“Our family has always been rich, and we’ve sometimes had money.”
Introduction
It’s easy for people to focus on money as the most important or most obvious sign of wealth for an individual or family. But because families are multi-generational enterprises, they require several other forms of wealth to be developed and grown over time to sustain or enhance financial wealth; more importantly, even without significant financial wealth, a family that builds the other four forms of capital will feel quite “rich” regardless, as the quote at the top of these notes suggest.
Therefore, to consider complete family wealth, there are really five forms of capital, four qualitative and one quantitative:
- Qualitative capital
- Human
- Genetics
- Physical well-being
- Emotional well-being
- Individuality
- Intellectual
- Knowledge
- Wisdom
- Education
- Experience
- Social
- Reputation
- Relationships
- Network
- Community
- Spiritual
- Purpose
- Meaning
- Legacy
- Human
- Quantitative capital
- Financial
- Property
- Resources
- Cash flow
- Equity
- Financial
Exploring family wealth
Wealth preservation is a dynamic process. Each generation of the family must adopt a wealth-creating mindset. Any family whose complete wealth is simply maintaining value rather than growing is either in or in danger of entering into a state of decay or entropy. (The biological truism of “You’re either growing, or dying” applied to the family wealth.)
An important principle of human capital is the connection between meaningful work and an individual’s sense of self-worth, a concept explored deeply in the child development theories of Maria Montessori. There is a difference between well-paid, highly-compensated or financially remunerative work and MEANINGFUL work. The former may or may not build human capital while supplying financial resources to the individual or family, but the latter most definitely is necessary for an individual to fully exercise and express their self through a positive impact on the world around them. Healthy families are characterized by all able-bodied, adult members having some kind of meaningful work that they apply themselves to, whether it is in the family business enterprise or outside of it. And one thing a wealthy family can do for its members is to support each person finding and achieving meaningful work.
Thinking of intellectual capital, families are able to leverage the experience and know-how of other members when they provide a means for the collection and dissemination of the accumulated knowledge of family members. Much of this happens over time in an informal sense via family story-telling, a series of parables and life lessons the family has gained through trial and experience. But it can also happen formally through mentoring, tutoring or developing a “Wisdom Book” within the family, where the most important proprietary knowledge and know-how is gathered and documented in one place.
Becoming myopically focused on financial capital is risky for families because it’s unlikely that most family members can make equal financial contributions, particularly with regard to a founding, risk-taking/entrepreneur generation that created the family’s financial capital initially. Defining success in financial terms can create a sense of not being good enough. This leads to a lack of motivation and ultimately becomes a problem for the family’s long-term financial stability. Long-term success depends upon helping family members talk productively about money with each other.
Many families develop budgets for administering the preservation and growth of their financial capital. But if complete wealth is about four other forms of capital that are not financial in nature, wouldn’t it be an interesting exercise to develop a budget for the preservation and growth of non-financial family capital? If you had a budget and could compare spending across capital categories, what would that comparison say about the relative importance of the five forms of capital in your family’s life?
The family enterprise
Families who flourish over time understand themselves as families of affinity. A family of affinity does not limit its sense of identity to blood or genetic lineage. It sees itself as linked by a common mission and sense of “differentness” from other people who don’t share affinities for the family values.
Based upon extensive research and experience, there appear to be seven key aspects to long-term flourishing for family enterprises (ie, the business and the family as an enterprise):
- Early on the fundamental intention is set to build a great family, not just a great business
- These families articulate and share their core values amongst themselves and with others, through example, education and discussion
- These families respect and encourage individual differences and encourage and support each member in achieving their unique dreams
- They keep their collective focus on their strengths, even when facing challenges
- They share history with story-telling that is told and re-told through the generations, creating a reputation and tradition for each person to live up to and contribute to
- Parents see themselves as teachers AND learners
- These families understand the importance of individual stages of development and integrate that into their understanding of parenting
The Three Circle Model
The three main parts of any family enterprise are family, owners and management. Family is the family of affinity. Owners include all those who own title to family capital. Management can include the managers of family-controlled businesses but also advisors and administrators of the larger family enterprise.
Each circle has its own priority. For family, the priority is inclusion. For owners, it is preservation. For managers it is performance. Trouble arises when when circle dominates the others in terms of priority. That being said, for long-term success, the family circle should be larger than the other two, not smaller, in terms of importance and priority of resources and effort.
The ownership circle is about taking ownership in the sense of taking responsibility. Passive ownership leads to paternalism. Managing risk is a complex discipline that all owners must undertake. It’s important that all family owners, whether they’re actively involved in a family business or not, learn how to manage risk to avoid becoming paralyzed by overestimating risk to avoid making mistakes.
Family owners must possess a basic understanding of systems theory, leadership science, the process of leadership transitions and methods for assessing the health of the enterprise and the performance of management. Family owners must communicate with each other and truly listen to each other, to develop their dreams for the enterprise as it evolves beyond the dream of the founder or creator generation.
