Constitution book

Behind the “Flawed” Family Constitution

Behind the “Flawed” Family Constitution

This week’s post is about the wonderful world of the “Family Constitution”.  I thought about doing a “5 Things to Know…” blog, but decided against it.

There’s a lot to get to, so let’s dive in.

 

Just Who Are “The People”?

As I searched Shutterstock for an image to accompany this post, I entered the word “Constitution” and was amazed (but not surprised) at how many of the pictures featured the words “We the people” at the top of an old document.

Those are of course the first words of the U.S. Constitution, and they really sum up the importance of getting the preamble right to set the context properly in the creation of any important document. 

See: Co-Creation and Values in the FamBiz

It’s not hard to deduce from the expression “Family Constitution” that “the people” here would be “the family”.

 

“The Family”; OK, Thanks, Now It’s Clear. NOT

That’s all fine, of course, until it comes to defining exactly who all the individual people are, especially as definitions of family continue to evolve.

If that were the only issue to resolve, this wouldn’t actually be that difficult.  We’d need to start with the family leaders and then expand the group slowly, and then work together to come up with definitions and rules, and come to a consensus on who’s included.  Surely not an insurmountable problem.

 

Putting the “Con” in “Constitution”

Having a family constitution can be a very useful thing for some families, assuming their governance has sufficiently evolved and the family members have actually been key players in its development.

For every “Pro”, there are also many “Cons”.

The inspiration for this blog came from an article I saw on LinkedIn a few months ago, by Professor Enrique Soriano, who works with families on their governance, mostly in Asia. I’ve never met him, but we have 174 common connections on that network as I write this.

His post, Elements of a Flawed Family Constitution, is essential reading for anyone truly interested in this subject, especially for those who see the Family Constitution as the “be all and end all” of things that every family “must have”. 

The fact that many of those who believe this also peddle their services to families, and offer to create these documents for them, should not be a huge surprise.

 

One Person is NOT “People”

As I wrote last year in Family Governance: From Filaments to LED’s, if one person writes the constitution, alone, without major doses of input from people from different generations of the family, it simply will not work.  

Sure, you can fool yourself that you’ve got something worthwhile, but it won’t last.

Similarly, if the document was largely put together by a consultant, or even a team of consultants, it will not serve its intended purpose.  And this is true even if you hire the best consultants and pay them a lot of money to do this work for you.

As I always say about family governance (of which a family constitution is but one possible component) it really needs to be FOR the Family, BY the Family.

 

Cultural Differences?

Soriano notes at one point that perhaps the phenomenon of “flawed family constitutions” is more prevalent in Asia, where he is based.  That may be the case, as there could be more of an attitude towards the forced creation of a document that everyone is then expected to abide by in those cultures.

But I don’t care what country you are in, unless the family members were heavily involved in its creation and implementation, no family constitution is going to be worth much.

 

My Own Pet Peeve

The one thing that I personally hate about this subject, is that it’s so often based on the assumption that keeping the business and family together forever is desirable and doable.

There may be some cultural biases in this aspect.

If the attitude behind the creation of a constitution is to “force” people to remain in relationships that they otherwise would rather not be part of, then trouble will likely be ahead.

 

My “Family” Bias

My bias is always to make sure that the family relationships survive for generations.  If that means that changes need to be made to the business and ownership, then let’s figure out how to make those and keep the family intact.

If a constitution that reflects that can be created, then great.

Of course any family with that attitude might never think they need one…

2 kids whispering to each other

The Secret to Success for Family Businesses

Family businesses by their very nature are very diverse.  No two families are alike, and the variety of businesses that they own and operate are likewise very different.

So as someone who writes a weekly blog that always comes back to families and how they work together, I think it’s normal that my inspiration for ideas to write about is also “all over the map” and quite eclectic.  

This one comes from something I heard on the radio, but it wasn’t a country song! (Please see Blame it on Cinderella and Humble and Kind for examples of those).

No, this time it was talk radio, on a sports station.  But for some reason, they had Larry King on as a guest.  I guess he was in town for something and he popped into their studio.

 

“You Know What the Secret to this Business Is?”

Larry King was a long-time TV show host on CNN (1985 to 2010) and so he knows a thing or two about the broadcasting business.

