How does your family business think about success? James Hughes poses a question to the reader early on in Family Wealth: Keeping It in the Family that likely reorients our focus relating to successful family enterprises.
“The Question: Can a family successfully preserve its wealth for more than one hundred years or for at least four generations?” – (Hughes, 2004, p. 4)
In our need-it-now, two-day-shipping-is-too-slow modus operandi of 2022, the thought of thinking in centuries seems almost quaint. But Hughes successfully supports the importance of this mindset in a way that would make even the most “next quarter’s numbers” advisor or family board member think twice.
Long-Term Wealth Preservation
Hughes is now a retired sixth-generation counselor-at-law, prolific author, and renowned multi-generation family meeting facilitator. He has advised numerous wealthy families on how to maintain and grow their wealth over time. Hughes views “shirtsleeves to shirtsleeves in three generations” plaguing family businesses not as destiny but as a cycle family businesses can overcome with thoughtful practices and patience over many years.
Wealth is more than what your business is worth or the size of your brokerage account.
“Wealth,” according to Hughes, is more than what your business is worth or the size of your brokerage account. A family’s wealth includes the family’s human, intellectual, and (purposely placed last) financial capital. Families struggle to preserve wealth over generations due in part to not focusing on two of the three sources of family capital, failing to realize that human capital (health, well-being, and happiness) and intellectual capital (education and life experience) lead to an expansion of financial capital.
In practice, families should aim “over a long period of time, to make slightly more positive than negative decisions regarding employment of their human, intellectual, and financial capital” (Hughes, 2004, p. 36). This series of positive decisions includes creating effective family governance structures, supporting each member’s pursuit of happiness, and a consistent reaffirmation of the family’s governance and vision. Only with constant reaffirmation, inculcation, and cultivation can a family hope to sustain itself over multiple generations.
Practices for Your Next Family Council
A strength of the book is its mix of real-world examples with philosophy, economics, and political theory. Homer, Aristotle, psychology, and pedagogy all make it in Family Wealth, making it both an informative and practical look at how we should view family businesses and enterprises.
For example, chapter 3 on “Ritual” includes a short summary review of “rituals” as they relate to ancient families and tribes. Hughes then provides modifications and applications of these “rituals” for modern businesses and family enterprises. The chapter is couched in anthropologist Arnold van Gennep’s framework from The Rites of Passage in discussing rituals. Chapter 10 on “Beneficiaries” discusses how beneficiaries to familial trusts should handle and view their responsibilities and role as a beneficiary, as well as beneficiary education. Hughes leans on his practical experience with aggrieved and unhappy beneficiaries to provide a simple list of roles and responsibilities for beneficiaries to ensure familial harmony and happiness.
Most of the book follows this style, highlighting in bite-sized 5-to-10-page sections, various practices and questions that affect family businesses and boards. These include crafting a family mission statement (chapter 2), the family bank (chapter 7), family philanthropy (chapter 12), and the roles of aunts and uncles (chapter 16) to name a few. Chapters are woven within common themes, but each has the weight to stand alone and act as a springboard at a family council or advisory board meeting.
You Have No Time to Waste
There is a common, inconvenient thread throughout the book in its lessons and applications: there are no shortcuts. Besides saving for retirement or raising a child, the difficulty of making up for lost time reveals itself in the power of compounding. Failing to inculcate your family’s values or educate the next generation on the family business may not rear itself head early on or even over the next generation. Rather, the consequences manifest in the “shirtsleeves to shirtsleeves” adage that spells the end of many a successful family enterprise.
Failing to inculcate your family’s values or educate the next generation on the family business may not rear itself head early on or even over the next generation.
But family businesses are not powerless. Hughes’ book serves as a helpful guide to drive conversations and lays a roadmap for your family business for years to come. Other families have done it, with names synonymous with wealth and longevity such as the Rothschilds and the Rockefellers. Hughes shows that your family is capable of such longevity with careful planning, deliberate practice, a solid governance structure, and a long-term focus.
Hughes’ favorite metaphor for long-term wealth preservation is the tree that adorns his book’s cover: the copper beech tree. This tree is found in the northeastern United States, takes 150 years to mature, and no one who plants a seed of a copper beech tree will see it fully grown. Years of nurturing and protection are needed from those who will not fully be able to appreciate its grandeur – but early planters have a perspective beyond even their lifetimes.
The famous French General Mashal Lyautey, who served under Napoleon, is said to have had the most beautiful garden in France. He told his gardener he wanted to plant a copper beech in his garden, to which his gardener protested, given the work and time it would take. Lyautey is said to have replied without hesitation, “Then we must plant today – we have no time to waste.” Indeed, your family business has no time to waste. The next 100 years start today.