Attempts to draw sharp distinctions between the two aren't always helpful. Charles Lowenhaupt is chairman and CEO of Lowenhaupt Global Advisors, a St. Louis, Mo.-based advisory to ultra-high-net-worth families, and managing member of the law firm Lowenhaupt & Chasnoff, a third generation family business.

Look at the wealth-conference solicitations you receive and you'll find that some refer to "family business" forums and others to "family wealth" or "family office" forums. The idea that "family office" is somehow different from "family business" dates to the 1980s when organizations such as the Family Office Exchange and the Institute for Private Investors began their insightful and revolutionary examinations of the issues of portfolio wealth and family offices and company-executive associations, family-business networks, and scholars like John Ward at Northwestern University's Kellogg School of Management set to work developing analytics and processes specifically for family businesses.

At a recent Campden conference on family business in Bahrain, I was on a panel set up to explore how one moves from family business to family office. Before the session, one of my fellow panelists -- a British lawyer who specializes in mergers, acquisitions and other aspects of family business -- told me that he would be describing how to prepare a family business for sale.

Worlds apart?

He went on to tell how he would emphasize the need to develop processes to "objectify family relationships," methods of evaluation of progress with |image2| respect to business plans, and ways to ensure that minority shareholders are heard and treated as individuals in their own right. "I know that is quite different from the challenges the family faces after a sale," he said to me.

He was wrong.

Everything he would encourage a family to do to prepare for a sale applies, with equal force, to running a functional family office. The point is to impose discipline, process and due respect for individuals where such things may be neither natural nor intuitive. What a family must do to make its business work is what it must do to make its wealth management work.

How can any consideration of "family wealth management" disregard the family business, presumably a centerpiece of the family wealth? Shouldn't any consideration of asset allocation for assets outside the business start with a professional and thorough understanding of the family business to ensure sound diversification?

Considering governance structure for a family can't possibly be insightful without a complete understanding of ownership and control of the family business. Addressing the cash needs of a family that owns a business cannot be effective without understanding the salary and dividends business pays out. And understanding the role of family members in the family wealth must include some understanding of their roles in the family business. All of this is because the business is a part of the wealth, often the most substantial part of the wealth.

Double duty

Think about the spectrum from family business to family office. Start with the classic family business, an operating business not in the financial services sector. We find family wealth management embedded in the business, under the supervision of a trusted accountant or bookkeeper. Of course with sophistication and securities regulation, that function increasingly moves out of the family business (and into a "family office") but family wealth management is not entirely separate from the family business.

And there are classic family businesses which are themselves in the wealth business -- hedge funds, private equity and investment advisory firms, banks, and multifamily offices -- and these businesses serve the dual function of family business and family office. Some families I know have created the family wealth entirely through investment in the businesses of others, and their portfolio wealth is managed in a family office.

I am struck by the evolution of Middle Eastern family businesses. Essentially, oil created liquidity, and liquidity led to purchasing businesses -- often fully operational at purchase. These families have portfolios of businesses purchased with commodity wealth, and though they call their portfolio a "family business," it is in fact an accumulation of investments in which they play little or no active role. Do their activities fall under the rubric of "family business" or "family office"?

Business issues don't crop up even for families whose wealth is solely in publicly traded assets and commodities and in funds managed by others. These business issues are the issues of any business, which has constituencies beyond the owners (such as employees, customers, suppliers and the community at large). As many families learn, a single family office can also have external constituencies -- employees and suppliers and family members who think of themselves as customers -- and these constituencies can involve a family office in many of the issues that confront a family business.

A tale of three brothers

Here's an example. An Indian family of four brothers built a large, technically-focused, essentially classic family business. And these brothers' individual households are unusually symmetrical. Each has three children: an elder son, a middle son and a daughter. The brothers' plan calls for each brother's eldest son to be active in the business. No other children are allowed to be active in the business.

So the business-founding brothers are looking for a separate business for their middle sons to operate together. With the help of an investment banker they will conduct a thorough analysis of the legacy company to understand what kind of business, the location and the terms that best balance risks to the legacy business in the purchase or creation of a new business. And they may well do the same for their daughters.

This family has decided that the entire family will own all of these businesses equally, no matter who is building or running the individual businesses. In other words, it could end up with portfolio of three businesses, with a centralized, umbrella governance structure system for setting policies, salaries, etc.

Should such a family attend a forum on "Family Business" or on "Family Office"? I believe they should understand the fundamentals of family wealth management and the fundamentals of business.

The business prospects they look forward to and the business processes they must follow aren't so different from those confronting a large company like Dupont -- originally a family business, incidentally.

Developing functionality around family wealth is the basis of successful stewardship whether the wealth in question is in an operating business or in a portfolio of marketable assets. -FWR

The illustration for this column is a detail from a Japanese woodblock print in the Charles A. Lowenhaupt Collection.

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