He was chatting with the guys who host the afternoon drive show and suddenly he said, “You know what the secret to success is in this business?”

You could almost sense the anticipation as they waited for the punch line in the studio.  As I was driving, I too was intrigued and awaited the next words out of his mouth.

“The secret is”, he continued, finally, “that there is no secret”.

And so it is, dear readers, with those of us who work with family business.

 

What Questions Should I Ask?

When I work with a family business or a family office, I try to steer clear of the business end of things.  I do this not because I’m not qualified to help them there, because if I chose to, I know that I could add value there too.

I just prefer to stick to the area surrounding the family members, because that is where there is typically a crying need for some outside input.

But when I run into other professionals who also work with families, but who concentrate on business matters, they sometimes think that the work I do on family dynamics is something they could easily do as well.

It doesn’t happen that often, but sometimes they will even ask me for some of my “secrets”. 

“So can you just tell me what questions I should ask?”

If only it were that easy.

 

Listen, Ask, Listen Some More

There are no “secret questions” to ask.  It’s much more about being truly curious when you ask whatever question you choose to ask, and then listening to the answers.

It’s about wanting to find out what’s important to the family members, and I’m not just talking about the family member or members with whom you have your business relationship.  

If it truly is a family business, then the other members of the family are also important.  This is true even if there are some family members who don’t work in the business, and even if they are not currently owners of the business.

To truly serve a business family properly, you need to understand the family.  And to understand them, you actually have to meet them, and speak to them, and get to know them.

This can’t be a secret, can it?

 

Regular, Clear, Transparent Communication

I was just talking about advisors who work with families, but what about the families themselves?  Are there any “secrets” to success for them? Once again, I don’t think there are any secrets per se, just lots of common sense.  

And in the same way I was telling advisors that they should take the time and make the effort to learn about the other family members and their thoughts about the business, it’s even more important for the family leaders to do that too.

But they surely already know that, right?

And nothing worthwhile ever happens without some planning and intentional effort.

Making an effort to instill regular, clear and transparent communications within the family group is a great idea, and always worthwhile.

More families should probably do it, and not enough of them do.

So maybe it still IS a secret.  You can start changing that, now.

P.S. That “11-year-old daughter” in the Blaming Cinderella blog just turned 18 and will be off to college in the coming weeks. 

Co-Creation and Values in the FamBiz

This week we’re looking at two subjects that have an interesting relationship when it comes to business families.  I’m not really sure how to describe their relationship, but maybe we can figure it out together.

Please join me as we look at Values and Co-Creation in the context of families looking to preserve their wealth across generations.

People have been talking about Values in the family wealth space for a long time, and with good reason.  The idea of Co-Creation seems to be a more recent manifestation, and I’m really excited about how the two can actually work together.

Let’s get started.

 

Co-Creating the Families Values

Values, in the end, are usually a very personal matter.  It’s not often that any two people will have the exact same “top 5” values, for example.  It’s not quite like DNA, but still very much an individual thing.

So what about “family values”, then?

Well, thanks to the DNA metaphor that just popped into my head as I was writing this, we have something we can keep using here, with this analogy.

While no two people’s values will be identical, it’s not uncommon for family members to have a lot of overlap in what’s important to them in terms of values.

 

Handed Down from the Parents?

In many ways, like DNA, your values are determined, or at least influenced by, your parents.  So it shouldn’t be too surprising to realize, when you meet siblings for example, that their values will be similar.

But when you’re trying to find the “common values” of the family, I don’t recommend that they be dictated from on high, from one generation to the next.

That’s where the Co-Creation comes in.

 

The Process Versus the Result

If you begin with each family member’s individual values, you’ll undoubtedly find some common ground that can act as a foundation upon which you can then build the “family values” that you are looking to discover.

But please resist the temptation to quickly find “the answer”.

The process that the family members go through together, as they explain to the others how they view each of their important values, and why they are important to them, is even more important than the end result.

The discussions, especially in a sibling group, as they share examples of how they have lived their values and how they have seen others live them as well, is so rich with potential that it shouldn’t be ignored.

