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Escaping the gilded cage

FAMILY FIRM FINANCE: Affluenza

Just as having too little money can be emotionally troublesome, so can having too much; family business inheritors need to work hard to establish a sense of self in the face of an ­all-encompassing financial security blanket, says Melanie Stern.

Melanie Stern is Section Editor of Families in Business magazine.

At 21, most young adults receive a metaphorical 'key to the door'. The average 21-year-old is either ensconced in study or figuring out their first years in the world of work, understanding their place in society and generally having a good time.
 
Jamie Johnson, heir to the Johnson & Johnson empire, had an altogether different coming-of-age; he woke up on his 21st birthday with several billions in his checking account. Jamie found this pretty weird and decided to ask some of his fellow heir and heiress friends to talk about their own experiences and feelings about inheriting so much wealth, so young. It took him three years and 50 separate requests to secure a handful of 'rich kids' who were willing to go on record about the wealth they were part of and the kinds of issues the associated lifestyle brought with it. One participant, Autotote heir Luke Weil, even went to the courts to stop Jamie airing the film. He was labelled a traitor by many wealthy business families for bringing these stories out into the public domain – breaking the age-old unspoken rule that to talk about money, when one has plenty, is an unforgivable sin.
 
Jamie himself was simply charting his personal journey towards figuring out what to do with his life, against the backdrop of not really needing to do anything, ever. "There are no courses in college on how to be a hard-working and productive rich person," Johnson says. "It's something you've got to figure out for yourself." In the film he discusses the matter with his father who suggests, benignly, he might like to pursue a career collecting antiquarian maps.
 
There is little point talking about why one should feel sorry for Jamie and his kind facing the conundrum of how to find direction, when direction is so commonly driven by basic needs – food, shelter. Anyone in this role with the slightest philosophical grain will find themselves with three paths: accept wealth as the sole driver of one's life; spend one's life giving that wealth away; or find meaningful and challenging ways to make the most of existence, with the cash somewhere in the background. How does a 'rich kid' escape from the gilded cage that is 'affluenza'?

A growing clutch of financial advisors and psychologists are working together to provide affluenza advisory services for the next generation. While some of the touchy-feely rhetoric involved can grate on more cynical minds, particularly when being offered by a major financial institution, the effects of affluenza can't be denied. The way these institutions approach the solution is initially to talk about the problem openly, which in itself  is a revelation.
 
"The problem isn't about money – affluenza is about the struggles of young inheritors when dealing with life, finding meaning in one's life and being able to take charge of it as an adult," explains Peter White, head of family business advisory for Citigroup Private Bank. "I'm not crazy about the term 'affluenza', because it carries the connotation of taking pleasure in seeing the wealthy floundering because of their position." Citigroup offers courses in New York and Hong Kong for successors facing these issues.

White sums the issue up well. "For most of us, life forces us to get our act together so that we know where our next meal is coming from. When a person has not formed a sense of direction in life, great wealth exacerbates the problem because you can simply buy your way around the problems that would otherwise force you to take a good look at yourself."

Family dynamics and parental attitudes play a significant part in giving rise to wealth-related emotional problems. "Affluenza is frequently 'passed' from parent to child," says Dr Ronit Lami, an LA-based psychologist to HNWIs and business families for investment research company Allenbridge Group. "The parents have to instill strong values and work ethics in the second generation, otherwise there is a higher risk for their children to develop the symptoms of affluenza – there is even a risk of developing addictions and other behavioural disorders exacerbated by the presence of wealth." Lami comes from a family business herself and sought therapy to recognise how deeply fighting about money and share distribution affected her family, eventually bringing the issues up openly with the family. "It took us a long time to establish what we have now in terms of our relationships – it wasn't easy and at times created a lot of friction. Money is not our first priority now."

Lami's family caught the problem before any lasting damage set in, but for some business families, the lure of untold riches really does become a devastating sickness. In May 2002, America's fifth largest cable company Adelphia corporation filed for chapter 11 bankruptcy following revelations that CEO and founder John Rigas and his three sons, CFO Tim, operations vice-president Michael and board member James, were indicted (alongside other family members involved in Adelphia-related vehicles) for what the US' Securities & Exchange Commission called "one of the most extensive financial frauds ever to take place at a public company." The family had colluded to use their company as an unlimited line of credit by falsifying documents, financial statements and self-dealing company stock, to fund a decadent lifestyle involving building private golf courses, buying luxury condominiums across America, paying off personal debts, and making cash advances to the family's hockey team the Buffalo Sabres. Is this the clearest example of just how dangerous the emotional issues connected to wealth can be?

"Absolutely!" says Dr Lami. "It's a classic example – but obviously they didn't know they were affected by their wealth. In that situation you have to ask yourself – how much more do you want? Where are your values? How far are you willing to go to  put others at risk, in order to milk your company?" Adelphia's new management is now pursuing the family for US$1 billion in stolen funds, and has the right to seek three times that figure in damages. "More is never enough," Lami adds.

Italian dairy company Parmalat, now in bankruptcy, fell swiftly from grace last year when CEO and second family generation Calisto Tanzi, and other members of the family on the board, had fraudulently siphoned profits from the main company to shore up failing satellite businesses run by other family members. The true amount of cash the Tanzi family stole from the company is still being determined.

Citigroup's White returns to the importance of generational communication of best practice based on good values. At a fundamental level, it's simply good parenting. "If someone is going to be around wealth then educating them about dealing with it and raising kids to develop a sense of themselves is vital. That means parents making it clear what behaviour is acceptable, what is not acceptable and understanding that there are appropriate consequences for anything unacceptable. You've got to be a good role model and provide values such as honesty and hard work," he continues.
 
This is all very well for 'new money' first or second generation families without ingrained, long-term attitudes towards wealth to be passed on – they start with a clean slate. But what of multi-generational business families – the Vanderbilts, Van Eeghens, and Rothschilds of this world? If a family spanning more lifetimes than anyone can remember has never been anywhere but in the lap of luxury, how can it engender a 'work for your money' attitude?

Fundamentally and maybe controversially, some children are born with a thirst for something beyond what comes easy, and some are happy with what they've got. Josiah Hornblower, an heir to the Vanderbilt/Whitney fortune, explained in his interview for Jamie Johnson's film how his grandfather showed him New York's Grand Central Station and told him, "this is yours". He was so taken aback by the concept that, subsequently, he took time out of his studies to work on a Texan oilrig. "He realised that hard work is what made him feel good and it was a way to centre himself," Jamie explained in an interview with CNN. "We are in this position of great privilege, and yet so many people manage to screw it up."

White's conclusion backs this up. "If a person has a strong sense of self the issues around money are generally not that great," he believes. "An heir or heiress with a strong sense of self will know how to handle money."
 

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