The ultimate goal of any family business is to create a legacy for future generation. To achieve this, family firms strive to ensure that the wealth they generate (or inherit) grows on a solid financial foundation for the benefit of their descendants.
But there’s more to it than that. Even more important is their ability to convey the quintessential values that define them as a family in business to the next generation.
In my opinion, families that aspire to sustain their businesses across generations must first reinforce their capital. Family offices have been steadily gaining traction to help address this need.
Yet, those that neglect the non-financial aspects of the family’s capital risk jeopardizing the longevity of a multi-generational business.
In wealth management, the focus is placed squarely on the financial aspect, with a multitude of advisors offering their services in this realm. However, the concept of wealth is far more nuanced and complex.
The origins of the word “wealth” can be traced to the Old English word wela, defined as “happiness and prosperity in abundance.” In wela, we find a much deeper perspective. Centuries later, Henry David Thoreau expanded on this, defining wealth as “the ability to fully experience life.” And therein lies the crux of the matter.
James E. Hughes, author of Family Wealth: Keeping It in the Family, seems to concur with this broader angle, highlighting these seven classic mistakes as detriments to the preservation of family wealth:
- Overemphasizing financial capital while neglecting human and intellectual capital.
- Viewing wealth preservation as static rather than dynamic.
- Measuring time in years or decades as opposed to generations.
- Failing to recognize–and by extension, failing to manage–both internal and external threats.
- Thinking in quantitative rather than qualitative terms.
- Lacking awareness of the family history or failing to articulate it.
- Believing that wealth preservation is easy.
Since this is my first blog post of the academic year, I’ll refrain from diving into too much detail today. However, I encourage you to reflect on James E. Hughes’ seven points and consider these questions in the context of your own family business:
- Is our purpose as a business family clearly defined?
- Have we formalized these values into a written document that can guide the development of a family strategic plan?
- Do we have the right governance structures in place to implement this plan?
- Are our interpersonal relationships strong enough to support its execution?
I could add several more questions to this list, but this is a good starting point. As I mentioned, I want to avoid giving you too much homework on the first day.
Wishing you a productive “back to school” season!
Homepage image: Gustav Gullstrand · Unsplash