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A family's business achievement cannot be sustained without the personal commitment to create a great family. Preserving wealth and developing an empowered rising generation go hand in hand.
Merrill Center for Family WealthTM
A family's business achievement cannot be sustained without the personal commitment to create a great family. Preserving wealth and developing an empowered rising generation go hand in hand.
Based on research and case studies gathered in interviews with more than 70 family enterprises from across the world, the following five steps are a broad guide for empowering the rising generation in your family.1
Define the purpose of your wealth, your family values and your desired outcomes to clarify your current intention and allow enough flexibility to have the purpose evolve with each generation.
Engage the rising generation by seeking to understand their perspectives and sharing yours through a learning conversation.
Develop a plan to empower the rising generation by sharing a history of the family businesses and providing service xperiences and education on the opportunities and responsibilities of participating in the family enterprise.
Support individual family members in their pursuit of finding purpose in their lives and to actively design a plan for personal and career development.
Continue to foster a culture of excellence by committing time, energy and resources to collaboratively develop family governance, promote accountability and renew family bonds.
“You do not inherit a family business;
you borrow it from your grandchildren.”
—Hermes family fifth-generation heir
THE RISING GENERATION AND SUSTAINING WEALTH
Raising children to become productive members of society is a challenge that every family faces, but a wealthy family encounters additional challenges. The saying “to whom much is given, much is expected” captures the essence. How can families use wealth to provide opportunities without diminishing drive and undermining the potential of the rising generation?
Leveraging wealth to provide opportunities without diminishing drive is one the great challenges for legacy-driven, or generative families
Leveraging wealth to provide opportunities without diminishing drive is one of the greatest challenges for legacy-driven, or generative families. It is important for successful families to actively prepare their children and grandchildren for the time and attention required of growing and protecting wealth and assets, and using the opportunities they have been given to make positive contributions to the world. This type of preparedness will require more than good intentions or a trust that limits the recipient’s freedom of how funds may be used.
Generative families are anchored on two major achievements. First, they developed a successful business that created family wealth. Second, they committed resources, time and energy to building a family that both adapts over generations and has a strong sense of shared identity. The latter achievement is the focus of this paper. (For a more complex definition of generative families, see “Defining the Generative Family,” below.)
Sustaining wealth requires the development of different types of family capital.
Through analysis, research and case studies gathered in interviews with more than 70 family enterprises from across the world that have moved wealth into the third generation or beyond, this paper examines how family connectedness and wealth is built and sustained. It aims to understand what these families are doing to empower the rising generation.1
BUILDING FAMILY CAPITAL
Money, or financial capital, looms large in the life choices of a younger generation family member. Yet, sustaining wealth requires the development of different types of family capital beyond only financial:
Developing these types of family capital demands participation across the family spectrum. It is important that the many households that comprise the generative family work together—as a “tribe”—to create educational, service and personal development activities for the rising generation to collaborate and develop skills specific to upholding and promoting the future of the generative family.
DEFINING THE GENERATIVE FAMILY
A “generative family” in the Wise Counsel Research3 met three criteria:
Business or financial success. They created a successful business, or set of enterprises, with current annual revenues of more than $200 million, with the average family’s net worth more than double that (over $400 million).
Adaptability over generations. They successfully navigated at least two generational transitions, with control being passed to the third generation or later.
Shared family identity. They retain a shared connection, with practices and processes that sustained their values throughout an extended family.
While the wealth of individual families changing over time is relatively common, the existence of a connected multi-generational family acting as a single financial entity is highly unusual. But what helps enable generative families to continue is that they develop these tribal practices, where the rising generation does not just inherit wealth, it also contributes ideas and builds on the different types of capital.
THINKING THROUGH GENERATIONAL DIFFERENCES
Consider the cultural differences between those who create wealth and those who are born with it.
Many of the wealth creators interviewed came from modest circumstances and were “immigrants” to the experience and use of wealth. They remember what they had to do to achieve their wealth—work hard and stay driven. Their children and grandchildren, however, are often “natives” to wealth. It has always been part of their lives and they are aware that they did not create it, which may cause anxiety about what they would do if the wealth was not there.2
A practice for families is to develop and affirm the values and purpose of their wealth. It may have a strong impact if families can answer the question “What is our wealth for?” in a way that engages the members of the rising generation. Children are not expected to inherently understand the limits, value and purpose of wealth. A family can help its children by discussing shared core values, to both appreciate the opportunities created by wealth and understand the various obligations that come with it.
