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Grow Together - June 2023

This quarter we focused our thought leadership on challenges associated with transitioning family business to new ownership - whether inside or outside of the family.

In this issue: President's MessageFounding a fortuneThe most thoughtful gift to leave your executorEqual measure: Inheritance planning for children not involved in the family business



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President’s Message

Matt Evans, CFA
President & CEO


If you’re a fan of prestige television, you may have enjoyed the recently completed final season of the HBO drama, Succession. The series chronicled the fictional exploits of Logan Roy and his four children, each vying for their share of Logan’s attention, and three competing for control of his media empire. It’s a case study in the avoidable drama and significant emotional – let alone financial – costs of a badly planned intergenerational business transition.


Many of us at the firm were captivated by Succession. Full of shareholder intrigue and boardroom battles, it was never dull. As much as Logan Roy is said to be inspired by Rupert Murdoch, scion of the Fox Media conglomerate, Bernard Arnault is another reasonable real-world comparator. Periodically the world’s wealthiest individual, Arnault helms LVMH, the European luxury goods empire holding some of the world’s most recognizable high-end brands. With five children active in the business, Arnault’s choice of successor is the source of much speculation.


It’s a high stakes moment for one of the world’s most valuable companies. Raffi Amit, a professor at the Wharton School of Business and a specialist in family business and generational wealth, reflected on the situation in a recent piece for Bloomberg Magazine. “Every time there is transition, this is the most vulnerable period in the life of a family-controlled company. Families where each generation feels as though their role is to create wealth, rather than consume wealth, will sustain themselves for a much longer time.’’


Arnault’s explicit goal is to secure long-term, sustainable wealth creation alongside his children, his grandchildren and beyond, and he has undertaken a thorough estate and business succession planning process to ensure this is possible. In the same piece for Bloomberg Magazine, Angelina Rascouet and Tara Patel explain, “(Arnault’s) plan to hand the business to his children is an attempt to avoid the pitfalls that have bedeviled other families as wealth moves from one generation to the next.”


Rascouet and Patel cite a study of stock market performance over the past 20 years, which finds that family businesses outperform their non-family counterparts. But they also point to a challenging reality for Bernard Arnault, Rupert Murdoch, and the fictional Logan Roy: family-owned companies managed by the first generation have gained almost twice as much value as those run by the fifth.

Succession and legacy planning are the primary themes for this issue of Grow Together. Why do businesses and fortunes flounder as they transition from generation to generation? In Founding a fortune, our Chief Investment Officer, Scott Blair, suggests it may come down to gradual erosion of the “founder’s mentality.”


But there’s still hope for companies passed to new management. The key is for the successor managers to operate as “re-founders.” The re-founder concept was coined by Satya Nadella, CEO of Microsoft. Nadella had big shoes to fill as the company’s third CEO. He wasn’t around when Microsoft was founded by Bill Gates or as it became a market leader through the 1980s. But by the time he was appointed to lead, Nadella had been with Microsoft for over 20 years. He was ready to reinvigorate the organization by reconnecting with the founder’s mentality it grew from.


Starting in 2014, he restored a clear sense of business insurgency, demanded customer obsession and operated with an owner’s mindset. Microsoft is, once again, a clear market leader and has recently achieved a dominant position in for the rising market of artificial intelligence applications. Only one company leads Microsoft in terms of market capitalization. Not coincidentally, it’s another product organization where the founder’s endowment was entrusted to new management committed to sustaining its infamous founder’s mentality: Apple Inc.


We’re inspired by this thinking as we’ve been entrusted with the endowments left to the firm by our founders - Leon Frazer, Tim Egan, Vic Bryant, Russ Doherty, Brent McLean, David Schuster and Val Vaillant. Our legacy firms were cultivated with a founder’s mentality. As re-founders, we are focused to move the firm from strength to strength on behalf of our client families.


Part of this effort is to help our clients navigate the challenges associated with transitioning their own family businesses to new ownership – whether inside or outside the family – and to help all our client families plan for enduring legacies. We’ve focused our thought leadership around these issues this quarter.


We are grateful for the time you will spend with these pages, and as always, we invite your feedback.

Founding a fortune

Scott Blair, CFA
Chief Investment Officer

What do Apple, Microsoft, Berkshire Hathaway, Tesla, Amazon, Meta (Facebook), Alphabet (Google) and Nvidia have in common? First, they’re eight of the top ten largest public companies by market value in the world. Second, each became a global behemoth with a founder operating as CEO. Is this commonality just a coincidence?

Chris Zook of Bain and Company did a study of founder-run companies and published an article in 2016. It concluded that an index of companies in the S&P 500, where the founder is still deeply involved, easily outperformed non-founder run companies over a significant time period. His results are shown in the figure below.

