3rd Party Family Business Advisors

While the family business may be delivering good returns, how much is it actually worth? Often, family members are disappointed that the market value does not reflect a large enough multiple, because they are unable to look at the business as an outsider (and potential buyer) would.

The first article has some classic ‘value drivers’ expressed in terms of growth and risk reduction. What I think this is missing from this model is the most important question a family business should ask: what is the business worth with family members vs what it is worth without them? If your business is overly dependent on family talent, then it lacks intrinsic value that can be realised in the market.

On that note, the second article discusses the process of bringing in outsiders into the family business. Whether in management or on the board (or advisory board), outsiders can add significant value because of their perspective, and also their ability to mediate conflict and help ensure all family members voices are heard. In order to be effective, the family must be prepared to listen and learn.

Consider This: Have you considered the value of your family business without family members? Are the business accounts run at arms length so they can reflect the true value of the business? Are external advisers viewed with disdain or for the value their experience and diversity can bring?

Original articles: https://www.bakertilly.com/insights/thinking-about-selling-how-to-grow-the-value-of-a-family-owned-business/, https://www.forbes.com/sites/nextavenue/2019/01/29/hiring-an-outside-expert-for-your-family-business/#7b2749bc61ed

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

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source https://davidwerdiger.com/2021/08/3rd-party-advisors/

When NextGen Have No Interest in Taking Over

A common challenge for family businesses is when the rising generation have no interest in taking over. This can be especially common in sectors like manufacturing or farming which may be considered an attractive or exciting career path for younger family members to join.

There are two concerns for the family members currently in control: (a) who will look after the business? (b) who will look after the customers? Both of these are important, because family businesses don’t just want their wealth creation vehicle to continue, they also want to perpetuate their own unique relationship with their customers, which is often far deeper than ‘transactional’ and are an expression of the family’s values.

Two of the articles below tell stories of family businesses facing this very challenge. The third one asks some hard questions: do family businesses need to be perpetuated for their own sake? Is their purpose purely economic or also social? These are good questions for any family to ask itself (with at least 2 generations part of the discussion).

Consider This: If your children don’t want to take over the family business, what will become of it? What is your legacy, aside from the business?

Original articles: https://www.chicagotribune.com/business/ct-biz-manufacturing-succession-planning-20190103-story.html, https://www.biztimes.com/2019/industries/human-resources-management/what-happens-when-theres-no-one-to-take-over-the-family-business/, https://www.businesstoday.in/opinion/columns/hera-are-some-guidelines-for-perpetuity-in-family-business/story/306242.html

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

The post When NextGen Have No Interest in Taking Over appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/nextgen-no-thanks/

The Most Valuable Thing to Your Children

As a wealthy family, what is the most valuable thing you can give your children? One sure way to find out the answer is to ask (too often parents don’t bother).
According to a Wells-Fargo survey of Millennials, more than 90% of children say they want to inherit their parents’ values, not their wealth. Some 84% want top sustain and build on their family’s legacy. This should be very heartening news for parents.

In a previous newsletter, I mentioned the relative importance of education and networks which families can provide to their children. Clearly, it’s not all about money!

Regarding philanthropy, 80% of children surveyed say the family’s giving aligns with their own values, but 40% want more of a say.

The survey shows the importance of talking about wealth and legacy within a family, and how learning between generations can go both directions.

Consider This: Have you asked your children what the family wealth means to them? What is most important to them about their lives? Conversations like that aren’t always easy. It’s important to make ‘space’ for them where all voices can be heard.

Original article: https://www.businesswire.com/news/home/20190109005028/en/Children-Millionaires-Inherit-Parents%E2%80%99-Values-Wealth-Wells

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

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source https://davidwerdiger.com/2021/07/your-children-value-this/

Our COVID Statistics are all Wrong

Management guru Peter Drucker gave us “what gets measured gets managed” (for better or worse). Governments bombard us daily with COVID-related statistics, but many of them are measuring the wrong things.

