I just finished reading The Family Office: A Comprehensive Guide for Advisers, Practitioners, and Students by William Woodson and Edward Marshall. This is a new release in the broader family office / family wealth world, and as aspired to in the title, is a comprehensive look at the workings of a family office.
One interesting / enjoyable dynamic that the authors brought was using a single extended case study to direct the flow of each chapter, similar to Greg Curtis’ Family Capital: Working with Wealthy Families to Manage Their Money Across Generations . By tracing the story of a single family from liquidity event through creation of a single family office and onward, it brought a human face to what is often a complex state of affairs.
Most interesting in Woodson and Marshall’s book was towards the end of the book where they explore questions of communication and governance in the family office. These topics they surface in the narrative of their protagonist family as the G1 wealth creator is in late adulthood, while their adult children are in their late 20s – mid-30s. As I reflected on the questions the book raises, it reminded me of the exceptional difficulty of turning a G1 liquidity event into a ‘family enterprise.’
While it is not impossible, a business started by a founder-entrepreneur, which has grown and ultimately transacted under the leadership of that same individual, will face a very different set of challenges in thinking about legacy and lineage, than a family business that has seen more than 1 generation work in and perhaps lead the business. While a entrepreneur / wealth creator may have the financial wherewithal to establish a single family office, the continuity of such an effort should never be taken for granted.
I have remarked before that in modern, Western life, the normative model for families is for the primacy of a family unit to begin to dissolve at the cousin generation. Said more practically, most families will see the celebration of the ‘high holidays’ (Christmas, Hanukah, Easter, Thanksgiving, etc.) shift from a common grandparent to their parent’s home at some point. That parent household will likely remain dominate until the children (G2) have their own grandchildren (G4). Differences in geographies, political values, religious traditions, etc. are just a handful of the forces encouraging a natural atrophying of extended family ties through the passage of time.
The G1 family office then is stepping into challenging waters. If the wealth-creator was not intentional about laying out a vision for keeping the family together much earlier in the family’s story, there is a tremendous amount of ground work that must be developed. Said differently, if the business was the dominate focus of the wealth creators attention (as is most common), and G2 children were not involved in any capacity, the very real differences between siblings will have set in motion the natural separation of the family years before the wealth creation event.
This natural separation is accentuated by the life stage of the G2 with twentysomethings being largely focused on finding vocation and love, and thirtysomethings focused on establishing themselves in career and geography. Strong cognitive, behavioral pathways will have been worn by middle adulthood (40 on).
The G1 who desires to create a dynastic form of family structure will have a tremendous amount of work to do on the family-side of the ‘family wealth’ equation to counter these all to natural forces of entropy, and beyond that to build a shared vision within the family for continuing to have shared economic and family affairs.
Perhaps, the most simple way of saying this, is that for the G1 wealth creator starting a family office – it is the family office that will become the first true ‘family business.‘ G1 would do well then to learn from and understand how strong family business structures are built, especially when the common goal of providing a means of financial support to future generations is not as relevant. I.e. a farmer teaches a child to farm so that the child has means of gainful employment in the future. Where the wealth is already plentiful, the need to provide future generations with a pathway to avoid poverty will no longer be a meaningful force driving family unity.