1. Advising Families with Owned Enterprises and Family Offices Bermuda STEP Conference Presented by Mary K Duke Head of Private Wealth Solutions – Americas Presented on 23 February 2012

2. Agenda WHY FAMILY OWNED BUSINESSES? WHAT ABOUT GOVERNANCE FOR THE BUSINESS OWNING FAMILY? HOW ARE FAMILY OFFICES ADDRESSING TODAY’S CHALLENGES?

3. Family Business vs. Professional Management

4. Problems with Family Businesses Unprepared, unqualified, unwilling next generation Family Battles Inheritance disputes Lack of meritocracy Lack of Accountability Quixotic Decision-making Secrecy

5. Strengths of Family Businesses Fearless Decision-making Long Term View Limited office politics Less Bureaucracy Management Tenure Retention of expertise Innovative

6. A family is an inherently long-term institution and a well run family enterprise is run to endure for the future – and this is an advantage in navigating and surviving a changing world. Carlock & Ward When Family Businesses are Best, 2010

7. Some family businesses WalmartLVMH AIGNY Times Ford General Dynamics CargillDisney Levi Fidelity BMW Fiat BombardierSainsbury MotorolaViacom

8. FAMILY & BUSINESS GOVERNANCE

9. Owners Management Family The Three Circle Model Senior Management Family Council Family Assembly Board of Directors

10. Nuclear Family Multi- Generational Family Network of Families The Developmental Stages of the Family System

11. Family E Family A Family E Family H Family J Family Enterprise Family C Family B Family D Family X Family Z The Complex Family Network

12. The Family Governance Structure How to Organize Complexity  Provide system for coordinated member involvement in decisions and activities that effect their lives  Provide possibilities for meaningful participation  Is essential for sustaining the family ’ s legacy and unity  Calls for a willing devolution, delegation and decentralization of authority

13. Management Shareholders’ Assembly Family Council Education Committee Redemption Fund Family Foundation Family Office Governance Career Planning Committee CEO Board of Directors Family Assembly Venture Capital Fund Family Governance Business Governance Family Reunions Governance Structure for a Complex Family Enterprise

14. The Board of Directors in the family enterprise  Protect shareholder interests / Set Policy / Big Picture / CEO & Mgt performance  Guarding decisiveness  Overseeing family involvement in the business

15. TRENDS IN FAMILY OFFICES

16. Challenges for Family Offices Regulatory & Legal Service ModelCosts and Management  Registration – to be or not  Multiple national/residency  US Persons  Political risks  Licensing agreements / weak governance make IPOs challenging  Divorce  Confidentiality  Consensus on goals of family legacy  Generational preparedness  Generational shift  Mixed ownership and mgt  Need for number of specialist advisors  Strategic alliances  Compliance costs $$  Financial providers doing less / charging more  Access to funds (theoretical and actual)  Secrecy and communications  Advisors  Predicting and managing risk is key!

17. Latest trends in Family Investing  New investment regions (Asia, Latin America, NAmerica) both directions  Direct ownership, private equity and real estate is back!  Co-investing (German families are sought after partners)  Investment management – rethinking: in-house, outsourcing, diversifying  Financing and other needs through alliances

18. Concluding thoughts Family owned enterprise is an enduring and effective business model (stewardship trumps short-termism) Family offices can help families transition to more professionalism in their owned businesses (inherent negatives can be managed out) Advisors play an important role in helping families incorporate governance into family systems (STEP Business Families Special Interest Group)

19. Questions

20. Disclaimer HSBC Private Bank is the brand name for the principal private banking and trust business of the HSBC Group. HSBC Bank Bermuda Limited is licensed to conduct Banking and Investment Business by the Bermuda Monetary Authority. Bermuda Trust Company Limited and HSBC International Trustee Limited, Bermuda branch, are licensed to conduct Trust business by the Bermuda Monetary Authority.