The most common statistic is “new cases per day”, but that has serious deficiencies. Firstly, it’s quoted as an absolute number, rather than as a proportion of the population. So in the early days of COVID, the US had huge daily numbers, but as a country of some 330 million, its absolute numbers dwarfed those of France and Germany, leading us to think it was much worse. At the time, their case rate per 100,000 population was actually lower than many countries in Europe. If anything, a better comparison would be between the US and the EU (450 million). Secondly, the new cases were never split out by severity: asymptomatic, mild, severe, and deadly. We only had the number of cases and the death count. That split is especially relevant now, as populations are being vaccinated, opening up, and new cases spiking rapidly with the Delta variant. While the case numbers are high, the proportion of severe and deadly cases are what we should be worried about. But is anyone tracking that? Are they tracking the proportion of each type of case, which can provide data over time to show an improved ability to treat cases. Thirdly, in Australia, the only good number of new cases per day is zero. That means our elimination strategy is either successful or it is not, with no room for nuance (and that’s quite aside from the unwanted side effects of that strategy).

The most important thing to measure is the R number – how contagious the virus is. In simple terms, it’s the average number of people anyone with COVID will infect (some people will infect no-one; others will be super-spreaders – the average is what is important). If R is more than 1, then COVID spreads and the number of cases keeps increasing; if R is less than 1, it fizzes (like the common cold or the seasonal flu). When COVID first came out, R was 2.5 which made it quite contagious, and at the time we didn’t know how to treat it, and were concerned about the capacity of the health system. The current Delta variant has an estimated R of between 3.5 and 4, and this is now poses significant additional challenges around the world. It seems to spread faster, and may also be more severe on average.

How to reduce R? If immunised, you are less likely both to get it and also to transmit it. Social distancing, mask wearing and hand sanitising also reduces the spread. COVID also spreads less outdoors, and in warmer temperatures. The common sense approach would be to

  • set a goal of reducing R to below 1,
  • develop strategies to achieve that,
  • identify the metrics that show you are on track, and
  • report them regularly.

In Australia, R is not being reported regularly (in some other countries, it is). Authorities may be tracking it, but if they are, they are not keeping us informed. Instead, we get a litany of fear-ridden statistics like number of exposure sites, and the number of people in isolation because they visited an exposure site. This comes straight from the How to Lie With Statistics playbook! We can’t directly manage or impact those numbers, so what’s the point of reporting them and using them as a measure of success? I’d like to think the government has clear targets that determine when they choose certain measures, and when those measures can be removed. If they are, they are not sharing them with the public!

Only recently, additional information was added to “new cases per day”: how many of those are linked to an existing outbreak, and what proportion were infectious while in the community. While that extra information is helpful, it has taken five lockdowns for the government to start telling us, and we are still in the dark as to the metrics of success and how to get there.

We have a similar problem with vaccination rates. Our government’s huge bet on the AZ vaccine has backfired badly. This is another case of bad measurement, irresponsible reporting, and poor social marketing. The risk of the clotting side effect is less then miniscule, and yet a single death amongst millions vaccinated makes front page news. This has led to mass reluctance to vaccinate, and policy on the fly regarding vaccination priorities and eligibility. If we want to reduce R, surely we should prioritise the vaccination for people who come into contact with many people from across the city (e.g. retail, transport) as they have the greater risk of spreading the virus across a large geographic area. We rushed to vaccinate the most vulnerable, but with a zero-COVID strategy, how does that help?

Here are some of the things we don’t report: number of deaths per year from the seasonal flu (about 1,000), number of severe side effects from medications taken regularly by the masses (a lot more than you think), number of deaths in hospitals from incorrect dosing (ditto). We must be careful not to stray here into the logic flaw of whataboutism which can lead to distractions. Rather, the numbers that we do choose to report need a healthy dose of context and nuance to avoid the kind of mass fear we are now experiencing.

I’ve been following the patterns of graphs here since the start of the pandemic. The spikes in new cases per day in well-immunised populations (like Israel and UK) are not such a concern – instead, we should look at “case fatality rate” which has dropped significantly in those places, and remained roughly steady in non-immunised populations. Singapore have recently had a shift in policy to start treating COVID (assuming enough people are immunised) like the flu, and focus on “medical outcomes” rather than pure case numbers (note: they are still applying suppression measures as well). We don’t count cases of mild flu, so don’t count cases of mild COVID.

The only way out of this mess is mass vaccination that turns COVID into just another flu. When countries all start doing that, measures like new cases per day will be meaningless. At all times, we need to be measuring the right things to deliver the outcomes we are seeking, and communicating clearly to the population.

The post Our COVID Statistics are all Wrong appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/our-covid-statistics-are-all-wrong/

Charitable Givers of The Next Generation

Philanthropy can be a great way to engage different generations in a wealthy family, and for family members to find purpose where there is no imperative for paid employment. It’s worth keeping in mind the intergenerational differences and trends in giving so that the family giving experience can be as positive as possible.

