Very few respondents take a formal approach to reputation management with nearly 90% not keeping track of their digital footprint, Stonehage Fleming has revealed today (13 November) in its survey ‘Four Pillars of Capital: Managing risk in an age of upheaval'.
The challenge of managing reputational risk has increased over the past decade especially with the public launches of AI-enabled text, audio and image generation services producing "deepfakes", the international multi-family office group said.
However, the survey revealed that 43% of respondents have no formal process for managing the reputation of their family or its members and only 13% of respondents say they actively track their family's digital footprint.
Guy Hudson, partner and head of group marketing and communications said: "We know families value their reputations and so we are surprised by the data showing how few families are conscious of the digital risks they may encounter. In an age of increased transparency, it is almost impossible to be proudly anonymous. With the complexity that social media brings, it is harder than ever to control the narrative. A digital health check is a sensible element of a comprehensive risk management strategy."
The international multi-family office group's research ranged across the impact of sequential global events, including the COVID pandemic, the war in Ukraine, slowing economic growth and accelerating inflation on the long-term sustainability of family wealth.
Stonehage Fleming surveyed respondents on themes including risks to sustaining family wealth, investment attitudes and the growth of values-driven investing, reputation management in a digital age, philanthropy, governance, leadership and the Next Generation; and the purpose of wealth.
This paper was drawn from a 34-question online survey, completed by nearly 300 contributors from families and advisers ranging from 18 to over 80, across Europe, the Middle East and Africa, and the Americas in addition to the solid base of participants in the UK and its sovereign territories. The survey was distributed on 20 April 2023 and closed on 20 July 2023. In addition, wide ranging in-depth face-to-face interviews were conducted with 15 ultra-high-net-worth (UHNW) families and advisers, discussing their long-term plans, attitudes and concerns.
The survey identifies a major shift in the biggest risks that families and wealth creators perceive to their long-term prosperity. For the first time since Stonehage Fleming began its proprietary research series in 2013, the investment environment and political risk make up two of the top three threats to the preservation of wealth. When asked how families identify and mitigate risks to their long-term prosperity and goals, only 20% have a formal regular process.
Giuseppe Ciucci, executive chairman and chief executive officer at Stonehage Fleming said: "Our Four Pillars of Capital research has taught us that our clients like to have insight into what their peers are thinking and how they have addressed - or are addressing - the challenges and opportunities that they have in common.
"Observations from our 2023 report have reinforced the importance of preparing the Next Generation to assume the responsibilities of wealth and employing a simple and rigorous process for risk appraisal. Other important themes included the vital importance of understanding your digital profile in today's world, the potential rewards of involving the Next Generation in philanthropy and the need for clear and effective communication between family members."
The challenge of managing reputational risk has increased over the past decade especially with the public launches of AI-enabled text, audio and image generation services producing "deepfakes". However, the survey revealed that 43% of respondents have no formal process for managing the reputation of their family or its members and only 13% of respondents say they actively track their family's digital footprint.
Guy Hudson, partner and head of group marketing and communications said: "We know families value their reputations and so we are surprised by the data showing how few families are conscious of the digital risks they may encounter. In an age of increased transparency, it is almost impossible to be proudly anonymous. With the complexity that social media brings, it is harder than ever to control the narrative. A digital health check is a sensible element of a comprehensive risk management strategy."
Although 86% of families consider philanthropy a central part of their purpose and values, 64% have no pre-determined budget and make regular donations based on an informal process. Only 7% of respondents reported that they have a formal process for agreeing and appraising the contribution they make to their communities and wider society.
When questioned on how families communicate their contribution to the community and wider society, 64% of respondents prefer to remain discreet. However, when questioned on the extent to which philanthropic activities should be publicised, 51% believed that a lack of awareness of the societal contribution made by families and wealth creators could pose a threat to wealth.
For the first time, the 2023 survey asked specifically about the involvement of the Next Generation in families' philanthropy activities, and strikingly in 49% of all respondents' families, the Next Generation are not substantially involved.
Nearly half (46%) of respondents do not have a formal leadership structure and the ways in which families select their leaders remain diverse. The one clear trend is a decline in preference for primogeniture. Only 5% of families - and none at all in the US or Europe - now believe this traditional method of succession to be a good fit with the demands of modern intergenerational wealth management (a decline from 20% in 2018).
In most regions, a substantial minority of families employ leaders from outside the family. While in the Americas, a majority (52%) take this route. When asked how families believe leaders should be selected in the future, over 40% of respondents indicated either by committee, or the wider family.
More than two thirds of families are taking proactive steps to give the Next Generation a more prominent role in the family, with this trend being more advanced in Africa and the Americas than in the UK and Europe. However, when equipping the Next Generation to understand the broad responsibilities of wealth nearly half (46%) report that preparation is informal - they rely on the family environment and the conventional education they provide. Only 16% of families encourage their children to attend programmes and bespoke education.
Only 36% of families currently have an agreed purpose for their wealth; however, for a significant number of respondents, it is the acceleration of political and economic volatility since the 2018 Four Pillars of Capital report that has crystalised their thinking. Four common themes in respondents' philosophies are maintenance of the family legacy, care of family members, achieving philanthropic goals and fulfilling religious responsibilities.
Matthew Fleming, partner and head of family governance & succession, at Stonehage Fleming said: "Purpose is the foundation of a family's decision-making framework and in turn underpins the Four Pillars of Capital. The real challenge is communication: ensuring that purpose is articulated, shared and understood - first and foremost within the family itself. We believe passionately that families who take the time to reflect on their purpose and engage the Next Generation in both defining and living it, give themselves the best chance of intergenerational success."
