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You are enormously successful. Can you stay together as a family?

By Dennis T. Jaffe

Confronting the classic challenge for a family enterprise as it crosses generations.

As new generations emerge in a successful business family, the legacy family business often recedes in the rearview. Fewer family members can be employed, and interest in the business wanes. The business becomes a source of income, not a place that determines their identity.

Many — maybe most — family businesses are sold and those that remain increasingly are led by a non-family executive. The family’s deep connection with the business often becomes less essential as wealth migrates to passive investments administered by a family office.

When that happens, do family members then simply become business partners who happen to be related? Can they remain a meaningfully connected family? This is the classic challenge for a family enterprise as it crosses generations.

From Founder to Thriving Family

After G1, the business family often turns its attention from the legacy business to each other, considering whether it makes sense to remain a business-engaged family. What is the family for? What role does it play in the use of the family’s vast resources?

Through their business they have amassed wealth — does the new generation want to remain business partners or each go their own way? Can the new generation define a shared core purpose to pursue together?

To avoid drifting apart, each generation of a business family must rediscover a reason to be together. This, however, can become problematic when the elder generation creates trusts and shareholder agreements that restrain future generations’ freedom to make their own decisions. When that happens, some family members can struggle against these constraints, wanting instead to follow their own path unencumbered.

If the founding generation of a family enterprise is about creating the legacy business, the succeeding generations are about deciding whether to remain a connected family. While it may be clear what it means to have a successful business, it is more difficult to define what makes a successful family. 

Yet, after the success of G1, the goal of a successful enterprise often becomes creating a great family. Successive generations want to invest their time, energy and resources in helping the family thrive. While achieving this mission can draw on the resources created by the successful business, it is not a business task at all. It is about mutual caring, support, engagement and new directions — and it requires the whole family to make it happen.

The Value of Unity

To understand this transition, a new paradigm is emerging that can help define the nature of the evolving extended family. What does the family do if they are not centered on the business?  What shared goals can they be inspired to pursue together? While the goal of a business is to generate wealth by doing something that is useful, the goals of a growing family are typically less clear. 

The family’s wealth offers wonderful opportunities for a shared family future, but a family can struggle with who they are and how to make the most of those opportunities. The transition from a shared business to a shared extended family is the defining task of the generations after the business’s founding.

This shift marks a major transition in the culture of the business family: from a powerful founder to a successful legacy enterprise. Now, the family must decide how they want to use their resources.

Many business founders do not consider this; it usually falls to the members of what we call the “rising generation” to decide to invest the family wealth in shared family activities and pursue shared goals. These shared activities can, for example, involve pursuing social and philanthropic goals that are important to the family, giving a gift to the community or developing a group of creative and talented young people focused on using the family wealth wisely. 

To undertake these tasks, the family must decide together to invest in making them happen. A united family offers real value in the ability to take on huge projects that individual family members could not accomplish on their own.

Visualizing Non-Financial Family Wealth

Nearly a generation ago, a third-generation family lawyer, Jay Hughes (author of several books, including “Family Wealth: Keeping It in the Family” and “Complete Family Wealth: Wealth as Well-Being”) proposed a set of capabilities and actions he labelled “non-financial family capital.” These activities drew on the wealth the family had accumulated, from values that were not primarily financial. They offered the family a rationale for being connected that went beyond accumulating more wealth.

Hughes and his colleagues asked: What would a high-value family look like? I, as well as other researchers and practitioners, have found that these sources of less tangible wealth tend to form the goals of these families after their first generation of success. They are called “capital” in that, like financial wealth, they add something of value toward accomplishing shared goals.

There have been several formulations of these sources of “capital.” A recent formulation by Scott Peppet, leader of the family office of his late father-in-law, investor and real estate owner, Sam Zell, included a self-scoring assessment tool that helps family members measure the presence of each element of non-financial family wealth:

Legacy Capital: The shared purpose and goals of the family to use its resources and multiple sources of value to make an impact. The legacy opens doors and opportunities arise from the contributions made possible by the family business. Succeeding generations learn from previous generations’ example.