The Blackbaud Institute’s report on the next generation of American giving has some useful insights. Giving priorities differ by generations, but health, religion and local social services are still high priorities. Gen X and Gen Z are disproportionately committed to animal-related causes.

Older donors consider monetary gifts are their greatest form of impact, while younger donors value the importance of volunteering time and advocacy, and have embraced peer-to-peer fundraising such as through running and cycling events.

There are a number of mindsets that drive giving (responsibility, financial stewardship, planning, spontaneity, activism and recognition), and these carry different importance with different generations. That in turn will drive their choices for whom to support and how to support them.

The full report has plenty of charts and is an easy read, and I recommend it for anyone who is active in the philanthropic world.

Consider This: Who makes philanthropic decisions on behalf of your family? Are these communicated to the family? Have you considered the ways philanthropy can be used to drive closer connections between the generations and convey the family legacy?
Original article: https://institute.blackbaud.com/asset/the-next-generation-of-american-giving-2018/

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

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source https://davidwerdiger.com/2021/07/charitable-habits-next-gen-2/

Weighing in on Family Business Conflict of Interest

The essential problem family businesses must deal with is conflict of interest, which arises when people have multiple roles – in the business, as an owner, and as a family member – that can potentially conflict. Thinking about the issues of a family business in this way is a good path to mitigating the challenges they can bring.

Establishing explicit rules is a good start, and this article covers several good ones: only put family members on the payroll if they have an active role in the business, communicate clearly and honestly with employees, separate family decisions and business decisions, and create boundaries between family and business each with their own decision-making process (and group).

This is something I cover in the mini-course “Culture of Acceptance”

Consider This: Does your family have explicit rules regarding how the family business operates and is governed? How do family members view the family business (or family operating assets)? Think back to a recent issue within the family and consider whether or not it relates to a conflict of interest between the multiple roles that family members occupied.

Original article: https://www.inc.com/guides/201102/7-rules-of-conduct-for-family-businesses.html

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

The post Weighing in on Family Business Conflict of Interest appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/weight-conflict-of-interest/

The future is … female

Research has shown that in HNW families, daughters were rarely encouraged nor received support to pursue entrepreneurship education. Entrepreneurial families often prepare their daughters and sons differently for their careers. Cultural factors and their associated gender biases may result in the problem being far more pronounced.

Things are changing. Some 82 per cent of women from wealthy families expect to inherit substantial wealth over the next 20 years, but 41 per cent of women are currently not involved in family financial decision making. They need to start preparing themselves. The role of women within wealthy families is also shifting, in part due to the rising generation having a less traditional outlook on life. Family businesses are able to play a critical role in helping break glass ceilings that perpetuate gender roles.

There are changes in the wind on the investment and advisor spaces too. Millennials and women value investment principles that have a positive impact on challenging issues. HNW women are often less confident about making family financial decisions, prompting the need for investment relationship dynamics to change. To remain competitive, advisors must consider a truly consultative approach; female advisors are well-suited for the job. Women – more of whom will control significant wealth over the next 10 years – prefer to work with female advisors.

Consider This: Does your family treat male & female children differently? Are they given the same choices & opportunities within the family enterprise? Are there cultural or historical gender biases in your family? Is this a source of intergenerational conflict?

Original articles: https://www.eurekalert.org/pub_releases/2021-06/uoo-gbi060721.phphttps://www.greenqueen.com.hk/women-prefer-to-work-with-female-advisors-now-is-the-moment-for-esg-customisation/https://www.forbesindia.com/article/bharatiya-vidya-bhavan039s-spjimr/addressing-the-novel-fault-lines-in-family-business/67115/1https://www.jdsupra.com/legalnews/cracking-the-glass-ceiling-empowering-6627462/https://www.campdenfb.com/article/how-raise-your-succession-game-next-gens-family-businesshttps://www.bnamericas.com/en/news/almost-25-of-family-businesses-have-a-female-presence-on-their-boardshttps://www.wealthadviser.co/2020/12/15/293551/growing-financial-power-next-generation-wealthy-women-prompting-change-within

Actionable Generational Wealth Succession 

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

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source https://davidwerdiger.com/2021/07/future-female/

Dan and Gladys – a Matter of Trust

(Disclaimers: I’m politically aligned to the right, live in Melbourne, and the current outbreaks are far from over)

COVID has become highly politicised; we might more accurately say it has brought out the worst of our political partisanship. The national cabinet is a fractured mix of a Liberal Prime Minister and mostly Labor State Premiers. The state response has followed a pattern along political lines, with Labor Premiers favouring lockdowns, and Gladys in NSW playing a lone hand in seeking to keep the economy open as much as possible. But now, she is struggling with a significant outbreak of the ‘delta’ variant. Given all that has transpired and all that we have learned, is anyone capable of shifting their view? I am.

