Complete Family Wealth. Keith Whitaker
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“Flourishing” is a term that has been much in common parlance over the last decade or two, as it captures a sense of happiness as an activity, not a static state of contentment or satisfaction. We use it interchangeably with well-being to indicate the full range of true wealth for human beings.
We have had the good fortune to work with many flourishing families over the past 50 years. We have also had the great privilege to interview families around the globe for our research. This research, known as the 100-Year Families Study, focuses on families who have successfully transitioned a major family enterprise through at least two generations. They measure their achievements in decades, even centuries. We have sought their insights into what has worked: What factors have allowed them to flourish together for so long?2
From these conversations and our observations, we have distilled the following key elements in family flourishing. This is not an exhaustive list. It provides a beginning to thought and action.
Keys to Family Flourishing
First, at some point in their early history, flourishing families form the intention to build not only a great fortune but also a great family. This is the fundamental intention, without which little else can follow.
Second, these families articulate and share their core values, and they keep those values alive through example, education, and further discussions.
Third, these families respect and encourage individual differences. They support members' separation and individuation as members of the family discover their own dreams.
Fourth, these families keep their collective focus on their strengths. They face challenges squarely but don't let liabilities become their focus.
Fifth, flourishing families share history with family stories that are told and retold through the generations. They sustain and celebrate their traditions and rituals.
Sixth, parents see themselves as both teachers and learners.
Seventh, such families understand the importance of individual stages of development and integrate that understanding into parenting.
Keys for Family Flourishing Amid Wealth
In addition to these fundamental keys to flourishing, our research and experience have identified four other factors specific to flourishing within the context of financial capital.
First, giving wisely: doing so requires thought and care on the part of both givers and recipients.
Second, flourishing families encourage and promote individual identities separate from financial wealth. This task is especially important for the family's rising generation.
Third, such families use trusts, and they make sure that these trusts are primarily human rather than merely legal relationships.
Fourth, philanthropy provides these families a shared focus.
These keys to family flourishing share important characteristics. They reflect that families are made up of individuals. For the family to flourish, its individual members must flourish. They also reflect that every family has its own culture, shaped by its history, its stories, its founding values, and the values and dreams of its present members. No one individual's plans for the family, no matter how grand, will succeed if those plans run against the family's shared culture. Finally, every family belongs to a larger society that shapes its members and their choices. No family can chart its path as a family without considering the impact that the larger society will have on it and its members.
Based on these observations, we suggest reflecting on these three questions regarding your own family:
1 Is each individual member flourishing?
2 Does your family enjoy a shared culture aimed at promoting the individual flourishing of its members?
3 Do family members know how to chart their own paths apart from the family enterprise?
The Three-Circle Model
So far, we have discussed wealth and family. When a family has the intention to work together over generations to grow all its forms of capital, it creates a combination that we call family enterprise.
Enterprise is a business term. But families do not have to own and manage a business to be enterprising. Many of the enterprising families we know sold their operating businesses years or generations ago.
The first key to leading a family enterprise well is to recognize that it is composed of different parts that, as closely connected as they are, have different goals and different ways of operating.
The three main parts of any family enterprise are family, owners, and management. Family is the family of affinity. Owners include all those who own title to family capital, whether they are individuals, boards of directors, or trustees and beneficiaries of family trusts. Management can include the managers of a family-owned or controlled business, financial managers of family assets, and the advisers to the managers, owners, and family members (such as attorneys and accountants).
These parts—family, owners, and management—are at the heart of one of the most helpful models for family enterprise ever developed: the “Three-Circle Model” developed originally by Renato Tagiuri and John Davis of Harvard University (see Figure 2.1).
The Three-Circle Model is helpful in many ways.
First, it underscores that while the three circles of family enterprise form one system, each circle has its own priority. For family, that is inclusion. For ownership, it is preservation (e.g., minimizing income or transfer taxes or shielding assets from potential creditors). For management, it is performance.
FIGURE 2.1 The Three-Circle Model.
Source: Based on John Davis and Renato Tagiuri, 1996.
Troubles arise when the priority from one circle dominates the others. For example, the desire to preserve assets may keep ownership very limited, such as by excluding spouses. Likewise, management may want to improve performance by keeping “unprofessional” family members and owners at arm's length. And ownership and management may conflict over the amount of risk to take on in the pursuit of outsized returns.
Second, the model helps family enterprises locate the proper points at which to understand and resolve common conflicts. Some of the most common conflicts and challenges that arise in family enterprises include:
Parent-child and sibling conflict over managerial control.
Conflicts over managerial strategy and direction.
Conflicts over ownership strategy (e.g., keep vs. sell).
Conflicts between shareholders who are also managers versus shareholders who are outside the business, for example, over whether to reinvest profits or distribute them as dividends.
Conflicts over employment and compensation of family members.
Tensions between the spouses of family members who are owners or managers in the business.
Failure of communication and understanding between trustees (family or nonfamily), the legal owners of title, and beneficiaries—especially when, by the third generation, most, if not all, of the family's financial capital may be