Family Office Management and Optimization
Article #2 | June 2024 | Richard Wolkowitz
Richard J. Wolkowitz, a seasoned advisor with over 25 years of experience in family office management, brings a unique perspective to the complexities and nuances of family offices. As the founder of Xylogenesis & Family Office Advisory, Wolkowitz has dedicated his career to guiding multigenerational families through the intricacies of wealth management, governance, and operational excellence. His latest articles provide valuable insights that challenge conventional wisdom and propose new approaches to managing family offices effectively.
In his article, "Why that famous adage about family offices is so wrong", Wolkowitz challenges the commonly cited phrase, "If you have seen one family office, then you have seen only one family office." He argues that this mindset perpetuates a notion of uniqueness that can lead to inefficiencies and prevent family offices from adopting best practices. While each family office is unique, fundamental business principles and best practices should still apply. He says, “It is time to stop treating family offices like ‘snowflakes,’ each one-of-a-kind, unique and different,” highlighting the need for standardized approaches to foster healthier and more effective family office operations.
In"Deal With Inflections Before They Become Afflictions", Wolkowitz explores the risks associated with complacency and groupthink in family offices. He emphasizes the importance of proactive governance and the inclusion of independent, non-family members in the governance structure to provide objective oversight and prevent tunnel vision. Wolkowitz writes, “Single-family offices can often become impenetrable fortresses, impervious to change and challenge,” highlighting the need for continuous assessment and adaptation to navigate the complexities of family dynamics and business operations.
In another thought-provoking piece, "Toxic Loyalty in Family Offices: Risks and Practical Solutions", Wolkowitz analyzes the concept of loyalty and its potential pitfalls within family offices. He warns of the dangers of “toxic loyalty,” where excessive allegiance to family members or long-standing employees can stifle innovation, lead to inefficiencies, and create an unhealthy work culture. Wolkowitz suggests several strategies to mitigate these risks, including merit-based promotions, transparent communication, and the inclusion of outside advisors to provide unbiased perspectives.
Shifting focus from governance to the operational challenges within family offices, Wolkowitz addresses the intricacies of integrating personal and business affairs. In "Embedded Family Offices: Inherent Risks and Practical Solutions to Mitigate Those Risks," Wolkowitz introduces the concept of Embedded Family Offices (EFOs). An EFO is a family office that operates within a family's existing business structure, where employees serve the business and the family’s needs. While efficient in integrating family and business operations, this dual function poses significant risks if not properly managed. Wolkowitz explains that EFOs, although common, can lead to legal liabilities, audit exposure, and operational challenges. He emphasizes clearly defining roles and responsibilities, ensuring proper reimbursement for personal services, and maintaining meticulous documentation to avoid the pitfalls associated with co-mingling personal and business matters.
Wolkowitz’s insights are highly valuable for family business management and governance professionals, calling on family offices to adopt a more professional and structured approach. By focusing on constructive critique and continuous improvement, family offices can navigate the complexities of wealth management more effectively and secure long-term success for future generations.
References:
Deal with inflections before they become afflictions. (2024, April 16). Family Wealth Report. Retrieved from https://www.familywealthreport.com/article.php/Deal-With-Inflections-Before-They-Become-Afflictions
Embedded family offices: inherent risks and practical solutions to mitigate those risks. (2023, July 7). Family Wealth Report. Retrieved from https://www.familywealthreport.com/article.php?id=198467&page=1
Toxic loyalty in family offices: risks, practical solutions to remain a healthy, high-performing organization. (2023, August 21). Family Wealth Report. Retrieved from https://www.familywealthreport.com/article.php?id=198857
Why that famous adage about family offices is so wrong. (2023, September 25). Crain Currency. Retrieved from https://www.craincurrency.com/family-office-management/why-famous-adage-about-family-offices-so-wrong