Victoria went “early and hard” against the first delta outbreak, rushing to a “lockdown 4.0” that went for two weeks. During the outbreak, we were critical of Victoria’s alleged improvements to contact tracing; surely if it was up to standard, we would not need a lockdown? But fear was spreading about the more contagious delta variant, with claims (later shown to be mistaken) that it could transmitted through “fleeting contact“.

NSW, on the other hand, boasted “gold standard” contact tracing, and had avoided mass lockdowns. Where it did come to lockdowns or stay-at-home orders, it was done at LGA level rather than across the entire metro area or the state (which is much larger than Victoria). Both Melbourne and Sydney are geographically large cities, and while there is significant movement of some people around the city (side question: why aren’t the people who travel around the most – and therefore the greatest risk as spreaders – prioritised for vaccination?) it was possible to bring outbreaks under control using those methods and still keep the economy humming along.

Her strategy worked … until the current NSW delta outbreak. Why did it fail and what can we learn?

I think it failed for two reasons: firstly, because Gladys underestimated the way the delta variant spreads (not as bad as Victoria made out, but certainly more contagious than previous variants) and therefore did not go hard enough and fast enough with lockdown measures. The second reason is than when restrictions were imposed, Sydneysiders did not take them very seriously. They’ve had it so good for so long, that they didn’t think the restrictions were really needed.

This second reason highlights the pivotal difference between Dan and Gladys: the ‘trust balance’.

I lost trust in Dan back in August last year, after his government’s repeated failures that led to our extended lockdowns and the constant language of fear and control. That put him into what I call a ‘trust deficit’. In that situation, anything his government subsequently said or did was judged with a healthy dose of scepticism. Indeed, the continued alarmism and rush for extreme measures like lockdowns meant that when they said contact tracing was upgraded, I didn’t believe them. If indeed it was upgraded, why the continued lockdowns? If they kept using the same blunt tools, what evidence is there that anything is being done better?

How does one get out of a trust deficit? By going the extra mile to increase trust. How does one increase trust? By being more open and transparent. The continued language of fear, and the lack of any transparency over how they are deciding on the various restrictions, and what we the people need to do for lockdowns to end means he has done nothing to regain my trust. Indeed, as I write this, we are no in our fifth lockdown (at least this time he didn’t insult us by calling it a “circuit-breaker”).

By her success in striking a balance between keeping the economy running and the people safe, Gladys built a strong ‘trust surplus’. Time and again, she showed that infection levels could be controlled with measures other than lockdowns.

How does one lose a trust surplus? By screwing up, and by not owning up to it or sharing information freely. This time, Gladys screwed up. While she has definitely lost a degree of trust, she had built up a healthy balance prior to that, and that has helped maintain her standing. I’ve been #GunningForGladys, and I still am. It’s possible that her previous success in keeping COVID at bay contributed to a complacency (in the people, in government, or both) when for the first time, they really had to go hard.

Remarkably, as a result of these latest outbreaks, I have actually changed my opinion! I have revised my view of the Victorian contact tracing system, and now think it is as good as any others. The evidence points to the differences in the recent outbreaks between NSW and Victoria being about underestimating the delta variant rather than contact tracing capabilities.

Victoria and WA have been lockdown-trigger-happy. Lockdowns are the bluntest of tools – and they are quick to impose them (“snap”) and very slow to release us back into regular life. The economic blow to small business is huge, and the emotional blow just accumulates with each one. While NSW have shown that there is another way, their record is now blemished. Once they get back to COVID-zero, it will be interesting to see how they respond to the next outbreak (and it’s fair to say there will be further outbreaks).

It is also evident that governments are treading a fine line in their response to outbreaks. Just a day or two can make a material difference. Gladys has been comfortable at the margins, and until now that has worked. Dan and others have erred on the side of caution in favour of lockdowns, but the consequence has been economic devastation. They count COVID cases, but not small business failures or cases of depression (more about this in another article).

In the words of a previous Prime Minister, we should be “alert, not alarmed” to the threat of COVID. We are served neither by complacency nor alarmism. Oh, and quit the fuss and just get vaccinated already!

