Complete Family Wealth. Keith Whitaker
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at times) can end up seeing you only for your money. Not talking about money can be a sound defensive measure. The chapters that follow aim to help readers develop safe ways to talk about financial capital, ways that preserve and promote the family's four qualitative capitals.
A Provocative Comparison
Before turning to the question of measuring the various types of qualitative capital, consider briefly a quantitative comparison. Tally up a rough estimate of how much your family spends each year to account for, preserve, and manage its financial capital. That spending may include asset management fees, advisory fees, legal fees, accounting fees, custody fees, and many others.
Next, think about the types of qualitative capital and the activities we described to grow them. How much does your family invest in them? Probably quite a bit when it comes to sending young adults to college or paying for major medical care. But what about on an ongoing basis? What about investing in the proactive growth of qualitative capital?
(Notice the difference here, familiar to any business owner, between operating expenses—such as those related to managing assets—and investment, which is an expenditure meant to grow your assets.)
You likely have a budget that covers the costs of managing your financial capital. Have you ever considered an investment plan for growing your qualitative capital? If you had such an investment plan, how would it compare to the budget for your financial capital? What would that comparison say about the relative importance of the different forms of capital in your family's life?
Measuring Qualitative Capital
Many families keep track of their financial capital on an annual or even quarterly or monthly basis. Careful stewarding of balance sheets and income statements is critical to the management of the family's financial capital.
Unfortunately, these efforts often don't extend to the family's qualitative capital. Without an assessment of qualitative capital, the family and individual balance sheets are incomplete and will not measure the extent to which a family is growing its complete wealth.
One way to measure, manage, and grow qualitative capital is Family Qualitative Capital Management, a program we developed at Wise Counsel Research. In this section we share a brief description of this process.
First, every twelve months, we measure our client families' qualitative capital. To do so, we designed a tool we call the Family Balance Sheet. It takes each family member about 20–30 minutes to fill it out online. The Family Balance Sheet produces topline results for the family that show its scores in human, legacy, family relationship, structural, and social capital.
Second, we aggregate all family members' responses to create a Family Qualitative Capital Report. This Report identifies the family's areas of strength and weakness in the five forms of qualitative capital. Based on the family's results, we include in the Report relevant and actionable recommendations for each family member and for the family as a whole.
Third, we meet with the family to review the Family Qualitative Capital Report. (Each individual family member's report is confidential to him or her, but everyone sees the Family Report.) The most important part of this annual meeting is to help the family discuss and decide on a Qualitative Action Plan. This Plan may include specific objectives such as enhancing cross-generational communication, engaging and educating rising generation family members, and creating effective governance structures. The Family Qualitative Capital Action Plan ensures that the family always proceeds forward in a thoughtful, deliberate manner, that responds to its true needs, and makes the most of family members' engagement and the resources committed to these efforts.
Fourth, family members pursue their agreed-upon Qualitative Action Plan in concert with appropriate specialists. These may include family office staff, attorneys, individual or family counselors, or governance specialists. This is the same as what is called “manager selection” in the world of quantitative capital. You don't expect one person to manage all your different financial assets. So why expect one consultant or adviser to help you with your different forms of qualitative capital?
Fifth, after six months, we reconvene a family meeting to evaluate progress toward the agreed-upon objectives and make any needed adjustments to the Qualitative Capital Action Plan.
Sixth, in the final month of each annual engagement, we meet once more with family leadership to summarize progress, identify changes in the family system, update the Family Qualitative Action Plan, and discuss overarching goals for the next year of the family's work together.
No doubt you've noticed the parallel between the process of Family Qualitative Capital Management and the process of financial wealth management.
There's one crucial way in which the two differ. As fascinating and as important as it is, financial wealth management is not an end in itself. Financial capital is a means to pursue other ends, such as security, comfort, health, meaningful experiences, etc.
In contrast, qualitative capital is both a means and an end. Having strong qualitative capital allows your family members to do more—to work together effectively, to make good decisions, to sustain their family business or family finances over generations. But it also allows them to be more—to be healthier and happier in their individual lives and with each other. It promotes true “wealth as well-being.”
Note
1 1 We share additional thoughts on the relation between financial capital and the qualitative capitals in Chapter 21, “Financial Capital.” There we also summarize two practices related to the intersection of the qualitative and quantitative capitals, Investor Allocation and the Family Bank.
CHAPTER 2 Family Enterprise
Affinity
In this chapter, we will share insights on family flourishing and family enterprise. But first what do we mean by family? This is not as simple a question as may seem at first.
One of the principles that we have seen prove itself time and again in our work is that the families who flourish over time understand themselves as families of affinity.1 A family of affinity does not limit its sense of identity to blood or genetic lineage. It sees itself as linked by a common mission and a sense of “differentness.” It recognizes the paradox that acting altruistically—for the sake of others’ good—is key to the family's own well-being. Families of affinity add members through marriage and partnership; spiritual relationships (such as godparents); mentorship; friendship; and shared service, as in business or philanthropy. Families of affinity also include trusted advisers who have come to know the family members through years of service and who have proven that they seek the family's best interest.
How can you encourage your family to think in terms of affinity rather than blood? To take some small but powerful examples, when the families of affinity that we know have a family meeting, they often put the last names of both parents—patriarch and matriarch—atop the agenda. And they spend time honoring the stories of other “married-ins,” to remind everyone that the family tree has many roots. Such actions affirm that the family's first principle is inclusion.
A family of affinity rarely arises on its own. Usually it takes years or even generations to cultivate. That cultivation begins with being clear about the goal. As you begin this journey, ask yourself:
Who in my family shares this vision of family based on affinity rather than blood?
Who are the members of my family of affinity?
Who could be potential members of my family of affinity?