It’s the entire process of working together, that Co-Creation, that will ensure that when the family adopts their list of key family values, they will actually “stick”.

 

The Value of Co-Creation

This now brings us to the other view I have stuck in my head around the way that Value(s) and Co-Creation overlap.

We’ve been talking about the Co-Creation of the family’s Values, but I really want to underscore the Value of Co-Creation.  This is admittedly a bit of a clunky argument on my part.

As the author of all of my content, as well as the editor, I’ve given myself editorial licence to do this.  I hope you’ll continue to indulge me here.

The first message is that family values MUST be co-created.

But the second message is that Co-Creation in and of itself, has a lot of Value, in everything the family does together.

 

Family Legacy, Family Alignment, Family Governance

All of my favourite subjects in this work revolve around family, and I express them in different ways depending on the context and particular circumstances that any family is living.

But whether I’m talking to a family about the family legacy that they want to leave (and live!), or the family alignment that they may have to work on to get everyone working in the same direction, or the family governance that they’ll need to begin to work on, to hold it all together over the coming generations, the Co-Creation of these is always central to their ultimate success.

So, Yes, please remember that family Values should always be Co-Created by the family members, with a major input from the younger family members, please!

But Yes also to recalling that there is huge Value in the idea of Co-Creation of everything else the family is working on for their long term success.

FOR the Family, BY the Family. But not necessarily by themselves!

 

“Professionally Emotional” – A FamBiz Oxy-Moron?

Following up on last week’s post, Three Pillars of Family Governance from a Pro, in which I invoked the wisdom of Barbara Hauser, one of the veteran contributors to the field of family enterprise, I’m going to do something similar this week.

This time I’ve been inspired by Randel Carlock, a professor at INSEAD, who has also been a major contributor to this field for decades.

And whereas last week’s post came about as the result of my reading a piece from CampdenFB, this week it comes from a post I came across  from Tharawat Magazine.

Many of my blogs have their genesis in conferences I attend and interactions with families and colleagues, but these two websites have provided many sparks as well.

(LinkedIn and Twitter are great ways to stay abreast of things in this space, by the way).

 

Professionally Emotional

What struck me was this quote, from A Family Business on the Moon – Lessons from the Author, where Carlock says, “…we encourage families to become professionally emotional, which may seem like an oxymoron, but it works.”

As someone who loves to play with words and gets excited by the potential paradoxes in any oxymoron, this one ticked a few boxes for me.

While many people might feel like “professional” and “emotional” cannot naturally coexist, I think that those who inhabit the world of enterprising families will immediately recognize the possibilities this expression gives rise to.

Let’s take a closer look at what Carlock is driving at.

 

Professional Governance and Strategy

When it comes to the running of a successful business, it’s always important to have a professional approach to the strategy and the governance of the enterprise.  Few people will argue with that.

Of course, too many family businesses continue to operate with less than professional business operations and strategy, but that is a subject for another day.

In terms of running and guiding the company, “professional” is certainly the way to go, or at least something to aspire to.

 

Emotional and Caring Leadership

But family enterprises need to be a bit different than their non-family brethren in how they exercise their leadership.  

When you have several family members involved, and you therefore have more than a simple business relationship with the others around the table, other factors come into play as well.

It is in the leadership of these enterprises that the emotions and the caring need to be present.

So, “Yes” to the professionalism of the “what”, but also “Yes” to the caring about the emotional side of things in the leadership, or the “how”.

Parallel Planning Process

Carlock is encouraging families to work on their business and their family planning in parallel.  In fact, he coined the term “Parallel Planning Process” many years ago, in a book he co-authored with John Ward from the Kellogg School of Management at Northwestern University.

That book, Strategic Planning for the Family Business, details everything quite nicely.

Not only is it important to do planning for the business AND to do planning for the family and its members, a major point is that they are equally important.

And because they are both important, they need to be done in a coordinated and aligned fashion.  They are interdependent, so you need to make sure that they’re both progressing side-by-side.

 

Match the Speed of Evolution

What often occurs is that many plans are made, professionally, concerning the future of the business.  The focus continues to be on making the business strong, and having it continue to grow. The family can be an afterthought.

That’s when things can get out of sync with the family.  When there is business planning without regard to the family members and the human capital that they can offer, many possible contributors can get lost in the shuffle.

