In our work with family businesses throughout the country, we've found that one of the major concerns of the
older generation is securing wealth and prosperity for future generations. Founders are rightfully concerned that no
matter how successful the first generation is, unless future generations are educated around values and meaning,
accumulated wealth may dwindle away. Challenges that leaders are concerned about with regards to the prosperity
and continued growth of their business and family include:
1. Using wealth and resources wisely;
2. Building an infrastructure;
3. Diversifying their enterprises;
4. Educating the next and future generations, and
5. Preserving wealth for many generations to come.
This series of articles will focus on the last of these challenges, although there will be some overlap with 1-4.
There is an old saying, "shirtsleeves to shirtsleeves in three generations". It means that the first generation starts
with little or nothing, and then through hard work, entrepreneurial spirit, and good luck comes considerable wealth.
The second generation often then maintains, but does not grow the wealth. And, finally, the third generation
ultimately spends or loses the family fortune.
When this is looked at family by family, it is easy to blame the lazy, spoiled or unmotivated members of the younger
generations. However, studies have discovered that the percentage of families in which the assets are lost by the
second and third generations may be as high as 80-90%. This is not only true in the United States, but is also true
in such diverse cultures as China and Australia. This leads to a number of important conclusions, including the
following:
1. This widespread phenomenon cannot simply be explained by finding fault with members of the younger
generation.
2. We also cannot simply blame the first generation for a failure to prepare their children and grandchildren.
Without the perspective of this research, no leader could predict these kind of results.
3. This is also not a cultural phenomenon, since such diverse cultures from all over the world suffer from the
same issues.
However, even though it is fruitless to assign blame, it makes perfect sense to ask all three generations, individually
and familialy, to learn behavior that can prevent this dissipation of assets. This is an educational challenge. We will
begin by starting some basic principles, and then presenting a case study to illustrate the application of these
principles. The principles are as follows:
older generation is securing wealth and prosperity for future generations. Founders are rightfully concerned that no
matter how successful the first generation is, unless future generations are educated around values and meaning,
accumulated wealth may dwindle away. Challenges that leaders are concerned about with regards to the prosperity
and continued growth of their business and family include:
1. Using wealth and resources wisely;
2. Building an infrastructure;
3. Diversifying their enterprises;
4. Educating the next and future generations, and
5. Preserving wealth for many generations to come.
This series of articles will focus on the last of these challenges, although there will be some overlap with 1-4.
There is an old saying, "shirtsleeves to shirtsleeves in three generations". It means that the first generation starts
with little or nothing, and then through hard work, entrepreneurial spirit, and good luck comes considerable wealth.
The second generation often then maintains, but does not grow the wealth. And, finally, the third generation
ultimately spends or loses the family fortune.
When this is looked at family by family, it is easy to blame the lazy, spoiled or unmotivated members of the younger
generations. However, studies have discovered that the percentage of families in which the assets are lost by the
second and third generations may be as high as 80-90%. This is not only true in the United States, but is also true
in such diverse cultures as China and Australia. This leads to a number of important conclusions, including the
following:
1. This widespread phenomenon cannot simply be explained by finding fault with members of the younger
generation.
2. We also cannot simply blame the first generation for a failure to prepare their children and grandchildren.
Without the perspective of this research, no leader could predict these kind of results.
3. This is also not a cultural phenomenon, since such diverse cultures from all over the world suffer from the
same issues.
However, even though it is fruitless to assign blame, it makes perfect sense to ask all three generations, individually
and familialy, to learn behavior that can prevent this dissipation of assets. This is an educational challenge. We will
begin by starting some basic principles, and then presenting a case study to illustrate the application of these
principles. The principles are as follows:
Building Leadership From
Generation To Generation
Generation To Generation
I. Family wealth consists of more than financial capital.
II. The primary wealth of a family is its HUMAN capital (that is, all the individuals in the family).
III. The family's second greatest asset is its INTELLECTUAL capital (that is, the accumulated knowledge of
all the individual members).
IV. The primary goals of the family are to preserve itself as a whole, while supporting the pursuit of fulfillment
and happiness by each family member.
V. A system of governance is necessary to achieve their goals.
VI. Joint, inclusive decision-making is the foundation of this system of governance.
VII. This system must find a way to include all family members in decision-making.
VIII. This inclusion is part of the process of educating the younger generations, and preparing them for
responsibility.
IX. Some of this education will be provided by outside financial advisors. In addition, advisors who can
facilitate communication or serve as mentors to the younger generations will also be necessary for their long-term
maturation and development.
The following is a case study that will assist us in illustrating many of the issues that leaders must consider in
preparing future generations for responsible financial lives. I will continue this analysis and discussion in future
articles on the subject.
