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How Can You Engage Your Children in the Management of Your Family Wealth or Business?

By Dennis T. Jaffe

After building a successful business, founders often shift to concern about passing it on to their “rising” generation heirs. How will the family wealth affect them? Will it derail them from becoming productive and fulfilled individuals, creating their own families and their own success? Since the wealth creators generally did not grow up with such family wealth, they often fear the worst, perhaps with a twinge of envy for their children’s good fortune.

Their concerns usually focus on how to prepare their children for wealth.

They ask:

• How much should I give them, and when?
• How can I prevent them from feeling entitled and unproductive?
• When should I tell them about how much wealth we have?

These questions do not have answers, but if they did, the answers would not help you with the core problem – how to use your family resources that you have so proudly acquired in wise and useful ways? These are questions of values that must be explored, rather than technical queries that a professional can answer for a family.

To deal with these concerns, you must first look at the assumptions you are making about your children. You may assume that, as parents, wealth distribution is something you can and should decide, and, if you created the wealth, you may conclude that it is your money to give. But you should consider how these assumptions will affect your children. Your children, growing up in the world of wealth, might be shocked to learn that the family wealth is separate from them. The potential for miscommunication about what is fair and reasonable is significant.

Another issue is who actually makes these decisions. It is perfectly appropriate for parents to make decisions for young children, but as they reach adult- hood, when do you stop acting unilaterally and start exploring possibilities and choices with them? You might then reconsider some of your assumptions and consider that the future of the family’s wealth and resources, which your children have now grown up with, is a shared dilemma for everyone to consider. That is not to say that everyone has an equal vote, but nevertheless, everyone should have some input.

As a family advisor, when a parent asks me these questions about “How much?” and “When?,” my first response is, “What do your children have to say about all this?” What sort of discussions has the family had together and what have you already said or hinted at? Some families have never talked about any of these things! As a result, these parents have no idea what their children know, expect, or assume about the family wealth. Parents’ anxiety about listening to their children leads them to avoid the conversation entirely. Such parents are in for some surprises when they begin to open this for discussion.

Although the parents fear the worst – that their children expect to inherit enough wealth so that they don’t have to do anything – they may find that their children are also concerned about the future and have responsible and thoughtful ideas about what they want and what would be helpful to them. Your children can be partners in the inquiry, rather than passive spectators about things that affect their future choices and opportunities.

Paul Schervish, who has been researching the effects of wealth on families for many years (and who has an essay in this collection), defines the dilemma this way:

Especially for the entrepreneurially wealthy – but for those with family wealth as well – the quandary is how to teach their children the responsibilities of wealth while also providing for their needs. Having gone through hard times, they do not want their children to face the same insecurities … they furnish a life of affluence for their children while at the same time attempt- ing to instill frugality, humility, and responsibility … the problem is that once he chose an affluent neighborhood in which to live, his children automatically became exposed to an environment that threatens to make them materialistic.

Wisdom of 100-Year Families of Wealth

Over the past five years I have been interviewing “generative” families around the world who have sustained family wealth or a family enterprise across more than three generations. One major finding is that these families have made a clear decision that in order to develop a successful rising generation, they have to invest family resources not just in sustaining their financial wealth, but in developing the skills and capability of each new generation. It is too important; they can’t leave it to chance. All these families have some form of regular family meetings, and actively engage members of the new generation, from early in their lives, in discussions of expectations, values, and responsibilities for what is important to the family.

Members of each generation may have different assumptions about what is fair and reasonable about the future of family wealth, but each generation may also fear upsetting or challenging the other, leading to a state of mutual avoidance. In many cases, the younger generation has grown up with family wealth. They are concerned with what they can expect for the future and how to discover and pursue their life paths. They often live in the shadow of highly successful and famous parents and wonder what they can do that is significant. Their parents, who have humble roots and often struggled, do not really under- stand their children’s concerns. How can this communication gap be bridged? Different family members grow up with strong and deeply held notions of what would be fair and reasonable. These views are held and often do not sur- face until someone does something that goes against their sense of fairness. The generative families in our study, in contrast, found ways to define for each generation what they feel is fair about family resources. The family defines, sometimes when children are very young, rules and policies about fairness that the rising generation are expected to live by. The two generations then trust each other because they know what they can expect and depend upon from each other.

From the example of families that have succeeded in passing their wealth along with responsibility to their children for two generations or more, we learned that “generative” families worked together to develop and prepare their new generations in four ways, as shown in Figure 35.1.

Connection

They set regular times to engage their children about the challenges of the future. These meetings and discussions often begin when children are very young. These families set aside times for discussions about what it means to be a family with significant wealth and resources. The elders share the hopes, dreams, values, and principles they expect, but they were also willing to listen to the concerns, ideas, and needs of their children. Each generation learns to listen to the other and learns that family policies and practices are to be developed together.

Transparency

They were transparent in sharing the nature of the family business and family wealth, teaching their children about what they did. They talked about their business (in appropriate detail for the ages of their children) and what was needed for the future. They fostered an atmosphere of openness. Family “enterprises,” even if they are a family investment office or a family foundation, are talked about, visited, and explained to the rising generation. Questions are entertained, and family members are able, even expected, to be familiar with what the family does.

