Notes On The Family As Long-Lived Institution

I’ve been doing some thinking about the family as an institution, especially from the standpoints of ideal strategy for a person planning a family and as a social cure to the economic and cultural problems we witness today. I wanted a place to put my notes as I think through these things. This post, or at least the ideas, is by no means complete or comprehensive on the subject and it only captures some of my thinking as it stands right now.

The Family As Brand

A family is a brand and historically it may have been the first brand concept in existence. Families have names and reputations. They have traditions and certain values that are esteemed or deplored and transmitted through space and time across generations. The members of a family may specialize economically, socially or intellectually and develop a reputation for this specialization. The reputation of the family helps to reduce uncertainty for other individuals, families or institutions interacting with the family in knowing what to expect (of course, this reputation could become a weight around the neck of a genetic or otherwise outlier family member who doesn’t fit the mould).

Old families, especially noble or aristocratic families, took the concept of family branding in an explicit direction by adopting a logo, or symbol, of the house, by adopting familiars or animal associations which connoted the spirit or key characteristics of the house (ie, the lion as a symbol of courage or adventure), certain colors and even words or mottos which might today be thought of as the “brand promise”. Certain families which were especially grand came to be known not by their name, but by their property, or by an assumed name that better represented their stature and ambitions.

Rational Family Planning Strategy

Family planning can be done rationally and purposefully, or it can be done irrationally or at random. A rational, purposeful family plan starts with a goal for the family and the goal is associated with a long-term vision or plan. An irrational, at random family plan adopts an attitude of mystery and powerlessness in the face of fate and lets the chips fall where they may. The family isn’t going anywhere necessarily and no special effort is put in place to help direct the family and its energies as a result.

The family plan could be malevolent, but I will excuse that possibility here and focus on a beneficial arrangement. The family plan must include peaceful parenting as part of the framework for developing a long-term cooperative effort. What is peaceful parenting? One way to think of it is parenting without any behaviors you would find would be ridiculous, illegal or mean-spirited when used with an adult– no hitting or physical intimidation, no badmouthing or emotional manipulation, no threats or use of coercion of any kind. In positive terms, it is an approach based on negotiation, empathy, respect for differing needs, communication around means and ends and a willingness to hear and be heard. A peaceful parent models the values of the family plan so they can “be the change” they want to see in their child and in the world; they get buy-in and cooperation on the shared goals of the family plan by explaining their merits and value to all, rather than creating arbitrary strictures and enforcing them with overwhelming parental control.

I’ve outlined our parenting philosophy in an earlier post: to help our children achieve physical, emotional, intellectual and financial independence and to model the value of interdependence. A friend who also blogs about parenting is quick to warn of the “bird parent phenomenon”– prepare kids for life, then push them out of the nest and hope they can fly on their own. As she says, we’re not birds, we’re apes, and apes live in connected troops that are typically multi-generational. And this is true, too. That is the interdependence idea, with luck we will have provided compelling reasons for our children to remain close or even continue to live life together with us as they grow older and even have their own family. Pure independence would be bird parenting, which is not ideal but does contain the merit of giving our children what they need to soar on their own, should they choose to do so. What we definitely don’t want to do is develop a dependence model– bee parenting, where the children are mindless drones for the queen parent(s) and live to serve them and, if not them, than someone else, but never themselves.

What then is the role and purpose of education within this family framework? A great deal of it is still about classic learning such as reading, writing and arithmetic, the simple tools that people need to be able to think for themselves and be self-directed learners capable of researching ideas that interest them as deeply as they would like. Another part of it, missing from public education in this country in large part (and for good reason, at least as far as that system is concerned) is self-knowledge, thinking about things like “Who am I?” “What do I want? What is important to me?” and “What do I want to do with my life?” Ideally, this all happens within the meaningful context of the family, which means that an even bigger part of education is about the family, its values, its legacy and history and its assets and accumulated wealth and the opportunities that come with them. A family education involves “coming along to life”, learning what the family does and how it does it and why it does it to provide itself with the things it has. At age/development appropriate times, it will include “job shadowing” and then apprenticeship within family economic activities. It also involves a specific approach for parents and other elders or existing family members in how they structure their time and responsibilities so they can be around children and share with them about what is going on!

