Spreading wealth among family members is a tough nut to crack
To keep bad feelings at bay, it helps to set up a transparent structure, says family advisor Jennifer East
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.
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.
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.”
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.
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.
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.
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.
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.