Figure 1: Founder led companies outperform the rest based on an analysis of S&P 500 firms in 2014.
Indexed total shareholder return of founder-led companies vs other companies

Source: FactSet

Although the chart is a bit dated, the story it tells won’t surprise many seasoned investors. This outperformance can partly be explained, and is likely exaggerated by, the times we’re living in. The digital age has made it possible to scale businesses to very large sizes with small amounts of capital in a relatively short period of time. Meta and Alphabet are good examples. But if we look back in history, there’s no shortage of companies that were started by a visionary and built into incredibly successful, long-lasting businesses. Disney, Walmart, and McDonald’s are three such examples.


Think like an owner

Why do these companies tend to outperform? Bain and Company call it the “founder’s mentality”. After interviewing hundreds of executives and founders, they identified three commonalities across many successful founder-run firms:


  1. Business insurgency. This means having a purpose to do things in a different way that will be disruptive to your industry. It could involve creating something entirely new, serving customers in a different way or meeting an unmet need. Amazon, for instance, has achieved all these things in its drive to fill its purpose “to be Earth’s most customer-centric company”.

  2. Frontline obsession. This involves creating a culture focused on the customer and, by extension, on team members serving customers and creating products. Adopting a frontline obsession helps businesses stay current, analyze trends and change course quickly if needed. As an example, Steve Jobs was famously obsessed with the customer experience at Apple.

  3. Owner’s mindset. Embracing this characteristic empowers employees to act like owners by transferring power and incentives down the line. Many manufacturing companies operate like this by treating each plant as its own business unit with compensation tied to the plant’s performance. An owner’s mindset stimulates innovation and helps manage costs. Family-controlled CCL Industries, a global manufacturing company based in Canada, operates along these lines.

Over the years, we’ve analyzed hundreds of companies and the founder’s mentality often rings true. But it’s important to stress that a founder’s involvement does not guarantee success and vice versa. Every company needs to be analyzed on an individual basis.

An important success factor for non-founder run companies, is whether management has “skin in the game”. In other words, how much of management’s personal net worth and compensation is tied up in raising the company’s value. As investors, we want to see as much incentive as possible tied up in the business’ long-term success. This aligns us with management, as we both want to see the stock price rise.

Shirtsleeves to shirtsleeves in three generations

Management succession is always an interesting time for a company, and it becomes especially important when a founder has been in the top seat since the start. From our standpoint, perhaps the best thing a successful company can do to ease the transition is to be transparent about its succession plan well ahead of any material change in management. Then, when it comes time for the founder to step aside, the firm can move seamlessly through a transition period, often by bringing in someone who has worked in the business – ideally, in multiple areas. That way, the new leader has a real understanding of the firm’s purpose and, hopefully, has the objectivity to keep what’s working and change what isn’t. Apple, Amazon and Microsoft have all had successful transitions from founder CEOs by adopting this approach.

By contrast, there’s a long history of family fortunes being squandered when a new generation takes over. Seagram’s is a great example. It was once Canada’s largest company and a global liquor powerhouse. Edgar Bronfman Jr. took over from his father in the ‘90s as the third generation of Bronfman to run the company founded by his grandfather. After an off strategy move into the entertainment business, Seagram’s later executed a disastrous merger with a French water company called Vivendi. Shareholders wound up being far worse off than if Seagram’s had just stayed on strategy.

Founders’ children often grow up in an intense work environment as their parents strive to build the business. While some second-generation children thrive under this pressure and take the family firm to new levels, others may wilt under the strain. There can be even more pressure on the grandchildren. If their parents are successful in running the company, they may grow up in a much more privileged environment where it’s possible some of the work ethic and passion for the business is lost.

As part of our investment process, we conduct thorough management and compensation analysis as we believe management is key to realizing the full potential of a business. While having a founder CEO is often advantageous, what’s more important is that its leaders – whomever they may be – espouse a founder’s mindset. Compensation analysis can often indicate whether this mindset is present. Having personal wealth tied to the rising value of the company will usually incentivize management to increase its value. From a succession perspective, these are key principles that guide us when evaluating a company.

Sources: FactSet, Bloomberg, Bain & Company, HBR

The most thoughtful gift to leave your executor 

Jen Schmid, MPAcc, CA, CFP®, R.F.P.
Private Wealth Advisor

For some, the idea of sitting down with your financial advisor to review your estate plan can be off-putting to say the least. Not only can it be an emotional experience to have to think about the end of life, but reviewing all your financial documents and deciding who to choose as your executor, or liquidator if in Quebec, is no picnic either.

Your advisor can help make this must-do item on your financial planning checklist a more palatable experience. As part of their counsel, they can help you prepare your chosen executor in advance, to make their estate settlement duties a smoother experience. Yes, this can probably be the most thoughtful gift to leave your executor - taking a few measures to prepare them for what comes next.

