In November 2021, Alexander Hoare was invited to address Prestel & Partner’s Family Office Forum in New York. Here are the thoughts he shared:
Families are important to me. Specifically, family businesses are important to me – and to all of us – because in the UK and presumably worldwide, about a third of people work for family businesses; 40% of economic output is created by them, and an unequal share of the tax revenue is paid by them. A minority of public companies gets all the media attention and does most of the political lobbying, but family businesses are more interesting for two other reasons.
First, family businesses, unlike public companies, are not driven by the tyranny of market demands – by the cycle of quarterly earnings statements and annual accounts. This in turn means they have more scope to explore other avenues such as innovation and purpose – becoming genuinely purposeful, and, as former Unilever CEO Paul Polman puts it, ‘net positive’.
Second, in a public company long-term thinking often means a maximum of five years, but families have strong incentive to think inter-generationally and to practise sustainability. Most families care about future generations and have the shareholders’ blessing to act on what they care about, so they can push the limits of sustainability if they wish.
In Anna Karenina, Tolstoy observes all happy families are alike and all unhappy families are unhappy in their own way. Our family is comparatively happy, but it is unlike most happy families I know. Here I will explain a little about our unlimited liability partnership, how we connect with the wider Hoare family, and how the family’s vision has an impact on the bank’s purpose and everything we do.
Sir Richard Hoare, my eight-times great grandfather, completed his apprenticeship in 1672 and opened his own books at the sign of the Golden Bottle, which is our trademark to this day. He must have been a remarkable man to evolve a successful banking business from goldsmithing, to be Lord Mayor of London twice and a Member of Parliament, and to socialise with the great and good, including royalty.
And he had two other key attributes to note: he lived long, which helps in compounding wealth, and he married well. There are no oil paintings of his wife Susanna, but I attribute to her the gene of resilience and survival, as she bore him no fewer than 17 children. Many of them did not survive, but those who did also had dozens of children, and we now have around 3000 living cousins on a database.
If you want to set up a sustainable family dynasty, you need a decent business idea and strong genes. Sir Richard’s business was successful, his son was likewise successful, and we avoided “shirt sleeves to shirt sleeves in three generations”, as the third generation also performed well. It was boom time in eighteenth-century Britain.
The family traded as a series of partnerships until 1929, when it decided a corporate form would be better for accumulating banking reserves, so it incorporated as an unlimited liability company of 120 shares of £1000. We continue in exactly this form.
As well as genetic sustainability, a family business needs financial sustainability. The bank’s balance sheet has sustained itself since at least 1929, and probably since 1672, with no outside capital – just retained profits after tax.
The seven owner managers, who are effectively partners, share unlimited personal liability for all losses, frauds, bad debts and everything else that can go wrong – which exerts a strong discipline on us. This level of personal risk used to be normal in the City, but is now vanishingly rare.
To own any of these unlimited liability shares, you have to be descended from the founder, unanimously appointed by the other partners, and work full time in the business. The shares trade at par. There is no right to appoint heirs to inherit your shares – these go back to the bank to be reallocated.
At any time, there are about 3000 cousins with no economic claim to the bank. It simplifies matters not having hundreds of cousins meddling in business decisions, but nonetheless we need their support. The partners’ mission is “to perpetuate a profitable family business” – to do that, you have to be on good terms with the wider family to provide for succession; this is a very important strand in our job descriptions.
How do we relate to the wider family?
- Next year we celebrate the business’s 350th birthday, and guess what? We will have a party! We have lots of parties, and have become adept at regularly entertaining cousins. And we use events, talks and visits, as well as parties, to get to know them and build community.
- However, there is more to life than parties. One significant thing we can offer through the bank’s charitable trust, The Golden Bottle Trust, is support for any charitable works a cousin is active in. This channels money to all corners of society, and at the same time builds bridges with cousins.
- We give family members work experience and employ them on internships during their university studies. This gives the students exposure to working in a bank and gives us insight into their character and work ethic.
- We engage with and benefit from the wider family via a formal committee of young City cousins which we consult on matters which concern us. The ability to tap into Millennial and Generation X thinking for live business decisions is increasingly valuable to us.
- There are many connections between the bank and the family. Last, but not least, is the fact that family members represent a small but significant part of our customer base. They are good introducers of new business and, perhaps most importantly, if anything is going wrong with our service, they are quick to tell us! This source of intelligence is a real competitive advantage.
I am happy to say we have just appointed our first 12th-generation partner, and we have a decent pipeline of strong candidates. So we are doing something right, and within the nepotism of the family business, there is a meritocracy, as the bank only needs a few of the best of any generation.
I mentioned our abiding goal is “to perpetuate a profitable family business”. It does not say anything about conquering or winning. Two mantras that have served me well are “small is beautiful” and KISS (“Keep it Simple, Stupid”), the idea being that if we can keep the business small and simple enough, we might just be able to hand it down to successive generations.