The other version can occur too.  How many of us have heard of family businesses that get sold to outsiders, because no family members want to take over?  Typically, the next generation have all become professionals and have great careers going, so coming back to the family business can seem like a step backwards.

All the more reason to try to keep the plans for the family and for the business properly aligned. None of this is necessarily easy to do, it takes effort and diligence.

That doesn’t mean it isn’t worth it though!

Three Pillars of Family Governance from a Pro

Some regular readers may be getting a bit sick of reading my take on the subject of Family Governance.  Well this week I’m going to revisit this important subject, but with the help of someone who has decades more experience with the matter.

I always want to share more on Family Governance, but this time I’ve got the wisdom of Barbara Hauser on my side, so you can all benefit from her work with families on several continents.

The source of the background for this post is an article I saw online in March, from CampdenFB.com, written by Hauser.  It, in turn, is an excerpt from a chapter that she wrote in the recent book, Wealth of Wisdom, which I also highly recommend.

Making Decisions Together

What are the best ways for a family to make decisions together?

Great question, isn’t it?  I think so. It’s also the title that Hauser chose for her post, and Chapter 28 of Wealth of Wisdom, which was her contribution to the book.

My readers will hopefully recognize the aspect of decision-making that I typically cite as one of the three main components of Family Governance (along with communications, and problem-solving). See Family Governance – Do It Yourself?

Go Read It for Yourself

I will come right out and recommend not only that you read the CampdenFB.com story I linked above, as well as the entire Wealth of Wisdom book.  

But now I need to segue this post into the “three universal principles” of good governance that she outlines for families to follow that I teased in my blog title.

Let me list them here first, and then I’ll give you my take on them one-by-one.

Hauser states that three key elements you’ll want to ensure you have are:        

Transparency, Accountability, and Participation.

Transparency: Everything Above Board, Please

Family governance is all about how things are taken care of for the larger family group, and typically involves smaller groups of people doing much of the work and making many of the day-to-day decisions on their behalf.

These situations always result in what I like to call an “Information Asymmetry” i.e. a few people know A LOT about what’s going on, while many people know VERY LITTLE.

The most important thing to keep in mind is that this asymmetry can make those on the “I know very little” end of things uncomfortable and perhaps even suspicious.

As an antidote to suspicion, it behooves those on the “I know a lot” side to be overly transparent in everything they do.

Better to “overshare” to the point where they feel like you are bombarding them with detail, than to “undershare” and have them think you are hiding anything.

Accountability: Do What You Promised (Or Else!)

Being accountable to the group is the next key principle that follows on perfectly to transparency.  Not only do those who are taking care of things need to be upfront and above board with the things that they are doing on behalf of the other family members, they actually need to be held to account for the results.

If certain people are being trusted by others to represent them, there needs to be an occasional “accounting” of their performance.

If results are sub-optimal, explanations are warranted, and continued underperformance should naturally raise possible questions of fitness for the task.

As long as group members can see what those at the helm are doing, and that there are opportunities to discuss results, things typically run smoothly.

Participation: Hey, I Want in On That Too

Hauser’s third principle of Family Governance is Participation.  Again, it flows nicely from the previous one.

Imagine a scenario where performance is not up to expectations.  Other family members might rightly want to be able to be involved at a deeper level, if they feel that they have a contribution to make.

Of course this principle involves more than simply having a line form to take the place of those at the helm.

Simply being invited to take part in any discussions around transparency and accountability also count towards participation.

Start Small, Let Things Evolve

I really don’t like to scare people when I talk about the importance of Family Governance.  It doesn’t need to start out as a big deal. Put a few elements in place, and allow things to evolve slowly form there.

That reminds me, you may also want to read The Evolution of Family Governance!

Spreading the Gospel: Let Me Count the Ways

Years ago when I was entering the family business field as an advisor, freshly armed with some great wisdom and perspective thanks to the FEA Program that I had just completed, I was already convinced that for me, having more competitors would be better for me than less.

In fact, I first wrote about this in May 2013, when I was only half way through the program: Spreading the Gospel vs. Cornering the Market

I’m pleased to report that, anecdotally at least, this attitude is beginning to gather steam.  I’ve heard a few other people mentioning this aspect of the industry. What aspect?