Human Capital: The mental, emotional and physical well-being of each family member. Each family member commits to using their talent to do something meaningful that makes a real difference.

Learning Capital: The curiosity, active engagement and vitality of the family to grow and learn. Family members’ active curiosity as they consider how to best use their extensive resources leads to the discovery of opportunities they can pursue together.

Social Capital: The supportive, caring and helpful relationships of trust and mutual aid within and outside the family. Familiarity and shared interests arise from a community of family members who share a legacy and a desire to add their own contribution to the family’s achievements.

Financial Capital: The four sources of non-financial capital add to and focus how the family’s shared wealth and resources are used. The financial wealth created by the business forms the foundation that can develop non-financial wealth in all these forms.

Hughes, Peppet and others suggest that, just as a family can regularly assess their financial wealth, they can also clearly define, and even measure, their level of non-financial wealth. This wealth is only potential until the family gets together and decides to invest in creating it. The new generation of the family can begin to meet and reflect upon each element, deciding what they want to do to develop it and then pursuing shared activities toward that goal.

They can then create a family “action plan.” Any family can do this no matter what their means, but families with wealth and a successful business have more resources and hence more options.

Peppet offers a free downloadable series of questions to assess the family’s performance with regard to each type of capital. Each family member can use this tool on their own. Then, either anonymously or openly, the family members can share their scores and talk about each element.

The question arises: Why should various family members have different views of each element of family capital? Why don’t the family members all agree? Again, looking at the questions in each area, we see that, unlike financial capital, the presence of social, learning or human capital is only potential, not actual, until the family commits to developing it. Whether this non-financial capital becomes real depends on how much time, energy or attention each individual wants to invest in the family. They must be created through action.

In a wealthy family, each individual has a choice about how much to invest and give to the family, and how much to give on their own or for their own nuclear family. Not every family wants to pursue a goal together.

Families sometimes struggle with engagement, wanting more from their rising generation and not knowing how to compete for their attention. We find business families, even those with huge fortunes, must actively recruit and inspire family members to be part of their efforts. If their mission, purpose and values do not attract new family members who marry in or grow to adulthood, the family will drift away from shared efforts. Being part of the extended family for a new generation is a choice, and each person must choose the depth and extent of their engagement. 

Achieving Post-Transition Togetherness

After the success of their business and the accumulation of wealth, the family has many options. They must meet and define a shared purpose that inspires new family members to want to be part of the family. 

Non-financial capital emerges from the investment and dedication of family members to enroll in the task of building the family. This task can take many forms, as Peppet’s assessment shows. It can include philanthropic or social missions, fun and developmental services that educate people together, and/or the simple act of being together to provide mutual support and encouragement.

Unless the family offers something meaningful to its heirs, the rising generation will not freely choose to be part of it, even if they are tied together by trusts and shared investments. If they are not doing something right now that is meaningful, then they cannot remain an active family. They are merely investors who happen to be related.

But what are they missing by not investing in family? I regularly attend Family Business’s Transitions conferences, and the global Family Business Network. At these gatherings, we learn from multigenerational families what new generations are doing beyond the business realm. Wealthy families together have vast resources they can harness to do amazing things that have a huge impact on each other and the outside world.

After building a successful business, extended families can create impactful programs and services for their home communities. Individuals can also participate in many service areas and support each other to be active citizens of the world.

As it considers its agenda and impact on a new generation, the business family can build its own plan to raise all five forms of capital in its family. This means the family must decide together that they want to invest some of their financial capital in these tasks.

That decision-making process begins with defining a shared purpose and mission, and then looking at what they do, and what they can do, to further develop each form of capital. From there, the family can form a family council, a non-business entity, that helps the family organize and achieve results in each of these areas.

After establishing a successful business, the family cannot simply continue what it has always done. Instead, it must define new initiatives aimed at utilizing and building upon the resources created by the legacy business. The family must also define a shared vision and plan to develop all dimensions of family capital.