early repayment of a $1.1 billion loan. That increased shares of Adani Group by 15% and boosted shares in some of his other companies, after a two-week rout dropped his firms' value by more than $100 billion following a report by Hindenburg Research.
Luxury rentals rise in 30 cities: The boost in rental prices for luxury units in 30 cities outpaced the growth in capital value last year, 5.9% to 3.2%, Savills reports. “Rental growth came as people continued to return to cities after the lifting of pandemic-related restrictions,” said the report, which credited “the rebound in international travel” as a factor.
This week’s data point: 21 years: The amount of time it took the typical buyer to save enough to put 10% down on a typical home in Los Angeles in 2022 — a big jump from 2019, when it took only 17 years, according to estimates by Zillow.