That a more generalized acceptance and understanding of the important work that families must do to successfully transition their wealth to the next generation will be better accomplished when more families and advisors “get it”.  

More competition not only makes us all better, it’s creating more work for all of us. Let’s look at some of the progress we’ve seen in these past few years.

An illustration of people and communication

Education Programs for Advisors

When I completed my FEA designation (2014), the number of designates was somewhere in the “dozens”.  It is now in the “hundreds” (over 300 and well on the way to 400). And most of us are just in Canada.

Similarly, the GEN Program from FFI was still in its infancy then.  I completed their designations (CFBA, CFWA, ACFBA, ACFWA) from 2014-2016. (GEN stands for Global Education Network).

The first two of those are done completely online, but include a capstone webinar with a truly global group of students.  The second pair (with the added “A” at the beginning to denote “advanced”) include a full day in person session as part of FFI’s annual conference each October.

The number of people who have been through the FFI GEN program is also in the hundreds and will likely be in the thousands before long as its growth rate has been staggering.  This is a testament to the desire for increased training to work with families and their complexities.

 

Conferences for Advisors to Share and Learn

FFI is a huge and global organization that has been around for over 30 years and has helped grow the whole industry.

More recently, other groups have formed and I’ve also enjoyed attending their annual gatherings.

Regular readers will recognize their names immediately, as I write about them often, because I am a big fan and because they’re the inspiration for many of my blog posts.

Every year in July, I head to the Denver area for the Rendez Vous of the Purposeful Planning Institute.  And for the past three years, I’ve gone to NYC in January for the Institute for Family Governance’s annual conference as well.

 

More people talking about how they work with families and sharing ideas with others, every year, over and over again, has been great for all of us.

People watching a presentation in a room

Read Any Good Books Lately?

Another way that some in this profession spread the gospel is by writing books about their work.

I’ll just note two here that I really enjoyed, written by peers that I consider friends.  These are of course people that I met and continue to meet at the above mentioned conferences.

The first is In Three Generations, by Kristen Heaney.  The second is The Naked Opus, by Chris Delaney. They both happen to be written as fictional stories, and knowing both authors I recognize similarities to their own lives.

 

Interdependent Wealth

I have great respect for anyone who makes the effort to write a book, because I’ve been through it myself.  I wrote SHIFT your Family Business five years ago, and that was quite an adventure in its own right.

Currently, I’m putting the final touches on my second book, Interdependent WealthHow Family Systems Theory Illuminates Successful Intergenerational Wealth Transitions.

For those of you who’ve been asking (Thanks!) you can now pre-order copies (click the link above) and you’ll receive them from Amazon in early July.

 

I’m running out or racetrack for this week and I still didn’t get to the area of TOOLS that people have created to help spread this great work that families require.

But that’s not a huge deal, because each week brings a new blog post, and I’ll cover some tools in a few weeks. Stay tuned!

I continue to enjoy doing my part to spread the word about this field, I hope you enjoy it too. Let’s keep spreading the gospel together.

Kissing Your Sister: Playing for a Tie in FamBiz

As a lifelong sports fan, there’s been a phenomenon going on that I haven’t heard many people address. When I was a kid, a lot more games seemed to end in ties.

It was as a youngster that I first recall hearing the expression: “A tie is like kissing your sister”.  

As this subject came up as a potential blog post, it struck me that rule changes have been developed and implemented in some sports, notably hockey and soccer, to minimize the number of games that end with this seemingly “sub-optimal” result.

 

Is Family Business the Exception?

If ties are no longer considered something desirable in sports, maybe the world of family business could be the one place they’re still in vogue.  Let me explain.

Back in April, in Roles and Rules for Enterprising Families, I wrote about a presentation from the 2019 Institute for Family Governance Conference, which included an impressive 75-page slide deck.

In that blog, I intentionally chose to not focus on the great slide I noticed on page 50, because I was saving it for its very own post.

