Growing a family business into a profitable and successful enterprise is a challenging process and, once there, other questions present themselves. How does the family deal with its newfound wealth and affluence? How do you ensure children grow up without an unhealthy sense of entitlement? How do you adjust to this strange new world?
Dr James Grubman, wealth psychologist and family business consultant, helps families find practical answers to these questions. Aside from his academic training, he draws from a wealth of personal experience having first navigated this rocky terrain when helping his mother sort through their estate following his father’s passing. Later, he and his wife had to find ways of raising children responsibly in an affluent household.
Dr Grubman is the author of two books that explore this territory – Strangers in Paradise: How Families Adapt to Wealth Across Generations, and Cross Cultures: How Global Families Negotiate Change Across Generations, which he co-authored with Dennis Jaffe, PhD.
Recently Tharawat Family Business Podcast sat down with Dr Grubman to discuss the complexities of newfound wealth and the problems that arise when cultures and generations come into conflict.
How do you work with families who are struggling to deal with a sudden rise to wealth?
Coping with sudden affluence has been a focus of the work that I’ve done with my colleague, Dennis Jaffe. I can relate because I’m relatively wealthy having come from very modest beginnings. Both my parents are Holocaust survivors – they emigrated from Eastern Europe to the United States after World War II. Thus, I have some experience with the immigrant family lifestyle. When Dennis and I were doing our first major article on the psychology of wealth, the metaphor of strangers in a new world came to mind frequently as we realised that many families adhere to, in the first generation, patterns that characterise the immigrant experience. People come from one economic culture, which is usually quite difficult, immigrate and begin their journey up the socioeconomic ladder to what we euphemistically call ‘The Land of Wealth.’
My work with families centres on the fact that, for many economic immigrants, sudden wealth is a tremendous transition. It requires immense adaptation, and sometimes the adjustment is not easy. The psychological stumbling blocks of a successful immigrant family are related to both their sudden affluence as well as the cultural differences they might find in their new home. Dennis and I realised that globally, many families make the journey across cultures and up the economic spectrum simultaneously – they encounter a very different world when they get there.
This is vibrant source material for your two books. Can you tell us a little more about how they came about?
The first book, Strangers in Paradise, grew out of the fact that, when Dennis and I began writing about the ‘immigrants and natives’ metaphor for wealth acquisition, it became apparent that the developmental evolution was unfolding in a way that had never been talked about before. I was often asked, ‘Is there a book on this?’ There wasn’t, so I wrote Strangers in Paradise. Interestingly, we knew that Strangers in Paradise was very much from a western perspective – it takes place and refers to sample families in the United States. It’s written from the perspective of what Dennis and I now call Individualist culture.
This perspective doesn’t necessarily pertain to families in different parts of the world – we have different cultural experiences. As such, we became aware of research that uses the lens of three main prototypes to understand cultures from all over the world. We then wrote the book Cross Cultures to expand the discussion that we started in Strangers.
Cross Cultures deals with the return of the next generation – many families send their kids to the West to get educated, then cross-cultural issues rear their heads in ways that are not often anticipated.
This practice is becoming ubiquitous for business families from every corner of the globe. What are the negative implications?
It’s an incredibly interesting phenomenon, but it can also be a challenge for many global families. It’s always well-meaning. They think educating the next generation in London, New York or LA will be a tremendous help to the family. They assume their children will return and be able to share their experience with the rest of the family and the business, thus helping them grow. They don’t anticipate the influence of Individualist western culture and the changes it can cause in the next generation.
Children educated in the west are exposed to an environment where they are encouraged to be more assertive, outspoken, and where gender equality now is more of the norm. Young people are told to speak up and challenge old ideas. The family might see this as radical. When the next generation returns, a conflict often ensues.
Has there been a shift with regards to gender equality? Are women being more vocal and having more of a say in decisions regarding wealth and the family business?
Absolutely. You put your finger on one of the most important cultural transitions that’s going on. The flow of information, learning, cultural adjustment and integration is occurring at an accelerating rate. Sometimes, it’s defined by a blend of West and East. These hybridised cultures have a much stronger family orientation atypical to the West. This blended ‘fourth culture’ may very well be the way of the future – hopefully, we’ll combine the best of the three main cultural types that we refer to in the book. The most likely outcome of this is the rise of women in leadership positions and greater equality globally.
On the topics of family affluence and cross-generational wealth, where do you feel we’re wasting our time? What relevant points are not yet being adequately addressed?
That’s a fascinating question. Unfortunately, much of the research in family business is not that practical or useful. It often doesn’t address issues that are relevant to the families themselves and to the consultants that work with them. I once had a graduate student mentor who referred to such research as, ‘Pushing back the cuticles of science,’ ignoring the bigger issues at play. I never forgot that image, and I think family business research can be similar. It can get lost in the minutiae without really getting at what’s important. Dennis and I would love to see more solid research that uses, as a variable, the culture of the family enterprise and how things change. Nothing is static, and the simple labelling of a global enterprise as Latin-American, Middle Eastern or even Chinese is no longer relevant.
We’ve been talking about the blending of cultures and inclusiveness, and yet, we’re often not seeing this reflected in the world at large. What’s the reason for this disconnect?
To answer your question, I first need to explain the system we use to categorise the three main cultural prototypes I referred to earlier. There is what we call Individualist culture, which is characterised by the source of an individual’s self-worth being self-esteem and dignity – it’s the primacy of the individual. Then there is what is classically called East Asian culture, what we refer to as the Collective Harmony culture. It is built on the Asian concept of ‘face’ which is a socially-agreed-upon and constructed form of reputation. We call the third type Honour culture, not because it elevates being honourable necessarily, but it’s the idea that self-esteem and self-worth are based on family and reputation – defending the family’s reputation is a central tenet. In many ways, this is the original culture of most of the world.
Honour cultures usually have strong, single leadership. They often arise in circumstances of unstable governments and shaky rule of law, which is why the family needs to protect its members. They are quick to defend and quick to be offended – it’s a reactive kind of culture. I wanted to emphasise that because Dennis and I have talked about the fact that in the US, the new political leadership is a bit of a throwback and has characteristics of Honour culture.
I think this reactionary force is at play when we come back to your question about cultures under stress. It’s like a rubber band being stretched – some people are moving toward that fourth blended culture, which is very integrated and understands global issues and diplomacy. For many other people in the world, this is threatening. They see conservative values eroding and are fighting back. I think we are entering a period of culture clash on some severe levels. Ultimately however, the story of the world is that adaptive cultures tend to win, but I think we could be in for some rocky times while these issues are being worked out.
What are you working on? What does the next year have in store for you?
Dennis and I have an article out in Barbara Hauser’s International Family Office Journal on understanding a developmental model of family offices, especially single-family offices. Essentially, it negates the old saying, ‘If you’ve seen one single family office, you’ve seen one single family office.’ The common idea is that every family office is unique and few generalisations can be made. We don’t agree with that; we believe some appropriate generalisations can be made if you look developmentally over time.
That’s a thread that runs through most of our work over the years. We tend to take developmental views that illuminate patterns. Metaphorically speaking, we think of things as movies, not as snapshots. The aim is to figure out how families with significant enterprises can collaborate best, including with their advisors. To do this effectively, we need to look at how culture is impacting the way family businesses function. It’s a fascinating process.