by Jon Kenfield MBO
(Note: this is my personal, unauthorised take on what somebody else said).
James E Hughes Jr. is a US attorney and the author of several highly influential books about preserving and enhancing family wealth. Hughes postulates that while financial capital provides practical support for multi-generational families, their true wealth lies in their human capital – the inherent and developed quality of family members – whose personal happiness, and their admirable achievements as contributing members of society, are far more valuable and meaningful than the size of their bank balances.
At STEP’s recent Victorian Conference, Simon Costa (scion of the well-known Costa Family) spoke passionately about his experiences as a member of an Ultra-High Net Worth Family. As CEO of the Costa Group, he often found himself rubbing shoulders with some of the world’s best-heeled entrepreneurs, inheritors, investors, and philanthropists.
He observed, reflected, and eventually had a personal epiphany: many enormously wealthy individuals were trapped within treadmills of their own making – where their pursuit of “success” wasn’t just driven by a need to “win”, it had morphed into an endless and all-consuming compulsion to acquire “more”.
Without any real goals these sad, rich guys couldn’t frame, let alone answer the question: “how much will be enough”?
In a modern version of the punishment of Sisyphus (condemned by Zeus to eternal labour, rolling a huge boulder uphill) they had no way of working out “when” their labours would end, so they could find peace – finally satisfied with their own achievements.
Simon says good people are never satisfied by achieving material success alone. They also need to lead lives of “significance” – doing worthwhile stuff that helps to improve the lives of others. Good people can become great by doing a lot of worthwhile stuff.
Material success just requires amassing large amounts of financial capital for personal use and gratification.
Significance requires living a meaningful life – where people act, in whole or in part, in the service of some larger concept of benevolence to humanity. This realisation is a prime motivator for philanthropists who support their communities to make a positive difference to the lives of others. Many say this gave their lives the “meaning” they couldn’t find in “making more”.
Before we run away with this concept we also acknowledge that, being surrounded by expensive toys and lavish lifestyles, many wealthy and privileged individuals, especially those with inherited wealth, don’t suffer too much brain damage thinking this through.
“I’ve been rich, and I’ve been poor. Believe me, rich is better.” – Mae West (and many others).
Angst Family Case Study: “More”, or “Meaningful”?
The Angst Family: Peter (74), Flossie (72), Phillip (42), Amore (40), and Rupert (38) are a 1st/2nd generation Business Family with agricultural, manufacturing, and commercial property interests in South Australia.
Peter is a smart, driven entrepreneur who loves his family, has high emotional intelligence, and has always directed 120% of his intellectual and emotional energies towards building businesses. Emotional interactions with family members tend to frustrate and exhaust him.
Making money is not his main driver. He’s always ploughed most of the considerable profits his businesses generate back into growth. As a consequence, the family is worth well over $200M, but there’s never been much spare cash available, and the family has lived relatively modestly for the past 40 years.
Peter’s father, Ron, was a successful grazier. He lent him the money to buy a small and struggling manufacturing company, acting as his mentor and silent partner. Peter made a great success of the business, buying Ron out after 3 years, and paying him back 3x his original stake money. Peter was only 24 then, and he’s been acquiring and developing businesses ever since.
Flossie is a devoted, strict, and very untrusting wife whose horror at what she saw happening to relationships in other wealthy farming families drove her to stick like glue to Peter whenever he went off on his frequent business trips.
They have a strong, if somewhat prickly relationship, which is more than can be said for their relationships with their 3 children, all of whom developed serious fears of being abandoned during childhood. Flossie hired new nannies each time she went away with Peter and dismissed them soon after her return, possibly due to a mixture of guilt and primal fear of being displaced in her children’s affections.
Flossie herself had a very unhappy childhood – her mother was very strict, very proper, emotionally distant, and exceedingly domineering. She believed that explained why the father she adored maintained a secret second family – which she only found out about well into her 30s, when her father was terminally ill and trying to make sense of his life, and peace with his whole family(s). The emotional fallout was cataclysmic.
Phillip and Amore are well-educated, intelligent, and highly strung. Both suffer from severe depression and have been on heavy medication for many years. Neither have their own families, nor have they ever enjoyed any long-term relationships.
Rupert is the golden child, although expelled from 4 private schools by the age of 12. He’s bright, charming, and highly extroverted. He’s also currently heading towards a fourth marriage, having had two children with each of his first 3 wives – all of whom are now being financially supported by Peter – as they receive very little attention from Rupert.
Peter is slowing down and has unilaterally decided to sell all his operating businesses, notwithstanding the separate and conflicting promises he’s made over the years (in private) to all his children that, “one day this will all be yours”.
Phillip and Amore have spent almost their entire working lives in operational roles in various of Peter’s businesses. They haven’t been trained to do anything else, and they’re almost certainly unemployable outside the family’s businesses at anything like the remuneration levels they’ve learnt to enjoy.
Rupert has always flitted in and out of whichever family business took his fancy at any given time, never staying anywhere for more than 12 months. He usually spends piles of money “improving” the businesses he inserts himself into – mainly being wined and dined by consultants and salespeople who flatter his ego and sell him plant, equipment and IT systems the businesses doesn’t need, and can’t commercially justify.
But if Rupert wants it, Peter makes it happen.
If Peter is successful in selling the operating businesses he’s grown tired of (partly because he doesn’t believe his children are up to managing them, because they’re not enough like him, whatever that means), he’ll emerge with around $120M in cash; $60M in a commercial property portfolio, and around $20M in lifestyle assets. These are conservative estimates.
