Framework: Knowledge transmission for SFO
For many Principals, considering the transfer of their controlled assets, especially their business(es), can be a very uncomfortable topic. Indeed, this will invariably generate a sense of letting go of a legacy sometimes built over decades. It is also about confronting the reality of mortality: not a question of if, but when.
According to a study by Campden Wealth, more than 40% of family offices are concerned about inadequate succession planning. One can only speculate it is even more of a concern in families without a family office.
A lot has been said on this issue, which does not need to be repeated here. But I feel one challenge is significantly underestimated (or at least overlooked) which is the knowledge transfer.
🔍 Understanding Knowledge Transfer
"Knowledge", as used in this article, means both: access to the data of the past, but also what makes up the family's specific know-how rooting the future.
⚠️ Three Major Risks
🔑 Key Person Risk
In many families, vital knowledge and decision-making power are concentrated in a single individual (most of the time the Principal). A single person holding most of the institutional knowledge and memory, ranging from simple tax details to the most complex structures of various assets, renders the family vulnerable. Should that individual become incapacitated or pass away, the ordinary course of business will immediately be disrupted, let alone the extra-ordinary.
Successors will struggle to navigate immediate operational needs and manage unfamiliar investments. The risk becomes even greater if the family’s main asset is one or more controlled companies that require active management and regular decision-making.
💰 Liquidity Risk
In the event of a sole Principal’s sudden incapacity or death, families can also face practical financial challenges. In many jurisdictions, accounts are frozen until proper legal succession is established.
Without secondary signatories or power of attorney arrangements, families may find themselves unable to meet day-to-day obligations, fund the family office, or even pay basic expenses. In those heavy moments, this financial instability might put the family under undue pressure, resulting in poor decision-making that could have a long-lasting impact in terms of reputation or, worse, family cohesion.
🏛️ Governance Risk
For recently created family offices or those built around a strong Principal figure, governance structures are often only informal. If roles and responsibilities are not clearly defined, confusion and conflict can quickly happen, even more during transition periods. Decisions may end up being driven by emotion or by whoever speaks the loudest, rather than by strategic vision or alignment.
This risk grows when multiple generations are involved, each having different priorities, levels of involvement, and senses of legitimacy. A lack of clarity around “who decides what” can, at best, prevent a smooth transition; at worst, lead to lasting damage within the family office or family business.
🛡️ Risk Mitigation Approaches
A family office, even those mostly used as an asset management structure, plays a major role in preserving knowledge and mitigating risks in case of a Principal’s incapacitation or death. We reckon it’s not the only way these risks might be mitigated, but at least it provides a framework for thinking about them.
🌟 Culture of Transparency
In the family office world, confidentiality is a key value. However, it must not be mistaken for secrecy, which, while often rooted in good intentions, inevitably becomes a liability in the context of transition or succession.
The Principal and the family office CEO must actively foster a culture that prioritizes transparency and cross-functional access to knowledge (e.g. discouraging personal storage systems or informal communication silos etc.).
All involved, whether family members or family office employees, will need to understand that preserving knowledge isn’t about control; it’s about continuity. Loyalty is about performing in the present and preparing for the future, not protecting individual influence.
📚 Knowledge Institutionalization
One of the roles of a family office is to centralize key documents, manage data, track investments, and store all sorts of critical information. It usually does not suffer from lack of information but from over-information poorly organized or stored.
By creating a secure, shared repository, ideally supported by the right technology (but that’s a topic for another day), families greatly reduce reliance on memory or individual storage practices.
The simple possibility for a family member or family office executive to access (within established security and “need to know” parameters) the organization’s global knowledge and history enables the organization to continue operating efficiently, whether in everyday matters or in preparation for the arrival of a new generation.
🔄 Transition Framework
A family office structure also reduces the dependency on a single decision-maker by using different levers or actions such as:
Clearly defined roles for family members and executives ensure that responsibilities, (controlled asset oversight, governance, investments, philanthropic involvement) are shared or capable of being assumed on the spot.
Temporary committees composed of advisors from the previous and new generations can be created to manage transitions, overseeing critical functions until successors are fully ready. Such committees must have clear responsibilities and, above all, a drop-dead date.
Progressive onboarding of the next generation. This aspect can take various forms: education, participation in investment decisions, shadow boards, or shadowing. This will help the next generation(s) build legitimacy and readiness over time.
The way to do it might be to offload initially low added-value tasks and then more and more decision tasks onto those who will succeed in due course, while involving them in the business. This will be the foundation of the family office’s resilience.
Principals might feel that sharing authority diminishes their role, which is certainly true. But, and many Principals will adhere to this, mitigating this knowledge risk serves a higher aspiration: leaving a legacy.
After all, leaving a business is not the same as leaving a legacy. Building it together is.
👔 Transition Leadership
A “transition CEO” might be the right call when moving from the first to the second generation, or in case of temporary or progressive incapacity of the Principal, when neither the current FO team nor the next generation is fully prepared for an immediate handover... or even when it believes it is prepared but a doubt subsists.
These interim CEOs play a crucial role in stabilizing the family office during such sensitive times. Their responsibilities include:
Supporting the next generation in taking ownership of the family legacy, both in spirit and practice.
Establishing the legitimacy of the incoming generation over the assets and teams they are or will be inheriting. For this purpose, involving them quite densely in the operations, even if for a limited period of time.
Managing the interaction between the family office, the elderly Principal if he or she is still present, and the new one(s). Especially true in case of increasing disability.
Establishing appropriate governance structures enabling the new generation to gain a proper handling of the FO operations, and the family businesses if there are any.
Adapting the FO and various advisory boards or individuals to the needs or wishes of the new leadership.
Typically, the actions above will require an initial “quick and dirty” fix, to be refined across the 12 to maybe 18-month tenure of such interim manager.
🎯 Conclusion
Preserving knowledge is one of the most critical, yet underestimated, responsibilities in ensuring the preservation of a family’s wealth. When this knowledge resides in the mind of a single individual, the family becomes vulnerable in times of uncertainty.
A well-structured family office plays a vital role in addressing that challenge. While ensuring assets are passed to the heirs, it also serves as the institutional memory of the family. It provides centralized information, clear responsibilities.
But more than data of the past, the Principal and the family office will have worked to prepare or even mold the next generation into what forms our family special know-how and into the “why” we do what we do.
The goal is not just to preserve wealth, but to preserve the wisdom behind it—ensuring that decisions can be made, transitions can be managed, and legacies can evolve without losing what makes our family office different from any other family office around.