Many years ago I was accosted at Wharton Business School by someone who asked me: “If you have been compounding all these years, how come you don’t own all of India and half of China?” It is true that if you compound £1000 for 350 years, you arrive at an astronomical value. The answer lies in the family’s values and specifically in our ambition to survive as a family business for perpetuity. This means being just big enough, not vast.
Instead, the unlimited liability focusses the family on a culture of excellence, not scale. We embody a culture whereby we are prepared to reject profitable transactions – we want relationships, not transactions.
Similarly, we reject loads of rich prospective customers – we only want the like-minded ones.
It could be said that we help our customers get poorer as well as richer – we encourage them to be philanthropists, and offer a donor advised fund (DAF) to this end. We have about 10% of the UK donor advised fund market and channel amazing amounts of our customers’ money to good causes.
Sometimes we shrink the business as well as growing it – five years ago we sold our wealth management business, which accounted for about 20% of the bank’s employees. This resulted in better alignment with our customers’ interests (not having a product to sell them), and more excellence in our core business.
In short, family ownership can drive a very different culture in a business and give rise to different decisions. One interesting observation is that while none of the behaviours mentioned here will feature in business textbooks, they deliver a very profitable bank with very consistent earnings. Indeed, my life’s work is to demonstrate you can earn an honest living in banking without descending to the unacceptable face of capitalism.
Having mentioned our guiding principles, I should also introduce our purpose. Our purpose is to be good bankers and good citizens. The family doesn’t see much point owning a poorly performing bank, nor having bad reputations as citizens. It is an effective negative screen for deciding what not to do. How does it work for positive action?
As good bankers and good citizens, we first look after our customers and staff and pay our taxes. We then tithe approximately 10% of our profits to our charitable trust, which supports a wide range of causes and where we try to have catalytic and sustainable impacts. I have mentioned supporting the cousins’ philanthropic giving; we also double-match whatever our staff give to charity via the bank’s PAYE scheme, and half of them do so. Moreover, we have invested 100% of the endowment in impact investments, which has not been a small endeavour as it involved co-founding an impact management business, Snowball, to execute it in part.
This is where it becomes symbiotic. “What goes round, comes round” and expertise and relationships founded in our own philanthropy feed back into opportunities for the business in weird and wonderful ways. We look after our community, and it seems our community looks after us. A couple of years ago I found myself reading from the pulpit at Westminster Abbey which was celebrating the 300th anniversary of Westminster Hospital (now Chelsea and Westminster). This was the first hospital in the world funded by charitable giving – founded by ancestors at the bank, and still supported by the Golden Bottle Trust.
There are two things that can break a family business: the family and the business. It seems to me that you cannot have a happy family with a failing business, or a happy business with a failing owning family. The two are entangled, and I would argue this is not a bad thing. However, it requires careful management.
I would not like to leave you thinking it is all plain sailing. There have been plenty of partnership squabbles over the years, including the one in the 1920s on whether to sell the business.
In the nineteenth century, we had to build a smoking room, as well as a drawing room, to accommodate partners who could not bear one another’s taste in tobacco. One outstanding row in the eighteenth century concerned religion and resulted in two partners taking turns at running the bank in six-month stints because they could not abide one another’s religious views!
I mentioned earlier the saying “shirt sleeves to shirt sleeves in three generations”. Our advice would be to look out for the seventh generation (around 200 years into the business). Our seventh generation were a shocking bunch. One partner simply went bust, and the next was dismissed for irregularities. He ended up selling a now priceless art collection comprising paintings by Gainsborough, Rembrandt, Poussin, Titian, Turner and Canaletto. Another partner had to resign after an affair with an underage girl became a public scandal. He went on to squander astronomical sums on, among other things, a serious steam yacht which would have made Vanderbilt wince. In short, this generation lost several stately homes, 15,000 acres, art and other priceless chattels, and a brewery with 25% market share of London porter (a beer drunk as a safer alternative to water).
This wealth destruction is sobering, but it may have been a good thing. It certainly dealt with the problem of sustainability in the face of indefinite compounding, but more seriously I sometimes quip that my job is to keep the family poor. Why would rich cousins want to labour assiduously under unlimited liability when the alternative might be a life of leisure? One of our unique selling points is we work hard. We seem happy with our lot, and I believe work is important in self-fulfilment. Perhaps we should be glad of the antics of the seventh generation which mean the eleventh (and now twelfth) are obliged to work!
Finally, I have always understood the archives in our museum to be a priceless asset. Anyone can replicate our business model, but nobody can replicate our family’s business history, and we take lessons equally from the good and bad chapters in that history.
Summing up, some points to take away from our experience are:
- Both the family and the business need to be managed harmoniously
- To found a multi-generation family business, there needs to be a viable business and good genes
- The partnership model keeps it simple
- Unlimited liability keeps it honest
- In the long run, excellence is more rewarding than scale
- Not getting too rich keeps the family working hard– beware the 7th generation!
But surely the most important point is that there are family businesses which have been sustainable and purpose-led for a very long time – and I hope they can inspire others to follow suit!
Alexander Hoare, December 2021