With great power comes great responsibility

According to the Canadian Institute of Certified Executor Advisors (CICEA), a culmination of recent surveys, statistics, and legislative changes (sourced from Statistics Canada and a BMO Leger survey) indicated that 99% of Canadians aged 45 or older intend to name a close friend or family member as their executor. These findings also show that those who have acted as an executor report having unforeseen challenges, significant stress, and say that they received little guidance surrounding their role as executor. Many felt it was one of the most difficult challenges in their lives, which disrupted their personal and professional life. It’s a big responsibility, so the more guidance you can give your executor in advance, the better it will help ease their administrative load.

For some, the solution may be to hire a corporate executor. This is a third-party trust company named as executor in your will, rather than naming an individual person. These companies have teams with the expertise and experience to administer your estate in the shortest amount of time possible, which removes the burden of executorship from a family member or friend. But appointing a corporate executor can be costly depending on the complexity of your estate. There are various pros and cons for this option, so it’s best to speak with your advisor to determine if it’s the right course of action for you.

Whether using a corporate executor or opting to appoint your most organized, detail-oriented, money-savvy friend or family member for this role, there’s a lot you can do in advance to position your executor for optimal success and minimal frustration. Here are four things to put on your executor preparedness checklist.


  1. Gather your assets and liabilities
    Your executor is responsible for gathering all the financial details of your estate. This includes identifying all assets and liabilities as well as valuing those assets, which will help when they’re completing tax returns and applying for probate. If your executor isn’t already familiar with your financial details, it could require substantial time and effort on their part to search various registries, banks, social media accounts, and tax returns to identify all of your assets. To make this easier for them, create a document that lists all of your income sources as well as all assets and liabilities. Remember, even if you don’t use them (e.g., a line of credit held in case of emergencies) you should still list them in this document as they will need to be dealt with!

  2. Simplify and consolidate
    The average executor will need to contact 15 or more people and companies to notify them of a death, and deal with assets or liabilities there. This can include, but isn’t limited to, the CRA, banks, wealth advisors, employers, Service Canada, business partners, realtors, lawyers, accountants, beneficiaries and charities. Consolidating your accounts (e.g., investment, bank, social media, credit cards) to one or two institutions can shorten this list, saving your executor lots of time.

    Other things you could do to simplify their role include closing zero-balance, unused or little-used accounts, along with purging personal items, organizing filing systems in your home or even selling real estate if there are multiple properties (especially if the properties are located in different jurisdictions).

  3. Document the fine details
    When consolidating accounts like the ones mentioned above, you can go one step further to keep your executor on track by making a list all of your professional contacts at these institutions. Basically, the names of any person or institution that deals with your assets should be recorded. If you have a pre-need contract with a funeral home, include that as well. Many people overlook their digital assets. Make a list of all your online assets, subscriptions, social media accounts, and rewards programs. Include how to access these personal and financial assets so that they’re not lost for good.

    Finally, create a list of the people you’ve named in your estate documents and how to contact them. This will help your executor fulfill their duties and administer your estate more effectively. Once you’ve fully documented your financial life, it’s equally important for that documentation to be coherent, logical, up-to-date and accessible to your executor. Of course, once you’ve compiled this information you should make sure it’s kept in a safe place – one that minimizes exposure to fire, flood, or theft.

  4. Communicate, communicate, communicate!
    I cannot overstate the importance of talking with your executor in advance and making sure your wishes are known. They should know where your important files are and how to contact the people they need to when you’re gone. This will go a long way in avoiding the headaches and stresses that often come with being an executor.

As an advisor, I’m happy to help my clients implement these important ways to set up their executor for success and can work with other professionals, like their lawyer and accountant, where needed. I can also be a go-to resource for their executor and help guide them through the process when the time comes. Together, we can simplify and foolproof this position, resulting in less stress for your executor – a truly thoughtful gift that you can give.


At CWB Wealth, we’ve created proprietary documents for our clients to capture their professional advisor relationships and digital assets. These are available in both English and French. To obtain a copy, connect with your dedicated advisor.


Sources: Canadian Institute of Certified Executive Advisor (CICEA)


Equal measure: Inheritance planning for children not involved in the family business

Jason Kinnear, CPA, CA, CBV

Manager, Family Offices Services

Robert Bradburn, CFP®, CIM®, CLU®

General Manager, CWB Insurance Solutions

“A leader’s lasting value is measured by succession.” John C. Maxwell, American author

While a family business can be a successful enterprise that creates employment opportunities and generates wealth for multiple generations, not every family member will want to be actively involved. Differing strengths and interests may lead some family members to find their way outside of the family business. This can make succession and estate planning a challenge for business owners when trying to sort out how to fairly bequeath their assets to children who pursue their own interests. Since the value of the family business is usually the most significant family asset, it can be especially difficult to navigate this and prevent estate litigation once the business owner is gone.

