When a G1 (first generation) wealth creator has a business or an activity that they are proud of, and have a dream for its future, the most common mistake they make is to assume that everyone else will have that dream too. In particular their children. Some of the worst tragedies that I have witnessed are the G2 (second generation) children living their lives in pursuit of a G1 dream that is not their own out of obligation.
One example was the grandson of a founding Auckland father who had for over 20 years run his grandparents business. During his tenure he did not grow it at all, it quietly ran down. He came to me and he said…
“I just can’t go into the office anymore, I even struggle to get out of bed, and it is more exciting to watch the rain drops run down the window than facing another minute in the business.”
In his case, he had made the decision not to run the business while his father was still alive. He had his own dream and he had even started down the path of living his own dream. When his father died suddenly his mum said “Come in and run it for a couple of months.” That was two decades earlier. Such is the pressure of family and legacy.
Another grandson was convinced by his father that the family dynasty was all his to run. The grandson became my client while the business was on its way from greatness to mediocrity. The grandson believed that his father’s dream was his own. He was not as passionate about the business as his forebears. The business to him was simply an economic instrument. He did all the right things, he appointed a CEO, also a good capable guy, he retreated to being on the board with some of his own children, and a group of ‘professional’ directors. The business lost its way in terms of leadership, as well as vison. The grandson did not have his forebear’s passion, he had his own supressed dreams.
In both cases there was no choice but to sell these companies for what we could, to free these people from the dissatisfaction of living other people’s dreams.
There are some good examples however as well. In one of our client groups G1 actively brought their children into the business while they were still actively involved themselves. The children worked in all aspects of the business to find that which they enjoyed. G1 grew the skill and value sets of the children. They also brought some of the employees into the fold in various aspects of the business. The children embraced the families vison, valued the G1 employees and support crew and now G2 are running an even larger enterprise than that run by their parents. What makes this case so compelling is that it involved three families where the G1 team had been partners for over 30 years and the children of two of those families now run the business with the trust and confidence of all three families. Sometimes it is useful to redefine ‘family’ beyond simple bloodlines and marriages. In the words of one of my enterprise partners, “We are whanau.”
Retain the Duchy or commence the journey to serfdom?
The common dilemma with substantial wealth is the decision between trying to keep the critical mass together and dividing it up. Dividing it up, as in feudal times takes a Duke to a crofter, within a few generations.
Keeping it together still requires a driver, and the bigger the family gets the more hieratical it becomes with some being in the driving seat and some being passengers. Inevitably when it is kept together someone in the family has to run it, and the rest of the family simply receive distributions. Power, information and opportunity becomes unequally held.
Over time this can lead to resentment as some in the family have more power than others. Those with power resent the ‘tit sucking trust fund kids’ who do nothing. Those who have been disempowered resent those that have been favoured with power and control. These resentments often boil over and the family enterprise becomes dysfunctional and the wealth gets broken up and dissipated.
There are many public stories of this type of dysfunction. Few of success. Probably because success rarely gets exposure to sunlight. Perhaps because those who experience success don’t require external validation and better stories come from dysfunction and dissatisfaction.
Having spent time around some wealthy families sorting out the economics left after the fights, and having observed their behaviours some elements are present in successful outcomes.
Focus on making your children independent in spirit. Try to get them to understand that no matter what they will be secure, and have choice. With this gift encourage them to discover selflessness and generosity to others. Without this the rest will be hard.
Listen to their dreams and encourage growth and experience. Expose them to what you have done and learnt, tell them your story.
Get the children involved early.
Introduce them to your networks and encourage them to make the best of those if they wish. Involve them if they wish in what you do. Let them see and understand what is important in each business. To be clear what they think is important, not what you think is important.
Identify and grow leadership.
If some of your children are willing to lead a combined family endeavour, remind them that the purpose of leadership is to get everyone to the end of the journey, and to treat their followers with fairness, respect and understanding. Teach these children business leadership skills, and more importantly the skills of governance. Remind them that governance’s purpose is to…
“Run an enterprise knowing that those who are not making decisions around the table with you are utterly dependant on the quality of the decisions you make.”
With your remaining children, try to get them to appreciate that staying part of a big pie will protect, secure and reward them better than having 100% of a smaller pie on their own.