Capability

They offered resources for their children to be mentored and develop financial and business skills, no matter what they wanted to do with their lives. They realized that having significant wealth meant that their children had to have skills to oversee and manage what they would inherit and encouraged them to seek help and develop themselves. They want all their children, and their new spouses, to be informed and responsible for sustaining the family resources. To be responsible, however, means that family members must learn financial stewardship skills that other young people do not. They offered opportunities for family members to learn about family enterprise and meet and learn from other families. They have formal and informal educational and learning opportunities for young family members to learn together.

Commitment

They offered their children the choice to become involved in family enterprises in many ways. Although a small number of rising generation family members might become operational leaders of family enterprises, all of the next generation could expect to share ownership and there were many ways that they could become involved in supporting the family. They realize that roles in the family enterprise are not all or nothing, nor are they one-time choices. A family member can pursue a professional career, or be an artist, and still participate in family governance or board roles. Ownership is a responsibility, not an entitlement, and they educate and develop family members to become active in overseeing the family enterprises.

Figure 35.1 Preparing the Next Generation

Convening a Family Meeting to Initiate Family Engagement

How does a family get started along this path? What if you have not taken the initiative to open the discussion, but your children want to talk and realize how important this is? Our research found that in many families, the initiative came from the younger generation themselves, who initiated communication with their parents about expectations. They say to their parents, who may be avoid- ing it, “We need to talk.” Of course, they bring this topic up with sensitivity and respect. In other families, advisors introduce cross-generational communication, and they help them set up the initial family meeting.

Families hear about family councils and governance documents like a family constitution. At the most basic level, the engagement of the rising generation often begins with a cross-generational family meeting about family wealth and the future. A single successful meeting can lead the family to decide that they should meet regularly, maybe twice a year. These regular meetings form an embryonic family council. Whether you meet regularly as your children grow up or begin when the rising generation is reaching adulthood and is concerned about the future, engagement begins when the family sets up a family meeting.

A family meeting is not just a regular family dinner or a Sunday visit. A family meeting is an organized discussion about a difficult topic. It is never easy for a family to talk about money. So the family meeting has to respect that this is not an ordinary conversation. A good family conversation across generations must feel comfortable and safe for everyone to speak up and be honest with each other.

Good Family Meetings Have Several Elements

Shared Agreement to Hold a Family Meeting

To hold a meeting, you need agreement from the elders of the family, who may be anxious or concerned, and dealing with their concerns by making them comfortable. You must decide what you will talk about and who should be invited. For example, would it be just blood family or include spouses; how old does a family member have to be to attend; what is expected of people who attend?

Design the Meeting and Create Clear Expectations for Everyone

The most important part of a family meeting is how you set it up and plan it. A small group (two or three people) representing each generation should be the planners. They should reach out to talk with family members about what they want, and then define a theme or big task, and craft an agenda so people know the purpose and what will be discussed. Sometimes it is agreed before- hand that there will be no decisions made in the meeting, so people can feel comfortable exploring ideas and being there as learners.

There may be discussion about who to invite – in-laws, and children of a certain age. Select a time and place where people can come and talk freely. The agenda should be written and give to everyone before the meeting. (If your family is large or there are a lot of difficult issues that might come up, you might want to work with an outside facilitator.)

Create a Safe Environment with Clear Ground Rules for Participation

A safe environment is one in which individuals feel comfortable being authentic, open, and taking risks to bring up conflicting or controversial perspectives. This is usually a place outside the homes and office.

The convener invites participation and openness to others’ perspectives as well as with his or her own perspectives, feelings, and reactions. In moving toward a safe environment, recognize that willingness to openly participate will increase as others believe that they will be supported for such behavior, rather than criticized, ridiculed, or otherwise censured. Safety is needed for people to build trust and meet.

At the start of a meeting, the group should define how they need to act to create a safe space for everyone to participate. Typical ground rules include:

• Listen respectfully: don’t interrupt.
• Focus on issues, not people or personalities.
• Leave titles outside the door: address each other as peers.
• Share feedback with consideration and kindness: avoid attacks.
• Use “I” statements; not “You” statements (for example, “I feel irritated and hurt when people interrupt me” rather than “You are being so nasty, interrupting me all the time.”)

Take Notes and Follow-up

The meeting is important for the family, and what was said should be remembered. It is important to keep notes. Notes can be made on flipcharts in the front of the room, so that people can keep track of ideas. After the meeting, the notes from the charts can be transcribed. If decisions are made or agreements are made, they should be carefully written down.

A list of action steps and who is responsible for them is also needed. This reinforces this is an ongoing process, and that the meeting has impact. Send notes and make sure action steps are carried out. Also plan for the next meeting and keep the process moving forward.

There are many steps along the path to create engagement across generations. Setting up dialogue across generations is an essential part of that path, and a first step to other activities that ensure that both generations are working together for a wonderful future for the family.

Questions for Further Reflection

1. What are some of the reasons a family avoids talking directly to members of the next generation about the future?
2. How can you create a positive motivation for family members to attend and participate in a family meeting?
3. What does each generation offer the other generation, and what does each generation want from the other? How can the family learn about these areas?