The post Dan and Gladys – a Matter of Trust appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/dan-and-gladys-matter-of-trust/

Communication isn’t important …

Research has shown that 60 per cent of failed intergenerational family wealth transition are due to problems with trust or communication. Communication isn’t important in families. It is everything. If a family cannot communicate, it cannot function as a group. It’s that simple.

What does poor communication look like? An absence or lack of communication (e.g. “it’s none of their business”, “they don’t need to know”, “we know what is best for them”) is patronising, infantilising, and leads to a loss of trust. There is often hesitance to discuss family wealth or estate planning with family members because of the conflict it might cause. But not discussing simply leaves the latent conflict to fester. Some cultures have a strong concept of strictly obeying the mature generation – this has the potential to create interpersonal and internal communication barriers. Negative, emotional, distracting and damaging interactions among family members can lead to the “Family Drama Vortex”.

What does good communication look like? Creating a space where family members can ask and answer difficult questions like “What is our wealth for?”, “What is our family’s purpose?”, “What is our true value?”.  To communicate effectively, we need to listen. This may sound like a platitude, but not everyone can do it, especially when talking to someone we think we know well, such as our children.

A history of poor communication in a family means you have to work extra hard to regain trust and learn now to communicate well. To address toxic situations like the Family Drama Vortex, we must recognize that the drama and dysfunction are rooted in underdeveloped communication and interpersonal skills.

Because communication is difficult, especially across generations and borders, it can help to have external guidance and facilitation. That is best coming from a specialist, and not necessarily the ‘default’ choice of lawyers and accountants.

Consider This: How would you rate your own family’s ability to communicate? Are there some issues that “we don’t discuss” or that are shut down whenever they are raised?

Further reading: https://sg.asiatatler.com/life/rise-and-fall-of-family-wealth-how-to-achieve-financial-longevityhttps://www.coutts.com/insight-articles/news/2021/investments/speech-therapy–our-guide-to-talking-wealth-with-your-family.htmlhttps://www.wealthadviser.co/2020/12/04/293097/asias-wealth-management-industry-needs-ready-itself-great-wealth-transferhttps://onwallstreet.financial-planning.com/opinion/how-to-keep-multigenerational-wealth-in-the-familyhttps://e.vnexpress.net/news/business/generation-gap-communication-a-concern-for-family-concerns-4106858.htmlhttps://www.ft.com/content/825947e6-bf2d-11e9-9381-78bab8a70848https://www.forbes.com/sites/forbescoachescouncil/2019/04/26/is-your-family-business-in-turmoil-the-solution-could-be-communication/#792eb2e525echttps://www.clevelandjewishnews.com/features/special_sections/legal_affairs/succession-planning-big-part-of-family-businesses/article_6cd9a79e-45b6-11e9-ab20-ff24b4e7b8fd.htmlhttps://www.wealthmanagement.com/high-net-worth/hardest-part-planning-hnw-families-hnw-familieshttps://www.marketwatch.com/story/breaking-the-taboo-how-to-prepare-your-heirs-for-your-death-2019-03-07

Actionable Generational Wealth Succession 

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

The post Communication isn’t important … appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/communications/

A New Career for Founding Generations?

We’ve previously discussed the effect of increasing life expectancy on wealth transition – the ‘problem’ of the ageing family member who refuses to step aside is more prevalent than ever (the popular TV series Succession makes for great watching on this topic).

Traditionally, roles within families have very long tenure, For someone who has been managing the family wealth for many years, the thought of leaving a job they have become very good at can leave a huge void in their lives. The easy option is to leave things as they are. What can help is for older family members to have something to look forward to beyond their lives in the family’s operating businesses or family office.

This might be a shift to the family foundation (such as Bill Gates), a move into politics (Amo Houghton from Corning), or a more structured ‘statesman’ role working with the next generations (in their own or other families).

Having new roles they can look forward to is good for both the current and rising generation, and can avoid the fear associated with starting a ‘new career’ in middle age.

Consider This: What is your family’s history and attitude to how (or if) elder members step aside? Is retirement considered taboo? Have family members in their 50s and 60s thought about possible second careers?

Original article: https://www.forbes.com/sites/dennisjaffe/2018/11/15/stepping-up-what-family-business-leaders-can-do-after-they-step-down/

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

The post A New Career for Founding Generations? appeared first on David Werdiger.

source https://davidwerdiger.com/2021/07/new-career-first-generation/