“If you want one year of prosperity, grow grain.
If you want ten years of prosperity, grow trees.
If you want one hundred years of prosperity, grow people.”
This Chinese proverb conveys an intrinsic challenge for business-owning families on a mission to sustain transgenerational legacies of success.
Family governance is an important part of the sustainability equation. It does not, however, grow people.
Historically, families bought into the myth that generational success is all about growing and protecting their financial assets. This sense of false security continues to be the prevailing sentiment for most families today.
Sophisticated families have had their eyes opened and have come to realize that generational success requires more than money. Increasingly, these families have turned to family governance as the key to sustaining success across the generations.
What is family governance?
Every family has some way of organizing itself and making decisions and, therefore, some form of governance, whether informal or formal.
The term “family governance” is generally reserved for a set of formal structures and practices, including identifying core values, conducting family meetings, developing mission and vision statements, creating family policies and engaging in financial education.
These formalities are largely — although admittedly not entirely — about decision-making related to financial assets.
Significant portions of family meetings are devoted to spreadsheets and bar charts detailing the financial performance of investments.
Family policies are geared toward matters such as financial distributions and guidelines about who is eligible to work in the family business.
While there is a growing trend for families to engage a chief learning officer, education has traditionally focused largely on teaching the rising generation about finances.
Families need mechanisms to facilitate decision making. There is no doubt that family governance structures and practices can help families navigate the complexities of combining family and business.
Nevertheless, family governance has limitations.
The limitations of family governance
A wealth adviser once asked me to help him draft a mission statement for one of his client families. The family was so busy working on their business interests that they did not have time to focus on creating a mission statement. So, he offered to write one for them.
How committed do you think you would be to a mission statement that someone else wrote for your family?
This example illustrates a common misstep in family governance: treating it as a check-the-box exercise, rendering it devoid of emotional investment and personal connection.
The wealth adviser's focus was on the output, the finished product. Families are best served, however, by a process of working together to define what is important to them, what their vision is for the future and how they want to proceed to make that vision a reality. The conversations a family engages in to craft a meaningful mission statement can be a fun learning and bonding experience for them. A perfunctory approach deprives them of that opportunity.
Even when approached thoughtfully, family governance fails to adequately consider the relationship realities of the family expected to operate within the structures and adhere to the practices.
Case in point: A NextGen in one family I worked with told me, “We've already identified our core values. We don't need to spend any time on that.”
Her mom had a decidedly different view. From the mom's perspective, her daughter had dominated the values exercise and redefined the values the mom had identified. The mom felt her daughter had either completely disregarded or given short shrift to what was important to her.
While the mom was disheartened by the values exercise, she never expressed her discontent to her daughter. As a consequence, her daughter thinks they are on the same page — when, in fact, they are not.
If they are misaligned in their values, you can imagine the state of their relationship, particularly given that only one of them is aware of the misalignment.
I worked with another family that was having regular family meetings. The distrust within that family was so high that some of them were secretly recording the meetings. Family meetings were not serving that family well.
Despite the formal family governance they had in place, the relationships within both of these families were nonexistent, strained or merely “superficial,” as characterized by one family member.
Like focusing almost exclusively on financial assets, reliance on family governance as a panacea is yet another myth. Clearly, these families needed something more.
Family governance alone does not address underlying relationship challenges and emotional tensions.
In addition to the structures and processes of family governance, family members must be able to have candid conversations and skillfully manage conflict.
Many families simply are not there, yet. And the family governance apparatus they have in place is not helping them get there.
As important as family governance is, to reach the pinnacle of transgenerational success, families must evolve beyond family governance. Not do away with it, but supplement it. The graphic below illustrates the progression.
Evolve beyond family governance
Families seeking to sustain iconic legacies have come to recognize that they must be as purposeful in investing in the family as they are in investing in the business.
Investing in the family means investing in the relationships that family members have with themselves as individuals, and with each other.
Family relationships are the heart of a family's human capital, its most precious asset.
A family's relationships drive whether the family has formal family governance infrastructure and, if formal family governance exists, who is involved, what the infrastructure looks like and how effective it is (or is not).
Relationships drive family governance, and nearly everything else.
Here are three steps you can take to strengthen your family relationships.
1. Articulate who you are individually and as a family. Nearly a decade and a half ago, Simon Sinek popularized the mantra to “Start with Why.” Why are you doing what you do? What is your purpose?
Many advisers start their work with families by asking: “Why do you want to stay together as a family?”
This is an important question, no doubt.
A more profound question is: “What is the source of your family's ‘why'?”
The answer: “Who the family is.”
Purpose flows from identity. When you know who you are, it is a lot easier to determine what your purpose is and why you want to stay together as a family.
Since a family's purpose depends on who the family is, I encourage families to go to the source and get clear about who they are as individuals and as a family — as well as who they aspire to be.
This applies to family members in each generation. Research shows that young children who know more about their family history perform better in school, have higher self-esteem and exhibit fewer disciplinary problems.
Young adults entering the family business or otherwise seeking to find their way may need coaching, mentoring or other support to tap into the potential that lies within them.
Founders and incumbent generation leaders whose identity is intertwined with the family business may also need support in defining their next chapter as they transition away from their business responsibilities.
2. Strive to help family members see the systems context for what is happening.
Context gives everything meaning.
Most people in our society are trained to view individuals, issues and incidents in isolation. This leads to blame, judgment and misunderstandings based on flawed assumptions and incomplete information.
Adopting a systems view widens your lens, enabling you to connect dots and appreciate the broader context in which life is unfolding. You can then recognize that family members are continually co-creating their relationships by how they relate to each other.
Philosopher Martin Buber is quoted as saying:
“The key to creating a society that is nourishing, empowering and healing for everyone lies in how we relate to one another.”
The same applies to families:
The key to creating a family that is nourishing, empowering and healing for everyone lies in how family members engage with each other.
Understanding systems context can help family members relate better to each other, to money and to the world around them.
A classic example of the importance of systems context is the “entitled child.” Think about it. No child is born into the world “entitled.”
Rather than judge the child, recognize that a child can become “entitled” only if the adults around the child taught the child (either consciously or unconsciously) to be entitled.
How might relationships within your family, family business, or broader family business ecosystem be strengthened if family members adopted a big-picture perspective and could see the broader context for what is happening?
3. Build your family's individual and collective capabilities and capacities. Much attention is focused on preparing the rising generation to one day lead and assume the responsibilities that come with their inheritance. Increasingly, families are broadening their approach and crafting learning journeys for additional members of the family and for the family as a whole.
And the learning is not limited to finances, wealth or the business. Family members can benefit from the process of learning and sharing about virtually anything — such as the culture of a country they plan to visit on vacation, a book they read or a movie they watch.
At the individual level, every family member can also benefit from honing their people skills and ability to work well with others, which are increasingly being recognized as “power skills.”
To sustain legacies of success that span generations, families must look beyond the structures and practices of family governance to also foster stronger family relationships. In what additional ways might you invest in strengthening your family relationships?