Families who use family offices do so for many reasons, among them: to perpetuate family wealth for generations, to leave a legacy, to keep family together, to pursue philanthropy and to take advantage of pooled family capital for different opportunities.
These families are able to access tremendous resources, either internally from family members or externally because they can hire the best managers.
But the experts they nurture or hire often come from financial and legal backgrounds. They aren’t psychologists. That means they’re novices at something very important: understanding family dynamics.
I define the latter as repetitive and often predictable patterns of interaction among family members—and their interactions with those outside.
Such patterns are affected by family history and current events, communication styles, behavioral patterns and biological inheritance. For a variety of reasons, the family office is a perfect stage for these things to be acted out.
While some families may not experience any of these dynamics, most will recognize at least some of the patterns affecting their operations and decision making.
Multigenerational Transmission Process
In most families, communication patterns and emotional styles tend to be passed from one generation to the next—what psychiatrist Murray Bowen calls a “multigenerational transmission process.” For example, families will have certain degrees of comfort or discomfort with open communication and conflict resolution among their members, and these dynamics are handed down. Those working in family offices will likely encounter “family baggage,” that repeats or amplifies these idiosyncrasies.
Destructive Entitlement
One of the most powerful influences passed on by family members is a sense of injustice. Family members tend to resist agreements or consensus with those guilty of perceived wrongs (For example: “Your father fired my father. Why should I respect or appreciate your views of our family enterprise?”) Whether the targets of anger are directly responsible for the original betrayal is irrelevant. So long as they are related to guilty parties, they are held responsible, and legacies of unfair treatment are passed on to new generations.
The feelings of injustice may be expressed by tension, poor communication, disengagement and lack of effective collaboration in the family office.
Imposed Mutuality
Families are often defined or affected by shared experiences. Some are blended following divorces. Some have confronted alcoholism. Some have recently emigrated.
And some participants in multigenerational family offices have been put together without a choice in the matter. I call this “imposed mutuality,” and it can create tension (or intensify it). Family members in this situation might push back and spend time thinking about how to remove whatever constraints they believe are being imposed on them. For example, when they have no choice about how their assets will be invested, they may react with anger or resistance.
Imposed mutuality can have a significant impact on the success of transitions in the family office. Next generation family members often find themselves inheritors of a dream as well as assets—the dream of keeping a business in the family, for instance, or of shared philanthropy. But it was left to them whether they wanted it or not. And they might well ask: “Do I really want to be tied to my siblings or cousins for the next 50 years?”
Not only must they adopt the dream, too, but they must then adapt it to current family circumstances. This takes lots of communication and interaction.
A Closed System
Some families with their own offices are very private about their inner workings, relationships and dynamics. When a family is a closed system, its members are insulated from potentially corrective information or experiences that might be had through exposure to or discussion with external players. Accordingly, when their dynamics or communication styles affect family collaboration or operations in an office, change or resolution will be all the more difficult
Money
And finally, because great wealth affords people more choices and opportunities, it has a tendency to intensify all these other emotions.
Managing Family Dynamics
Families who best manage family dynamics in the family office do so by developing processes that allow them to be self-aware, self-correcting and continuously evolving.
While each family is unique and would benefit from a strategy tailored to its specific situation, there are a number of elements to consider in every family’s approach.
Self-Awareness
Families who wish to manage their family dynamics will frequently look to one or two problem situations and address these directly—a conflict between “Cousin Jim and Uncle Harold,” for example, or “poor communication between Dad and Aunt Jane.”
While these matters certainly need to be addressed, it is not sufficient in the long term to focus on the matters only as they come up. If there is to be real change, family members must be encouraged to look inward, reflect critically on their own behavior, identify the ways they often inadvertently contribute to a family’s challenges, and then change how they act.
Self-awareness should lead to a shared understanding of and responsibility for repeated patterns. (“We have a history of painful relationships that have not been addressed.”) It should also lead to changes from individuals. (“I can do a better job of listening to others.”)
Family Vision
After they commit to self-awareness and honest self-appraisal, the family should come together to discuss and develop a vision about how their relationships could be more productive and satisfying. Such discussions should include such ideas as, “We will communicate openly and welcome diverse viewpoints.” Eventually, the vision needs to be communicated to the entire family, understood by them, revised and accepted.
A broad, transformative family vision can evolve over time and may be best realized if it is documented in written form in a family constitution or charter. It is then incumbent upon family leaders to lead the family toward the agreed upon vision. This might require bringing in third parties to assist in developing tactics or programs that will provide corrective learning experiences. Family leaders need not be experts in these matters, but they do need to accept and implement a transformative vision.
Safe Communication Culture and Regular Family Meetings
Regular family meetings that focus on understanding diverse perspectives in a safe communication culture are essential elements in managing problem dynamics. This does not mean that family members should be encouraged indiscriminately to “get things off their chest.” It does mean that the family will benefit from structured opportunities for collaboration in sharing, understanding and problem solving. Listening well and nondefensively is critical for creating an environment in which people can reflect upon how they contribute to family challenges and develop corrective solutions.
Commitment to Fair Processes
Usually, decisions that need to be made by the entire family can be accepted by most people if the decision-making process is viewed as fair. That means giving a voice to everybody in the process, providing clarity and transparency in the decision criteria and adapting the decision to actual circumstances.
Team Learning
By working collectively to address family relationship patterns that affect the family office, family members not only develop solutions to specific matters but they also learn how to learn together.
All of the steps discussed thus far contribute to the development of a platform that will be fundamental to the other topic areas that need to be addressed by family: financial education, ownership responsibility, leadership succession, etc.
Feedback and Enhancement Options
Successful families—and family offices—continuously change by adapting to current circumstances and by preparing for future transitions. They allow regular feedback to make the platform better. This can be as simple as encouraging family leaders to ask, “How am I doing?” or as sophisticated as creating surveys that tap family concerns. Since families can be closed systems, external advisors who understand dynamics should be an essential part of the platform. These advisors can help families identify the dynamics they are less aware of (a fish in the water doesn’t know it’s in the water until it’s out of the water) and can provide new information that allows external comparisons.
Conclusion
Although family dynamics are frequent stumbling blocks for families and their family offices, family members and family office executives do not need to be experts in order to manage these matters well. Rather, what is required is a basic understanding of how the dynamics are rooted in the office, a commitment to developing a family platform that enables continuous learning and enhancement, and selected external advisors who can help develop tactics for family needs.