Fictional Cousin Matthew may be, but risk is a very real part of the fabric of life
It all looked so good – first saving Downton Abbey from financial ruin and then siring an heir, but, alas, Mr Crawley is no longer with us (he can now be found plying his trade in the US) and Downton will have to forge a path without him. Fictional he may be, but risk is a very real part of the fabric of life.
Managing risk effectively is crucial to the work of family offices and advisers. In this context, we could define risk as anything which might prevent a family achieving its objectives. Objectives could be grouped into categories including a family’s health, physical security, inter-familial issues (including succession planning), career management, reputational issues, financial security and so on.
So whether it is a sudden tragedy, New Year’s Eve party photos in the wrong hands or an undercover investigation into a family’s accounts, real risk is all around.
Here are five top tips for family offices and advisers when thinking about risk management for clients and families:
1. Consider and establish appropriate decision making structures. This will facilitate good governance, effective decision making and ease communication channels between family members. It may be appropriate, for instance, to appoint an executive (often the management of the family office) who may be supported, scrutinised and challenged by a family council (board equivalent) comprised of family leaders and perhaps the CEO and FD of the family office and outside trusted advisors (akin to non execs).
2. Risk registers can be used to highlight and grade risks to the family and measure their likelihood and impact. Each risk should be scored against the probability of it materialising and the harm it would do, perhaps against a range of relevant criteria. A traffic light system could be adopted to show the severity of the risk. Of course, it is not an exact science, but it is a helpful way to rationally assess key risks and to monitor them and to take necessary steps to control them and allocate responsibilities for controls.
3. Scenario planning. A plan means that an issue has been thought through in advance, and responsibilities allocated which means that an actual response is likely to be more thorough and considered. Secondly, all the information is set out in one place which saves time.
4. Create first aid kits. Plans may contain key contact information, template press releases, action plans, bank account details and key dos and don’ts.
5. Maximise opportunities to secure private law rights. The law can provide new opportunities to protect and manage risks – for example, Guernsey’s new image rights.
We will need to wait for the next series to see how the Granthams navigate the latest twist in the tale. Would a risk register have made a difference? I doubt it, but a plan for Mr Crawley’s untimely death would have made succession much easier – if Downton less dramatic.
Chris Bradish, Associate, Maurice Turnor Gardner LLP