Diversification and Sustainability
Diversification and Sustainability
In this weeks show I am joined by Catherine Grum from BDO as we discuss the role that diversification can play in helping family enterprises to achieve their sustainability aspirations.
What is Diversification?
As we have heard throughout this series on sustainability there are a number of definitions of certain aspects that we discuss. One of this is the topic of diversification and so we open the show with a summary of what we mean by diversification.
At a very basic level diversification can be explained as “not having all your eggs in one basket”. From a family business or family enterprise perspective this could mean that you expand into products or services that you don’t already offer.
Catherine gives the example of a business that manufactures car parts for diesel cars that has diversified into property development.
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Why you might want to diversify
We discuss this in the show but again using the example of the car parts manufacturer, it may be that this industry or diesel cars won’t be around in years to come, therefore diversification is needed to ensure that the ability remains to create wealth and opportunity for future generations.
It may be that the main operating business is currently not aligned to what the next generation are looking to do and so diversifying the operations of the business gives them somewhere to follow their own passions and contribute in a way that is aligned to their values and purpose.
COVID has also taught us that we never know what is around the corner and so diversification allows you to spread the risk of having one operating business to having more than one. If they are truly diverse, i.e. not in the same industry or subject to the same market forces, it can be a way of weathering future storms and the next crisis that is sent out way.
Impact on Governance
Both Catherine and I provide advice to families around the governance mechanisms that help them to maximise the relationship between the family and the business(es).
Having more than one business can complicate these relationships and the governance structures that might be in place. It is important to ensure that your governance is reviewed on an ongoing basis and especially so if you are introducing new businesses in to the mix.
If you don’t already have governance in place, I would suggest that you listen to this playlist that is focussed on explaining what family governance is and the various forums that can exist to help you as a family.
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Russ Haworth
About Catherine Grum
Catherine is head of Family Office Services at BDO. She advises families and family offices around family office establishment, family governance and philanthropy. She believes that when families understand their values and the purpose of their wealth, they can build on much stronger foundations and, by aligning their structures and activities with this, create sustainable long-term solutions.
She has worked with family offices for over 15 years, gaining a unique perspective from the combination of roles she has held. This has included heading a private office and sitting on the board of three international trust companies (Salamanca Group) and coordinating wealth structuring with investment management (Barclays Wealth). This all built on her training as a private client lawyer at Allen & Overy.
Recognised as a thought-leader in the family office industry, Catherine has previously been named as one of EPrivate Client’s 50 Most Influential and is one of Family Capital’s Top 100 Family Influencers 2020. She has written, spoken and been interviewed on topics ranging from next generation planning to impact and sustainable investing.
Catherine has an MA in Jurisprudence from Oxford University, is a Trust & Estates Practitioner (STEP) and Certificated Family Business Adviser