DESIRED CAPABILITIES IN THE RISING GENERATION
Legacy families have already created a thriving business and extensive wealth. Their expectations for their children are similarly broad and, from their accounts, the Wise Counsel Research3 generated a set of desired capabilities (“Cs”) that they strive to cultivate in the rising generation:
Character: ethical sensitivity
Competence/Capability: financial, governance/ownership and life skills
Commitment/Caring: stewardship, a productive part of family, a good partner
Connections/Community: building trust, personal commitment to family members
Collaboration/Compromise: ability to work together with consensus
Communication/Transparency: openly share information
Change-ability/Resilience: ability to adapt and change
Curiosity/Creativity: ability to seek out and discover possibilities
Often, adult children are expected to go off and “seek their fortune.” In a legacy family, the “fortune” and its benefits already exist, posing a challenge and an opportunity. To help provide character and skill-building opportunities, young family members are encouraged, and sometimes expected to, gain experience outside the family enterprise first. As Valerie Galinskaya, a Managing Director and Wealth Strategist at Merrill Center for Family Wealth™ notes, “explicitly defining and having a dialogue around the expectations for joining the family business is empowering for both the senior and rising generations.” Many families believe that the rising generation should demonstrate capacity independently before they join the family business. Often, they establish a requirement for a minimum number of years outside work experience and a degree supporting the role they wish to enter in the family business. This merit-based approach can also help the rising generation develop credibility, especially in the eyes of non-family employees, as well as build important self-confidence.
BUILDING STEWARDS THROUGH PARENTING
When the trappings of wealth are everywhere, it can reinforce a sense that children born into wealth are “special” in undefined ways, affecting their expectations about their future. Sometimes, this specialness becomes a sense of entitlement. The goal of the wealthy household is to actively teach the purpose of wealth in order to help children transition towards stewardship— the responsibility to sustain and add to the family’s wealth.
The first step in fostering stewardship is finding a way to communicate about wealth.
But where to begin? The first step is finding a way to communicate about wealth. Parents should be aware that they are already teaching about responsibility through their verbal and non-verbal communications and examples.
Consider this account from a South American family leader on the connection between communication and values:
I raised my children to be leaders and to live by the family values. We started working with our children and, therefore, began at the beginning. Every night we’d have a little chat. Communication didn’t start when they started in the business. It started when they were about four or five, at the breakfast table or at the basketball court. We try to have dinner together every night and go to church every week. We would be together. I think that strengthened family values. My wife is great. She’s the chief emotional officer. When you give people enough love and respect, they become secure.
Values are also transmitted through example. A family’s work ethic and values around the family business, for instance, are often passed down informally. When children are exposed to the business from a young age, they tend to absorb certain expectations before they’re explicitly laid out. Consider one Middle Eastern family leader who remembers his initial introduction to the business:
I was invited to meetings since I was five or six. If there was something happening—a meeting on the weekend or I was on holiday—I would get dragged along to the meeting. There were always guests at home who were business guests and partners. So we spent a lot of time with them. You couldn’t help but hear [the conversations], although you didn’t always understand it until later on.
Families often expect and require family members to work, but their definition of work can be flexible. One surveyed family considers jobs like being a volunteer coordinator for a family charity a form of employment that should be salaried. Another family developed what they call the “Passion Project,” where each young family member was invited to develop a business—funded by the family— through which they would be able to demonstrate persistence and commitment.
DEVELOPING IDENTITY AS A WEALTHY CHILD
Wealth provides the rising generation an unusual amount of freedom to define themselves, but these privileges present challenges. The way a young inheritor integrates the presence of money and wealth into his or her work, relationships and choices contributes to his or her wealth identity. If inheritors are not clear on what wealth means to them, it can leave them with a muddled sense of purpose.
Families often expect and require family members to work, but their definition of work can be flexible.
Money isn’t the only factor in forming wealth identity, but when not integrated well, the status and recognition that come with wealth can lead to both a sense of entitlement and a feeling of entrapment or isolation.
Children run the risk of growing up where they only know others like themselves. If children in wealthy families are unable to experience diversity, they may lack important perspectives and life lessons, limiting their potential. Entering college may be the first time they manage their own affairs. What’s more, being associated with wealth may make individual family members feel uncomfortable. In the research, several inheritors noted the importance of not having their family wealth known to their peers; one even changed his name when he entered college to disassociate from his family’s philanthropic endeavors. Many inheritors may experience guilt or feel they do not deserve their gifts, complicating their ability to move forward with a positive relationship to their wealth identity. However, generative families have found a variety of ways to help instill a positive identity in the rising generation. For instance, one European family enterprise’s leader holds bi-annual how are you meetings with his two sons. Another European family creates a sense of pride in the family’s history and the wealth created over time with a sacred tree-planting ceremony when a new rising generation member joins the family business, and the sharing of family videos and other meaningful family artifacts.