Assuming a family is functional and manages to acquire assets over time through low time preference and thrift, the succeeding generations of the family will have to contend with a growing inheritance. This means they’ll have to learn specific habits and ways of life and acquire certain knowledge and responsibilities that those before them didn’t need and had no reason to think about. This means the family needs a meta-process for contending with the inheritance and learning to manage it through increasing size and complexity, especially as the potential number of inheritors grows over time as well! Children in each new generation of the family will need to receive instruction, from a very young age, about the family assets, how to grow them and how to manage them as well as ways to benefit from and enjoy their ownership.

And assets must be managed and controlled by someone, so while the children are immature and learning the ropes it is up to the adults to take care of these things. But in time, the adults become the elders, the children become the adults and the next generation of children arrives. A rational family plan accepts this cycle as a necessary part of family life and makes arrangements ahead of time to effect smooth transitions in the ownership and control of family assets from generation to generation. I’m not talking about tax planning here (which I believe in some ways is a futile exercise with no free lunch), but rather the idea of allowing for a financially secure retirement for the elders, complete with a transition in their identity and personal activities which is not disruptive to their enjoyment and fulfillment in life, combined with a “rising” of the next generation to true adult responsibility in having primary control and influence over the next stage in the family’s wealth plan. This next generation might continue the existing growth strategy, or transform the assets by selling them and then buying into a new concern (or starting one up)– these decisions are context dependent.

Here are some other long-term family planning considerations: marriage, genetic optimization, nutrition and fitness, generation of intellectual/human capital

Role of the Family As An Economic Unit

If we think of a family as an economic unit, we can draw parallels in the “life cycle” of the family economically that is similar to that of business organizations. Business organizations experience predictable stages of growth and decline– start-up, high growth phase, slow growth phase, plateau and decline (or, for the more agile, transformative innovation, which is the transition between decline and start-up that skips the end point of death). A family’s economic legacy has similar stages– pioneering, empire building, consolidation and reinvention. The pioneers are the early ancestors who first take a gamble on an interesting economic opportunity with long-run potential and begin accumulating assets. The next generation, if properly instructed, can take the seeds of this early effort and expand it rapidly as they build out an empire and come to dominate an industry or economic niche. The subsequent generation inherits substantial wealth and also substantial risk, namely, has the empire-building generation been successful in instructing them in the ways and means of managing this empire so that they’re up to the task? There usually is not a lot of low-hanging fruit available to continue the growth strategy, the name of the game at this point is consolidating gains and holding on to them. By the fourth generation, risk must be transformed. The growth that can be had, has been had, and the horizon is sloping downward, perhaps rapidly. It’s time for the family to make the hard decision of divesting themselves from the economic circumstances that initially founded their fortune to “go mobile” and pioneer once more by transforming their assets into a different industry or start-up venture. The difference this time is that these pioneers have three to four generations of know-how and human capital behind them that their earlier ancestors did not, which will hopefully prove to be an impressive competitive advantage.

The key concept for the family to master at each stage and through each generation is the discipline of accumulating savings by living below one’s means. For the pioneers, this is obvious, as there is no back-up plan and no rainy day fund save what they can provide for themselves, and being a new risk they must provide their own capital to grow as they will have trouble convincing third parties to participate. For the empire builders, a new risk presents itself, that of the temptation to live flashily and show off, but being so proximate to the pioneers it is likely they will have a deep and fond respect for the frugal habits of their forebears. In the consolidation phase, savings and capital seem so hyperabundant it can be difficult for this generation to understand the meaning and importance of continuing to save. Any time the family entity has required capital to operate, there has been plenty, so why worry too much about this? The innovative generation must be intimately aware of the importance of safeguarding capital and the productive value of its assets, as they won’t be worth anything when they hope to sell them if they’re not careful, and they learn a new appreciation for cash and the optionality it allows in planning family economic strategy into the future.

Within this inter-generational framework of family asset management we can see a unique opportunity for family members to participate as meaningful apprenticeships as they transition from dependent children to independent or interdependent adults contributing to the growth of family assets. The need or desire to gain formal educations and interview for skill-building career opportunities in outside organizations is minimized; the family can be not only a high-quality hiring pool for workers and managers in the family business, but also a source of that training opportunity.

