Insights
Reinvest or Distribute: Is Everyone Aligned When it Comes to the Family Business?
Agreeing Ground Rules Up Front Can Prevent Conflict Down the Line – Greg Harris
- Ensure governance is in place: establish decision-making frameworks and walk families through scenarios early.
- Ideally, excess capital should be deployed to support growth – be that within the business or a diversified family endowment.
- Treat the family and operating business as one system when managing expectations around cash distributions.
When advising clients whose wealth is tied to an operating business, it’s essential to view the family and the business together, according to Greg Harris, Head of Family Office, British Islands and Global Head of Legal & Tax.
“Considering the family and the business in isolation is all wrong when managing expectations around cash distributions,” he told guests at our annual Family Investment Conference in London this month.
According to Harris, clarity and planning are critical. “It is vital to agree before the fact what the potential draws on capital might be. My team and I spend a lot of time up front, understanding the numbers, squaring those against what the family’s expectations are in terms of distribution and spending, then making sure everyone – family and management – understands the big picture.”
Ideally, any excess capital should be reinvested in pursuing their long-term purpose, Greg urges. That may be to grow their operating business, or it may be to grow a diversifying pot of capital to act as a family endowment. The challenge, he says, is often helping family members step outside their comfort zones to embrace that approach. “In a sense, our job is to build their confidence – help families understand where excess cash should best be allocated to maximise the probability of achieving their long-term purpose.
Greg notes that founders tend to support reinvestment more readily than the next generation. “From first to second generation, the management are very often co-shareholders in the business. The second generation are more likely to have an expectation of ready distributions from the business. That is, unless the family has had a multi-generational conversation about their joint long-term financial objectives.”
Managing the relationship between management and the wider family requires a nuanced understanding of both business dynamics and family office core principles. “You're quite often managing a tension between family and management, particularly when the founder is no longer actively involved. Ultimately, we are in the business of helping families preserve their wealth for the long term, often down several generations. That requires careful preparation and planning.”
Finally, Greg stresses the importance of transparency and governance. “There should be no surprises. Having a governance structure – with a decision-making framework in place – helps everyone understand the rules of engagement and agree on a common purpose. Planning for this approach and ensuring that the family has been walked through scenarios in advance is key. With an agreed purpose, established at the objective-setting stage, expectations can be properly managed.”
More from Greg in our 2025 Behind the Scenes of a Family Office series.