Family Enterprises Evading The "Shirtsleeves To Shirtsleeves" Destiny: G1 To G2 - White Paper
A new white paper points to “widespread sense” that around 80 per cent of families with significant wealth or businesses will succumb to the “shirtsleeves to shirtsleeves” phenomenon, as shared ownership by more and more family members presents new challenges.
A new white paper points to “widespread sense” that around
80 per cent of families with significant wealth or businesses will succumb to
the “shirtsleeves to shirtsleeves” phenomenon, as shared ownership by more and more family members presents new challenges.
The paper, written by Dr Dennis Jaffe and entitled Good
Fortune: Building A Hundred Year Family
Enterprise, uses the term “generative family” to denote the successful
transition of a family enterprise across several generations. Its insights are
based on a sample of 38 families, of which all but two had a self-reported net
worth of over $200 million, with the median value being between $600 million
and $800 million.
The family enterprise, it says, is a “complex social system”
in which family members are both relatives and business partners. Each
generation is unique and must review and update practices to reflect new
realities. As the paper highlights, the second generation - having usually
grown as a single family office in one household - separates into a group of
individual families with various roles, perspectives and concerns with regard
to the family enterprise. It is likely at this stage that many family members
work in the business - and almost everyone expects to inherit some of it.
Indeed, siblings across all generations face different challenges
that of the family wealth creator. But the transition of G1 to G2 is the first
time that G2 siblings may ask themselves if they want to be partners in the
family enterprise. They may, for example, question if they want to keep or sell the
business (the paper stresses that the decision to sell “does not necessarily
lead to family dissolution”).
The insights provided by the paper resonate with a recent SEI
report - Enterprising Families: The emergence of
a new breed of investor - which said that the 2008 financial
crisis has affected the way wealthy families view
their investments and make important decisions, as the patriarch adopts a
more inclusive approach to managing family assets. The implication for advisors, Jeff Ladouceur, director, SEI Private Wealth Management, told Family Wealth Report, is that - regardless
of a family's level of wealth - relationships are no longer “just with
the patriarch.” Advisors must educate all family members so that
everyone has a certain level of knowledge in order to participate in the