There are several strategies available to plan for the inheritances of children who are not involved in the family business, so that the assets are distributed fairly.

To illustrate these, let’s meet the Robinsons. Scott and Lynne Robinson own an incorporated cattle ranch in southern Manitoba. As part of their ongoing discussions with their advisors, they expressed their wish to ensure their succession plan was fair to both of their children. Their daughter, Karen, has loved cattle ranching since she was a child. Since getting an agriculture degree from the University of Manitoba, she’s worked on the family farm full-time. Their son, Russ, is a paramedic in Winnipeg and enjoys working and living in the city.

Scott and Lynne’s assets include1:

  • Cattle farm corporation $7M
  • Investment portfolio $3M
  • Real estate including family home $2M

At a recent meeting with their advisors, they discussed the following succession and estate planning strategies for their family:


  1. Draft a transparent succession plan
    In the Robinson’s case, it’s clear that Karen is the only child interested in carrying on the family business. While this situation may be obvious to the family, a written business succession plan including Scott, Lynne, and Karen’s visions for the future of the family farm should be documented to ensure all three parties are aligned. If they aren’t, changes can be made now to align their collective vision for the future. This business succession plan will also be shared with Russ to allow him the opportunity to confirm he if he wants to join the family business or continue in his chosen career.

  2. Value the family assets
    To assist with the Robinson’s planning and remove any potential biases, the family obtains independent valuations of the cattle farming corporation and real estate. With these verified values, they can proceed with their business succession and estate plan.

  3. Estate freeze
    Scott and Lynne own 100% of the cattle farming corporation’s common shares (currently valued at $7M). To transfer the future growth of this corporation to incentivize Karen, the Robinsons transfer their common shares to the corporation in return for fixed value preferred shares with the same value. At the same time, the corporation issues new common shares to Karen (or a trust that Karen is a beneficiary of). While Scott and Lynne can continue to control the family farm corporation with the votes attached to their new preferred shares, they can either hold these shares indefinitely or gradually redeem them to fund their retirement.

    The Robinsons may also want to consider funding a separate permanent insurance policy to pay for their projected estate taxes on the preferred shares and other assets, to maximize the residual value2 of their estate for their children.

  4. Allocate business value
    By issuing Karen new common shares in the family farm corporation, she will eventually control a business worth $7M. However, the future value of this asset will depend on a number of internal and external factors, such as Karen’s management ability and the market price/demand for beef, so there is some future risk for Karen.

    Since the $2M real estate consists of rural farm properties and the family home on the farm, the Robinsons will transfer these assets to Karen in their will. This means Karen will receive $9M of Scott and Lynne’s assets when they’re gone.

  5. Equalize the non-active child
    To ensure Russ receives his fair share of the family’s assets, the Robinsons will transfer their investment portfolio to him. Since Karen is scheduled to receive $9M and Russ will receive their $3M investment portfolio, how will the Robinsons make up the $6M difference?

The Robinsons' insurance advisor has told them about the benefits of a joint last-to-die universal life insurance policy that can pay out $6M to Russ when they pass. Given their current ages, health, and number of years of growth available in a tax-exempt insurance policy, the Robinsons can fund their $6M insurance policy for cents on the dollar.

By following strategies like these, Canadian families can help ensure an equitable transfer of their businesses to the next generation, and minimize the potential for personal and legal conflicts between their children. Your financial advisor can help you work through the details of your unique situation and review all options available. Then, if needed, facilitate a conversation with your family to bring everyone’s voices to the table.

For illustrative purposes, we have simplified this list. Typically, our clients may own additional assets, such as bank accounts, art, jewellery, cars, vacation homes, etc. The cattle farm corporation and real estate are likely the most complex assets owned by the Robinsons, given the tax and legal issues involved.

In this case, residual value means the market value of all assets owned by the Robinsons upon death, minus the personal taxes triggered on these assets when they’re transferred to their estate, and any additional estate costs such as lawyer and accountant fees. The residual value is the amount left over to pass onto their children.


Sources: CWB Wealth

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of CWB Wealth or its affiliates. CWB Wealth does not assume any duty to update any of the information. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant or other advisor before making any financial decision. Quoted yields should not be construed as an amount an investor would receive from the Fund and are subject to change. Investors should consult their financial advisor before making a decision as to whether mutual funds are a suitable investment for them. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.

Please read the prospectus, which contains detailed investment information, before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. CWB Wealth uses third parties to provide certain data used to produce this report. We believe the data to be accurate, however, cannot guarantee its accuracy. Visit cwbwealth.com/disclosures for our full disclaimer.