Fictional Case Study
Don and Mary Winter started a small ethnic restaurant over 50 years ago. For the first ten years they barely broke
even, although they did manage to feed much of their extended family at the restaurant. However, with the return
of the soldiers from World War II, their business grew quickly, and they expanded to five more locations around
town. As they prospered, they build a hotel around one of their restaurants, and their good name helped them
become successful beyond their wildest dreams. Don had always believed in land ownership, and they invested in
land with profits early on, and continuously. A major corporation bought out their restaurants and hotel five years
ago, and their net worth now numbers many millions of dollars. It consists of land, other investments, and cash.
The Winters have four children and ten grandchildren. One son and one daughter and her husband worked in the
various enterprises from early on, and have accumulated wealth of their own. Their other son became a cook, with
aspirations to be a chef, but has never realized that goal. Their other daughter married an attorney with a small
practice, mainly helping his in-laws with some of their transactions. They do not see him as very talented, but he is
family.
Their grandchildren range in age from 15 - 30. All but the two oldest went to private schools, and all started
college, with half completing their degrees. These private schools were financed by Don and Mary.
Their son, the cook, may be alcohol dependent and two of their grandchildren have struggled with using drugs.
Both were suspended from school because of this.
Because of brilliant estate planning, all of the children and grandchildren have trusts and inheritances that can
support them for the rest of their lives. Don and Mary are very proud of this accomplishment, but are also
concerned about their grandchildren, and have many questions:
How will not having to work affect them? Is the drug use related to the money? What if some of their heirs lose
their share of the fortune? Have they done the right thing making their heirs rich? They have always given back to
their community, but do their grandchildren share these values? Should the family talk about money? If yes, how
should this conversation take place?
We usually anticipate that wealth will bring security and simplicity to our lives. The Winters are discovering that
the opposite is true, especially across the generations.
Please put yourself in the role of advisors to the Winters family, and prepare to answer their questions. In addition,
begin to ask questions of your won about money and generations. We will return in our next installment with our
responses to these problems.
II. The primary wealth of a family is its HUMAN capital (that is, all the individuals in the family).
III. The family's second greatest asset is its INTELLECTUAL capital (that is, the accumulated knowledge of
all the individual members).
IV. The primary goals of the family are to preserve itself as a whole, while supporting the pursuit of fulfillment
and happiness by each family member.
V. A system of governance is necessary to achieve their goals.
VI. Joint, inclusive decision-making is the foundation of this system of governance.
VII. This system must find a way to include all family members in decision-making.
VIII. This inclusion is part of the process of educating the younger generations, and preparing them for
responsibility.
IX. Some of this education will be provided by outside financial advisors. In addition, advisors who can
facilitate communication or serve as mentors to the younger generations will also be necessary for their long-term
maturation and development.
The following is a case study that will assist us in illustrating many of the issues that leaders must consider in
preparing future generations for responsible financial lives. I will continue this analysis and discussion in future
articles on the subject.
Fictional Case Study
Don and Mary Winter started a small ethnic restaurant over 50 years ago. For the first ten years they barely broke
even, although they did manage to feed much of their extended family at the restaurant. However, with the return
of the soldiers from World War II, their business grew quickly, and they expanded to five more locations around
town. As they prospered, they build a hotel around one of their restaurants, and their good name helped them
become successful beyond their wildest dreams. Don had always believed in land ownership, and they invested in
land with profits early on, and continuously. A major corporation bought out their restaurants and hotel five years
ago, and their net worth now numbers many millions of dollars. It consists of land, other investments, and cash.
The Winters have four children and ten grandchildren. One son and one daughter and her husband worked in the
various enterprises from early on, and have accumulated wealth of their own. Their other son became a cook, with
aspirations to be a chef, but has never realized that goal. Their other daughter married an attorney with a small
practice, mainly helping his in-laws with some of their transactions. They do not see him as very talented, but he is
family.
Their grandchildren range in age from 15 - 30. All but the two oldest went to private schools, and all started
college, with half completing their degrees. These private schools were financed by Don and Mary.
Their son, the cook, may be alcohol dependent and two of their grandchildren have struggled with using drugs.
Both were suspended from school because of this.
Because of brilliant estate planning, all of the children and grandchildren have trusts and inheritances that can
support them for the rest of their lives. Don and Mary are very proud of this accomplishment, but are also
concerned about their grandchildren, and have many questions:
How will not having to work affect them? Is the drug use related to the money? What if some of their heirs lose
their share of the fortune? Have they done the right thing making their heirs rich? They have always given back to
their community, but do their grandchildren share these values? Should the family talk about money? If yes, how
should this conversation take place?
We usually anticipate that wealth will bring security and simplicity to our lives. The Winters are discovering that
the opposite is true, especially across the generations.
Please put yourself in the role of advisors to the Winters family, and prepare to answer their questions. In addition,
begin to ask questions of your won about money and generations. We will return in our next installment with our
responses to these problems.
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Serving the American Liquid Waste Industry Since 2002