Almost anyone who has studied American history has heard of the famous families founded by Cornelius Vanderbilt and John D. Rockefeller. Both of these men amassed tremendous fortunes in the mid- to late nineteenth century: Vanderbilt with shipping and railroads, and Rockefeller with petroleum drilling, refining, and distribution.
But following these two tycoons’ deaths, the stories of the families diverge significantly. Though Vanderbilt’s last words to his oldest son were reportedly, “Keep the money together,” the Vanderbilt family fortune was largely dissipated within two generations. Rockefeller, on the other hand, established a financial and philanthropic legacy that endures to this day. Despite the fact that he gave away more than $500 million to charity before his passing, Rockefeller personal wealth today is estimated at more than $10 billion, and the family, through various charitable and philanthropic organizations, gives away millions annually to efforts that include climate studies, nutrition, and global health.
What made the difference in the two outcomes? Perhaps it can be summed up in two words: governance and communication. Unlike Vanderbilt, Rockefeller put in place legal and financial structures that included comprehensive approaches to risk management, legal protections, family wealth governance, and, above all, careful communication with his heirs and their heirs about goals, priorities, and, perhaps most important, the values and social responsibilities that should guide their decisions.
In other words, simply having wealth isn’t enough for those who intend to create legacies that endure across generations. Instead, preserving and passing multigenerational wealth intact to future generations requires purposeful planning for governance and effective communication. There are some basic principles to employ, as well as pitfalls to be avoided, for those who intend to create or sustain a legacy that can last for decades or more.
How can governance structures encourage development of family leaders?
Sometimes, as children grow up in a privileged environment, they often go through a stage when they lack motivation to apply themselves, believing that “the family money” will always be there to fall back on. Rather than relying on a rising generation to “find themselves,” however, effective family wealth governance structures can include benchmarks and incentives in the trust or other estate planning documents that provide guidelines and guardrails for the development of leadership among younger family members. For example: 25% of the child’s inheritance might be granted upon graduation from college; additional access could accompany reaching the age of 30 and holding steady employment for a specified number of years; bonuses might become available for attending and participating meaningfully in family business meetings. However the details are stipulated in the estate’s governance documents and practices, by incentivizing younger family members to transition successfully into adult responsibilities, the family is also creating a pool of capable leadership for preserving the family’s wealth into the future.
How can future leaders be educated in core values?
Continuity of values alignment is also essential. In fact, shared values are the internal and personal “glue” that can hold multigenerational family enterprises together more effectively than almost anything else. But, because the understanding of these values needs to span two and often three generations, such a plan needs to be tailored to
the sensibilities of each generation, and it needs to be revisited and updated, probably at least annually. Attention to “telling the story” to each generation insures that family leadership continues to grow out of a shared set of priorities, even as its style and expression changes over time (as it must, in order to remain relevant).
As family stewards age, it is typically important to engage in purposeful family communication around goals and efforts. Those with higher levels of resources may even want to arrange a family meeting, perhaps including a trusted financial advisor or consultant, to discuss estate planning, trusts, donor-advised funds (DAFs), and other matters. Clear communication with adult children about the importance placed on preserving the legacy by aging parents provides the foundation for the understanding of the next generation of family leaders and their commitment to shared family values. Often, it will be important for the parents to tell their story to their children in order to convey why various efforts are so important. For example, a father who had to struggle to gain an education may feel a deep commitment to providing scholarships for academically gifted but financially challenged students. As he tells of his own struggles and his determination to help alleviate the struggles of others, his children gain a deeper empathy, not only for their father, but also for those he desires to help. In this way, his values become their values, ensuring that the torch is passed on.
How can families avoid tension around succession planning?
In cases where a family has a single CEO-type figure serving as family steward or providing critical leadership, succession planning for the next generation can create intra-family tension. One smart governance solution is to incorporate outside consultants in the transition process, in effect creating an impartial “search committee” to assist the family with identifying the best candidate. In fact, this process can be codified in the trust documents, ensuring that all family members’ expectations about the process are based on the same assumptions. Family members who aspire to greater leadership roles can submit résumés, participate in interviews, and fulfill other requirements as set by the consultants. The chief advantage of this approach is its objectivity; the family is more likely to believe that the succession process was fair and unbiased, rather than rooted in family politics.
As professional, fiduciary financial advisors, GEM Asset Management can assist family stewards with asking the tough questions and even having the awkward conversations when necessary. We can help multigenerational family enterprises navigate the transitions required for preserving and perpetuating their legacies.
How can I help my children understand the family’s philanthropic commitments?