Knowing their lifestyle is, or can be, subsidized, How does the rising generation in wealthy families motivate itself?
Creating family community is not a single event; it is a process that develops over time.
The first step is for family elders to allow young adults to pursue their own passion and purpose. Young people develop quickly when they feel there are resources available while also expecting to fend for themselves. They can learn by pursuing something on their own. Parents who are “rescuers” prevent their children from negative consequences and also prevent learning. In fact, rescuing young adults from any difficulty or challenge can lead to a cycle of negative codependency. Consider this insight one family member of the older generation provided as an example of the positive outcomes that are possible when the rising generation is encouraged and supported in their personal pursuits:
We have one family member who went into the music industry and he formed, and now runs, his own record label. We have another who started his own non-profit and another who was very engaged in the early stages of forming a larger non-profit. So many people have been able to take that philanthropic ball and run with it because they have the flexibility and perspective to do what they want to do and pursue their passion.
When a young person emerges from his or her own journey having developed a unique skill set and a stronger sense of self, he or she is better prepared to become involved in family ventures.
Talking about wealth can be difficult for parents and their children, so it’s important to keep lines of dialogue open while the rising generation is finding its way. Parental engagement can be tricky at any stage. The goal is to find a way to be a sounding board for some (not all) experiences. Being there to talk about issues a child is having also creates opportunities to pass down family values.
BRINGING THE FAMILY TOGETHER
It is important that a family allows rising generation members to decide on what, if any, role they want their family legacy to play in both their personal and professional lives. The success of a new generation in a family business begins with its budding sense of community built into the family’s shared values and collective activities.
Consider a young third-generation member. She grew up barely knowing her cousins who live across the country. She didn’t seriously think about a specific role in the family business. It’s not that she wasn’t interested; it was just not on her radar. When she was about to start high school, the extended family held its first annual family retreat, where she learned about the family business. There, she decided she might like to study business and have a role in sales and marketing. She was delighted to take a course with her cousins about budgeting, household expenses and credit cards—topics she had thought little about as her parents had paid for and managed her expenses to date.
Talking about wealth can be difficult, so it’s important to keep lines of dialogue open while the rising generations find their way.
Creating family community is not a single event; it is a process that develops over time. Although an event such as a death or transition can often be the impetus for a family to come together, best-practice families proactively think through building family community. Sometimes a family visionary is necessary to help inspire, guide and develop a cohesive family connection through events and gatherings.
One major feature of these intergenerational gatherings is sharing and telling family stories. Older family members may be invited to talk about their experiences and family members can use a variety of mediums—e.g., notes, video, drawing—to record these stories. By sharing the family legacy, young people are able to build upon it and develop community within the family as they look toward their future.
Convening as a generational community also offers an opportunity for the rising generation to come together and ask questions of the elder generation. For example, several families who were interviewed noted that after a meeting of the younger generation, they became comfortable communicating with their elders regarding topics such as:
Sharing these concerns as a unified group rather than as individuals added credibility that their ideas and input should be heard.
SHARING BUSINESS AND FINANCIAL INFORMATION
Family business leaders and trustees are traditionally reluctant to share business information with family beneficiaries, who often are the rising generation members. Leaders have a tradition of “taking care” of business. But the family members we surveyed suggested that this tradition neglected the development and engagement of the rising generation members. If they were not informed, How could they learn about the legacy and prepare themselves for possible roles as owners of the business or stewards of wealth?
Another way to enhance human capital among the rising generation is through mentoring and career development.
“Society has changed over generations. Today’s children are interested and accustomed to asking more direct and pointed questions to their parents,” says Greg McGauley, Head of Merrill Family Office Services. “Having the generation better informed, better educated and comfortable communicating with their older family members is a benefit for everyone involved in the business.”
Generative families may hold some variant of an annual business meeting, where family members of all ages are invited to attend and learn from the business and financial leaders. These annual events can be traditional one-or two-hour presentations, yet many families have found creative ways to make them more interesting, elaborate and interactive. Some meetings even include on-site visits to businesses, family offices or foundations, as well as engagements with key employees.