Problem!
Peter has suddenly realised that he’s charting a path that will put him out to pasture. He’s visualised the future (ie: his future), and it looks like a black hole. He’s had 3 good mates pop their clogs in the past 2 years – all within 24 months of stepping down from ownership and leadership roles. They were all younger than him, too! He feels there’s nobody he can talk to, as he’s used to dominating family, friends, and staff. Trying to work stuff out with Flossie, or his kids, just leaves him exhausted. He’s starting to panic.
Flossie can’t wait to get rid of the businesses, so she has more time to “heal” her family. She recognises that having 2 out of 3 children at serious risk of suicide, and another at serious risk of complete dissipation, does not indicate great success as a parent, or as a family, despite their wealth (of which she’s only vaguely aware).
She feels guilty that her family is so dysfunctional – suspecting, but never acknowledging, that she’s probably the root cause of many family issues. She’s dragged everyone through a range of psychologists, family counsellors, priests and faith healers over the years. None of which have achieved much.
The siblings have nothing to do with each other socially, and family gatherings for high days and holidays are always powder keg affairs, where at least one person storms out after some heartfelt and sustained screaming and cursing. And nobody knows who will be next to stalk out of a family meeting.
Because there’s so much tension, verbal violence, and bad blood in the family, none of Rupert’s 6 children are ever brought to family gatherings. His former wives appreciate the maintenance payments they receive, but all feel they need to shield their children from the aggressive, and highly corrosive culture of the Angst family.
Peter and Flossie are devastated they have almost no relationship with any of their grandchildren, having talked about all the wonderful things they’d like to do with and for them for many years, especially when they get together with friends who have grandkids and more normal family relationships. Paying school fees, buying expensive birthday and Xmas presents, and occasional facetime meetings are about all they’re allowed to do.
Advisory Challenges
For this family, wealth management and estate planning don’t even register as urgent issues, although if the sales of businesses go through, they’ll have great need for good, long-term financial advice.
If this family is to survive as a Business Family, it needs a comprehensive Family Plan, and a load of non-financial advice, training, and support – to enable the family system to get into some sort of workable balance.
The family is approaching a critical tipping point, where almost everything about their lives could soon change around them. They’re facing a huge liquidity event, which should be tied into long-term family plans, to avoid family disintegration over the use of that money.
What Hughes calls the “Rising Generation” has a once-in-a-lifetime opportunity to claim their seats at the grownups’ table, alongside their parents, before their inevitable age-led decline. Of course, this could start happening at any time, and may have already started?
Family counselling and psychological support are clearly needed, to help members of the family do a far better job of managing themselves and their relationships with other family members. Because this is a Business Family, any support provided will need to produce results within businesslike timeframes. It should probably look more like “goal-driven executive coaching and team building” than “empowering personal therapy”.
When family dynamics have settled to the point where it’s possible to have constructive meetings, and make good, collaborative decisions, a Family Plan should be developed that charts an outline course for the family for at least the next 25 years (ie: including the probable passing of the current Patriarch and Matriarch).
Question: Given the huge material success they’ve achieved, what legacy do Peter and Flossie want to leave behind to benefit current and future generations of their family? What will make them feel proud, and give their lives meaning?
They need to answer this question, and help to put things in place so it will be achieved, even though they may have to wait until they’re looking down through the Pearly Gates (or up from somewhere less savoury), to work out whether the plans they help to put in place now will achieve their desired, long-tern results.
This is powerful emotional stuff – a commitment to do a better job of parenting and grandparenting than they’ve done so far, and a big improvement on the achievements of their own parents. Most importantly, it marks the transition from a life devoted to “more”, to a life that contains “meaning”.
Now we’ve placed some maggots of meaningful pursuits within the family’s apple, we can start exploring the values and visions of family members, and shape them into agreed family goals. Nothing helps to build teams and teamwork like a well-guided, shared project.
Issues between family members will surface as they work together and, if they have the courage, the right support, and operate within a benevolent, disciplined and accountable framework, those issues will be resolved, lifelong tensions will be relieved, and the family will become a happier unit.
None of this provides immediate financial reward however, when you ask a selection of families whether it’s more important to them to have a healthy family or a healthy family business, the smart ones usually say something along the lines of:
“You can’t have a healthy family business without a healthy business family”. (David Smorgon)
As relationships improve and the family gets more settled, forward-focussed, and happier, their advisers’ work increases – the family finally understands what they need to do to lead more meaningful lives, and that generates an urgent need to put everything in place they neglected to do when they were solely focussed on making more:
- Plans (Strategies) that need to be supported by appropriate governance Structures (Family Council, Advisory Board, Family Office, and Family Forums).
- Appropriate governance Systems (policies and procedures, Family Constitutions, Charters of Mutual Obligations, and other agreements) that need to be collaboratively developed and supported to enable the new structures to work efficiently.
- Everyone needs to know what to do and have the confidence to do it.
There’s a mass of work in there for an appropriately multi-skilled advisory team.
Any adviser who wants to be a Trusted Adviser working with families across generations needs to know about, recommend, and be able to help implement best practices for Business Families. It’s the prime task of every Trusted Adviser to ensure that whatever their clients need to have happen, does happen, when it needs to happen.
It will take a fair bit of diversity expansion within the STEP family, or for any other consulting group, to facilitate this but: “the journey of 1,000 miles begins with a single step” (Chinese proverb).