And over time, the close alignment of multiple generations of the family with a particular enterprise and its needed specializations in thinking and experience mean that the business will leave its mark on the family and vice versa. Just as the family might develop a reputation for certain virtues such as “truth” or “loyalty” or “consistency”, it might also develop a reputation for industrial or professional excellence, “the best factory managers there are”, “strategic thinkers without comparison”, “the most knowledgeable people in the food service business”. Reciprocally, the industry might leave an imprint on the family name, “When you see ‘Jones’ on the building, you know they’re developing quality inside.”

Some fear to admit this, but all businesses are like families. In fact, many careerists expect that in giving to their company, their company will give back to them, much like a family, by being concerned for their well-being, providing benefits if they get sick or fall on hard times, and by allowing them interesting new opportunities as they gain in experience and skill over time. The difference is that some businesses pretend at being a family while remaining “faceless corporations” with fairly anonymous employees and rotating, mercenary managers who run the company, while other businesses really are families because they’re owned and operated (and in part, staffed) by them. Many are not fortunate enough to have a family in business, so they’re forced to go looking for another “family” to join when their career starts. Wouldn’t it be better if you could save yourself the trouble and get working where your family is?

In fact, a family running a high-quality, growing organization is going to attract to it just those kinds of people who really want a “home” and a family to be a part of and this is where the idea of a lieutenant, or adopted family member, comes into play. With trust and special contribution, business families might find some people in their organizations growing so close that they come to be seen as junior-family members– they may not be blood, but the level of concern for their comfort and well-being is nearly identical. There are some real benefits to be had, especially with regards to counteracting the mercenary mindset. If a person can achieve junior-family member status, they have a strong incentive to align their actions and conceptions of well-being with that of the family in a mutually beneficial arrangement.

This is probably one of the primary reasons why corporate governance would be expected to be superior under family owner-operators versus a diversified base of small shareholders with an elected board of representatives to oversee professional managers. There are deep-rooted agency problems with the traditional public company governance model, where shareholders don’t have a meaningful stake in the company to have any control or influence over its management, nor real concern for its long-run prospects. It’s always easier to sell and pass the problem off to someone else than to take an organized stand, similar to the problems of democratic political systems. The boards become captured by the managers, just like governments become captured by special interests. The end result is chaos, short-termism and relative instability and insecurity for all involved. Family-based owner-operator management can remedy all of this: concentrated ownership creates unity of strategic vision and needs, especially within the framework of multi-generational planning; the unification of owner demands and management representation ensure the vision will be clearly articulated and enforced, with severe consequences for managers who go rogue; and the lieutenant network or junior-family member approach increases the likelihood that managers can better align their sense of well-being with the family’s and by extension, the company’s.

Revival of the Family as an Alternative to Failed State Institutions

It’s obvious to any objective observer that the modern state has failed in virtually every arena it is presently engaged. Of particular concern to those without security are the failures of the modern state in providing welfare and what is termed the “social safety net” to those who are needy. The revival of the family as an alternative to these failed institutions is not only a perfect answer, it’s the only answer. The State can not provide individuals with comfort and security without first taking it from other individuals, particularly individuals composed as families (for example, the inheritance tax). The charity which the State might provide is derived from the family in the first place. Family should care for its own and must care for its own instead of placing this burden upon “society” with all the terrible social engineering temptations that come with it once politicians get involved in these schemes. And to be in a position to provide these welfare benefits to its members, families must rediscover the art of purposeful planning of their activities and legacies.

We hear of scions of old who were the institutional members of their communities: the Carnegies, the Rockefellers, the Mellons and so on. Families must reclaim this institutional identity and seek to be the pillars of their own communities. They must build the resources and create the organizations needed to address the challenges specific to the places they live. Families should provide education to their members and the people in their communities, not the State. When there is a social problem, families should get involved to address it, rather than calling for a new law or government program which inevitably they will finance but they will not control. Families, as owners of land and other local resources, should determine land use patterns, not government bureaucracies. And families should be developing the skills and experiences amongst their members necessary to build and develop local businesses and economic entities, rather than raising their children up just to send them away to join somebody else’s. Families can even be in the business of arbitration and peacefully resolving disputes which might arise in the community. This is another way in which reputations and specializations within families can be instrumental in adding value to communities.

Avoiding Common Family Problems

In the future, it will be useful to explore some common social risks associated with families and family management of social institutions, such as:

• The risk of nepotism
• The risk of degeneracy
• The risk of mutual hatred
• The risk of incompetence/disability