CREATING OPPORTUNITIES FOR THE RISING GENERATION TO BUILD HUMAN CAPITAL
The larger and longer-lived families in the Wise Council Research3 developed custom educational programs to help build human capital. These programs went beyond the simple sharing of information to actively developing leadership skills by teaching the specifics of stewardship of any enterprise: leadership, relationship and financial skills.
Another way to enhance human capital among the rising generation is through mentorship and career development. These serve a dual role: they help prepare for one’s career of choice and they also develop qualified family members for governance roles in the future.
Fostering human capital in the rising generation is also one way that wealthy parents can address one of their most pressing concerns, according to Madeline Levine, Ph.D., author and psychologist who has written extensively on the subject of parenting children of wealth. “Parents worry that while their children’s’ bank accounts may be robust, their identities may be thin,” she says. “Parental control needs to be exercised thoughtfully and with an eye towards the kind of values that every parent hopes to instill in their children.”
Spending time together in the family business can help family members feel comfortable reaching out and networking, especially when there’s an opportunity for the younger generations to learn from the older ones. Creating connections across generations can instill a greater sense of responsibility in the rising generation. One outcome may be a desire to build upon the success of the older generations, inspiring them to make more effective career and life choices.
DEFINING AND HEEDING THE CALL TO SERVICE
“Find your passion,” parents advise their children. This is no less true for members of generative families. Yet their special dimension is that they may have opportunities to find their passion within the family enterprise. Each new generation is expected to add to the legacy, grow the many forms of family capital and make its own mark in the world. To do so, it can select from the call of opportunities within the generative family.
Many familes have created a focus on philanthropy to support communities and organizations that hold special meaning to the family.
Because of their wealth, rising generation members may hear rivaling calls. They can work outside the family business, or start their own business. They may not need to work at all. With competing opportunities, creating a climate of opportunity may not be enough to entice the rising generation. It helps if there is an interesting offer that makes it attractive for rising generation members to build on the family legacy. It is beneficial if they are told, by virtue of their membership in the family, that they have the opportunity to do something extraordinary.
Another possibility is that a member of the rising generation takes the initiative to propose a new idea, gather buy-in from other family members and see the idea through to fruition. Such a person has been called a “family champion”, and is a key source of innovation, entrepreneurship and adaption in the family enterprise. Succession champions cannot be legislated, but the family has to be open to thoughtful, creative and useful ideas and innovations from their young members.
Mixing business and family is complicated. While individuals need to determine for themselves whether they will heed the call to enter the family business, families also need to decide which members of the rising generation are right for the business. In other words, entry into the business should not be expected but rather conditional on being qualified. A nd the bar for entry typically increases with every generation.
It can be helpful to have clear guidelines that apply to all phases of the process to help your family thrive.
By the third generation, legacy families often have created a clear separation between the business and the family. Each has its own culture, policies and practices. Membership in one does not necessarily bring membership in the other.
SERVING THE COMMUNITY
By the third generation, generative families often focus their energy beyond creating wealth. After building wealth, the question What is our wealth for? takes on a new urgency. In response, many families focus on family philanthropy to support their communities and other ventures that hold special meaning to the family.
Even more so than previous generations, many young people today are dedicated to social innovation, sustainability and service to the community. Children who come from wealth are attracted to philanthropy for several reasons, including the recognition of opportunities provided by the family’s network to help make a difference and serve in a way that is valued by their community. In addition, the rising generation may be able to take on a service role where the salary is a non-factor because of the financial support available through the family enterprise.
Consider a family whose business, recently sold, was located for more than 100 years in a small town. Even though the family business was no longer in the area, the family was able to renew their connection for another generation by developing an extensive philanthropic commitment:
We started talking about the importance of philanthropy as one way to keep a family together. Out of one of those meetings came the genesis of what is now called the Community Fund. A few of us got together and we raised $10,000 when we passed the hat amongst our generation. It focused initially on kids at risk, and we’ve made the mission a little broader as we’ve grown—the only requirement to be on the board was that you had to give a little money and you had to be willing to contact organizations that applied for grants to learn more about them, write that up, make a case why you should support that particular organization. This led to a number of people who didn’t have a lot of connection coming back to the larger family. This process has kept our family together for at least another generation.
Sustaining the family enterprise and preparing successors is not simple. Rather, it is part of an involved, ongoing, multi-step process. When considering your own family business, it can be helpful to have clear guidelines that apply to all phases of the process—define, engage, develop, support and continue—to help your family thrive. In the end, a family that has gained tremendous success can succeed further when its family members fulfill their own expectations and purpose.