At a next-generation family meeting I facilitated recently, I was reminded of a concept that I typically reinforce with families: the family as a moving train. Passengers are constantly getting on, and occasionally getting off. Wealthy families must be attuned to and plan for the impact of their expanding and evolving passenger group. Those who do so effectively will increase the capabilities of the group as a whole as they oversee family assets. In most cases, they will enhance family harmony as well.
Advisors and families alike are typically focused on the impact of a family’s increase in size or on the need for good estate planning. Plans must be reviewed periodically to incorporate new family members (new spouses or grandchildren, for example) and to consider the impact of a larger group of inheritors.
But getting new passengers onto the train requires much more than good estate planning. First and foremost, the family must define who will be allowed on the train. What makes somebody an official passenger is often specified in trusts, prenuptial agreements, partnership documents or wills. But families often neglect to address who will actually be allowed to participate in wealth oversight until the decisions are thrust upon them.
At the family meeting I mentioned, the group of shareholders and their spouses ranged in age from 30 to 50. Their goal was to establish a representative body, or council, to evaluate the financial needs and expectations of the group and eventually develop an investment policy based on that feedback. As I worked with the planning group for the retreat, we struggled with whether to include spouses in our business meetings. They would be on the trip, organized as a fun getaway for this group of cousins, but in the past they had not been included in business decisions.
Our planning group decided to invite spouses to attend on a trial basis at the meeting in order to evaluate the impact and gain group feedback on the benefits and drawbacks of the spouses’ participation. The rationale was that the group now had next-generation children approaching college age. The family saw value in spouses understanding the structure and impact of the eventual inheritances their children would receive. An additional benefit was that there were talented spouses who could now take part in family decisions. Finally, many descendants said they would have shared information with their spouses anyway and relied on their input to make joint decisions. Excluding them meant possibly shutting out valuable ideas. These spouses weren’t technically on the train, but the family elected to invite them to board with a “special class ticket.”
While I do not advocate the inclusion of spouses for all families—the culture and norms of each may require other approaches—it’s worth considering if spouses expand capacity and bring new capabilities into the family.
A similar question is, at what age should younger family members be invited into family discussions? The family I worked with decided several years ago to invite family members age 21 and over, which is common. Other families require their members to have also reached a certain education level as well.
Orientation
Another thing families might require is that younger members participate in a mandatory orientation program that offers family background and context and educates future participants about important topics they will cover in meetings (such as investment terminology).
Well-organized family groups often design orientation programs for family members as they reach participation age, as well as for spouses joining the family group.
Orientations cover topics such as family history and legacy, family mission and values and the roles and responsibilities in the family system, and they offer an overview of governance and decision-making processes and policies. In order to effectively orient new family members, those from previous generations may need to spend time discussing and articulating their mission, values and goals so that they can communicate them to new family members and ideally perpetuate them.
The term “orientation” implies a onetime event, sort of like your first week at a new job. What hit home to me at the family meeting I facilitated is the importance of ongoing education. Just as the family evolves and grows, the family enterprise (whether it includes operating entities or investment assets) evolves as well. In order to establish investment expectations for the family group, we found it instructive to review the history of the family’s investments. Even those participants who believed they had a good grounding in their family’s history were surprised to learn how the family’s investment profile has evolved over time. This history shaped their thinking about what they expect from their investments in the future. A presentation on the future outlook for various sectors in which the family has holdings was important in framing these discussions.
It’s important to give them instructions as they get on the train, but both new and longtime passengers will greatly need ongoing dialogue; shared information; and refreshers on the history, evolution and outlook for the family’s investments.
A final concept to be aware of when incorporating new passengers is the importance of a level playing field. Everyone boards with different baggage. Some are members of family branches that have been on board a long time (family members who are more active in operations or who live close to family headquarters, which allows them to participate more). Others might have limited exposure to the business. It is important not to make assumptions about what a passenger may know. At our meeting, we were surprised to find that the spouses of family board members often did not have any exposure to the family enterprise because they didn’t talk about it at home. There were also family members who had limited information about family history because their parents who were actively engaged in the business didn’t believe in transparency and information sharing.
Defining what is valuable information for all family members to have and sharing it broadly across the family is crucial to making effective group decisions. When every family member has access to the same information, involvement increases and the quality of those decisions improves. In many cases, creating a level playing field will require some basic information for family members who have had limited exposure to business and investment concepts. In any family, some passengers will be more interested and engaged, electing to take a more active role. But a level playing field encourages all family members who have the time and interest to participate.
Remember that you are on a constantly moving train. Make sure that new passengers and longtime riders alike have an equal understanding of where the train has been and where it is headed. By investing the time and effort to develop a train of educated passengers, you will have the side benefit of increasing family harmony and inclusion as family members feel respected and valued and get to know one another’s strengths. Since each passenger brings a unique portfolio of skills and resources to contribute to the journey, you will enrich the experience of the group and enhance the quality of decisions you make together.
Jennifer Pendergast, Ph.D., is a senior consultant with The Family Business Consulting Group Inc., where she specializes in strategic planning, family and business governance and family office structure. To learn more, visit www.thefbcg.com.