Jennifer East, a Canadian now based in Malta, is an advisor to enterprising families. Drawing on years of experience at an international coaching firm for family businesses, she helps multigenerational families navigate the complexities of relationships, communication and governance.
QUESTION: How did you fall into this line of work? It sounds like you have some personal experience.
ANSWER: My parents were in the resort business in Killarney on Ontario’s Georgian Bay. I was sort of the heir apparent, but I realized over time that, like many next-gen family members, I was not destined to do that work. I was living somebody else’s dream.
Part of my job now is helping the next generation figure out where they fit in. When you grow up under the shadow of a very large tree, it’s hard to find your own sunshine.
Q: Did you ever have tough conversations when you were feeling unsure about your future with the family company?
A: No. I even reached out to my father’s lawyer and accountant, and they just shrugged their shoulders and said, “Well, your dad’s our client, we can’t really help you. Just go and talk to him.” Which is pretty much the extent of the advice that a lot of people give. They don’t quite know what to do with these messy things. They call them the soft issues, but they’re even harder than tax and estate planning.
Q: When you’re trying to help families decide how to divvy up money, whether through salary, shares or trust funds, who is easier to work with, old money or new?
A: I’d say the answer is, “It depends.” If a family is open and willing to have transparency, it doesn’t matter whether they’ve had money for years or if they just acquired it. Those families are easier.
Multigenerational wealth often comes with more challenging parts, though. Things like entitlement or a lack of initiative in the younger generations. That dynamic can be very difficult because it requires the whole system changing. It’s not just a matter of, “Well, my son should pull up his bootstraps and get to work on time.”
Q: How do family politics affect how that money is distributed?
A: It can be very difficult, especially if there are members of the family who are actively involved in the business and others aren’t. There’s an inside circle – those who are in the business – and they’re putting in their blood, sweat and tears. And there can be resentment that those outside the circle have expectations.
And sometimes those expectations are not about money. There’s a very emotional connection to the family business because that feels like being loved. You might think, “Well, why does it matter to you so much what colour the new logo is?” Sometimes it matters because that’s their connection to their grandfather. The emotion is layered on top of the business.
Q: So, which family members should get a higher percentage of the proceeds?
A: First of all, you have to distinguish between compensation for work done and compensation that you would have as a shareholder. Those two get blurred together. If you have one person who starts a business, everything is meshed. You’ve got to separate those.
But then you have to incentivize people to grow the business. So, yes, if someone is going to grow it by 35 per cent, they need to be compensated. That can be through a bonus structure that includes clearly outlined benchmarks and targets.
There has to be a process and independence, too. So, it’s not Uncle John who is giving you your annual performance review that generates your bonus. Maybe you have an external committee.
Compensation is important, but it’s more important that nothing be behind closed doors. You do not want people saying, “How come my brother’s driving a new car every year?” Remuneration should be very clear, explicit and related to the contribution they’re making to the business.
Q: How about those who have retired from the family business? How do you pay them out and make sure that they feel compensated for the work they put in?
A: One option is for the next generation to buy the business from the older generation. That creates their exit financially. But in the absence of that, it’s about setting out a very clear path so everyone understands what kind of compensation is going to be directed to those who are retired and at different stages.
Historically, financial and legal advisors would take people behind closed doors, make plans and then they’d either present it to the rest of the family, or no one would ever discuss it. Not everyone, especially older family members, are always receptive to transparency. But if you involve everyone, even if they don’t like the outcome, they’re much more likely to be supportive of it. Or at least tolerate it.
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Q: And using cash disbursement to incentivize good behaviour in younger generations? What are your thoughts on that?
A: Well, on a personal level, that doesn’t sit well with me.
There are different milestones in life. When you graduate. When you’re getting married or buying a house. Those might be times when a family may choose to make a financial contribution. But it’s important to decouple regular good behaviour from money. Otherwise it can be a slippery slope.
Q: One of the biggest worries affluent parents have is crushing their children’s motivation by giving them too much money. How can parents avoid turning their kids into trust fund babies?
A: What do the children see modeled for them? If the parent has a trust fund and still goes to work every day or has an office for charitable work, they are seen to be active, contributing members of society.
Some of the most successful families treat money as a way to enhance their children’s lives. One family member I work with is a firefighter and another is an arborist. These jobs are not going to generate huge incomes. However, they’re absolutely passionate about them. The additional family money they receive makes the lifestyle they grew up with attainable. But they see it as an extra.
Many life skills that young people need have nothing to do with managing money. It’s about, “Who am I? What am I passionate about? What is going to light my fire for the rest of my life?” And if parents can go through a coaching process to help children identify what those things are, then they are much more likely to be successful.
The money becomes a benefit of being part of the family, as opposed to a ball and chain that you drag along behind you.
This interview has been edited and condensed for clarity.