Editorial by Dennis T Jaffe, PhD and James Grubman, PhD
Recent financial and social upheavals have shaken every family’s experience of well-being, including perspectives on wealth.
Recovering from the shock and pain characterised by the first half of 2020, many fortunate families have been discovering that elements of their life – previously accepted without question – are being seen with new eyes. We hear from many families they are re-evaluating the purpose of their wealth. They are reconsidering their priorities and how they make decisions about their values. In reflecting on what truly lends quality to their lives, many are returning to simpler pleasures, sustainable activities, and closer personal relationships rather than material consumption. Emerging from recent crises is proving not to be a return to the past but a mindful adaptation to a new reality.
As a result, many financially fortunate families have begun reviewing their longstanding expectations about spending, lifestyle, health and even something much deeper. They are examining a fundamental question: how resilient are they?
Business Families Face Inherent Challenges
Aside from exceptional disruptions, pandemics, for example, wealthy families actually face disorienting changes on a regular basis, including:
Untimely death or disability of a key family member
Spouses leaving the family through divorce
Blended families reconfiguring the family constellation
Sale of the family business or significant change in the value of family assets
While major family stresses can be anticipated in general, families typically do not fully prepare for how, when, or to what degree a significant stress may occur. Too many families procrastinate about making plans for potential crises. Those crises that do arise then pack an added emotional punch because the family is neither ready nor able to deal with them effectively.
Business-owning families face additional challenges and choices during crises such as the world is currently experiencing:
How to survive in a reduced and possibly constrained new reality
Whether to rebuild by taking on debt or other investors
Whether in fact to continue the family business as before or to diversify, modify, or sell.
Whether to maintain the business as a shared financial entity or to split assets among individual family branches.
When “business as usual” is not possible for either a family or an enterprise, it takes a cool eye to scout the path forward. The skills that built a business are not the skills needed to manage diverse family assets and interests. Fortunately, how business families cope with complex choices and challenges contains patterns known to lead toward increasing resilience or to great pain.
The Qualities of Resilience
Some families possess the unique markers of resilience. These are obvious both in what is done and what is avoided.
Resilient families naturally allow themselves to experience and navigate transitions. During crises, they look inward, learn together, listen to each other, and question the past, not to seek blame but through true curiosity. They do not rush to make changes, nor do they falsely assert they are doing just fine. Often, they take time out to reflect on where they are and what they want. They resist the impulse to strike out at others or themselves, or to take action for action’s sake. They search for what has changed, what is enduring, and what the disruption is teaching them to do differently. They seek thoughtful advice from a variety of sources. As a result, these families typically come out the other side stronger and more capable as they use the crisis to develop new skills and awareness. They stretch for innovative solutions.
At the same time, resilient families have learned to sidestep the common patterns that can sink a family enterprise. Many seemingly successful families cope with the initial shock of disruptions by minimising or even denying the reality of the change. When this begins to crack, they are plunged into a sea of negative emotions – anger, fear, blaming, even depression – as their lives are turned upside down.
Family members may split into warring factions or attitudes. If, for example, elders become more distrustful and opaque in decision-making while the younger generation seeks openness and transparency, conflict will flare over the family’s very own governance. An external crisis devolves into an internal one.
Compounding the problem, families and their advisors may react to their emotional turmoil by taking precipitous action without adequate consultation or reflection. The consequences of their decisions then confuse or upset others in the family, deepening the cycle of anxiety and loss of trust. The end result is a family suffering more from the consequences of their own coping pattern than from the impact of the disruption itself.
Advisors as Sources of Resilience or Collateral Damage
Advisors serve key roles within the family enterprise system. Our experience is that, alongside the family, trusted advisors can either enhance or exacerbate the resilience of the entire system. Their own qualities of resilience or reactivity can have a major impact on what happens during crises.
Those advisors who help families progress through the stresses of uncertainty tend to be nimble, flexible, and adaptable. With a family in denial of the need for change, advisors press gently but directly to face the realities at hand. When a family is anxious or bitter, capable advisors offer a sounding board that holds back on trying to prematurely “fix” feelings or solve the family’s problems. As the family begins to actively explore options, advisors serve as a resource to help support and expand the family’s learning. They help convene meetings in which families redefine their values and their approach to wealth.
Admittedly, a family’s close advisors have a rough ride when they make things worse or become the focal point of a crisis. The impulse to blame can be complicated by a flawed planning process grounded in mistrust. Instead of engaging their advisors in productive learning, family leaders seek “accountability” outside the family circle and impulsively demand alternatives. The family never gets a chance to heal the rift or understand what had happened. All too often, it is the advisors who wind up as collateral damage in the rebuilding process for the family.
Tips for Emerging from the Crisis Stronger than Ever
Business families recovering from the current upheaval will be returning to a landscape that has changed. Here are several tips for emerging more resilient:
- Transparency: The family must truly embrace communication as a core family value and activity. Family governance must share not only what is happening but why things are being done, and how. Information must flow both ways—to each person and back to the business leaders through questions, concerns, and reactions.
- Inclusion: Balancing the need to act quickly, business and family leaders must learn to include family members at crucial points to hear their voices and register their questions and concerns. Leaders must develop internal processes that ensure the family, their owners and beneficiaries, are part of the process. Although this may add complexity when it seems time is of the essence, in the long run the outcome is likely to be more successful.
- Reconnection: People have been isolated literally and figuratively during the recent disruption, experiencing emotional shocks often without normally available support. Healing will require listening to each other, not just once but across multiple conversations and exchanges. Watch for delayed effects that may come months or even years later.
- Assessment and Learning: How did the family governance work during heat of the crisis? What can be learned that will strengthen the family for the next disruption in the business or the family? Allow honest, open discussion that seeks not to blame but to learn.
- Renewal Embracing Innovation: A family’s core mission and values will need to be renewed and perhaps modified as a result of what has been experienced. While reaffirming the family’s identity and strategy, resilient family enterprises embrace new resources and test new ideas more suited to a changed environment. These need to be carefully monitored and assessed as part of the family’s adaptation.
These actions—collaboration, listening, reflection, internal and external openness – embody the qualities of resilience. They develop the ability to bounce back after the natural or exceptional disruptions of life. Under the heat of tremendous stress and pressure, future strengths are forged.
Dennis T Jaffe PhD is a research Associate of Wise Counsel Research, and San Francisco-based advisor to families about family business, governance, wealth and philanthropy. He is author of Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises; and co-author of Cross Cultures: How Global Families Negotiate Change Across Generations. His global insights have led to teaching or consulting engagements in Asia, Europe, the Middle East, and Latin America.
James Grubman PhD is an internationally recognised consultant to families of wealth, family businesses, and the advisors who serve them. He is the author of the renowned book, Strangers in Paradise: How Families Adapt to Wealth Across Generations, and co-author of Cross Cultures: How Global Families Negotiate Change Across Generations. His consulting practice is based in Boston, Massachusetts, USA.