Trust is everything. Nothing new in that!
The child or group that will run and govern the bigger pie, have to have the trust and respect of the others. Remind them that trust is hard earned and easily lost. Consistency and transparency is important. Absent that, the family endeavour will fail.
The rewards of staying together have to be measurable and tangible. Just as in business.
If all do not feel part of the whole, and trust the leadership and governance of the child leading the family enterprise, that child’s life will be a living hell of sibling snipping and resentment. Either the followers will force the dissolution of the enterprise, or the child leading it will. Life is too short.
Philanthropy… a grooming act or is it an acknowledgment of failure?
Some wealthy families give their children an allowance for charity. The aim is multifaceted but includes the aim of giving the child a sense of the scale of wealth while not allowing it for themselves. Prohibited cake. A hope is that the act of giving money always will teach selflessness. It doesn’t usually work.
In well-established families charity is often a core purpose and legacy.
“We make money so we can give it away.”
Thus a fundamental grooming act of the children is to understand the giving it away part, in order to understand the family legacy. I have found in most cases, two or three generations on, families struggle to understand this. If the G1 dream is to fund charities, it is unlikely that this dream will be shared by G2 and G3.
Charities can often become like the ‘tit sucking trust fund kids’, needy and demanding. Getting needy kids to admit more needy kids into the family, is often a struggle. The leaders in the family will probably be indifferent to a squawking fledging, be it a family or a charity, the noise is the same. The guilt trips they will have to endure are different however. Not bad training in itself if you want to really kill empathy in your family leaders.
Treat all your children equally on your death. I guarantee you, no matter how much is involved, do so, otherwise you’ll create a Sicilian blood feud that will last generations.
Make sure enough is distributed that the independence of spirit is able to be free to fly, so that each child has the choice to pursue their own dreams if they wish and on their own terms. Give them free will and choice. It will make it easier to leave the surplus wealth in a joint pot.
If you have critical mass of wealth beyond the reasonable needs of your children to achieve freedom, what do you do? Distribute the lot and divide up the estate into smaller sub critical mass units or keep it together? How do you decide how much is enough, what would your children say if you asked them? Have the conversation.
If having asked them you find that you have more than enough to allow your children to achieve freedom and choice, treat the surplus with responsibility, and treat its possession as a privilege.
If you have obtained wealth through business, remember the lessons of business and governance in thinking about how to deal with an enterprise, which your family has become. Who among your children will take this responsibility, and if none of them how will the governance processes work? Power and responsibility rarely devolve equally but it does have to devolve and extreme care and preparation is essential.
For many, when faced with the fear of ruining their children’s lives through wealth that they are unprepared for, or facing the trauma of continuing without leadership from a family member, choose charity or charitable trust structures to alienate their wealth from the family. This usually just creates resentment of the G1 by G2 through to G infinity. If your legacy is the memories you leave behind taking the chocolate cake away and leaving a permanent reminder of the deprivation is a sure fire way to impact your memory legacy. By the way some are not too concerned about this, it is their conscious and planned purpose.
Some also choose to skip a generation and drop wealth and control down to grandchildren. Without procuring your own children’s agreement to this, you will drive a wedge between your children and their own children that will struggle to heal. Just as it is your responsibility to parent your own children, it is your children’s responsibility to parent their children, don’t interfere with that, it will be resented. Perhaps when considering this you should reflect that this is the ultimate acknowledgement of your own failings, and this is the most charitable interpretation your children can put on such an act.
If you have failed in the preparation of your family, keep it simple throw the lot at them equally and let them sink or swim, Darwinism at its finest. You will still be resented for not preparing them especially if they lose the lot, which mostly they will.
Help is out there.
The final act of the baby boomer generation, is to preside over the largest passing of wealth in human history. They are the wealthiest generation in history. The next few years is both a threat and an opportunity as to how our society will look over the next 50 years if this transition occurs without planning and purpose.
GS is actively participating in building a community around this issue, a tribe of professionals wealthy in their own right. Over the next few issues we will introduce them to you, and they will also contribute to this series, on wealth.
Better to have a plan and good preparation if you want any dream at all to flourish.