Here’s what the slide said:

 

A General Family Business Precept:

In a Family, if you play to Win, you Lose;

In a Family, if you play to Lose, you Lose;

In a Family, if you play to Tie, you Win

Richard Goldwater, MD

Boston, MA

I saw that slide in January, and months later it’s still with me, and rings even truer today.

 

Setting the Proper Context

Of course we need to think about this in the proper context, otherwise this statement can be dismissed as completely nonsensical, and that would be a shame. I think that there’s real wisdom here and I’d hate for it to get lost.

Dr. Goldwater is clearly talking about what goes on “intra-family” here.

Of course every family business, as a business competing with other businesses, should be playing to win, all the time, or else the business will not survive.

His thoughts on this subject are clearly directed at how members of a business family think about and deal with their interactions as members of the same team.

 

Misdirected Efforts

In essence, what I think he’s also talking about is how important it is to present a common front to the outside world, as a united team that is competing with other businesses, playing to win.

However, when some of the team members are busy expending efforts to win at some internal game that they are in effect playing against their siblings, parents, or cousins, then things can begin to fall apart rather quickly.

 

Sad to See in Real Life

Part of me wishes I could say that my only knowledge of these situations is theoretical, because it’s really sad to see things like this go on in the real world.

I have a coaching client who is fighting this kind of battle with their two siblings right now.

It’s so clear to everyone that there’s a power struggle going on.

And when I say “everyone”, I mean everyone.  

Employees see it, customers see it, suppliers see it, outsiders like bankers, accountants and lawyers see it.

brother kissing sister

Accidental Partnerships

The situation with my coaching client is one where the siblings are partners in a business together, but if they had started from scratch, these people would never have agreed to be business partners together.

They just ended up that way, accidentally.  Or, actually, through a lack of any real planning as their parents were transitioning out of the business.

 

Not Every Problem Has a Magic Solution

Unfortunately, there isn’t always a great way out of these situations.  

Various strategies are being looked at so that these partners can each end up in situations in which they are in control of their own destiny, and that their reliance on their sibling partners is minimized.  

We’ll see how it plays out, because there’s lots of complexity to manage, and the “parts” may be worth less than the “whole”.

 

Saving the Family Over the Business?

My bias, in situations like this, is to work on ways to “save” the family, even if that means making drastic changes to the business.

Some advisors prioritize the business.  I rarely do.

 

Kiss and Make Up

Getting back to the title of this post, maybe kissing your sister isn’t so bad?

And maybe it’s all part of a “kiss and make up” strategy.

But please recall that a tie can really be a win.

guy riding a bike in ireland in the late afternoon

Riding a Bike: Assumptions and Promises

Readers who also get my monthly newsletter are possibly aware of a recent professional development program that I’ve signed on to in order to up my one-on-one coaching skills.

I’m now a little over month into the 6-month long professional coaching certification program with CTI, and loving every minute of it.

Included in the work, in addition to time spent coaching clients, is a regular weekly Zoom call with the other 8 coaches in my “pod”, with our course leader.

In preparation for our first call, we were asked to prepare a response to two queries about our expectations for the program.

What Are Your Assumptions?

The first thing we were to consider and expound on was our assumptions about the journey on which we were embarking.

Now my particular situation was quite a bit different from that of the average participant, because a long time had elapsed from when I took all of the prerequisite courses to when I began the certification program.

I completed those in 2014, and a five-year gap is far from standard.

So my response to the assumptions question was that it would be like riding a bike, meaning that despite the time lag, the coaching would all come back to me quite quickly.

 

What Promises Are You Making?

The next question was completely different, but I felt compelled to tie my answers together.

We were asked what promises we were making to ourselves about our participation in the program.

I thought about that one for a while, before being sparked into jotting down: “If I fall off my bike, I’ll get right back on and keep riding”.

I felt so clever in the moment, and I was pumped to share my answers the next day.

 

Change of Plans

Now imagine my disappointment when we actually began our introductory call and our leader went off script and asked two different questions instead!  Ah, crap!

I managed to answer his prompts on the spot, but my replies weren’t nearly as memorable as the ones I’d prepared.  Oh well.

But then, in my regular session with my own coach, Melissa, I relayed the story to her.

“Hmmm.  You seem excited about this subject.  Maybe there’s a blog in there for you?”

And here we are.

