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Family wealth never lasts more than 3 generations

The Star Online - Tapping the 50 Plus Market by Carol Yip

By Carol Yip
Saturday Nov 27, 2010

FAMILY businesses and family wealth are the cornerstones of most Asian economies. Yet despite the large role family business and wealth play in these economies, contributions of family businesses and wealth succession may be short-lived if there are vulnerabilities in the family structure during inter-generational successions.

The fact of the matter is, regardless of financial, economic and business challenges, families are universally human construct.

While the emotional complexities we face with our family members may be private issues, we forget that the family nucleus and family owned-businesses are organisations that have a defined structure and need an effective communication approach to function well.

Uniqueness of family structure

What makes family businesses and wealth unique is the fact that we juggle two larger collective entities and identities i.e. two families to think about the immediate family and the business family.

The two family concepts are often founded upon very different mindsets the private family being innately emotional and value-based, and the business family traditionally defined by rationality and strategic thinking.

As one generation makes way for another grandparents, parents, children and grandchildren, there are always issues around leadership, management style, succession and continued generation and ownership of wealth and businesses − who will continue to carry on the growth of family businesses and wealth, preserving values, traditions and legacy?

There is a Chinese proverb that says, Wealth never lasts for three generations: First Generation creates the wealth, Second Generation grows the wealth, Third Generation spends the wealth.

Money matters, due to their nature, are always sensitive and an emotional subject.

Different communication stances, in spoken and unspoken words (behaviours and actions) about money among family members can be misinterpreted, leading to tension in the family.

Generation gap, education exposure, differing communication style and relationship dynamics with spouse, children, parents, siblings and grandparents can be very complex and even more so, when relatives, extended family members and in-laws are added to the family tree.

Family boundaries

Each family nucleus is unique. And, of course, each family member is different. Heartbreaking and painful encounters can create great misfortune for the family because of different personalities and characters.

If family members can work in harmony with a guided family blueprint, family values and traditions could be preserved and family wealth could be multiplied.

For it to work, each family member has to look in-depth into the issues and understand the emotional distress because of the following:

● Inequitable division or transfer of wealth in the family can cause issues of power, control and alliances among members possibly leading to break-up or disowning family ties. When a family is able to communicate effectively with mutual understanding, with feelings openly expressed in an unbiased and non-judgmental manner, and individual differences recognised and accepted without prejudice, family traditions and wealth has a higher probability of being preserved.

● Intimate relationships and complex money matters can lead to rigid boundaries where disengagement between family members occurs or diffuse boundary where everyone is following everyone else's affairs. Only clear boundaries around family members is ideal because it creates firm yet flexible connections, and permits maximum adaptation to change.

● Difficulty in trusting immediate family members and outsiders (including in-laws, extended family members and friends) to manage family business and wealth. Once the trust is broken because of lies, infidelity or disbelief, it is difficult to rebuild the trust and relationship unless there is forgiveness and letting go of the past.

Family roadmap

As family businesses become larger, family feuds can develop if family ties are weak. The business founder must consistently instill good values and beliefs with spouse, children and other family members who are involved in the businesses building a strong foundation that strengthens family ties.

Due to the complexity of emotional attachments in family relationships, it is wise to have a team of specialised professionals with experience and knowledge to develop defined techniques, strategies and methodologies for family communication and planning, relationships and conflict resolution to strengthen the family foundation to achieve the desired outcome.

They could be your family lawyer, accountant, tax advisor, private banker, business advisor, wealth advisor and family therapist.

When this team of experts is successful in helping you to design and document the family roadmap to strengthen family ties with the right mindset and vision, appropriate roles and responsibility, sense of ownership, cohesiveness with standard practices and rules, your family legacy, businesses and wealth can be preserved for one generation, if not a few.

Unless ofcourse, if you have decided to join other world-renowned philanthropists to give away your wealth for the good of society.

Carol Yip is a personal financial coach and also founder and CEO of Abacus for Money.

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