Amy Braden is a managing director of JPMorgan Private Bank and head of its Family Wealth Centre in New York. www.jpmorgan.com/privatebank
Wealthy families with problems – business disputes, wayward children, expensive divorces – make for tasty media fare. What you won't often find in the news, however, are the families who have mastered the delicate art of successfully stewarding collective wealth for the benefit of family and society alike.
I'm not a psychologist, I'm a banker, and have been for over 30 years. My colleagues and I know that success for families is not just about money, but about longevity. It's about what their assets can do for their families. It's about maintaining harmony in the family. It's about the fulfillment and achievement of individual family members. It's about the positive impact they have on the communities around them and, perhaps, around the world, not just now but generations from now.
In an effort to focus attention on what makes families successful, generation after generation, we put down on paper eight habits we observed working with flourishing wealthy families. These were families who defined success not simply financially but in two other ways: sustaining a unified sense of family connection and developing competency in each new generation to take the family forward.
For some families we studied, the dominant family asset was an operating company. For others, the focus was investment holdings, philanthropic or charitable entities, a family office or even a combination of these. We also drew insights from a panel of academics, researchers and consultants in the field of family organisations. Last year, in the November/December issue of Families in Business (pages 80–82), we discussed these eight practices in detail.
What we discovered in our research was that whatever the form of family assets, sustainable success for the family over the long term depends on the entire system – family, assets and community – working in synch with a strong central core of shared vision and values. We all know that this is easier said than done. It's difficult to maintain harmony, cohesion and focus (not to mention asset growth) as family relationships grow increasingly complex with each new generation of wealth holders. This complexity becomes compounded as corresponding ownership and management entities are created to address business, tax, legal and estate planning risks.
Add to this the challenge of certain change. The family is not a static organisation. It is ever-changing as family members are born, grow, age, marry, and often divorce and remarry. No wonder there is natural conflict as interests and viewpoints diverge and decisions need to be made under stressful conditions. In the end, many families decide to simplify by separating their assets. In many cases, it's the right decision.
For those families who do decide to stay connected, however, not only as a family but in the work the family does together, the opportunities are significant. Through combining resources, these families magnify their impact, whether it is in the world of business through the companies they control, in social impact through the foundations they endow or in funding entrepreneurship through the investment capital they deploy.
A survey of wealthy families
Together with the study published last year, we developed a survey in which we asked families around the world about their own practices. Our objective was to discover the extent to which families actually incorporated these eight practices in what they do. We also wanted to find out if they considered these practices important and intended to use them in the future.
More than 100 families responded from around the world. We analysed the responses, working with an outside consultant to tabulate the results and understand correlations. We averaged the activity scores in order to arrive at a figure for each practice area. This was done both for what families do today and for what they intended for the future. We wanted to measure the gap between the rate of current use and future intent to determine the extent to which families feel a need to change.
Who were these families?
The families who responded to our survey were already quite successful, certainly in terms of wealth: almost half had assets in excess of $100m, and almost a quarter reported family wealth in excess of $500m. In the difficult investment and business markets of the past five years, more than 70% reported an increase in assets, while only 8% experienced a decline.
Half were from the US and close to 30% from Europe. The rest were fairly divided between Latin America, Asia and Australia/New Zealand. More than 38% were in the third generation of leadership or beyond, clearly having overcome the "shirtsleeves to shirtsleeves in three generations" myth. Another third were in the second generation of leadership, and the remainder were founder-led.
We were delighted to find that, based on survey results, the practices outlined in our paper are far more widespread than we had anticipated, and that they are used by families all over the world. We also found that families have an even greater level of intent to incorporate these practices in the future. Somewhat predictably, given the constant self-improvement culture prevalent in most family firms, relatively few families indicated that they were satisfied with staying where they were. On an overall level, the greatest gaps between current use and future intent were in areas such as planning strategically, developing competencies and articulating a vision.
While families across all regions did report the use of key practices, Asian and Latin American families who reported relatively low levels of current use also reported some of the highest averages on future intent. Families in these regions show a strong level of desire to build capability around these practices. European families, on the other hand, indicated they favoured such practices as providing independence and clarifying roles and responsibilities and, interestingly, were less inclined toward cultivating entrepreneurial strengths and planning strategically. This may reflect the fact that the European families who responded to the survey tended to have more widespread family groups and hence required greater clarity on roles and the ability of family members or branches to 'exit' financially.
In looking at how families at different stages of leadership think about these practices, we found it interesting that some of the largest gaps between current use and future intent were in those families in the second generation of leadership. This reinforces a view that much of the work of creating the structures and processes around family governance often lies with the second generation.
We observed that those families who used family offices not only had higher current use, but also expressed a bigger gap with even higher intent to use more of the practices in future. Families with fewer assets (under $10m), which represented about 16% of respondents, tended to have lower scores, reflecting both more limited current use and future intent. Of significant interest, families who reported an increase in assets over the last five years showed not only the highest levels of current use, but also higher levels of future intent in incorporating these practices, prompting us to make a connection between the practices and real asset growth.
Confirming the value of proactive measures
For all wealthy families, no matter their size, no matter their structure, good governance is key. Good governance is essentially the sum of all these practices and connects a family to its assets in a way that ensures effective decision-making. In an increasingly fast-moving and global marketplace, the ability to make complex decisions in a timely way is critical to survival.
We concluded that while each of these practices can arise spontaneously, the most successful families – the ones who have sustained their entrepreneurial vigour and connection through generations and, consequently, have stayed out of the headlines – have carefully cultivated and institutionalised them, rather than leaving them to serendipity.