A family enterprise faces just a few, critical transitions to manage in each generation, and no short-term transactions are likely to make a comparable difference in the enterprises’s success or failure. Thus, it is key to develop an understanding of what is truly critical as far as the strategy of the enterprise and what is merely ancillary or operational in nature. Family owners’ prime responsibility is to keep their focus, with a beginner’s mind, on the strategic level and not succumb to tactical thinking appropriate to short-term problems. The strategic question is not just how to preserve the family’s complete wealth but how to grow it.
Time should be measured by the generation. Short-term for a family is 20 years, intermediate-term is 50 years and long-term is 100 years or more. Abandoning a process too soon, because it seems too hard, is the most common reason that endeavors fail. Successful families over the long-term must decide to continue the process of strategically developing the family’s complete wealth literally for all generations to come.
It takes courage to plant a tree that takes 150 years to mature, like the Copper Beech Tree. No one who does so will ever see it full grown. Does that mean they’re not worth planting?
A Summary of Principles
Summarizing some of the information above, here are 6 key principles of growing complete family wealth:
- Preservation of complete family wealth is a question of human behavior– what does each family member choose to do, in relation to the family, and why?
- The most fundamental assets of a family are not its financial resources but its individual members and their health and capabilities.
- The complete wealth of a family includes the human, intellectual, social and spiritual capitals of its members. The family’s financial capital is a tool to support the growth of its human, intellectual, social and spiritual capitals.
- To preserve its complete wealth successfully, a family must form a social compact amongst its members that reflects its shared values, and each generation must reaffirm and readopt that social compact.
- To preserve its complete wealth successfully, a family must agree to create a system of representative governance through which it actively practices its values. Each generation must reaffirm its participation in that system of governance.
- The mission of family governance must be the enhancement of the pursuit of happiness of each individual family member. This pursuit will enhance the whole family and further the long-term preservation of the family’s complete wealth.
The Rising Generation
If you are a member of the rising generation in a family, you hold the keys to the family’s true wealth.
Individuation occurs over time through a multi-stage life development process:
- Infant, trust vs. mistrust
- Toddler, autonomy vs. shame and doubt
- Preschooler, initiative vs. guilty
- School-Age Child, industry vs. inferiority
- Adolescent, identity vs. role confusion
- Young Adult, intimacy vs. isolation
- Middle-Age Adult, generativity vs. stagnation
- Older Adult, integrity vs. despair
The real cause of entitlement is failure of the rising generation to individuate. The core of entitlement is failing to see yourself as a capable, independent person.
Rising is a life’s work.
The Four Cs:
- Control, vs. powerlessness
- Commitment, vs. alienation
- Challenge, vs. threat
- Community, vs. isolation
Parents
Every true gift carries spirit. True gifts promote the growth and freedom of both giver and recipient. Transfers lack spirit and tend to breed resentment in both parties. That spirit of the gift requires communication to give it voice.
Trustees and Beneficiaries
The combination of the trust wave (generation skipping) and this feeling of burdensomeness accelerates families’ entropy, dissolving their human and financial capital with great speed. The factors behind this decline are emotional and relational, not legal or financial. The response must be similar.
Trust creators find ways to make sure that the trust documents reflect the spirit of their gifts. These may include writing a letter of wishes to the trustee, including a preface to the trust, composing an “ethical will” to accompany the trust, or writing a personal summary or other precatory language. It may mean something as simple as thinking seriously about the name of the trust, rather than simply affixing a family name along with some legalese.
The ultimate purpose of a trust is to make distributions to the beneficiary. If there is any way by which trusts are going to become blessings rather than burdens, it is going to be through a thoughtful and proactive distribution function. It must be the primary intention from the beginning of the trust.
The human trustscape achieves “control without ownership.”
Friends
There are three types of friends:
- Friends of utility
- Friends of pleasure
- Friends of virtue
Character
What law and custom truly shape is character, the character of individuals and family.
Work
Meaningful work involves serving something larger than yourself through the application of your signature strengths and virtues. Doing meaningful work requires identifying your signature strengths and virtues.
Play might just be the most serious thing in human life.
The Family Executive Summary
The most important activity to begin with is reflection: intentions, culture and the development of your family enterprise. Reflection requires some sort of translation to result in action.
Family Meetings
Every family that succeeds over multiple generations makes some use of family meetings.
Family Stories and Rituals
A family that hopes to preserve its complete family wealth over time must learn to keep its stories alive. That is the only way the family itself will continue.
Some prompts for thinking about family stories:
- Who is someone that played a significant role in your life? How did this person shape your life, perspectives and values?
- What are some of the important lessons you have learned in your life?
- Reflecting on your past, which of your accomplishments do you find the most gratifying and are you most proud of?
- What has been your greatest challenge thus far? What did you learn from this experience?
- Which of your stories, values and beliefs would you most like to maintain and pass on to future generations?
Many families preserve stories of failures, crises or disasters. These stories teach themes of resilience and perseverance.
A House Rises 