The Human Side of Wealth Transfer

Last year a large insurance and investment company invited me to travel around the country delivering a presentation to financial consultants I call, “The Human Side of Wealth Transfer”.  After one of the seminars an attendee stopped me in the hallway and said, “You know everyone in the room was listening to you talk, but they were all churning inside because many of them are dealing with this subject in their own lives, not just in their clients’ lives.” During the next session I was much more aware of this dynamic.  I’d been talking to prior audiences from the perspective of their consultant’s brain, but really it was more delicate a matter than that since it deals with an issue that is up close and personal to them. Many of these men and women have done very well for themselves, despite the recent downturn.  Several of them spoke to me about situations with their own children.  One man who obviously had spent a lot of time thinking about it said to me that passing money to his only daughter was very difficult because of the life she was living.  From his perspective, and probably rightly so, he knew that whatever he gave his daughter was going to be money badly used, leading to an even unhappier life in her future. As my father used to say about running a business, compensation is the hardest issue.  So it often is in family wealth, bestowing unearned wealth of children or anyone not prepared for it is a heavy burden on both sides of the equation.  Here is what I advocate for...

Three Possibilities of Family Business

In a recent client meeting the business owner said he’d read a good bit of the literature of family owned business but “most of it focuses on the problems and not the possibilities.”  So, let’s focus on the possibility of working with family for a few minutes.  Why have people continued to work with family members even when it doesn’t involve all hands needed to pick cotton or run the blacksmith shop? What are the possibilities of working with family?  How can we learn to look at it in that way, rather than in light of the unhappiness and discomfort it might cause from time to time? First, from the human perspective, when a parent and child work together there is the possibility of growing the relationship.  My father and I could barely carry on a civil conversation with each other when I first went to work with him.  It was very uncomfortable.  But, he knew and I knew that there was something of value buried under the dysfunction that was worth trying to find and salvage.  Over our 15 years together we became dear friends and I got to know him as a man, not just as some childhood image left over to haunt my adult dreams. Second, from the business perspective, when there is trust among the family members who work together, there’s a sense that you’re watching each other’s backs.  Over the years many of my clients and friends who own businesses, including myself, have experienced embezzlement, theft and waste on the part of employees who felt no accountability or oversight.  A strong network of family...

Four Critical Aspects of Family Business

Recently I gave a presentation to a group of family business owners on the subject of “4 Critical Aspects of Family Business.”  The premise of the presentation is that most business owners spend most of their time driving the business and give little attention to other aspects of the business that can provide some nasty surprises if neglected.  Michael Gerber, in his book The E-Myth, discusses this fact and says in addition to working IN the business, leaders must also work ON the business. In my own business over the years we worked on the day-to-day matters of sales, supply, delivery, quality control, finance, personnel, and customer satisfaction.  It’s easy to make these the primary and sometimes only functions to which we pay attention. Over the subsequent years I’ve learned that owners also need to give consideration to 4 other aspects: governance, succession, leadership development and relationship management.  Let’s look briefly at each of these topics so you can see what you’re working ON, in addition to the necessary drivers of your business. GOVERNANCE Entry rules—what are the requirements for family members who want to come into the business? Codes of conduct—how are family members expected to behave and perform if they are accepted?  What are the penalties for those who do not perform? Board of Directors/Advisors—a key determinant of family business success can be one or two people from outside who can help give perspective and counsel. Family Council—is there a regular opportunity for family members, both employed in the business and not, to meet and express themselves?  Those who have no voice or say so are often...

Stand Up and Be Counted in Your Family Business

A great paradox of life is that we find it so hard to talk about intimate things with family members, yet, when we fly for three hours next to a total stranger we’re likely to walk off the airplane knowing each other’s detailed life history.  It’s somehow easier to vent real feelings on someone you’ll most likely never see again, than with a family member we fear will construe heartfelt expressions of feeling as weakness, and use it to our detriment. While it may seem risky in the beginning, the effect of honest communication in the family business is awe-inspiring.  It often contributes to the breaking down of old barriers, just as the Iron Curtain fell partially because of the radical advancement of communications technology; new ideas could no longer be kept from people.  Communication helps create a firm foundation for any business to survive and thrive. Hard feelings and distrust among family members may go back decades.  Instead of dealing with current situations while looking through the lens of the past, it’s helpful to keep reminding oneself that age and maturity can have a softening effect if we let it.  Sibling rivalry and jealousy can often be traced back to infancy.  Parental circumspection with an adult child may date back to a teenage indiscretion.  Generally speaking, people act in accordance with the way they’re treated.  If I’m treated as incompetent by a parent, then chances are that’s the way I’ll behave in their presence. One thing that led to my interest in dealing with family business was the observation of how we adult children of entrepreneurs continue to...

The Tripping Point

Malcolm Gladwell introduced us to the concept of “The Tipping Point” in his 2000 book.  He defines a tipping point as the “the level at which the momentum for change becomes unstoppable.”  We’ve all lately seen vivid examples of when a tipping point has been reached: the demise of Wachovia—who’d have thought that was a probability 2 years ago?!  The death of the house that Madoff built, unfortunately, as a house of cards that met the unstoppable momentum for change.  And 9/11, the defining moment of our generation, a time when the flattening of the world was consummated.  Such are but a few stark examples of the inevitability of change and the inability of anyone or anything to alter or deflect it away. There’s another point I use with family business clients that I call the “tripping point”.  Attitudes, behaviors, animosities, and jealousies have been swept under the proverbial rug for so long the lump can no longer just be stepped over and ignored; it’s so big now it will trip you up. Working with a client this week I watched and facilitated while two couples, related by blood and property decided the time had come to no longer jointly own an inherited piece of property.  One of brothers said, “Uncle Jake said there would come a day when this property will no longer be owned together by family.  I think today is that day.”  An inaudible sigh of relief, tinged with sadness, filled the room in that moment.  As so many families do, unspoken assumptions have led to hard feelings and strained relationships.  The good news is for...

The Fifth Child

A retired banker friend is now the executive director of a regional community foundation.  The foundation is the recipient of bequests from people who want part of their estate or wealth to be used for charitable purposes.  Recently a mutual friend of ours, a retired, widowed attorney, passed away leaving the bulk of his estate to his four adult children.  I’m sure it was a sizeable estate from his long time law practice and from his influential and prosperous client base.  As he was doing his estate planning he told my friend, “I’ve got 4 children and I want my charitable estate to be my fifth child.”  The concept of the fifth child as an inheritor is a compelling image. While there was no family business to keep the family connected around the wealth, our attorney friend set up a trust account in the foundation which the children would run.  This corpus doesn’t belong to the children, but by establishing the fund he created a vehicle for them to remain connected and to learn to work together.  Granting gifts to worthwhile causes upon which they must have substantial agreement is a great piece of legacy for a family; perhaps more valuable than the dollars.  Here is a connection for them that doesn’t involve their own money, and it provides them a way to continue giving for the benefit of their community.  It keeps them working together on a project of mutual interest.  Many family wealth lawsuits come from those who feel disempowered.  By giving voice and input to all family members a real harmony has a chance to develop...