 

The Family Business Angle

You all know that I love to relate stories, and now the trick is to turn this into something worthwhile for families who are planning an eventual intergenerational wealth transition.

So let’s start with Assumptions and then move on to Promises.

 

Assumptions in an Enterprising Family

This part is actually pretty simple for me, because assumptions are at the heart of many of the key issues that families face.

In fact, a large part of the role that I play when working with families is to have them recognize the assumptions that they hardly even realize they are making.

Once they recognize them, they can start to deal with them.  And by deal with them, I mean that as a coach, I will challenge them to actually verify that their assumptions are in fact valid.

girl and guy riding a bike

My Kingdom for a Forum

The main reason that assumptions persist in not being “aired out” is that families don’t have a forum in which to have the important discussions necessary to clarify that everyone has a common view on important matters.

I talk a lot about the importance of family meetings, and the key is always to have a series of meetings, where the date of the next meeting is always set before the end of the current meeting.

Please See: 5 Things you Need to Know: Family Meetings

 

Promises in an Enterprising Family

The idea of promises in an enterprising family is a bit less clear to me.  Obviously when working with family, we often feel much closer to each other and there’s an inherent promise to do what is best for the group as opposed to ourselves.

But I think that my “take home message” on this should go along with what I wrote about assumptions.

While you are meeting and clarifying everyone’s assumptions about the future of your family enterprise, why not also make it a point to also enunciate the promises that you’re all making to each other?

 

Get Back On the Bike!

In closing, I recognize that some families start these meetings and then lose momentum.

To them my message is simple: Just get back on the bike and ride again!

 

Continuity Planning: Who’s at the Table?

There are subjects I to return to regularly in this space, and “continuity planning” is certainly one of them.

I still clearly recall first coming across this term, and it was a bit of a head scratcher for me.

Lest your head also feel itchy, allow me to share what I learned when I first asked “Um, what’s ‘continuity planning’?” during the Family Enterprise Advisor (FEA) program in 2013.

 

Goodbye “Succession”, Hello “Continuity”

If the term “continuity planning” sounds new, it’s mostly just a newer, less threatening, and more accurate term for something that family businesses have been doing since, well, forever.  

Only most of them call it “succession planning”.

We were winding down the first module of the FEA program on “Family Dynamics”, looking ahead to the next six multi-day sessions that would take place over the coming months, one of which was called “Continuity Planning”.

The “outspoken” guy from Montreal asked, curiously, “What’s continuity planning?”

 

A More Appropriate Label

While the reply I got was largely that it was a “re-branding” of succession planning, I’ve since come to understand that it’s much more than that.

The biggest issue people have with the term “succession planning” is that it automatically makes one think about a future scenario when the key person or people will no longer be around.

In a non-family business or corporate environment, succession planning takes place all the time in many departments, and the idea is not nearly as “heavy”.

But in a family business, where the idea of “retirement” is somehow less common, that key person’s exit is too often presumed to only occur upon death.

 

What Will Continue, Versus What Will Change

When we substitute the word “continuity” for “succession”, there’s much more focus on what will stay the same, even when some of the people have moved to different seats on the proverbial bus.

The other idea that gets driven home is the longer term nature of the whole exercise.

We aren’t just concerned with the next transition, but also the one after that.  It’s the beginning of a long-running discussion about how to continue to prepare people for increasing responsibility for many years to come.

Setting the Table

If we want to have a good discussion about where everyone fits into the future scenario that we’re envisaging, my bias would be to include as many of these people in the conversation as possible.

What still happens too frequently is that Mom and Dad figure it out themselves and keep it secret.  Sometimes they even go see their accountants and lawyers to draw it all up officially.

And frequently those affected only eventually learn of their fates right after a funeral.  (See #5 in 5 Things you Need to Know: Family Inheritance)

Regular readers will surely recognize that I am not advocating for this strategy.

 

Start with the Family

The family business was likely built and grown for the benefit of the family, in most cases.  

If that’s true, then my belief is that it behooves the family leaders to involve the family in the first stages of continuity planning.

There are too many stories about expert advisors who lead the family down a certain path, for seemingly legitimate reasons (usually around tax minimization), on the assumption that whatever makes sense to them, will automatically also be great for the whole family.

 

Looking for Trouble, Without the Leadership to Solve It

Since this is often about a whole life’s work, there really shouldn’t be a rush to settle everything, just because some of the conversations can be difficult.

This is really important, but it shouldn’t be urgent.

What I’m suggesting is an iterative process, where a preliminary meeting is called to get the family in on the idea that plans for the future are now being worked out.

An invitation is also extended to family members to have their voices heard as to their ideas, hopes, and expectations around how they see things, especially as to what role they may have in things going forward.

 

Growing Into Their Roles

As more meetings are held over the coming months, the future family leaders can grow into their roles slowly over time, as the plans are co-created and become clearer.

After the family’s big picture ideas are clarified, it will then be time to get some outside experts to the table to work on the “how’s”.

Get the family around the table first. The experts get their place after.

Doing Better than the 4 D’s

Doing Better than the 4 D’s

This week I want to talk about the “4 D model” that I’ve heard David York speak about on a few occasions.

Now, lest you think that the word “model” is being used here in a positive sense, as in “a model that you should follow” or “role model”, please erase those thoughts immediately.

And furthermore, if you think that I’ll be arguing against York’s views, again, that ain’t it either.

York coined the term “4 D Model” to describe what has been going on for far too long, and we are in full agreement that there is a better way to go.

 

Background and Context

I first met David York in Denver a few years ago, at the annual Rendez Vous of the Purposeful Planning Institute (PPI).

Regular readers know that PPI is one of my absolute favourite organizations and that the Rendez Vous in July each year is the one gathering each year that I never miss.

I personally see York as one of the rising young stars in this field and love the way he conveys his important message.  This TED Talk of his is a great example.  His books are great too.

 

Traditional Estate Planning

York has long described the traditional “4 D Model” as follows:

Dump, Divide, Defer and Dissipate.

He’s also well aware that many of his estate planning attorney colleagues continue to follow this model.  Let’s look at the 4 D’s one by one.

DUMP

This is the part where the assets of the parents are transferred to their offspring upon death, usually after the second parent has died.   Little is done to transition any wealth while the parents are still alive, because that might require some real thought.

DIVIDE

This refers to the fact that upon death, those assets will be automatically divided equally between the offspring, regardless of any other circumstances, like ability, needs, etc.

DEFER

The deferring is mostly about trying to avoid paying any taxes until absolutely necessary.  So delaying any transfers of assets is part of that strategy too, because if you can’t avoid paying taxes, deferring them as far off into the future is the next best thing.

DISSIPATE

The final D is mostly about the results, as the family’s wealth dissipates after applying the first three D’s.

When the wealth has been treated in this way, with financial wealth as the sole issue of concern, and where no effort was ever made to involve those who would inherit it, it shouldn’t be surprising to learn that in many instances, that financial wealth will be handled by the inheritors in ways that could be described as sub-optimal at best.

 

More Purpose, Please

So far we’ve spent lots of time on how NOT to do the work necessary to transition wealth from one generation of a family to the next, and now it’s time to look at some positive moves a family could make to do a better job.

Notice that I said “moves a FAMILY could make” because ultimately the onus is on the family to do what is right for them.

Unfortunately, most families rely on outside experts to help them with this important work, and if a majority of advisors are stuck in the “old ways”, it can be very difficult for families to get the kind of help they really need.

Truck dumping grabbage

Involving More Parties – Inside and Outside

If the Four D model has survived this long, it’s largely because it’s very efficient.  It’s quick and relatively easy.

Making purposeful plans involves a lot more people so it naturally takes more time.

The first group of extra people are the other family members.  How can you make important plans for the next generation without involving them?

I don’t know, but most families have done it that way.

 

Multidisciplinary Advisors

The other group of extra people that need to be part of the solution are the advisors.

Every great plan will need to include input from a variety of outside specialists.  Ideally they will collaborate for the good of the family.

But most importantly, most of them should only be brought in after the family has figured out the most important questions around how they want the wealth to serve the following generations of the family, not before.

Rendez Vous 2019 will feature a breakout session featuring David York as well as one featuring Steve Legler and Joshua Nacht.  We all hope to see you there.